More than 80 % of Americans use the net, in one way or the other, for their banking transactions, some more than others. (Internet Usage Statistics for the Americas, 2006) Convenience, space and privacy seem to be the main reasons for increased use of the net. A discussion on the uses and adoption of internet banking will be incomplete without a reference to other online banking facilities that preceded its introduction, built up consumer confidence and paved the way for its adoption.
Most people remember the pre internet days, not very long ago when visits to the bank were a necessary part of life, to withdraw money, put in checks, apply for loans, give in stop payment orders or pick up some literature on new introductions. The officers and employees at the bank were familiar individuals and their politeness made for pleasant interaction. There was hardly any feeling of inconvenience and bank visits were accepted as a routine feature of boring everyday humdrum.
However the use of ATMs, phone banking, and services like direct debits contributed to reducing the need to go into bank branches often. Things started changing in the US in the late sixties an early seventies with the arrival of plastic cards that enabled you to pay for food and go to restaurants without carrying cash. Automatic Teller Machines in small cubicles within the bank premises allowed you to withdraw the money you needed in private without having to go to the cash counter.
ATM machines started mushrooming and soon there were two at the supermarket, a few at the railway station and one very near your house. They were available 24/7 and all a person needed was a small plastic card and a Personal Identification Number (PIN) to withdraw spanking fresh notes, late at night, on weekends and on holidays. Furthermore, sharing of database technology and tie-ups at national levels meant that ATMs of other banks could be used as well for transactions.
Americans soon found out that ATM cards of major banks were valid all over the world and there was no need to carry bulging dollar filled wallets or sheaves of Travellers Cheques. Carrying ATM cards was safer than carrying cash because they could not be used without confidential PINs and if lost could be cancelled with simple telephone calls. Very different from losing a wallet full of crisp dollars. A number of conveniences led Americans to start using ATM cards; in many ways, this development marked the starting of the internet revolution in banking.
ATM cards gave its users privacy to withdraw money, easy multi locational, inter city, national and global access to cash, do it yourself convenience and 24/7 usage. There was no way a bank branch round the corner could match these facilities and ATM cards soon became an integral part of the modern way of life, not just in the US, but globally. As such, when internet banking arrived on the scene through brochure based websites providing information on banking products and services, consumers were quite willing to accept that such conveniences and facilities were very possible in banking.
Rob Megann (2002) states that “Online banking has been the fastest growing Internet activity in the U. S. over the last five years, with 53 million Americans, or 44 percent of all U. S. Internet users, now using some form of online banking service as of November 2004” A study conducted by Pew Internet & American Life (Fox, 2005) on the basis of which Megann makes his findings values the current online banking population at more than 3. 5 times the number of 14 million customers who used internet banking for their banking chores in 2000.
“Even the Morgan Stanley Dean Witter Internet research emphasized that Web is more important for retail financial services than for many other industries. ” (Mishra, 2006) Internet banking, as discussed before, specifically provides for delivery of various banking products and services starting at a very low functionality level involving only access to account data to very sophisticated offerings “enabling integrated sales of additional products and access to financial services like investments and insurance” Dr.
A K Mishra (2006) says that the one of the main drivers pushing for internet banking is improved customer access. Customers can use their PCs and laptops on a global basis, log onto the internet from anywhere in the world, irrespective of time zones, and access their accounting data, 24/7 on a real time basis. This is a substantial jump over all other banking distribution channels, be it physical branch banking, tele banking or the use of ATMs. Physical branch banking is obviously extremely restricted in both time and geography.
Telephone banking, though not bound by limitations of unilocational access, is still dependent upon free telephone lines and availability of operators. Very little can be more upsetting than putting through a transnational call and having to listen to a recorded voice asking the caller to wait or, even worse, call tomorrow, the service being closed for the day. Most ATMs, though open day and night and accessible, are unable to give account information, except where there are specific inter-bank tie-ups for the service.
Furthermore, they are unable to process requests for payments, fund transfers, cheque books or stop payments. Even when distance is not an issue, internet banking allows a consumer to feel special, to make an application or a request from a time and/ or place of his choosing rather than going to a bank and standing in a queue. Internet banking is also significantly cheaper for the customer. (Sheshunoff, 2000) Bank charges are typically much lower as online transaction costs for banks are much lesser than those incurred by them on physical banking.
These three major conveniences, at any time, from any where, and at a cheaper cost make internet banking extremely appealing for the retail customer. Apart from these major conveniences, internet banking, according to Mishra (2006) also attracts more customers because of new services being conceptualised and added every day, CRM spurred offers that flow in through the net, as also specialised customer service. “Growth of Internet banking has progressed steadily … rivalling growth of other channels such as ATM’s. ” (Winter, 2001)
Mike Winters writing in 2001 stated that “Internet banking has evolved significantly in the past few years, growing from a handful of users to over 15 million users throughout the country, according to a recent American Banker/Gallup Consumer Survey. ” Since then it has jumped to over 53 million users today with practically 13 million users logging on to the internet everyday to carry out banking transactions. Another factor which is pushing growth in internet banking, apart from strong customer push is the eagerness with which most banks wish to get into action and obtain their slice of strategic competitive advantage.
Alex Sheshunoff (2000) writing on the bankers attitude towards the internet states that in 1999 “typical responses were, ‘Not until next year–and only after we’re done with Y2K,’ (Y2K refers to the challenges faced by computer applications worldwide, including banking, to accommodate the required date change, the 2000s from the then existing 1900s) or ‘My customers aren’t demanding it. ’” Strangely enough he adds, a few months later “those folks are singing a very different tune.
Around the country, increasing numbers of community banks have made implementing a competitive Internet banking strategy one of their top priorities for 2000. ” Bankers also have a number of reasons for strongly implementing internet banking policies and push its usage. Some of these are as follows • Bankers will not want to be left behind when it comes to offering internet banking services. Falling too far behind other bankers could prove to be suicidal. • Most banks with websites are providing or are in the stages of providing full service internet banking or have it as a top priority objective.
• Customers are increasingly showing more interest in internet banking services. • Instead of continuously adopting internet banking out of defensive strategy, bankers are looking down the road at new opportunities. • All bankers understand the implications of losing good and regular customers George Danfourth (2003) states that “Internet banking users show 50% lower attrition, grow balances 50% faster, make fewer branch visits and customer service calls and buy more profitable products such as mortgages, credit cards and equity lines of credit.
To achieve similar results requires a solution that facilitates a superior user experience” Byoung Kim, Richard Widdows and Tansel Yilmazer (2005) of Purdue University concluded in a study that competitiveness in the market place is leading more banks to adopt internet banking. Since the new law, Financial Services Modernization Act in 1999 loosened previous restrictions on the permissible activities for U. S financial institutions, the U. S financial market has been more competitive.
All of the various financial institutions can have the same functions in the financial market. Therefore, the financial institutions have tried to exert competitive power in the market through various ways such as affiliations with other financial companies, downsizing their physical facilities, and expanding their service scope. In this situation, Internet banking has been attractive to the financial sector. Companies can expect to save a lot of the cost of maintaining their large physical distribution systems by adopting Internet banking.
(Byoung, Widdows, and Yilmazer, 2005) The growth of internet banking is thus being fuelled as much by consumer interest as by most banks pushing their internet products with their customers, marketing their wares and trying to provide better levels of service. Banks also realise very well that the inability to provide internet banking facilities to their clients will put them at a competitive disadvantage with other banks in the same market.