Exploring the effect of online banking on bank performance using data envelopment analysis

Abstract

PurposeIncreased competition in the banking sector coupled with long queues in the banking hall has necessitated the introduction of internet banking among banks in Ghana. As a result, internet banking has attracted a great deal of attention from both academicians and practitioners. The purpose of this paper is to examine the effect of internet banking on the performance of banking institutions in Ghana.Design/methodology/approachIn total, 20 banks in Ghana were selected from the Bank of Ghana website for the study. The financial information about the banks’ operations was retrieved from the financial statements of the respective banks for the end of the year 2016. The data envelopment analysis-bootstrap approach with principal component analysis and cluster analysis was used to estimate 49 models.FindingsThe findings of the study indicated that the integration of internet banking into traditional banking methods has led to superior bank performance in Ghana. It was observed that while the independent application of internet banking as a strategy to raise performance was not yielding higher returns due to the low patronage of internet services among banking consumers, its integration with possible traditional methods is widely observed among the top performers in the banking industry.Practical implicationsTraditional banking methods, integrated banking service strategies and the internet banking service-oriented strategy emerged as the main banking strategies among the banks.Originality/valueExtant literature is quite silent on the effect of internet banking on bank performance in Africa. However, this paper is among the first significant attempts to examine the effect of internet banking on bank performance.