The uptake of Internet banking in Australia has been rapid and has significantly changed the nature of banking operations. These changes have both advantages and drawbacks for customers. The customers who do not bank through the Internet appear to be the main losers. Those who engage in Internet banking gain as a result of its transactional advantages, but in many cases this is offset, to varying degrees, by reduced personal service and by security concerns. Most Australian banks probably have not yet found the appropriate balance between reducing costs by encouraging Internet banking and maintaining personal banking services. Shoosmith (2016) has stressed the importance of this problem generally for the banking industry. While most Australians now engage in Internet banking, several million still continue to bank conventionally. It would seem to be unwise from an economic point of view, at this stage in the development of Internet banking, for banks to ignore their demands. Also the adequate provision of personal bank services continues to be a concern to many who engage in Internet banking.
The uptake of Internet banking in Australia
Age has a significant influence on the adoption of Internet banking. According to the estimates of the Australian Bureau of Statistics (ABS, 2016a), 85 percent of Australians aged 15 years and over used the Internet in 2014 and 2015. Of those using the Internet, 72 percent used it for banking transactions. Consequently, 39 percent did not. Hence, taking into account Internet non-users, it can be estimated that 39 percent of Australians aged 15 and older do not engage in Internet banking, whereas 61 percent do.
Use of the Internet falls substantially with age. Only 49 percent of Australians aged 65 years and over used the Internet, and only half of this group engaged in Internet banking. Figure 1 illustrates age-related changes in Internet use and Internet banking.
Using ABS data (ABS, 2016b), I have estimated that 7.5 million Australians aged 15 and older did not do Internet banking. Of those aged 65 years and over, 1.8 million did not bank by Internet. This means that 5.7 million Australians aged 15 to 64 did not engage in Internet banking. Hence several million Australians do not do Internet banking, and the majority of these (76 percent) are under 65. While the proportion of Australians engaging in Internet banking is bound to increase with the passage of time, banks need to be aware of the needs of those who do not bank by Internet and should aim to effectively address the reasons for them not doing so if they are Internet users and have bank accounts.
Reasons for not banking by Internet and the increasing marginalization of those not engaging in Internet banking
Drawing from a pilot survey and other sources, I have discovered reasons why some bank customers still have not adopted Internet banking.
Of course, prerequisites for Internet banking are having access to the Internet, being able to use it and having a bank account. In some cases, a family unit may have only one bank account and have only one member of the family—for instance, a husband or a wife—operating the account on behalf of the family unit; that is, a single person exclusively operates the family unit’s bank account. I do not have information about this, but it is likely to be influenced by ethnic background and the ages of the individuals concerned.
However, I do have information about active account holders 65 years of age and over as a result of a field survey of two clubs consisting of professional and business retirees in Brisbane, Australia. There were 60 respondents to the survey conducted in August 2016. About half of this group had adopted Internet banking and most used the Internet. While the proportion of the respondents using the Internet was much higher for this group than for all Australians 65 years and over, the percentage engaging in Internet banking was similar, namely about half did so and half did not.
The dominant reason given by respondents in this group of Internet users for not doing Internet banking was security concerns. Some also mentioned that they were not confident about using the Internet for banking. Most of those engaging in Internet banking said they did so because it was convenient and made it easier to keep track of their accounts. Nearly all respondents did not consider Internet banking to be safer than the alternatives.
Security concerns are the main reason why this group of Internet users does not engage in Internet banking, and it also remains a concern of those who do. This may also be a concern of Internet users who actively use bank accounts and are younger than 65. Banks therefore need to do more to allay these concerns if they want to accelerate the uptake of Internet banking.
Nearly all respondents believed that there was increasing pressure to adopt Internet banking, and most thought this to be strong. This pressure most likely has an increasing negative psychological effect on those who do not do Internet banking and they may feel increasingly marginalized. This can be expected to result in increased dissatisfaction about banking services when the large number of bank customers who do not bank over the Internet are taken into account. Australian banks need to do more to address this issue in a positive manner.
Deterioration in banking services since the beginning of Internet banking
On balance, respondents to my Internet banking survey thought that bank services had declined since the introduction of Internet banking. However, a substantial number believed they had improved, and a smaller number thought they were unchanged. Those who engaged in Internet banking were more likely to state that services had improved. Moreover, respondents’ responses were probably coloured by their experiences with their particular banks and branches.
The two most frequently mentioned reasons for deterioration in bank services were fewer bank branches and fewer staff. Other factors mentioned included:
- Increased difficulty in obtaining information;
- Paper-based account holders inconvenienced;
- Transactions more impersonal; and
- Fewer ATMs.
Presumably, the main reasons why some customers thought that bank services had improved since the introduction of Internet banking were because of the convenience of Internet banking and its utility for keeping track of accounts. Unfortunately, I did not ask this group to specify the ways in which they believed banking services had improved.
Australian banks, and particularly the four major banks, have focused on improving and extending the range of their Internet banking services and are now concentrating on the use of mobile devices for this purpose. While this undoubtedly coincides with the demand of a large segment of bank customers, it does little to address the needs of several million bank customers who do not do Internet banking. The latter group, in fact, is experiencing increased transaction costs as a result of subsequent banking developments—for example, the reduction in the number of bank branches. There is a widespread belief also that interpersonal banking relationships have suffered, most likely because of the greater remoteness (or absence) of individual contact and a lack of ongoing contact with the same banking staff. The latter may be a consequence of the greater use of casual staff and the higher intra-bank mobility of staff. While there is limited evidence that some of the smaller Australian banks, and similar financial institutions, are giving particular attention to this interpersonal banking problem (Roy Morgan Research, 2013), the major banks may not yet have achieved the most desirable balance both from a commercial point of view and in terms of customer satisfaction. Cost efficiency, or cost cutting, is not an adequate indicator of business performance. It may increase short-term profit but reduce long-term returns and result in a political backlash.
While advantage ought to be taken of Internet banking to reduce banking costs, this needs to be done sensitively. Care needs to be taken not to unnecessarily increase the feeling of marginalization experienced by many bank customers who do not engage in Internet banking. Positive assistance should be given to holders of bank accounts who have not embraced Internet banking but are willing to consider it. The reduction in the number of branch offices can be moderated by replacing many with smaller offices able to provide personal services. There is also a need to allay security concerns about Internet banking and provide the means to make it safer.
In conclusion, it should be noted that not only banks but several other service providers also face the types of problems mentioned in this article. However, banks still maintain a central role in the financial system and virtually all, at least in more developed countries, are affected by developments in banking services following the introduction of Internet banking. It is frequently the case that use of the Internet reduces the costs of some items but raises the costs of their substitutes, to the disadvantage of those who desire the substitutes (Tisdell, 2014).
ABS, Australian Bureau of Statistics, (2016a), ‘8146.0 – Household use of information technology, Australia, 2014-15’, [Online] Australian Bureau of Statistics 18 Februrary 2016. Available at http://www.abs.gov.au/ausstats/abs@.nsf/mf/8146.0 [Accessed 4 October, 2016].
ABS, Australian Bureau of Statistics, (2016b), ‘3235.0 – Population by age and sex, regions of Australia, 2015’, 3235.0 [Online] Australian Bureau of Statistics 18 August, 2016. Available at http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/3235.0Main%20Features102015?opendocument&tabname=Summary&prodno=3235.0&issue=2015&num=&view= [Accessed 4 October, 2016].
Roy Morgan Research (2013), ‘The rise of Internet banking’, Roy Morgan Research 5203 [Online] Melbourne: 20 September, 2013. Available at http://www.roymorgan.com/findings/5203-internet-banking-on-rise-201309200624 [Accessed 4 October, 2016].
Shoosmith, G. (2016), ‘Automation will make retail banking more human’, International Banker [Online] Dublin, Ireland: Finance Publishing Limited September 23. Available at https://internationalbanker.com/technology/automation-will-make-retail-banking-human/ [Accessed 4 October, 2016].
Tisdell, C.A. (2014). Information technology’s impacts on productivity, welfare and social change: second version, Economic Theory, Applications and Issues, Working Paper No. 70. Brisbane, Australia: School of Economics, The University of Queensland.