Internet banking has caused the biggest shake up in the UK financial services industry since the 17th Century.
New entrants to the industry are threatening traditional banks and building societies by adapting to the needs of 21st Century customers who want banking any time, any place, any where.
The new companies are offering cheaper prices, better choices and often targeting the most profitable customers.
Feng Li, professor of e-business at Newcastle University, said the introduction of the internet had had a more radical effect on the industry than anything else in its history, including the Eighties deregulation.
Established banks and building societies needed to radically overhaul their business strategies to maintain their competitive position.
Professor Li said: "The internet, as a new distribution channel for financial services, has lowered barriers in the banking system, allowing new players, often equipped with new technologies and business models, to enter the market.
"My research revealed these new players are posing a serious threat to existing banks by changing the rules of the competition and raising the general expectation of customers for services from all financial companies."
The research found about 35 per cent of companies offering internet banking had recently entered the market.
Professor Li said these new internet only banks did not have the overheads burden of traditional banking, such as maintaining High Street branches.
Supermarket banks, which provide Internet banking services through a partnership with an existing bank, also posed a challenge due to their strong brand presence and existing customer base.
"As a result of the loyalty and trust of customers to established banks, it has been very hard for the new entrants to successfully compete with the established players.
"However, the low-price proposition of new entrants has led customers of established banks to demand similar benefits, putting enormous pressure on existing banks to reduce prices and provide more innovative products and greater choice."
Professor Lis research reflected the results of a recent survey among subscribers to Which? magazine, which put Barclays, Lloyds TSB and NatWest in the bottom category for customer satisfaction.
Only 30 per cent of Lloyds TSB customers were very satisfied with service compared to 80 per cent among customers of internet bank Smile, which is part of the Co-op banking group.
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