If a new report is any indication, online banking adoption appears to have reached its limit.
According to Javelin Strategy & Research, findings revealed that while online banking has “clearly established itself as a vitally important self-service channel,” the adoption rate for online banking has tapered off.
Consumers are also putting the brakes on online bill pay, the report noted. The Pleasanton, Calif.-based Javelin’s forecasts slow growth for viewing and paying bills online through financial institutions and biller websites.
While the financial services industry is still convincing consumers to move away from paper statements, they’re still showing concerns about the process, the firm discovered.
Big banks have set the precedent for online banking and bill pay and mobile banking, putting pressure on smaller institutions, including credit unions, to pick up the pace, Javelin said.
Based on a March 2011 Javelin survey of 5,102 consumers, the report revealed that 81% of those who managed their household finances, banked online at least once in the past 12 months. The data showed that this rate is expected to remain flat through 2016, increasing only through population growth.
While online banking adoption rates have leveled, Javelin said consumers are more active online bankers. Weekly online banking use has doubled since 2005, reaching 65% in 2009. The report noted that the percentage of consumers who have never banked online has been cut in half, and the Web is consumers’ preferred channel for checking account balances, transferring funds and paying bills.
The year 2011 has also seen a shift in paperless practices: 37% of consumers receive electronic checking account statements and 35% rely on paper statements, a notable change from 20% compared to 48% in 2008. Twice as many consumers pay their eight most common bills online as opposed to by mail, Javelin found.
“Consumers have embraced the idea of logging in around the clock to deal with banking chores at their own convenience,” Javelin said. “Financial institutions of all sizes have benefited because this self-service channel offers opportunities to trim operating costs.
Online banking has not only become the primary mode of contact for profitable customers, but it also has provided a launching pad for mobile banking.”
Among those consumers who are paying bills online, they're typically paying their mobile phone, student loan, secondary credit card and store-branded credit card bills at a biller-direct site and their mortgage, car loan and utility bills through their financial institutions, the data showed. The most popular online destination for a primary credit card payment was a tossup between biller sites and financial institutions.
Still, Javelin predicts that by 2015, paying every bill online through a financial institution will become a common practice.
Paying bills online may be popular, but weekly use of online bill pay has, in fact, declined since 2009 after a jump in usage from 2008 to 2009, according to the data. Javelin said its research showed that 54% of consumers paid a bill online through their financial institution in a past month during tracked in the survey, while 63% did in 2009. Fifty percent of consumers went online to a biller site to pay a bill during that same month, which was down slightly from 51% in 2009.
“The weekly habit of paying bills online has declined at a worrisome pace – in sharp contrast to online banking, which has deepened into a weekly habit for consumers,” the report read.
Javelin statistics showed that online banking and bill pay lagged at smaller financial institutions. Compared to 82% of customers at Bank of America, Chase, Citicorp and Wells Fargo, 67% of community bank customers banked online each month.
Still, the report noted that credit unions beat big banks in several electronic billing categories. About half of credit union members only receive electronic statements for student and car loans, compared to approximately 35% of large bank customers. Overall, Javelin found members are more likely than consumers to choose online statements for primary credit cards and mortgages.
Despite the many advances made by financial institutions in online banking and bill pay, an air of skepticism still exists among consumers, the report noted. Javelin said before fully surrendering to online banking and bill pay, consumers want to know that the process is secure, that their financial institution will remind them when bills are due and that past payments will be archived.
“Although turning off paper sounds like a straightforward, on-off decision, it actually requires a gradual behavioral change that will hinge on a variety of technological upgrades,” the report read. “To persuade consumers to turn off paper, they must be willing to change their behaviors when paying bills and managing their money.”
Javelin offered financial institutions several recommendations to help reverse negative trends.
First, upgrade online banking systems and emphasize personal financial management capabilities. Second, encourage online bill pay by sending reminder messages and tailoring them according to the degree in which the consumer uses online banking and bill pay. Third, utilize financial alerts and notifications to eliminate the need for a paper statement as a bill pay reminder. For instance, financial institutions can offer a mobile app that creates a queue of unpaid bills and tracks when they’re scheduled and paid.
Finally, the Javelin report suggested addressing consumers’ fears about online bill pay by letting them know it’s convenient, allows them to view past payments, and most significantly, is safe and secure.
“Javelin data repeatedly shows that paper turn-off campaigns rightfully should focus on reducing clutter, 24/7 convenience and helping the environment,” the firm said. “But these efforts can easily overshadow a gnawing concern for many Americans: fear of identity theft. Financial institutions should spotlight how 24/7 monitoring via online and mobile banking can make them safer than monthly monitoring of paper statements.”