The prospects of virtual banking : an empirical analysis

Abstract

The evolution of the Internet in the late 1990s significantly influenced conventional banks due to its ease and accessibility. Such banks promptly shifted to this medium to deliver online banking services to customers. This led to the growth of cross-border transactions in the marketplace and in the global economy and also led to the foundation of virtual banks: supplying financial services to individual and corporate clients exlusively via electronic channels. Certain academics criticise the argument that virtual banks are more operationally efficient, profitable and enjoy economies of scale. So, competition rather than cost reduction remains the main argument between virtual and traditonal brick and mortrar banks. The main hypothesis tackled in this dissertation states that although banks provide electronic banking as part of their strategy, the time to fully adopt virtual banking in Malta has not yet arrived since the Maltese culture is still dependent on conventional banking. The empirical exercises comprise a questionnaire, a case study, interviews with individual customers and banks repectively and the Binary Logit Model. The comparative study shows that both ING Direct and BOV achieve greater market share, profitability and economies of scale and prove to be more operating efficient than Nemea. Hence, ING Direct proves that virtual banking is a viable business. Only time can tell if the concept of virtual banking will be successful for banks in Malta. The model shows that both Maltese and Foreign categories are prepared to learn about virtual banking. However, ironically, the questionnaire exhibits that they still deem that face-to-face banking is the safest delivery channel. Thus, this imposes a question as to whether customers can fully trust virtual banking.