| New forces are taking hold in the financial services industry that may change existing competition paradigms. Electronic banking is thriving in Japan, Europe, South Africa, the Philippines, and the US as clients click their mouse, press telephone keys, and slide cards to conduct their banking. In parallel, credit registries reduce information asymmetry and contribute to lower costs and increased lending volume. Increasingly, banks and other financial service providers are starting to launch many of these same innovations in developing countries. Emerging markets are in the position of developing financial infrastructure that could leapfrog those in established markets and provide a broader range of financial services for clients. Financial services may be entering a period of Schumpeterian competition in which electronic banking and financial infrastructure may fundamentally change the global financial services industry.; To identify the cross-country determinants of competition, panel data on 1,514 banks was gathered from the BankScope database of financial statements for 2004-2006 for a range of banks from 185 countries. Applying the Panzar and Rosse (1987) model for competition, this study determined the effect of e-banking and financial infrastructure on bank competition. Other classic factors of competition such as country-level factors, financial sector policy and client factors were also analyzed. The research findings include a positive relationship between the level of financial infrastructure and the level of competition and a negative relationship between the degree of state ownership in a banking sector and the level of competition. This study helps to extend competition theory to include electronic banking and financial infrastructure.; Keywords. banking, competition, electronic banking, financial infrastructure, credit registries, payment systems, financial services, financial sector development. |
