Real Test for Online Banking Is How It Hits the Bottom Line
Even though the advantages are apparent for members, many credit unions continue to cite the total cost of ownership as a major negative. But convenience and accessibility that online banking provides far outweighs any disadvantages that exist.
Credit unions should not care how many members bank online. Credit unions should care what impact online banking has to their bottom lines.
Compared to other members, members who use online banking are less branch-centric. Not surprisingly, online bankers are more likely to turn to the Web for the range of account activities. And although they still prefer human channels for service interactions, online bankers are more likely to use the phone for help, rather than going into a branch.
Across a range of activities, online bankers are also more likely to use multiple channels, particularly for checking balances, transferring funds and getting help with account problems. What's critical here is that these tendencies hold true for each generation. This suggests that adopting online banking changes a member's channel behavior, regardless of age.
So, what impact would an increase in online banking adoption have on a credit union's cost structure if new online bankers had the same channel activity and preferences as today's online bankers?
To answer the above, assumptions need to be made.
Adoption. The credit union has roughly 50,000 members, 67% of whom are online (have access to the Internet). These members mirrored the overall online population in terms of age distribution and, by generation, the percent that bank online. Finally, 10% of the non-online bankers in each generation would become online bankers.
Channel costs. The following channel costs per transaction: $6 in the branch, $3 for the call center and mail, $1.10 for ATM and $0.25 for Web transactions. Not included are the costs to build new online functionality and any costs that would be incurred to provide technical support for new online banking customers.
Transaction volume. Annual transaction volume of 24 account balance inquiries, 12 funds transfers, four general account problems, one fee dispute, and one-half of an address change.
Transaction migration. For each of the activities, new online bankers would shift their channel activity to mirror the channel behavior of current online banking members.
Based on these assumptions, a 10% increase in online banking adoption could reduce support costs by about $140,000, or about $2.45 per new online banking member. Interestingly, potential cost reductions don't occur equally across all channels or activities.
Reduced branch activity accounts for 73% of the potential cost reduction. The lion's share of that impact comes from the decrease in balance checking, funds transfers and address changes that come out of the branches.
Similar to the branches, a shift in account balance inquiries, funds transfers and address changes from the call center to the Web help bring costs down. But for activities like problem resolution and fee disputes, call center costs actually rise because some new online bankers will shift their activity from branches to the call center.
What does all of this mean? Who banks online is more important than how many people bank online. A credit union's ability to migrate its older members (those over 40) will have a greater impact on short-term cost reduction than sitting around waiting for the wired youth-who won't need to be persuaded to bank online-to open share draft accounts.
But if credit unions continue to build and staff branches, the cost-reduction potential of online banking will never hit the bottom line.