The Determinants and Outcomes of Internet Banking Adoption

This paper examines the drivers of adoption of Internet banking and the linkages among adoption drivers and outcomes (product acquisition, service activity, profitability, loyalty). We relate Internet banking adoption to customer demand for banking services, the availability of alternative channels, customers' efficiency in service coproduction (“customer efficiency”), and local Internet banking penetration. We find that customers who have greater transaction demand and higher efficiency, and reside in areas with a greater density of online banking adopters are faster to adopt online banking after controlling for time, regional, and individual characteristics. Consistent with prior work we find that customers significantly increase their banking activity, acquire more products, and perform more transactions. These changes in behavior are not associated with short-run increases in customer profitability, but customers who adopt online banking have a lower propensity to leave the bank. Building on these observations we also find that the adoption drivers are linked to the post adoption changes in behavior or profitability. Customers who live in areas with a high branch density or high Internet banking penetration increase their product acquisition and transaction activity more than Internet banking adopters in other regions. Efficient customers and those with high service demand show greater post-adoption profitability.