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Working Papers

August 2013, No. 13-10R

Internet Banking: An Exploration in Technology Diffusion and Impact (Revised November 2017)

Richard Sullivan and Zhu Wang

Taking Internet banking as an example, we study diffusion of cost-saving technological innovations and the impact on firm size distribution. In doing so, we construct a competitive banking industry model where banks differ in size due to cost heterogeneity. The model matches the actual bank size distribution well and generates S-shaped logistic diffusion curves as documented in the literature. We apply the theory to an empirical study of Internet banking diffusion among banks across 50 U.S. states. Our findings disentangle the interrelationship between Internet banking diffusion and bank size distribution, and explain the variation in diffusion rates across geographic regions.

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