Technology, Banking and Small Business

Jonathan A. Scott*
Temple University
Philadelphia, PA

William J. Dennis, Jr.

National Federation of Independent Business Research Foundation
Washington, DC.

August, 2006

* Corresponding author

E-mail: jonathan.scott@temple.edu

Phone: 215.204.7605
 Technology, Banking and Small Business
USASBE Papers: Small Business

Abstract

This paper reports on the results of a recent survey of small business owners that
addressed the question of technology use in the conduct of their banking business. The
analysis focuses on three issues. First, what are the characteristics of owners who use
technology in banking? Second, do the characteristics that explain the use of technology
also explain their view of technology as an enabler of their banking business or whether
technology implementation is being forced upon them? And finally, has technology
implementation been disruptive enough to cause owners to shop for a new bank or take
the more costly step of changing banks?

Executive Summary

Using recent survey data of small firm owners, we find that small business has
been slow to adopt electronic banking, but the rate of adoption is increasing quickly. The
importance of technology is less related to the size of the business and more to the age of
the owner and education level of the owner. Owners appear free to accept the types of
technology they are comfortable using and reject the types they are not. The only
exception appears to be in the case of bank mergers where owners are more likely to
report technology getting in the way of the conduct of their banking business and being
forced to use more technology than the want.
This research has direct implications for regulators and policy-makers, bankers
attempting to establish, fortify or expand their share of the small business banking
market, and small-business owners who use and do not use the technology driven
services of their commercial bank. The practical implications are as follows: regulators
and policymakers should have little concern about the pace of technology implementation
among small firms or its effect on the value of relationship banking. However, regulators
need to carefully monitor the effect of mergers on technology use and implementation.
Owners at banks that merged are less likely to view technology as an enabler and more
likely to report technology use forced on them.
Small business owners have a mostly favorable view of technology
implementation, thinking it as enabling rather than confining, especially among owners
of the youngest, most information-opaque firms. The “haves” and “have nots” are not
related to firm size, but owner age and education. For now, the only “cost” or alternative
to those uncomfortable with the pace of technology change appears to be shopping for a
new bank. In this regard, the advantages of technology in the conduct of owner’s
banking business are not just limited to those using large banks. Not only do small banks
have just as much access to technology for their customers, but – in their tradition of
relationship banking – they are less likely to be viewed as forcing customers into
technology use. Finally, this research helps bankers better understand how to compete
for its desired share of the small-business banking market.
 Technology, Banking and Small Business

The innovation and diffusion of technology into the delivery of banking services

has the potential to be a disruptive force for small firms and how they conduct business

with their bank. Petersen and Rajan (2002) argued that advances in technology are

moving banks geographically further away from their customers and conclude that the

importance of local information in small business lending has been reduced. If lender

proximity benefits small firm credit availability (Berger and Udell, 2002), then

technology could be disrupting a key element of relationship banking. One reason for the

growing distance could be the result of growing concentration of the U.S. banking

system. The increasing reliance of larger banks on investments in technology –

specifically credit scoring - adds to the concerns about the ability of small to benefit from

relationship banking, especially from smaller banks (DeYoung et al, 2004, Akhavein et

al, 2005, Berger et al, 2005).

Despite these concerns, scant publicly available evidence exists regarding the

effect of technology on the conduct of small firm banking business. For example, do

larger firms with more resources to make the investments in people and systems, conduct

their banking business electronically more frequently than more resource constrained

businesses? What role does distance to the bank play? Do those located further away

from their bank make more use of technology because it is a more efficient way to

conduct their banking business?

Banks that have made significant investments could be driving technology use to

achieve their target return. They could be pulling owners along at a pace that owners are

comfortable with or they could be pushing customers into using services they may not be

1
ready for or want. For example, the implementation of credit scoring could favor those

owners who want to substitute relationship banking for more impersonal, but more

efficient, technology transactions. However, owners who rely on relationship banking to

meet their credit needs may consider changing banks if faced with credit scoring. Thus,

it is of interest to bankers interested in capturing a share of the small business market to

understand whether the owner characteristics that explain the use of technology are the

same ones that explain the differences between those owners who are happy with the

pace of technology implementation and those who view it as an obstacle.

Bank size could affect this push-pull tension, especially considering that larger

banks have made the bigger investments. Yet while large banks might be expected to

actively encourage the use of technology, small banks still have the ability to purchase

the features they need to offer their customers. Is bank size related to how firms view the

implementation of technology? Do recent mergers resulting in larger banks affect small

firm perceptions about the use of technology in the delivery of banking services?

A recently completed survey of small firm use of technology in banking provides

an opportunity to address the questions raised above. The survey includes information

about the extent to which owners use the internet for their banking business, their view of

technology as an enabler of the conduct of their banking business, and an assessment of

how their primary bank has implemented technology in the delivery of banking services.

In addition to the typical firm characteristics captured in a survey, it also includes owner

ratings of a set of characteristics important to the conduct of their financial business (e.g.,

knows my business, market and industry, speed of decisions, range of services offered,

2
location convenience, a rating of the bank’s performance on this same set of

characteristics, and measures of geographic proximity of the business to the bank.

With these data we develop a number of hypotheses that address three issues.

First, what are the characteristics of owners and their businesses that use technology in

banking? Second, do the characteristics that explain the use of technology also explain

their view of whether technology implementation is being forced upon them or their view

of technology as an enabler of their banking business? And finally, has technology

implementation been disruptive enough to cause owners to shop for a new bank or

engage in the costly process of changing banks?

A better understanding of how technology in banking is used and viewed by small

firms is important to bankers and policy makers interested in maintaining small firm

access to capital markets. The results presented in this paper can help bankers better

understand the profile of small firms that have problems with the implementation of

technology as well as those that are amenable to its use. For policy makers and

regulators, the paper provides information on how technology is perceived by the most

information opaque firms that rely on relationship banking and the association of this

perception with bank size and changes in market structure such as mergers. In

considering both mergers and new bank charters, the interaction between bank size, the

incidence of mergers, and its effect the incidence of changing banks for small

information-opaque firms is valuable information.

Sample and Data

The data for this study were collected for the NFIB Research Foundation by the

executive interviewing group of The Gallup Organization. The interviews for the survey

3
were conducted between February 2 and March 8, 2006 from a nationally-representative

sample of small employers, defined as a business employing at least one individual in

addition to the owner(s), but no more than 249. After compiling the results, the

interviews yielded a sample of 752 observations. Table 1 lists descriptive statistics for

the sample, including information about owner characteristics (age and education level),

years in business, location of business, number of employees, sales growth, and industry.

The raw number of observations is presented in the table, but the weighted sample is used

for the frequency distribution.

The Use of Technology in Banking by Small Firms

The definition of technology use in banking by small firms is not straightforward.

Given the proliferation of web sites as portals for access to banking services, the

frequency of small firms reporting their use of the internet for any part of their banking

business is an acceptable measure of technology use. With this measure, 51 percent

reported using technology in banking (Table 2). This frequency is almost a five-fold

increase from the response to a similar question asked in the 2001 Credit, Banks and

Small Business Survey.1 Firms use the internet most frequently to check balances (89

percent), followed by transfer money among accounts (70 percent), make payroll deposits

(31 percent) and apply for credit (16 percent).

Another perspective on technology use is obtained from the question, “How

important is a customer-friendly web site to the conduct of your banking business?”

Fifty-two (52) percent of the firms rated this attribute “very important” or “important” on

1
Eleven (11) percent responded “yes” to the question, “Does your firm do any of its banking over the
Internet?” See www.nfib.org/research for details on this survey. The Credit, Banks survey uses a
somewhat different sampling frame than the current survey. The former is composed of NFIB members
only, a somewhat larger and more rural group than is the population. However, there is no reason to
believe that Credit Banks results vary from a more representative sample.

4
a five point scale with 35 percent rating it “very important.” While this question is

correlated with the use of the internet for banking (rho=.21, p=.000), the correlation

coefficient is not high, suggesting that both questions are not measuring the same

dimension of technology use in banking.

Firm and owner characteristics, including location, size of their bank, and

distance from their bank, should be related to the use of technology. Larger firms with

more resources or younger, better educated owners who are more facile with technology

ought to more frequently use technology in banking. Location should also affect the use

of technology if owners located further from their bank find it more efficient to use

technology for accessing bank services instead of personal visits. Finally, owners at

larger banks with more resources to develop electronic banking alternatives should be

more likely to use technology for their banking business. Table 2 presents a breakdown

of the responses to the technology questions by selected firm characteristics that enable a

preliminary evaluation of these conjectures.

Younger firms and firms with younger owners are more likely to report using the

internet for some of their banking business. For example, 63 percent of the owners under

age 35 and 63 percent of firms in business under 6 years report using the internet for

banking services compared to 30 percent for owners over the age of 65 and 36 percent of

firms in business over 30 years. Although the frequency of using the internet is higher

for firms with more rapid growth, size of the firm shows no noticeable association with

the use of the internet for banking. Home-based businesses, which typically would be

small operations, are more likely to use technology for their banking. A similar pattern is

5
observed for owners that report a bank’s web site is important or very important to the

conduct of their banking business.

Education plays a role in the use of the internet for banking. Owners with an

undergraduate (54 percent) or graduate degree (57 percent) more frequently use

technology compared to those with high school diplomas or their equivalent (38 percent).

Again, a similar pattern is observed for the importance of a customer-friendly web-site.

Location plays a role in the use of electronic banking, but not as expected. Firms

located in rural areas (where the gains from technology might be greater in terms of

lower transportation costs to the bank) are less likely to use technology (38 percent)

compared to firms in highly urban areas (58 percent). While firms that are further away

from their banks (in time) might be expected to rely more on electronic banking, the data

show no association. This outcome could be due to lack of access to high speed

telecommunications in many rural areas.2 The only exception is for owners that

communicate with their bank by telephone only, where 86 percent report using the

internet for banking. A similar pattern is observed for the importance of a web site for

banking services, but the differences between rural and highly urban locations is not as

great.

Finally bank size varies with the use of technology as expected.3 Owners doing

business at the largest banks (over $10 billion in assets) more frequently report the use of

technology, whether it is banking via the internet or the importance of a customer-

friendly web site for conducting banking business. What is interesting in Table 2 is that

2
See Telecommunications, NFIB National Small Business Poll, Volume 4, Issue 8 (4/7/2005) at
http://www.nfib.com/object/sbPolls
3
Care needs to be taken when relating bank size to internet use because the choice of bank may be driven
by the desire to use the internet. The tables only show association, not causation.

6
the use of technology does not decrease monotonically with bank size. The proportion of

owners at the smallest banks exceeds those at $100 million - $1 billion banks and is about

the same as those doing business at banks between $1 billion and $10 billion.

A more formal test of the role of firm characteristics in explaining technology

usage is presented in Table 3, where logistic regression is used to estimate the log odds of

an owner reporting that they use the internet for some of their banking business (1= yes,

they bank via internet; 0 otherwise). The dependent variables include firm size (log of

the number of employees), log of firm age, log of owner age, three owner education

categories (college degree omitted), real sales growth, a categorical variable for whether

or not the business is home-based, log of time to the owner’s principal bank, and four

location categories (rural omitted). A set of industry categorical variables is included

(retail omitted) as control variables but not presented in the Table 3 results. Bank size is

excluded as a predictor because of the problem of controlling for small firms that choose

their bank based on their desire to use technology.

The log odds decrease with firm age and a high school education only, but

increase with firm size or if a home-based business. Owners that do not physically visit

their bank are more likely to use the internet for banking services. Otherwise, location

has no effect on the incidence of using the internet for banking.

Also reported in Table 3 are the ordered probit regression results for the

determinants of whether a customer-friendly web site is “very important” to conducting

their banking business (1= web site rated very important; 0 otherwise).4. The importance

of a customer-friendly web site to the conduct of banking business decreases with firm

4
OLS would be appropriate if all of the differences between the rating categories (1 to 5) were equal.
Because these differences are only a ranking, ordered probit is a better estimation technique (Greene, 2000)

7
age and increases if the owner has a college degree or has a home-based businesses or

does all of their banking electronically (no visits to the bank). It is not related to the size

of the firm, age of the firm, or location.

Technology as an Enabler of Small Firm Banking Business

Although technology in banking might work to the detriment of information

opaque firms that rely on soft information for lending decisions, it could also enable

small firms to be more efficient in their financial transactions. The survey asks a

question that can help address this issue: “Over the last three years at your primary

financial institution or bank, have you found technology increasingly helpful,

increasingly getting in the way, or having no effect in conducting your banking

business?” Fifty-three (53) percent reported helpful, 11 percent getting in the way, and

35 percent no effect.

A distribution of these responses by firm and owner characteristics is shown in

Table 2. As was the case with the use of technology, firm and owner characteristics show

some distinct patterns with their view of technology as an enabler. Younger owners

(under age 35) and younger firms (under 10 years in business) more frequently report

technology as helpful, as do owners with undergraduate or advanced degrees. Older

firms (over 10 years in business) tend to more frequently report technology getting in the

way or having no effect. As was the case with use of technology, there is NO strong

association between technology as an enabler and firm size.

Home-based businesses more frequently report technology as helpful and less

frequently as having no effect. Faster growing firms (above 20 percent real growth in the

8
past two years) more frequently report technology as helpful, but slower growing firms

find it getting in the way of conducting their banking business.

Location, like the use of the internet, is not related to technology as an enabler as

might be expected. Owners in urban areas more frequently report technology as helpful,

while those in non-urban areas are more likely to report it getting in the way. Although

no strong association exists between distance and technology as an enabler, owners

further away from their primary bank less frequently report technology getting in the

way.

In the introduction an argument was made that small banks are at no special

disadvantage in the use of technology to assist the delivery of their banking services.

Supporting this contention, bank size is not related to the frequency of reporting

technology as an enabler – with one exception. Owners at banks under $100 million

more frequently report technology as getting in the way (19 percent) and less frequently

report it as helpful (46 percent).

Multinomial logit is used to provide a multivariate analysis of the effect of firm

and owner characteristics on technology as an enabler. This technique is appropriate

when an unordered response, such as the question related to technology as an enabler, has

more than two outcomes. The omitted category is “no effect” so that the coefficients

listed in Table 4 should be interpreted as the increase (a positive coefficient) or the

reduction (a negative coefficient) in the log odds between the included categories

(“helpful” or “getting in the way”) and “no effect.”

The multivariate results generally support the conclusions drawn from Table 2.

Older firms are less likely to report technology “helpful” compared to those reporting “no

9
effect”, as are owners with less than college degrees. Larger businesses and home-based

businesses are more likely to report technology “helpful.” Only two characteristics are

related to reports of technology “getting in the way”: businesses that are growing more

rapidly are less likely to report this category as are owners with less than a college

education.

Neither location nor distance from the bank has no significant association with

technology as “helpful.” Interestingly, firms that do not visit their bank report that

technology “gets in the way.”

Finally, bank size has no effect on owners’ view of technology as an enabler.

Even though owners at small banks ($100 million - $1 billion in assets) are less likely to

report technology “getting in the way,” the bank size coefficients as a group are not

significant for this category. However, owners reporting a recent bank merger are more

likely to report technology “getting in the way.”

Implementation of Technology

Owners reporting that technology is “getting in the way” may have this perception

because banks are forcing technology use upon them. The survey asks owners “Is your

principal financial institution forcing you to use more technology in your banking

relationship than you would like?” This question attempts to capture the push (bank

initiated) versus pull (customer demanded) dynamics of technology implementation.

Only 16 percent reported “yes,” which suggests that banks are letting there customers

move into technology at a comfortable pace. A fairly strong correlation exists between

those finding technology as an enabler and those reporting that the bank forces them to

use it more than they want. Only 31 percent of those reporting being forced to use more

10
technology than they would like also reported that technology was helpful, compared to

54 percent overall. Likewise, only 37 percent reporting being forced to use technology

reported that technology was getting in the way compared to 11 percent overall.

Table 2 also includes the responses to the “forced technology use” question

broken down by firm and owner characteristics. Interestingly, the responses to this

question appear to be less strongly correlated to firm and owner characteristics than the

other questions about technology. Although younger owners appear to more frequently

report being forced to use technology, so do the oldest owners and those owners with less

than a college degree. The smallest firms and those with lower real sales growth are

more likely to report being pushed to use technology, as are agricultural firms. Owners

in highly urban and fringe urban (but not urban) more frequently report being pushed, as

do owners at the smallest banks.

Table 5 presents a multivariate analysis of the association between firm and

owner characteristics and banks forcing technology use. The logistic regression results

show that neither owner nor firm age affects the response to the question about forced

technology use (1=yes; 0 otherwise). Larger firms and those experiencing slow sales

growth are less likely to report being forced into technology use.

As identified in Table 2, owners at small banks (between $100 million and $1

billion in assets) and large banks (between $1 and $10 billion in assets) were less likely to

report being forced into technology. This small bank “advantage” is consistent with the

generally favorable views owners have of small banks’ quality of service. Once again,

though, firms that have reported a recent merger are more likely to report being forced to

use more technology than they desire.

11
Technology and Relationship Banking

In the introduction the issue was raised as to whether the use of technology in

banking was antithetical to relationship banking for small, information opaque firms.

One way to identify those owners that value relationship banking is through ratings of

selected characteristics they rate as important to the conduct of their banking business.

The survey includes a set of 12 characteristics (including a customer-friendly web site

used above) of which five are identified as instruments or correlates of relationship

banking: knows you and your business, provides helpful advice, know local market, and

social contact with loan officer (Scott, 2004). These variables have been combined into a

Relationship Index as well. If technology is an obstruction to relationship banking from

the viewpoint of small firms, then the correlation of importance ratings on these

characteristics should be negatively associated with technology use.

The correlation coefficients presented in Table 6 provides no evidence that the use

of technology or view of technology in the conduct of the firm’s financial business is

negatively associated with the importance of relationship banking. For example, ratings

of all of the relationship banking characteristics are positively correlated with the

importance of a customer-friendly web site. Although use of the internet is negatively

correlated with knows local market and social contact – an outcome consistent with

technology use at odds with relationship banking – there is no association with knows my

business or provides helpful advice. Owner views of technology as an enabler or banks’

pushing them to use technology shows little correlation with owners that value

relationship banking.

12
 The correlation coefficients, of course, are an incomplete way to investigate how

technology usage is related to the importance of relationship banking because it does not

control for firm age, a factor that is likely to be (negatively) related to the importance of

relationship banking. Though not shown, the inclusion of either the Relationship Index

or its components in the multivariate estimates shown in Tables 3, 4, and 5 confirmed the

correlation coefficient results. Thus, while those owners that place more value on

relationship banking are less likely to use the internet, there is no association with a view

that technology gets in the way or that they are forced to use more technology than they

want. These results suggest that banks are letting owners adopt technology at a pace that

they are comfortable with given their preferences in a banking relationship.

Another way to look at whether the implementation of technology has disrupted

small firm banking relationships is to examine the association with shopping for a new

bank and the incidence of changing banks. Table 7 presents logistic regression results for

two dependent variables: Shopped for a New Bank takes a value of 1 if the owner reports

shopping for a new bank in the past three years and Changed Banks takes a value of 1 if

the owner reports changing banks at any time within the recent past and 0 otherwise.

Approximately 20 percent of the owners reported shopping for a new bank, while almost

10 percent of the owners reported making such a change.

As shown in Table 7, column 1, owners who feel they are being forced to use

technology are more likely to report shopping for a new bank. However, their views on

technology as an enabler have no effect on the incidence of shopping (Table 7, column

2). While concerns about banks forcing technology on them leads to more shopping,

owners’ concerns are not severe enough to lead them to change banks (Table 7, column

13
3). Furthermore, owners that view technology as getting in the way are less likely to

change banks, as are those that find technology helpful in conducting their banking

business (Table 7, column 4). These findings further support the idea small firms, in

general, have been able to adopt technology at their own pace.

So What?

What are the implications of this research for bankers, regulators and policy

makers? First, they should have little concern about the pace of technology

implementation for small firms or its effect on the value of relationship banking. Small

business owners have a mostly favorable view of technology implementation, viewing it

as enabling rather than confining, especially for the youngest, most information-opaque

firms. The “haves” and “have nots” are not related to firm size, but owner age and

education. Over time, as the owner population ages and becomes increasingly educated,

the population should be at even greater ease with computer technology. For now, the

only “cost” to those uncomfortable with the pace of technology change appears to be

shopping for a new bank. Second, the advantages of technology in the conduct of

owner’s banking business are not just limited to those using large banks. Not only do

small banks have just as much access to technology for their customers, but – in their

tradition of relationship banking – they are less likely to be viewed as forcing customers

into technology use. And finally, regulators need to carefully monitor the effect of

mergers on technology use and implementation. Owners at banks that merged are less

likely to view technology as an enabler and more likely to report technology use forced

on them.

14
Conclusion

The proliferation of technology in banking and the consolidation of the banking

system have the potential to disrupt small business banking relationships. For small

information opaque firms that rely on personal relationships, technology that is forced

upon them – possibly through a bank merger involving a larger acquiring bank – could

affect credit availability. This paper makes use of recent survey data of small firm

owners that asks several questions about their use of technology in banking, their view of

how banks are implementing technology in the delivery of banking services, and their

assessment of the extent to which technology is an enabler of the conduct of their

banking business.

Small firms have been relatively slow to adopt electronic banking, with no more

than half using it for anything. Yet the use of electronic banking has increased almost

five-fold since 2001. And over half of the owners report that a customer-friendly web

site is important to the conduct of their banking business. The importance of technology

is less related to the size of the business, but more to the age of the owner and business.

While technology use might be expected to be concentrated in more rural areas where the

cost efficiencies may be the greatest, the opposite conclusion is found, possibly because

of the lack of access to high-speed telecommunications.

Not all small business owners are totally happy with that development as many

continue to prefer a personal banking relationship. Still, banks are not systematically

forcing technology on small firms as only 16 percent report that they are forced to use

more technology than they are comfortable with. Owners appear free to accept the types

of technology they feel comfortable with and reject the types they are not. The only

15
exception appears to be in the case of mergers, where owners are more likely to report

technology getting in the way or being forced into using more technology than they want.

Whether these problems are directly related to technology, have an effect on credit

availability, or reflect a broader concern with the merger transition remains for future

research.

16
 References

Akhavein, J., Frame, W.S., and White, L.J., 2005.“The Diffusion of Financial
Innovations: An Examination of the Adoption of Small Business Credit Scoring by
Large Banking Organizations.” Journal of Business, 78, 577–96.

Berger, A.N., Frame, S., Miller, N., 2005.“Credit Scoring and the Availability, Price and
Risk of Small Business Credit”. Journal of Money, Credit, and Banking 37, 191–222.

Berger, A. N., and Udell, G.F., 2002. “Small Business Credit Availability and
Relationship Lending: The Importance of Bank Organisational Structure.” Economic
Journal 112, F32-F53.

DeYoung, R., Hunter, W.C., Udell, G.F., 2004. The Past, Present, and Possible Future for
Community Banks? Journal of Financial Services Research 25, 85-133.

Greene, W., 2000. Econometric Analysis (4th ed., Prentice-Hall, New York, New York).

Petersen, M.A. and R. G. Rajan, 2002. Does Distance Still Matter? The Information
Revolution In Small Business Lending. Journal of Finance 57, 2533-2570.

Scott, J.A., 2004. Small Business and the Value of Community Financial Institutions.
Journal of Financial Services Research, 25, 207-230.

17
Table 1
Sample Description
The distribution of the responses to the National Federation of Independent Business' Credit, Banks and
Small Business Poll conducted by the Gallup Organization. The raw number of observations is shown with
the frequency distributions adjusted for the oversampling of large businesses.
No. of Weighted %
Observations of Total
Owner age
Under 35 59 8
35-44 157 17
44-54 251 34
54-65 194 27
65+ 69 11
Don't know/no answer 22 3
Owner education
High school/GED 155 21
Some college 179 26
Undergraduate 259 29
Graduate/professional 154 24
Don't know/no answer 5 1
Business age
< 6 years 178 23
6-10 139 18
11-20 181 23
21-30 153 22
31+ 92 12
Don't know/no answer 9 1
Employment
One 98 22
2-4 138 31
5-9 114 27
10+ 402 21
Home-based business
Yes 130 25
No 616 74
Don't know/no answer 6 1
Real sales growth
>30% 155 17
20-29% 129 19
10-19% 180 22
+/- 10% 180 25
Fell by 10% 75 12
Don't know/no answer 33 5
Industry
Agriculture 19 3
Manufacturing/mining 64 8
Construction 72 10
Wholesale 41 7
Retail 115 14
Transportation 35 4
FIRE 60 15
Professional/science/techical 86 9
Education/Health care 60 6
Art/Entertainment 95 3
Other services 83 13
Don't know/no answer 22 10
Total 752 100

18
Table 2
Use of Technology in Conducting Banking Business (% responding "yes" to each category)
Use of Technology in Implemen-
Banking Technology as an Enabler tation
Made to use
Bank via Web site Getting in more than
Internet important Helpful the way No Effect desired
Owner age
Under 35 63 62 67 10 24 27
35-44 58 56 51 7 42 18
44-54 58 55 56 12 31 12
54-65 42 48 53 15 32 16
65+ 30 35 42 7 51 21
Owner education
High school/GED 38 47 42 10 46 21
Some college 50 49 51 9 38 19
Undergraduate 54 57 60 12 27 14
Graduate/professional 57 52 58 13 29 12
Business age
< 6 years 63 68 64 6 28 16
6-10 50 51 60 6 35 10
11-20 41 49 51 13 35 19
21-30 45 43 45 17 38 17
31+ 36 40 44 13 41 22
Employment
One 50 58 50 12 38 20
2-4 54 55 55 9 35 19
5-9 45 43 53 14 33 13
10+ 54 51 56 9 33 14
Home-based business 60 61 61 11 27 16
Real sales growth
>30% 65 53 60 8 31 11
20-29% 54 54 60 6 33 11
10-19% 48 49 53 11 35 18
+/- 10% 48 53 51 11 38 20
Fell by 10% 41 49 43 25 30 25
Location
Rural 38 50 49 12 38 16
Small cities/towns 50 54 48 10 41 15
Fringe urban 54 53 51 17 32 23
Urban 54 56 60 7 33 7
Highly urban 58 61 59 9 31 24
Time to bank
under 5 minutes 50 52 56 10 34 17
5 minutes 50 52 51 16 33 18
6-10 minutes 49 48 53 8 38 14
Over 10 minutes 54 52 56 7 36 16
Use telephone only 89 86 44 33 22 20
Bank size
Over $10 billion 58 59 54 11 35 17
$1-$10 billion 49 51 56 10 33 13
$100 million - $1billion 43 48 55 8 36 11
Under $100 million 48 53 46 19 36 23
Non-bank 67 67 69 0 31 39
Total 51 54 53 11 35 16

19
Table 3
Multivariate Analysis of the Determinants of Technology Usage

Logistic regression results are presented for Bank via Internet (1= owner responds yes; 0 otherwise).
Ordered probit is use for Web Site Important (5 = owner rates very important to 1= owner rates not
important). Robust standard errors are reported that allow for clustering on firm size.

Bank via Internet Web Site Important

Coef. Std. Err. Coef. Std. Err.
*** ***
Log of firm age -0.277 0.070 -0.249 0.050
Log of owner age -0.179 0.119 -0.073 0.053
***
Log of firm size 0.191 0.068 -0.033 0.034
** **
High school diploma -0.589 0.258 -0.172 0.073
*
Some college -0.126 0.320 -0.210 0.124
***
Graduate/professional degree -0.012 0.304 -0.361 0.104
Real sales growth 0.099 0.077 -0.015 0.047
*** *
Home-based business 0.460 0.151 0.177 0.091
Industry: Agriculture 0.438 0.455 0.073 0.170
Industry: Manufacturing 0.189 0.460 0.107 0.154
Industry: Construction 0.436 0.380 0.193 0.173
Industry: Wholesale 0.335 0.342 0.221 0.173
Industry: Transportation 0.269 0.634 -0.188 0.191
*** ***
Industry: Professiona;/science/tech 1.068 0.349 0.548 0.160
* *
Industry: FIRE 0.691 0.367 0.254 0.147
Industry: Education/Health care 0.146 0.417 0.193 0.173
*
Industry: Art/Entertainment -0.076 0.367 0.350 0.212
** ***
Industry: Other services 0.739 0.314 0.547 0.108
Log time to bank -0.041 0.102 0.047 0.059
** **
Time to bank: no visits 1.445 0.763 0.790 0.403
Location: metro 0.260 0.244 0.048 0.159
Location: urban 0.281 0.227 0.093 0.154
Location: fringe urban 0.190 0.199 -0.048 0.164
Location: small city 0.079 0.247 0.160 0.131
***
Constant 0.382 0.627

No of Obs. 745 714

Psuedo r-squared 0.074 0.038

*** significant at .01 level; ** significant at .05 level; * signficant at .10 level

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Table 4
Multivariate Analysis of Technology as an Enabler

Multinomial logit is used to estimate the effect of firm and owner characteristics on the how technology is
viewed as an enabler. The dependent variable has three 1/0 categories: Technology Is Helpful, Technology
Gets in the Way, and Technology Has No Effect. Technology Has No Effect is the omitted category and the
cofficients on the independent variables should be evaluated versus this category. Robust standard errors are
reported that allow clustering on firm size.

Technology Helpful Technology Gets in Way

Coef. Std. Err. Coef. Std. Err.
***
Log of firm age -0.361 0.096 0.233 0.310
Log of owner age 0.011 0.107 -0.028 0.309
***
Log of firm size 0.320 0.072 0.150 0.111
*** **
High school diploma -0.766 0.255 -1.045 0.484
** **
Some college -0.460 0.178 -0.684 0.351
Graduate/professional degree -0.026 0.239 0.310 0.297
*
Real sales growth 0.007 0.097 -0.321 0.180
***
Home-based business 0.699 0.166 0.413 0.262
Industry: Agriculture 0.782 0.611 0.193 0.934
Industry: Manufacturing 0.063 0.328 -0.685 0.600
* ***
Industry: Construction 0.847 0.484 1.371 0.524
**
Industry: Wholesale 0.946 0.388 0.789 0.832
Industry: Transportation -0.350 0.723 0.113 0.979
**
Industry: Professional/science/tech. 0.992 0.434 -0.282 0.892
***
Industry: FIRE 0.653 0.236 0.391 0.450
Industry: Education/Health care 0.493 0.519 0.050 1.072
Industry: Art/Entertainment 0.531 0.410 -0.362 0.882
***
Industry: Other services 0.685 0.249 0.408 0.434
Log time to bank -0.165 0.119 -0.199 0.147
***
Does not visit bank -0.009 0.541 1.749 0.627
***
Recent merger of primary bank 0.128 0.302 1.249 0.271
Very large bank 0.068 0.185 -0.823 0.595
Large bank 0.334 0.373 -0.471 0.587
*
Small bank 0.276 0.194 -0.874 0.506
Location: metro -0.019 0.431 -0.306 0.760
Location: urban 0.178 0.253 -0.505 0.479
Location: fringe urban -0.042 0.192 0.414 0.512
Location: small city -0.287 0.335 -0.601 0.392
Constant 0.518 0.687 -0.340 1.142

No of Obs. 723
Psuedo r-squared 0.103

*** significant at .01 level; ** significant at .05 level; * signficant at .10 level

21
Table 5
Multivariate Analysis of Small Firm View of Technology Implementation

Logistic regression is used to estimate the log odds that banks are forcing technology on small
firms. The dependent variable =1 if owners report banks making them use more technology than
the want and 0 otherwise. Robust standard errors are reported that allow for clustering on firm
age.

Coef. Std. Err.

Log of firm age 0.112 0.117
Log of owner age -0.730 0.623
**
Log of firm size -0.238 0.107
High school diploma 0.215 0.259
Some college 0.264 0.249
Graduate/professional degree -0.135 0.405
**
Real sales growth -0.191 0.089
Home-based business -0.123 0.383
Industry: Agriculture 0.394 0.498
Industry: Manufacturing -0.395 0.307
Industry: Construction 0.001 0.485
Industry: Wholesale -0.199 0.375
Industry: Transportation -0.673 0.835
Industry: Professional/science/tech. -0.320 0.436
Industry: FIRE -0.408 0.578
Industry: Education/Health care -0.849 0.730
Industry: Art/Entertainment 0.059 0.467
*
Industry: Other services -0.552 0.285
Log time to bank -0.212 0.165
Does not visit bank 0.563 1.018
***
Recent merger of primary bank 1.095 0.257
Very large bank -0.248 0.323
*
Large bank -0.609 0.366
**
Small bank -0.827 0.338
Location: metro 0.316 0.375
*
Location: urban -0.920 0.499
Location: fringe urban 0.254 0.362
Location: small city -0.047 0.311
Constant 2.477 2.640

No of Obs. 729
Psuedo r-squared 0.132

*** significant at .01 level; ** significant at .05 level; * signficant at .10 level

22
Table 6
Technology Use and Relationship Banking: Correlation Coefficients

Custo- Tech- Tech- Bank is

Knows Knows Relation- mer Tech- nology nology forcing
my Provides local Social ship Use inter- friendly nology is is in the has no technol-
business advice market contact Index net web site helpful way effect ogy use
Knows my business 1.000

Provides advice 0.435 1.000

0.000 *

Knows local market 0.437 0.506 1.000

0.000 0.000

Social contact 0.414 0.462 0.498 1.000

0.000 0.000 0.000

Relationship Index 0.696 0.761 0.777 0.787 1.000

0.000 0.000 0.000 0.000

Use internet 0.014 -0.001 -0.103 -0.074 -0.062 1.000

0.711 0.986 0.005 0.046 0.096

Customer friendly web site 0.221 0.353 0.201 0.203 0.318 0.355 1.000
0.000 0.000 0.000 0.000 0.000 0.000

Technology is helpful 0.054 0.102 -0.012 -0.015 0.035 0.448 0.411 1.000
0.137 0.005 0.735 0.678 0.344 0.000 0.000

Technology is in the way -0.009 -0.068 0.042 0.005 -0.012 -0.120 -0.245 -0.375 1.000
0.812 0.065 0.253 0.891 0.738 0.001 0.000 0.000

Technology has no effect -0.046 -0.057 -0.007 0.008 -0.030 -0.383 -0.264 -0.780 -0.255 1.000
0.206 0.121 0.841 0.829 0.421 0.000 0.000 0.000 0.000

Bank is forcing technology -0.031 -0.016 -0.052 0.021 -0.023 -0.130 -0.153 -0.202 0.364 -0.024 1.000
0.401 0.673 0.161 0.578 0.530 0.000 0.000 0.000 0.000 0.508

* significance levels are presented below the pairwise correlation coefficients

23
Table 7
Multivariate Analysis of the Effect of Technology on Search for New Banking Relationship

Logistic is used to estimate the effect of the technology implementation variables on the incidence of shopping for a new
bank and the incidence of changing banks. Shopped for a New Bank takes a vlue of 1 if the owner reports shopping for a
new bank within the past three years and 0 otherwise. Changed Banks takes a value of 1 if the owner reports changing
primary banks within the past three years and 0 otherwise. Robust standard errors are reported that allow for clustering on
employment.
(1) (2) (3) (4)
Shopped for New Shopped for New
Bank Bank Changed Banks Changed Banks
Coef. Std. Err. Coef. Std. Err. Coef. Std. Err. Coef. Std. Err.
***
Forced to use technology 0.968 0.232 *** 0.907 0.210 0.104 0.386 0.290 0.392
**
Technology is helpful -0.111 0.263 -0.587 0.231
***
Technology is getting in the way 0.127 0.300 -1.278 0.462
** **
Log of firm age -0.395 0.197 -0.411 0.206 -0.074 0.161 -0.111 0.174
** **
Log of owner age 0.222 0.172 0.219 0.171 -0.215 0.099 -0.214 0.095
** ** *** ***
Log of firm size 0.254 0.116 0.262 0.131 0.298 0.082 0.353 0.084
*
High school diploma -0.418 0.253 -0.427 0.264 -0.046 0.467 -0.139 0.482
Some college -0.095 0.321 -0.091 0.324 -0.414 0.326 -0.540 0.357
Graduate/professional degree 0.295 0.198 0.290 0.199 0.144 0.263 0.164 0.267
** **
Real sales growth 0.213 0.093 0.214 0.093 0.122 0.152 0.116 0.148
*
Home-based business -0.553 0.287 -0.539 0.291 -0.337 0.440 -0.240 0.458
*** ***
Industry: Agriculture 0.181 0.602 0.206 0.611 1.293 0.458 1.431 0.515
Industry: Manufacturing -0.336 0.348 -0.336 0.357 0.382 0.683 0.339 0.678
Industry: Construction 0.472 0.426 0.482 0.438 0.351 0.593 0.506 0.604
* *
Industry: W holesale 0.237 0.555 0.249 0.579 -1.196 0.618 -1.141 0.634
Industry: Transportation -0.847 0.605 -0.852 0.576 -0.869 0.808 -0.986 0.829
** **
Industry: Professional/science/tech. 0.486 0.420 0.521 0.412 1.185 0.518 1.242 0.508
Industry: FIRE 0.030 0.365 0.037 0.381 0.145 0.563 0.226 0.568
*** ***
Industry: Education/Health care -1.528 0.432 -1.526 0.452 -0.759 0.802 -0.747 0.863
** **
Industry: Art/Entertainment 0.233 0.313 0.245 0.317 0.993 0.423 1.000 0.462
Industry: Other services 0.225 0.408 0.246 0.420 0.634 0.609 0.734 0.639
Log time to bank -0.039 0.139 -0.040 0.143 0.180 0.138 0.155 0.135
* *
Does not visit bank 1.154 0.684 1.108 0.674 -1.386 0.969 -1.194 0.974
** ** * **
Recent merger of primary bank 0.575 0.252 0.564 0.253 0.499 0.292 0.566 0.248
Very large bank 0.283 0.297 0.287 0.302 0.168 0.490 0.120 0.477
* *
Large bank 0.408 0.234 0.415 0.229 -0.016 0.422 -0.029 0.384
Small bank 0.059 0.333 0.068 0.320 0.135 0.389 0.158 0.387
Location: metro -0.286 0.360 -0.276 0.358 -0.605 0.522 -0.579 0.510
** ** * *
Location: urban -0.629 0.321 -0.618 0.315 -0.801 0.438 -0.776 0.451
Location: fringe urban 0.036 0.270 0.030 0.270 -0.222 0.601 -0.210 0.616
***
Location: small city 0.248 0.297 0.254 0.309 0.069 0.269 -2.480 0.956
*** *** ***
Constant -2.666 0.728 -2.591 0.728 -2.883 0.937

No of Obs. 740 740 746 746

Psuedo r-squared 0.119 0.120 0.114 0.130

*** significant at .01 level; ** significant at .05 level; * signficant at .10 level

24