Have pure-play internet banks caught up with traditional and hybrid banks over the past decade

Abstract

This paper investigates the performance of pure-play internet (PPI) banks compared to their traditional and hybrid counterparts over the past 18 years. All 11 surviving PPI banks were hand screened and matched with 110 control banks randomly selected based on total assets from the FDIC website. Our pooled OLS regressions with robust errors show that PPI banks have lower profitability and are less cost efficient than their counterparts. This may be because PPI banks still need time to accumulate experience and scale effects. PPI banks also do not attract more deposits or invest more in securities than traditional and hybrid banks. However, they do have less risk in terms of bad loans than traditional and hybrid comparables.