'Banking' on the Internet: Does Internet Banking Really Improve Bank Performance?

Internet banking represents an important innovation in the banking industry, yet empirical analyses of how it affects bank performance remain rare. Using a comprehensive dataset of U.S. banks between 2003 and 2008, we combine propensity-score matching and difference-in-differences methods to study how the adoption of Internet banking affects bank performance. Contrary to common wisdom and several previous studies, we find only modest evidence that Internet banking adoption improves bank performance. In fact, the adoption of Internet banking actually results in worse performance for many banks. Additional analyses suggest that younger banks and banks that are earlier adopters are more likely to enjoy the benefits of Internet banking.