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The emergence of the Internet has created both threats and opportunities for banking executives. Those who are able to leverage competitive benefits from the Internet are confronted with significant business potential. The Internet has fundamentally changed traditional relationships and services within the banking industry. It shifts the overall competitive landscape, the technical and standards infrastructure, and the requirements of individuals and business users. The impact of the Internet on the banking industry and Internet banking as a source of competitive advantage have become challenging issues for both business managers and academics. This article uses the theoretical framework of Michael Porter's Industry 5-Force Competitive Model as the theoretical framework to analyze the ways that the Internet is affecting the competitive dynamics of the banking industry.
Introduction
The Internet's compelling effect on the commercial world is its ability to pull enormous information from virtually every corner of the globe (Engelman, 1996). Today every business model is evolving to adapt to the growing acceptance of the Internet and Ecommerce. Banking is no exception. E-commerce fundamentally changes the existing business models, shifting the balance of power from the bank to the individual customer (Brennand, 1999). The impact of the Internet on the banking industry is often undervalued by executives. The primary problem is that Internet banking is often confused with the traditional Personal Computer (PC) Remote Home Banking, which has been available for more than 20 years. Despite its innovations, this form of banking did not live up to its predicted level of success.
Many banks have experienced problems with home banking. The Chemical Bank in the United States introduced Pronto Home Banking and Pronto Business Banker for small businesses in the early 1980s. Pronto failed to attract enough customers to break even and was abandoned in 1989 along with Citicorp's Direct Access and Chase Manhattan's Spectrum home banking. The fundamental questions facing most executives are whether Internet banking will face the same situation and whether customers will adopt this service. Their concerns are understandable considering that the Security First Network Bank, recognized as the first virtual bank in the world, and other Internet banks are still struggling for profits.
However, things are changing. Netbank, launched in 1996 as Atlanta Internet bank, reported $4.5 million in net...