Internet Banking Transaction Volume and Costs

By Chad Thiele
Senior Research Analyst,
Credit Union National Association

Internet Banking and Members/Consumers

Consumers’ adoption of Internet banking (or PC banking) is moving at a slower pace than originally forecasted. It’s also apparent that financial providers’ anticipated results from offering Internet banking--lower operating costs, increased revenue, and reduced consumer reliance on on-site transactions--have, for the most part, gone unrealized.

But slower consumer adoption and the minimal impact to branch reliance notwithstanding, the use of Internet banking is on the rise, as both the number of institutions offering the service and the number of consumers using it continue to grow. Active use of online banking will increase from 15% of U.S. households at year-end 2001 to 25% by year-end 2005, according to TowerGroup.

Overall, in 2002, 17% of members used Internet banking at some type of institution at least once a month, which is up from 11% in 2000 and well above the 11% figure found among nonmembers in 2002, according to CUNA’s 2002 National Member Survey Report.

Internet Banking and Credit Unions

Credit unions appear to be aware of the value of offering Internet banking as another way to better serve their members. According to CUNA’s 2002/2003 Technology & E-Commerce Survey Report, in 2002, three in 10 credit unions offered Internet banking to their members, double the percentage of credit unions just two years earlier.

As has been the case in the past, the likelihood that a credit union offers Internet banking to its membership increases with assets. In fact, virtually all credit unions with more than $200 million in assets currently offer Internet banking.

On average, about 10% of a credit union’s members are conducting at least one transaction per month through the credit union’s Internet banking service. The active-user penetration level tends to increase with the length of time the credit union has offered Internet banking, to just over 18% among credit unions that have offered Internet banking for 5 years or more. This suggests that it takes time for members to become aware that their credit union offers the service and has taken adequate security measures to prevent unauthorized access to accounts via the credit union’s Internet banking feature. Concern about security is the most common reason members cite for not using online banking, according to the 2002 National Member Survey Report.

The 2002/2003 Technology & E-Commerce Survey Report goes on to point out that those credit unions that offer Internet banking to their members are processing an average of 24,203 Internet transactions per month, or an average of 6.5 transactions per active member per month.

Credit unions offering Internet banking estimate that is costs an average of just over $32,000 per year to offer the service. This figure increases steadily with assets, ranging from less than $2,000 annually among credit unions with less than $5 million in assets, to over $162,000 among credit unions with more than $500 million in assets. This average does not include any salary or benefit expenses or costs associated with providing a PC-based bill payment feature.

Next month’s topic: How to Increase Member Penetration in Your SEGs.

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