262 PA R T I I I GLOBAL Financial Institutions Will Clicks Dominate Bricks in the Banking Industry? With the advent of virtual banks ( clicks ) and the convenience they provide, a key question is whether they will become the primary form in which banks their business, eliminating the need for physical bank branches ( bricks ) as the main delivery mechanism for banking services Indeed, will stand-alone Internet banks be the wave of the future? The answer seems to be no Internet-only banks such as Wingspan (owned by Bank One), First-e (Dublin-based), and Egg (a British Internet-only bank owned by Prudential) have had disappointing revenue growth and profits The result is that pure online banking has not been the success that proponents had hoped for Why has Internet banking been a disappointment? There are several strikes against Internet banking First, bank depositors want to know that their savings are secure, so are reluctant to put their money into new institutions without a long track record Second, customers worry about the security of their online trans- actions and whether their transactions will truly be kept private Traditional banks are viewed as being more secure and trustworthy in terms of releasing private information Third, customers may prefer services provided by physical branches For example, banking customers seem to prefer to purchase long-term savings products face-to-face Fourth, Internet banking still has run into technical problems server crashes, slow connections, mistakes in conducting transactions that will probably diminish over time as technology improves The wave of the future thus does not appear to be pure Internet banks Instead it looks like clicks and bricks will be the predominant form of banking, in which online banking is used to complement the services provided by traditional banks Nonetheless, the delivery of banking services is undergoing massive changes, with more and more banking services delivered over the Internet and the number of physical bank branches likely to decline in the future Recall that commercial paper is a short-term debt security issued by large banks and corporations The commercial paper market has undergone tremendous growth since 1970, with commercial paper being one of the fastest-growing money market instruments Improvements in information technology also help provide an explanation for the rapid rise of the commercial paper market We have seen that the improvement in information technology made it easier for investors to screen out bad from good credit risks, thus making it easier for corporations to issue debt securities Not only did this make it easier for corporations to issue long-term debt securities as in the junk bond market, but it also meant that they could raise funds by issuing shortterm debt securities like commercial paper more easily Many corporations that used to their short-term borrowing from banks now frequently raise short-term funds in the commercial paper market instead The development of money market mutual funds has been another factor in the rapid growth in the commercial paper market Because money market mutual funds need to hold liquid, high-quality, short-term assets such as commercial paper, the growth of assets in these funds has created a ready market in commercial paper The growth of pension and other large funds that invest in commercial paper has also stimulated the growth of this market COMMERCIAL PAPER MARKET