Online banking performance evaluation using data envelopment analysis and principal component analysis

Abstract

This paper presents a hybrid approach to conducting performance measurements for Internet banking by using data envelopment analysis (DEA) and principal components analysis (PCA). For each bank, DEA is applied to compute an aggregated efficiency score based on outputs, such as web metrics and revenue; and inputs, such as equipment, operation cost and employees. The 45 combinations of DEA efficiencies of the studied banks are calculated, and used as a ranking mechanism. PCA is used to apply relative efficiencies among the banks, and to classify them into different groups in terms of operational orientations, i.e., Internet banking and cost efficiency focused orientations. Identification of operational fitness and business orientation of each firm, in this way, will yield insights into understanding the weaknesses and strengths of banks, which are considering moving into Internet banking.