Will Banks Cease to Exist?

How have Americans embraced online banking - Red Herring and Ipsos-Reid Survey

Will Banks Cease to Exist?

The Internet is profoundly changing the manner in which Americans manage and invest their finances. Never before have consumers had the hands-on control and convenience that online banking now affords them. Before the introduction of the automatic teller machine, everyday banking -- simple deposits, withdrawals, savings and loan activities -- was conducted person-to-person at a local bank branch. The introduction of the ATM made banking a more impersonal business, but a far more convenient one for the everyday consumer.

Now we are witnessing another transformation. Roughly 20 years after the first ATMs hit the marketplace, banks have launched a third wave in the evolution of retail banking. Consumers now have the option of using the Internet to check their account balances, transfer funds, purchase stocks and bonds, and pay bills without leaving their home or office. In fact, if it wasn't for those pesky $20 bills (i.e. currency) that we still need sometimes to buy goods and services, banks might as well cease to exist as physical entities.

EVERYDAY BANKING ONLINE To gauge how Americans are adopting online banking, Red Herring, in conjunction with Ipsos-Reid, surveyed American adults to explore their online banking and investing behavior. Roughly 28.5 million American adults -- representing about one in five Americans who have bank accounts -- currently conduct some of their banking activities online. For the most part, people use online banking to check account balances and review transaction histories. Roughly half of those who bank online actually move money by paying bills and transferring funds.

The principal barrier among consumers to online banking is, of course, lack of Internet access. However, among those who have Internet access, security and privacy concerns are mentioned most often (by 34 percent) as the principal reason they have yet to bank online. But banks have been working hard to reassure their customers about security. Their efforts seem to be paying off: the number of adults who believe that online banking is secure is equal to the number who do not. This may not sound laudatory, but keep in mind that only a year ago, a strong majority of Americans had serious concerns about the security of online banking.

Our survey also asked about online investing behavior. Although far fewer consumers actually buy and sell investments online than bank online, the power of the Internet as a research tool hasn't been lost on investors. Roughly half of those who have bought stocks, bonds, or mutual funds in the past year use the Internet for research and to track their portfolio's performance. Only 15 percent of those who bought investments in the past year did so online.

Like ATMs, consumer acceptance of online banking will take some time. But there is no reason to believe that the use of online banking will not become as indispensible as cash machines are today.

Edward Morawski is a vice president at Ipsos-Reid in New York.

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