Community Banks Go Online

Simpler and more affordable technology brings Internet banking to smaller institutions For a closer look at the future of community banking, take an online look at the World Wide Web. Internet banking is the trend of tomorrow for financial institutions large and small. However, while the mega, multi-state banks are already enjoying the productive fruits of e-business, banks in smaller towns and communities are only now rapidly logging on to the benefits of online commerce. A new generation of convenient and more affordable technology has put online banking within the reach of even the smallest community bank. These new solutions include dynamic remote web software systems, Internet host interfaces, and highly-specialized online banking support services. By understanding the trends and technologies that are driving the move toward Internet banking, community banks can position themselves to take full advantage of this crucial development. Online trends The Internet revolution is coming to a community bank near you. The use of personal computers continues to grow, with more than half of U.S. consumers having access to a home computer. Industry statistics show that by mid 1998, almost 80 million consumers in the United States and Canada had Internet access. By the year 2002, some 320 million people around the world are expected to use the Internet on a regular basis, and many say that growth will continue as users in smaller communities and developing nations acquire Internet-capable technologies. Internet banking itself has been a long time coming. The first PC banking systems were developed in the 1980s, and Microsoft launched the first home banking network in 1994. By 1996, some one million U.S. households banked via the Internet, a number that grew to more than 4.2 million by the end of 1997. Industry observers predict that online banking will continue to grow, with projections showing some 28 million U.S. households will bank online by 2001. Those are significant numbers, and they are changing the way banks deliver products and services. For community banks that want to stay ahead of local competition and major interstate banks, the question is not if they will offer online services, but when. Community challenges While community banks can certainly derive significant advantages from Internet banking, e-commerce also poses unique challenges for the smaller institution. Depending on their location and demographics, local banks may need to work a bit harder to sell online banking services to their customers. Rural banks in particular, when compared to banks in metropolitan regions, may serve customers who are less technical and who have not invested as heavily in Internet-ready technology. Some older customers may be less receptive to the newness of Internet banking. However, as consumers in smaller communities catch up to their big city counterparts in terms of PC usage and Internet access, community banks with online capabilities will come out ahead. By their very nature, smaller banks often do not have and cannot afford the technical infrastructure maintained by their larger competitors. Few local banks, for example, have the resources to build or maintain their own web-enabled data center. For this reason, most community banks rely on external specialists for technical design and expertise and may lease their infrastructure from independent suppliers. The same limitations often apply to the personnel needed to design and troubleshoot e-banking systems. Some community banks, like small businesses in many other industries, simply cannot afford to hire their own information technology staffs. Some now turn to independent consultants and buy both hardware and software on a pay-as-you-go basis. Banks should realize that no immediate cost savings will be gained by implementing Internet banking because they are adding a delivery channel to their existing cost structure. …