The Unfulfilled Promise

Flashback as many as six years ago, and most bankers can recall sitting through presentations where they heard now (in)famous promises and pontifications regarding Internet banking. Many saw research reports like the 1997 Booz-Allen & Hamilton study that first highlighted the high cost of routine banking services delivered via traditional channels and the much lower cost of utilizing Internet banking – approximately $1 at the teller line vs. 8 cents on the Internet. Others heard from the new wave of Internet banking vendors as well as industry analysts, including Tower Group, from as far back as 1998, touting similar studies with potential savings ranging from $2 to just pennies.

While it is a given that many larger financial institutions are heading toward the promised land of lowering the cost of routine transactions delivered via Internet banking, it is the community banks that have seen little hope in achieving the full promise of this highly efficient delivery channel. Considering that while many of the Internet banking solutions have been around for more than five years, the adoption rate among customers of community banks is still quite anemic and hovering around 10 percent. What has happened is a true self-fulfilling prophecy where community banks are unable to achieve savings because they have been forced to outsource Internet banking. Larger banks don't have the same problem; they can afford to invest in technology and can control the cost of their delivery channels because they own them. Until community banks begin to take ownership of their Internet banking delivery channel, the same way they control their physical branches, they will never be able to truly drive those transaction costs down to what they were initially promised in those dot-com presentations of the late-1990s.