Which strategies generate value in electronic-finance (e-finance) environments? In a step toward answering this question, we use a two-stage option-based model to study how capital regulation, asymmetrical information, strategic e-finance and the depository financial intermediary's optimal deposit rate relates to one another. In our model, it is shown that the intermediary can use the Internet to supplant its existing delivery channels under the strategic loan-deposit complements. Both capital regulation and asymmetrical information provide incentives (disincentives) for the intermediary's developing e-finance under its strategic e-finance complements (strategic e-finance substitutes). Our finding provides an alternative explanation for e-finance, treated as not only a technology but also a strategy.
Journal of Information & Optimization sciences 26(3), pp.509-526