The banking industry is made up of different types of banks including retail banks, virtual banks, brokerage houses, and investment banks. This page summarizes the basic ideas involved in the structure of the banking industry. For our project we chose to focus on retail banking and internet banking because the internet has effected these areas of the banking industry more than the others.

Players in the Internet Banking Industry:

Retail Banking Sites:

Virtual Banking Sites:

Internet Banking Sites:

Brokerage Houses:

Investment banks:

The following link provides Domestic Deposit Market Share for Bank of America, Wells Fargo and JP Morgan Chae. WikiInvest Article.

Determinants of Industry Structure/ Competition:

Within this industry there are many retail and internet banking companies (listed above) both large and small which create a lot of competition. Since these companies offer very similar banking opportunities and financial services they are all competing with each other. Since there are many companies offering the same product and service the competition is very intense within this industry. Below is long but very in depth article which describes the impact that the internet has had on competition within the banking industry by using Porter's Five Forces Model. The idea that the internet has caused threats and opportunities to banks within the industry is brought up in this article as well. An Analysis of the Impact of the Internet in the Banking Industry, Using Porter's Five Forces Model.

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What Do They Do?

Retail banks are capable of offering financial services through their many branches. Creating more and more branches was the way in which banks previously grew financially. Today with the more recent introduction of the internet in the early 1990's, internet banking has become popular and seems to defeat the purpose of retail banks. Now, rather than physically walking into a bank to make a transaction you can simply log online and do whatever you need to do much more conveniently by using the internet. Retail banks have kept up with their competitors by creating an online banking service through the internet on top of keeping their branches open. Many people feel more comfortable using more traditional ways of banking which is one of the main reasons why retail banks are still competing with online banks. History of Internet Banking.
An online bank such as ING and E*Trade has no branches which is why is is called a virtual bank. These banks also offer the same or very similar financial services as available through branch/ retail banks but through the internet. They are profitable because they do not have to pay the costs for separate branches. Without high operational costs of branch networks, virtual banks pass savings onto customers. Virtual banks have little to no account fees, high annual percentage yields (APY rates) and interest rates, little to no ATM fees and free bill pay online. Also many customers tend to use these virtual banks because they are convenient, easy to use, secure, and have 24/7 availability. One other positive aspect of virtual banking is that if you move or relocate you do not need to cancel or create a new bank account. Motley Fool article on internet-only banks.

Features and capabilities of Retail and Online Banking:

Transactional

Electronic bill presentment and payment
Funds transfer
Investment purchase or sale
Loan applications and transactions

Non-transactional (e.g. online statements, check links, cobrowsing, chat)

Bank statements
Financial Institution Administration - features allowing the financial institution to manage the online experience of their end users
>ASP/Hosting Administration - features allowing the hosting company to administer the solution across financial institutions

Sample of Online Functionalities:

Structure Change Since the Introduction of the Internet:

The structure of the industry has changed greatly since the introduction of the internet. Before the internet was introduced virtual and online banks did not exist. The internet has not only changed the way in which services are provided but it has also changed the traditional relationships within the industry. (This is also mentioned in the Porter's Five Forces Model article posted above). Because of the internet, banking has become more widely available and much more convenient to it customers. Along with its convenience it is much less costly. Because of the reduction in cost rather than just large banking companies being able to profit, the internet allows smaller companies to come into the picture as well. Because they are offering the same service, overall the introduction of the internet has allowed and caused much more competition within the industry.

Structure of the Industry