Number of online banking users up 28 percent

by Jenny Thruston

SBJ Contributing Writer

sbj@sbj.net

The numbers of U.S. households using online banking is increasing, according to John Hall, spokesman for the American Bankers Association, based in Washington, D.C.

Hall cites statistics from Online Banking Report, a monthly banking trade newsletter that showed 28 million households using online banking at the end of 2002, a 28 percent increase from 2001.

In 2001, the publication showed 22 million, up from 15.5 million in 2000. In 1999, according to Online Banking Report, 10.5 million U.S. households were using online banking, compared to 7 million in 1998.

Hall said that while there are all sorts of entities that compile statistics about online banking including companies that sell online banking software to banks he's comfortable with Online Banking Report's research because it includes data from other studies and data from the publication's own research.

Several banks with a presence in the Springfield area also have noted an increase in the use of their online banking options.

Bank of America has 6.2 million active online subscribers as of August 2003, nearly 50 percent more users than the year before, according to the company.

Empire Bank's holding company, Central Bank Company, currently has 20,000 households using the online product, representing a 4 percent increase from 2002, said Jim Brandenburgh, executive vice president and CFO of Empire Bank.

Shelly Titus, retail sales manager for Commerce Bank, said Commerce has 46,000-plus home banking users.

Within the last few months, Commerce Bank added two new features to its Internet banking product. Customers now have the ability to access their bank statements and can view the front and back images of their processed checks online, said Titus.

Those changes seem to be attracting more of Commerce's customers to online banking.

"As a company, we've had a 44 percent increase in online banking sales over last year, so it's a huge benefit," she added.

Each of the three banks declined to say what percentage of their overall client base uses online banking, and none of the three would specify how much was spent to provide online access.

Even so, Titus noted, whatever the cost, it's worth it for the bank.

"People can get into our online banking with a password and ID, and within eight seconds they're into all of their accounts, including their credit cards," said Titus. "It takes money to provide that, but at the same time, we want to provide it for the customers when they need it and when they want it."

Growth factors

Hall attributes some of the increase in online banking to cheaper access to online bill payment.

"Most institutions do offer online banking free of charge, but a number of banks have begun even offering the online bill payment free, which is unusual," Hall said.

For many of Commerce Bank's accounts, the bill pay option is free. For other accounts, the fee is typically $6.95 per month, said Titus.

Empire Bank's online banking has a bill pay function that costs $5.95 a month.

"If you pay the typical number of bills per month that a household does, it's cheaper to pay it this way than it is to buy stamps," Brandenburgh said.

Bank of America provides online bill payment for free, without minimum balances or other conditions.

A newer service

Hall said online banking began in 1995.

"In May of 1995, Wells Fargo was the first bank with account access on the Web where you could actually go onto a Web site and see your account information. And then in October of that same year, the first Internet-only bank opened. Security First Network Bank was kind of a virtual bank and existed only online," Hall said.

Researchers who look into the reasons why consumers choose online banking have found that the top attractions continue to be convenience, control and time savings, Hall said.

"With any banking relationship, convenience is usually the number one factor. It's just how that person defines convenience is the key," Hall said.

"Believe it or not, there are still people who don't use ATMs, and that's a choice they've made. And banks make alternatives available to them."

Consumer options

In the last few decades banks have added several options, including online banking, telephone banking, ATMs and debit cards, Hall said.

"You have a lot more services for the same bank account, and banks have provided more and more options and will continue to," Hall said.

But, he noted, while new options are added, that doesn't mean old ones, such as personal service, will go away.

For example, Hall said, when ATMs first came out, a lot of futurists predicted there would be bank branches without tellers, and everything would be automated.

"Consumers showed otherwise. They like both. They started using ATMs a lot and they still use tellers. It's the same with online banking. It's just yet another option," Hall said.

Hall said he doesn't believe online banking will ever completely replace the personal service of brick-and-mortar bank locations.

He said Internet-only banking institutions are passing on cost savings they get from not having ATMs, branches and large numbers of employees.

However, many of those institutions are rethinking their positioning because they've discovered that without branches or ATMs, they're limiting their options for growth.