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February 23, 2009updated 04 Apr 2017 4:18pm

Still very much a growth market

For many people, internet banking means a visit to a branch has become a rarity But despite having attracted millions of customers worldwide, internet banking penetration in many countries remains surprisingly low, leaving scope for considerable expansion

By Charles Davis

For many people, internet banking means a visit to a branch has become a rarity. But despite having attracted millions of customers worldwide, internet banking penetration in many countries remains surprisingly low, leaving scope for considerable expansion. Charles Davis and Stafford Thomas report.

Though early attempts to bring banking services into customers’ homes and offices date back to the early 1980s, true internet banking as we know it today has been in existence for just under 14 years. In that relatively short time, internet banking has graduated from a novelty to the most used form of banking in many countries.

Surprisingly, in the country that gave rise to both the internet and internet banking, the US, online banking has not achieved the same level of penetration that it has in many others.

According to research consultancy Celent, the US ended 2008 with some 46 million households banking online, up 7 percent compared with 2007. This represented a penetration of 41 percent of all US households and 67 percent of households of banked consumers that use the internet.

By comparison, the country’s northern neighbour, Canada, has achieved a far higher online banking penetration since the launch of the country’s first internet bank in 1995 by Royal Bank of Canada.

In a recent study the Canadian Bankers Association (CBA) reported recently that 53 percent of Canadians bank online, though another study by internet research firm comScore found that in April 2008 a substantially higher 67.1 percent of Canadians banked online.

ComScore also noted that Canadians led the world in online banking frequency in April 2008, with an average of 8 usage days and 10.5 online banking visits per visitor. Also of note, according to CBA data from 2007, online banking in Canada accounted for 69 percent of all electronic funds transfers and bill payments totalling C$569 billion ($720 billion).

Changing US consumer attitudes

Despite lagging Canada and a number of European countries in the adoption of internet banking, CheckFree, the online bill payment unit of US financial technology specialist Fiserv, believes there is great potential for far more Americans to bank and pay bills online.

CheckFree’s conclusion is based on results of its eighth consumer banking and bill payment survey undertaken in October 2008.

Of particular importance, the survey indicated that security concerns hindering adoption of online banking and bill payments are receding. In the 2008 survey, only 13 percent of respondents cited online security as the top reason for not using an online bill payment service, down from 17 percent in the 2007 survey.

“As more consumers gain experience and become more comfortable using the internet, their confidence in online security grows and we see an increase in the adoption of online banking and bill payment services,” said Todd Lesher, CheckFree’s division president of electronic banking services.

Overall, online security ranked third among barriers to online bill payment adoption compared to its number-one ranking in 2007. The primary barrier in the 2008 study – cited by15 percent of respondents –was: “I don’t know enough about how it works.”

However, it is not only attracting new customers to online banking that is a priority. Experienced online bankers are demanding enhanced services and, notes Celent in a new study, banks and technology vendors have over the past 18 months been working to enhance their platforms to address gaps in features and functions, increase overall usability and increase system agility.

In the new study, Retail internet banking vendors: Shifting gears to optimise the online channel, Celent examines the current state of online banking and evaluates 12 retail internet banking vendors, translating its findings into a framework called the Celent ABCD Vendor View.

The framework is designed to show at a glance the relative positions of each vendor in such categories as advanced technology, breadth of features and usability, customer base and depth of bank services. Each vendor solution was judged relative to the others in the group.

CheckFree leads the pack

For the third year in a row, CheckFree, which acquired internet banking technology developer Corillian in 2007, “stands out as the clear leader” noted Celent in its assessment.

“CheckFree continues to lead the industry in performance, feature, functionality, and depth and breadth of services,” said Edward Woods, a senior analyst at Celent in a statement announcing the rankings.

“In the competitive field there is one thing that continues to set CheckFree apart from its competition. Of all the reviews completed, CheckFree had the most compelling and focused vision for maximising the opportunity of the internet channel, while it was also the most prepared to execute the vision.”

“CheckFree realises that an optimised online channel requires firing on all cylinders, not just driving down service costs or increasing utilisation of functions” Woods continued. “Every feature, capability, or workflow is designed to positively impact at least one of the performance indicators – customer acquisition, retention, costs or customer wallet – within a financial institution,

Steve Shaw, director of strategic marketing for Fiserv Electronic Banking Services, told EPI that the November 2008 launch of Fiserv’s new online banking package, Online Advantage, has given the vendor an even more powerful offering.

Indeed, the Celent award was not the first Online Advantage has garnered. When previewed at the Finovate financial services technology conference held in New York in October 2008 Online Advantage received a ‘Best of Show’ award based on voting among more than 400 bankers, journalists, technology experts and analysts.

Shaw explained that Online Advantage integrates all commonly viewed account information-bill pay, balances, transfers and personal money management-onto a single functional screen, enabling enhanced usability and a better consumer experience.

“We want it to be as easy as Google, as simple as it can possibly be, and so we built Online Advantage from the consumer experience backward,” Shaw said.

“The goal all along was to consolidate as many core banking functions as possible on one page, so that a customer can do almost everything from one click.”

Shaw said that Online Advantage combines the best practices from Corillian’s online banking package and CheckFree’s bill payment services in a single solution.

“Online banking has reached a new era where financial institutions are moving beyond just features and functionality and are now focused on making the online channel more profitable,” Shaw added.

“Consumers’ online behaviour and expectations are increasing as consumers become more sophisticated users of the internet. They bring high expectations to the bank site now, based on what they are experiencing as customers on other sites, and banks have to meet that level.”

With three undisclosed banks already live and five more in the implementation stages, Fiserv says Online Advantage is the first full online banking integration between the CheckFree billpay transactions system and the Corillian online banking platform, which both came under Fiserv in late 2007.

Fiserv competes in the US online banking market with vendors such as Digital Insights’s FinanceWorks, Online Resources and Harland Financial. Another competitor, financial software supplier S1 Corporation, will launch a new package in March, complete with user-customisable screens and interactive Web applications.

The latest online platforms employ Web 2.0 and personal financial management tools that allow account holders to customise their own online banking pages. The new financial management tools follow a similar strategy as the third-party sites which attract users of personal finance software Money and Quicken who want simpler budgeting and spend-tracking tools.

“We have enabled users to do a whole range of reporting, tracking and alerts, at a level of detail that we have never been able to offer,” Shaw said. “Users can set up all sorts of tracking and have the bank alert them when thresholds are surpassed, or just beforehand, and really solidify that relationship.”

Traditionally, consumers have navigated through various screens and links within their financial institution’s website to view account balances, pay bills, make transfers or utilise personal financial management tools. For the first time, Online Advantage enables consumers to access more than 90 percent of online banking activities, including bill pay, e-bills, budget forecasting, personal money management and account transfers all on a single overview page.

“We spent a ton of time working on the customer experience, and one of the things we saw was that consumers get frustrated when they do online banking because they can’t always find all the features the bank offers,” said Shaw.

“With Online Advantage, we are ‘surfacing’ those services people use into a single view so they can do their online banking on one page, rather than tabbing through to other pages on the site.”

Online Advantage even adds a family banking module that allows customers to implement entitlement rules with customisable levels of access across multiple users, and a remote deposit capture feature that allows users to scan and deposit cheques at home.

Online Advantage leverages Microsoft Silverlight Rich Internet Application technology and Web 2.0 functionality to drive the personalised banking experience that simplifies the user experience by delivering information just in time when the consumer needs it, in an interactive and compelling way, Shaw said.

He added that, with Online Advantage, financial institutions can enhance up-sell and cross-sell revenue opportunities by leveraging data compiled from each customer’s core online banking and bill payment activities. This data will enable financial institutions to deliver information relevant to the financial task a consumer is performing at that specific moment on screen.

For example, a financial institution could deliver a high yield money market account offer just as the consumer is transferring money to an external account.

“That is personalisation down to the transactional level,” Shaw said. “That is powerful stuff, and it really builds retention and online loyalty.”

Not just big banks

Amid an economic crisis, Fiserv’s online banking services continue to find solid demand among mid-sized banks, community banks and credit unions, most of which are weathering the tough-times in fine fashion.

This is significant in a market where there are indications that big banks are struggling not only with devastated balance sheets but also flagging customer confidence and loyalty. By contrast small and medium-sized banks are attracting new customers and experiencing substantial growth in new deposits and credit lines, according to George Ravich US banking software and services company Fundtech’s chief marketing officer (see Fundtech shrugs off tough times).

Ravich’s observation appears born out by research from ComScore, which reveals four out of the top five US internet banking sites experienced declines in the average number of minutes spent per visitor in the third quarter of 2008 compared with the corresponding quarter in 2007.

The biggest fall, 12 percent, was recorded by Wachovia, followed by JPMorgan Chase (8 percent), Wells Fargo (7 percent) and Bank of America (6 percent). Washington Mutual (WaMu) recorded an increase of 2 percent.

Notably, a spate of consolidation in the latter part of 2008 has changed the US banking landscape significantly. WaMu has been absorbed by Chase resulting in, according to ComScore, a total online banking client base of 21.4 million, and Wells Fargo has absorbed Wachovia taking its total online banking client base to 17 million. Bank of America remains the biggest internet banking force with 24.6 million online customers. In total the three banking groups represent some 80 percent of the total US online banking customer base.

ComScore’s finding of a decline in the average number of minutes spent per visitor on the top-five online banking sites is particularly interesting when compared with CheckFree’s October 2008 Consumer Banking and Bill Payment survey. In its survey CheckFree found that, far from reducing their use of online banking, 28 percent of respondents reported using online banking more than they had 12 months previously. Only 3 percent reported using it leas often and 44 percent said they used it to about the same extent. The balance of respondents did not use online banking at all.

Getting customers online

Beyond the example of the US and Canada, the disparity in adoption of online banking between countries is striking and is particularly evident in Europe.


Top 10 European countries



banking % *


access* % households

Broadband internet % households









































EU average




* of total population Source: Eurostat first quarter 2008 data

According to the European Union’s (EU) statistical service Eurostat, at the top end of the scale at the end of the first quarter of 2008 was Norway followed by Finland, the Netherlands and Sweden, all with online banking penetration levels standing at some 70 percent-plus of their populations. At the lower end of the scale, excluding developing countries, are Spain (20 percent), Italy (13 percent), Portugal (12 percent), and Greece (5 percent).

In other developed European countries online banking penetration is also surprisingly low given that many were early-starters in the online banking field. Of the major economies top of the middle order with a penetration of 40 percent is France, followed by the UK and Germany, each at 38 percent. Average online banking penetration for the EU as a whole was 29 percent, up from 15 percent in 2003.

Various factors driving online banking uptake have been put forward, internet access, of course, being a given. More pertinently, broadband internet access has been highlighted by many industry analysts as a major, if not the prime driver at present.

Broadband has become “the on ramp” to internet banking and online billpay, said CheckFree senior market researcher Roger Johnson at a conference in late-2008.

“Broadband is critical to online banking growth,” he added.

While broadband no doubt influences uptake of online banking and adds greatly to usability this appears to be a simplistic approach. In the UK, for example, Eurostat data shows that despite 71 percent of households having broadband access at the end of the first quarter of 2008, only 38 percent of people aged between 16 and 74 banked online at that stage.

Similarly in Denmark, Germany, Austria and Ireland very high broadband access levels have been achieved yet fewer than half of households with broadband bank online. Further indicating that broadband is not the only driver of online banking uptake, in Finland, where 66 percent of households had broadband at the end of the first quarter of 2008, 72 percent of people banked online.

Clearly other factors influence uptake of online banking. This formed the basis of a study by Thomas Meyer, an analyst at Deutsche Bank’s research unit, in which he used Eurostat data to show that key influences include education levels, age and gender.

Meyer highlighted that young, male and highly educated individuals are typically first to adopt new technologies and that this profile still fits the average European online banker. He noted that in Germany, for example, 43 percent of German online bankers have an advanced education whereas the rate is only 35 percent in the general public.

Across the EU-15 (the EU’s 15 member countries before its expansion in 2004) as a whole of people banking online some 53 percent are highly educated, 34 have a medium education level and 13 percent have a low or no formal education. Across the EU-15, women are also trailing men in online-banking adoption by around 7 percentage points. This, said Meyer, may be due to a general lack of interest in financial products or a preference for other banking channels.

Meyer stressed that, as online banking spreads across the population, the education-level factor influencing adoption of online banking should gradually disappear. To illustrate this he measured the difference in online-banking adoption between high and medium-educated individuals as a percent of total online-banking adoption.

For example, in Iceland, where the average online banking adoption rate is 70 percent, 90 percent of online bankers are highly educated and 76 percent have a medium education level. This, said Meyer, implies an education gap of 14 percentage points or 20 percent of the average adoption rate in Iceland.

By contrast, in Bulgaria the education gap between online bankers with a high education level and those with a medium education level is 300 percent of the average adoption rate of online banking of 2 percent.

“At some point in development, adoption rates among the laggards will catch up with those of the early users,” said Meyer.

The age difference between online bankers is also closing, noted Meyer. For example, some 42 percent of online bankers in the EU-15 are aged between 25 and 21 percent aged between 55 and 64, but adoption of online banking among the older cohort is now proceeding at twice the rate of the younger cohort.

Looking ahead, Meyer said that in 2006 the gender gap between online bankers in the EU-15 began showing signs of closing. Trends such as this and disappearance of education and age biases will, he added, drive a gradual increase in internet banking adoption with potentially between 50 percent and 60 percent of consumers in the EU-15 banking online by 2020.

Developing economies also offer scope for significant online banking growth. Many smaller branch-only banks in Emerging markets in Asia, Central and Eastern Europe and North Africa present a significant growth opportunity, Carmen Crutchfield, S1 Corporation’s vice-president pre-sales and marketing, told EPI.

In the corporate online banking market, S1 is seeing “huge demand” from the Middle East, Crutchfield added.

In developing economies one need not look further than China to realise the potential. According to China’s official news agency Xinhua, the number of internet users increased by 42 percent in 2008 to 298 million of which some 80 million had broadband access.

Online banking in China has also grown rapidly with the number of users doubling in three years to end 2008 at some 68 million. Though impressive, this represents only 23 percent of all internet users and 5 percent of China’s population.

Home Banking: A brief history

Forty-two years ago the ATM became the banking industry’s first big breakthrough in a drive to shift customers out of banking halls. ATMs represented cost-saving technology for banks while for customers it brought with it time-saving convenience. Getting banking into customers’ homes and businesses was the next major challenge.

It was a challenge that was tackled as far back as the late 1970s with the advent of Videotex, a TV-based graphic presentation transmitted via telephone networks. In 1982 three US banks, Citibank, Chase Manhattan, Chemical and Manufacturers Hanover, become the first to deploy the system.

First off the mark in the UK was Nottingham Building Society, which in 1983 launched a Videotex-based transactional service, Home and Office Banking Services, developed by Bank of Scotland.

However, it required two technological breakthroughs to make true ‘online’ banking a reality. The first was the advent of affordable personal computers in the 1980s. The second was the explosive growth in the commercial use of internet that began in the early 1990s.

However it was not a banking giant that pioneered internet banking. That honour is held by Stanford Federal Credit Union, a small credit union serving the Stanford University community in California, which on 21 June 1995 became the first financial institution to perform transactions via the internet.

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