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
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
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
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
“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
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
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
“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
“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
“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
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
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
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
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
* of total population Source: Eurostat
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
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
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,”
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
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
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
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.