The growth of internet banking seems to be on the rise. Discuss what the continued growth of internet banking should do to both the economies of scale and scope of banking.

Question

What will be an ideal response?

Answer 1

Internet banking allows a bank to avoid the traditional brick and mortar costs that most people associate with banking. To add customers will not require the addition of another physical branch making the costs of expansion quite low. This implies that economies of scale could go on for quite some time as the marginal (additional) cost of adding a customer can be lower than the average cost over a large number of customers. Again, with the use of the internet a bank should find it cost efficient to offer their customers additional products/services. It is reasonable to assume that internet banking will lower costs and increase the economies of scale and scope for banks which should mean lower prices and other advantages for consumers.