Online banking may or may not be a wave of the future, and it may depend on where you live. For now, pure-play Internet banks account for a miniscule portion of deposits in the US, but Canadians appear to be more accepting of using the Net to bank.
According to the eBanking Report by eMarketer, pure Internet banks have only accounted for 0.02 percent of the $9.6 billion found in FDIC-insured deposits by year-end 1999. Of the 18 billion billing transactions last year, only 4.2 million were handled online, and the numbers are expected to remain low until billers begin to present bills online to their customers.
The report found that four false premises have been set back the future of online banking: 1) Retail banking is the same as retail commerce; 2) since online retail has succeeded, online banking will succeed also; 3) Internet banking is convenient; and 4) the affluence of Internet users equals profitability for Internet banks.
“Too many analysts began from false propositions when they argued why online banking would succeed,” said Paul Mulligan, author of the eBanking Report. “Obviously, when you begin a business plan from an invalid premise, you’re guaranteed disjunctive results.”
About half of the world’s 50 million online banking customers are in America, according to a survey of online banking and trading intentions around the world by Angus Reid Group and Royal Bank of Canada. Approximately 21 percent of American Internet users described themselves as “very likely” to bank online in the next 12 months, while the world’s most enthusiastic Internet bankers are in South Africa (46 percent), Germany (42 percent), and Sweden (33 percent). Least enthusiastic are those in Egypt and Russia (2 percent each).
“While Americans appear to have been relatively slower to adopt online banking, this could be a result of the wide range of delivery options open to them,” said Ashif Ratanshi, president and CEO of Royal Bank’s Atlanta-based Security First Network Bank. “The bottom line here is phenomenal growth potential, which will accelerate in the future, as online functionality increases.”
Of those Americans surveyed who have tried banking online, three in four say they’re “very likely” to continue, according to the survey, which also found a somewhat more moderate attraction to online stock trading and other Internet-based investing services. About 10 percent of American Internet users say they are “very likely” to trade or make other investments online in the near future. The figure was similar in Canada, while Internet users in South Korea (18 percent), Singapore (14 percent), and Germany (14 percent) ranked highest among the countries surveyed.
Nearly one in five Canadian Internet users has already tried Internet banking, nearly one in three says they will soon, and nearly everyone who has already tried it says they’ll do it again, according to the Angus Reid study.
Approximately 31 percent of Canadian Internet users said they were “very likely” to bank online over the next 12 months, ranking eighth among 30 countries, just behind Brazil and Belgium (34 percent each) and tied with Australia.
“We’re finding across the world that as people go online, banking is one of the commercial applications that has an immediate appeal,” said Gus Schattenberg, Angus Reid global products vice-president. “Online banking has a following among users in the most developed Internet markets, but there are even some emergent markets where online banking is carving a niche among the leading edge of users.”
Research done in the US by Cyber Dialogue found the majority of online bill payers electronically pay their bills through the primary bank’s Web site. However, there are significant differences between the online bill payment habits of national bank customers and those who are regional/community bank customers. Currently, 85 percent of online bill payers who are national bank customers use their primary bank’s site to pay their bills, while only 58 percent of online bill payers who are regional/community bank customers electronically pay their bills via the primary bank’s site.
“As they’ve rolled out their electronic bill payment applications over the past year and a half, national banks have capitalized on their status as trusted financial institutions to both migrate existing customers to these services and acquire new ones,” said Sam Callard, a senior analyst in Cyber Dialogue’s Finance Practice. “The smaller regional and community players need to react soon or they will begin losing valuable customers.”
The report’s findings reinforce the fact that regional and community banks lag behind national banks in developing their online banking and bill payment applications. In fact, a substantial percentage of online bill payers who are regional/community bank customers pay their bills at sites other than that of their primary bank: 22 percent use a third-party service and 19 percent an alternative bank’s site. For comparison, only 8 percent of online bill payers who are national bank customers use a third-party service to pay their bills and 4 percent use an alternative bank’s site.
Other findings from Cyber Dialogue’s research include:
- Pacific, Mountain and East South Central regions are attractive targets for the next adoption wave of Internet banking
- California, Texas, New York, and Florida lead in total online banking populations
- Mississippi, Kentucky, Alabama, and Tennessee have the lowest online banking populations
- 93 percent of current online bill payers report that they pay bills via the Internet because it takes less time than writing and sending checks
- 41 percent of intensive online users do not pay their bills online because of privacy concerns