First it was ATMs (Automatic Teller Machines), then EFTPOS and telephone banking. These days, it's banking via the Internet. Despite the early resistance that usually comes with any technological change, people on the whole have embraced most advances in banking technology.
If the "Transformist Theory" is right - that technology is not a choice but a changing force - then online banking is likely to enjoy widespread consumer adoption as well. One may anticipate as a consequence that banks' current astronomical profits will become even greater, primarily because banks are fully aware of the following facts:
* There is more demand for banking services than ever. The following study shows that 97 per cent of people have at least one bank account.
* The cost of online transactions is considerably less than branch transactions. On average, a transaction in a branch may cost around $2.50 while it may cost even less than 10c online.
* The majority of people have access to a computer either at work or at home. Around 40 per cent of those interviewed have access to the Internet, and the use of the Internet is increasing dramatically every day.
* Doing business on the Internet, e-business, is becoming widespread. In the 12 months to May 1999, 650 000 Australians ordered or purchased goods and services and paid for them online. This is an increase of 16 per cent compared with the previous year.
The above-mentioned facts have left the banks' executives with a clear business case to offer online services and push customers to use automated banking. To pursue such a goal, they have closed down many branches and have imposed relatively high charges on branch services. As IT advances and the Internet becomes widespread, banks hope that eventually all their traditional services, and perhaps much more, can be offered online.
How the banks' customers are reacting to online banking, however, appears to be another matter entirely. What they expect, and how they see its future, appears to be completely at odds with the view held by Australia's banking community. First of all, it seems the practice has not yet become popular among consumers, with roughly 2 per cent of Australian adults currently paying bills and transferring funds through the Internet.
Although an online transaction is much cheaper for the banks, it is more expensive for the customers who have to acquire the technology and learn how to use it. This has caused stress and anxiety for those participants in the study who did not have a computer or did not know how to use it.
Online banking is still in its early stage of development and adoption. Mentis, a market research company specialising in banking technology, forecast only four million online banking customers in the US by the end of the century. Citicorp chairman John Reed, whose bank has one of the oldest and largest online presences, recently told a group of bankers that electronic banking needs some 50 to 70 years to reach its full maturity.
Based on comprehensive interviews with 225 randomly-selected banking customers in the Sydney Metropolitan area during 1998 and 1999, this study suggests that just 4 per cent of respondents have ever engaged in online banking. The majority of the online customers in the study are male professionals and belong to higher levels of education and income.
The most frequent types of online transactions, according to the survey, include paying bills and transferring funds. Making enquiries, printing statements and accessing information come next. Online users would like to see improvement in paying bills. The current problem with online payment is due to the limits the banks put on bill transactions. Security issues are among the reasons often given by the banks in this regard. Many users expect the banks to offer more user-friendly Web sites and easy-to-follow instructions, according to the survey.
Online banking customers generally admit that they still have to go to their banks, although less frequently, to do what they are not able to do online, including the withdrawal of cash. However, the technology that allows users to transfer money into their card accounts, thereby obtaining cash at an EFTPOS facility, is now available. For the time being, until there is national or universal electronic cash, many online users have no choice but to pay by credit card for the goods and services they buy online, and the study suggests that this is not what they prefer.
Intention to use online banking in the near future is quite high among the participants in the study. More than 60 per cent of respondents expressed interest in using Internet banking in the following year. One should be a little cautious here as many people who stated such an intention may not have sufficient understanding of the Internet and banking through it. All they envisage is that they will be able to use their computers to carry out transactions similar to those done by ATMs.
The intention to use online banking is different among males and females who participated in the study. Ninety-one per cent of males questioned are quite positive they will eventually use Internet banking while only 47 per cent of females have such an intention. This is in agreement with other similar studies that indicate women are generally less interested in using the computer to conduct financial transactions.
When broken down by age, the younger generations show more positive intention in using online banking than the older. Those between 25 and 30 years of age are most interested. From a marketing point of view, banks may focus their attention on those between 19 and 40 as their potential online customers.
It might be expected that people with higher levels of income would show more interest in taking up online banking. Interestingly, however, when income passes a certain level, people show less inclination to use online banking. One interpretation is that people with higher income mainly belong to the older age groups who are generally less interested in using the computer. Our study shows that those with an annual income of more than $70,000 conduct significantly fewer Internet-enabled banking transactions on average than others with a lower income.
The types of services potential online bank users would like to receive varies markedly. Making enquiries, transfer of funds, paying bills and obtaining general information are highly prized, as expected. Few people, however, expect to be able to withdraw cash via online banking. However, there is a general anticipation among people, particularly among those who do not know much about e-cash, that sooner or later a different kind of cash is to emerge.
Concerns and apprehension
When money matters, people are most reluctant to use a service that is not deemed secure, trustworthy and reliable. We often hear of electronically-transmitted frauds and while 80 per cent of potential online bank users are apprehensive about possible increase in both branch and online charges, 75 per cent have concerns about security and privacy measures. "I'm rather apprehensive in sending the secrets of my business over a public network," said one respondent. "I've had problems with people misusing my credit cards. I think online banking will just be worse," another commented. "I know it CAN be secure, I am just scared it ISN'T," he said.
There is a feeling among many online users in our study that the Government should provide the necessary security, while others are apprehensive that the Government might use their financial information against them. There is a general feeling among current users that although charges for online transactions are not very high, soon the banks will raise their charges. Comments such as "it may be too complicated", "it may cost even more", "we don't have a modem at home", or "we don't have access to the Internet", were common among those who did not have a great wish for online banking.
Lack of personal contact in online banking is another common concern. This appears to be of more importance among females than males. A male manager commented, "I hate moving like a robot in queues at banks, and when your turn comes up, there is hardly any communication between you and the teller. They're usually stressed out. I'd rather not see their fake and frozen smile."
While participant numbers may be low, there is a sharp awareness of online banking among people who are not currently using it. Even those who rarely use a computer believe that banking via a computer saves a trip to a bank branch and is convenient and flexible. An owner of a small business who just acquired a PC commented, "All I care about is that I can do through my computer the same things I do at my bank but easier and quicker." A student remarked, "As long as it saves me time, I'm happy to do my little banking online."
Although banks compete with each other in offering more attractive online services, they are still unable to satisfy all banking needs listed by customers in the survey. Bank executives often put the blame on the fact that online technology is still pretty young. The banking trend among consumers, however, is still to go to the branch where personal service and assistance is available. People often mix banking with shopping and other business when visiting a local shopping centre, thus providing them with opportunities for socialising. They feel themselves among a group of people who are doing the same activities.
Although almost all of the current users admit that convenience and time saving are great advantages of online banking, there are still many people who simply do not want to do everything electronically. For 85 per cent of those questioned, writing a cheque to pay a bill is still preferable to paying it online. Banking in person, for this majority of customers, is still more important than the convenience and time saving that current online banking users are enjoying. Despite the introduction of e-cash and other online banking services, the general impression is that cash, chequebooks, savings account passbooks and the like are going to remain in favour for some time.
Considering that money is a serious and sensitive matter, the future of online banking is not yet very clear. To what extent people will adopt this new way of banking remains to be seen. To what extent will telephone banking be able to fill the void left by reduced teller-banking services? Can the claimed convenience and flexibility of online banking make up for the risk of safety and security? Is online banking, in a real sense, cheaper or more expensive to the customer? Neither banks, technology providers nor consumers appear to have definitive answers to these questions.
M Ranjbar is a lecturer within the School of Computing and Information Technology, at the University of Western Sydney, Nepean. He can be contacted by e-mail at firstname.lastname@example.org