I wonder how the 'psychological novel' which was supposed to be invented in James' The Portrait of a Lady (1880) (according to the article) is distinct from, e.g., Crime and Punishment (1866) (or Notes from Underground , though I guess that was a novella so it doesn't count). Is Portrait of a Lady more psychologically focused, or is the way it treats the psychological content somehow different?
I actually have several of Banville's (the author of this piece) own novels sitting in my backlog. A few skims confirm his work is quite interested in psychology as the novel can render it (all his work that I have is in first person), so it's not too surprising he'd focus on that aspect of James's writing.
I'd wager James's central contribution to literature was his intense craftsman's devotion and concern for the construction of the novel as an aesthetic object and his firm conviction literature could be an artform and not merely the stuff of adventure tales and parables--his literary criticism and prefaces to his own works are perhaps even more important to the development of literature than his stories.