Community Banks Use Net to Keep Up

Community banks are turning to the Internet in response to increased competition, according to a study by consulting firm Grant Thornton LLP. Three-quarters of all community banks now have Web sites, up from 21 percent four years ago.

According to the Eighth Annual Survey of Community Bank Executives, the Gramm-Leach-Bliley Financial Modernization Act (GLBA) has triggered a land rush to the Internet that will increase over the next three years. The GLBA, passed in 1999, allows and encourages the convergence of the banking, insurance and securities industries while maintaining appropriate safety and soundness safeguards.

Among the study’s findings:

  • 75 percent of all community banks have Web sites, up from 55 percent a year ago and 21 percent four years ago.
  • 86 percent of community banks agree that customers want Internet access to their accounts. They also see widespread demand for online securities trading (61 percent) and even wireless access to bank and investment accounts (45 percent).
  • 36 percent of all community banks say they will accelerate the development of Internet banking services this year as a result of the GLBA.
  • 77 percent cite offering Internet banking services as important to their continued success.
  • Banks that exist only on the Internet (30 percent) are as widely seen as posing a threat to community banks as insurance companies (31 percent).

“The Gramm-Leach-Bliley Act has been a wake-up call for bankers to tap into the power of the Internet,” said Paul Pustorino, an assurance partner with Grant Thornton and national financial services practice leader. “It’s probably the smartest route for community bankers looking to level the playing field with their competitors.”

More than half (52 percent) of the community banks with Internet banking services currently allow customers to monitor account balances, transfer funds and perform other banking functions via the Internet. The survey reveals that, among banks with Internet banking services, dramatic changes will occur over the next three years:

  • Virtually all of the online banks will allow customers to monitor account balances (91 percent) and transfer funds (90 percent) via the Internet.
  • 84 percent will enable customers to pay bills electronically and apply for loans via the Internet (81 percent). Only 41 percent of all community banks today offer electronic bill payment and just 22 percent accept online loan applications.
  • The percentage of community banks offering cash management and other services for small businesses via the Internet will nearly triple, from 27 percent today to 74 percent in three years.
  • Electronic bill presentment from business customers to consumers will increase six fold among community banks, from 10 percent today to 64 percent in three years.

For its survey,Grant Thornton mailed questionnaires to the CEOs of a national cross-section of 5,183 community banks in November 2000. Grant Thornton received 519 completed surveys, for a response rate of 10 percent and a margin of error of plus or minus 3 percent.

Related reading