Anne Skinner hardly ever has to include trips to the bank on her to-do list, opting instead to bank online. A small majority still favors in-person banking, but new technologies are coming.

Bill Medley

English

Research Papers in Economics

8 SPRING 2009 • TEN
ith a packed work schedule and 
an active social life, Anne Skinner 
is constantly on the lookout for 
ways to save time when it comes 
to her weekly to-do list. 
  “Not having to adjust my schedule to meet 
the bank’s hours is a real plus,” says Skinner, a 
college career counselor at Rockhurst University 
in Kansas City, Mo. “I don’t have to balance my 
checkbook because I just check what I spend 
online and I get instant feedback.”
Even  if  she  broke  out  a  pencil  and 
calculator to balance her checkbook, she might 
not have anything to record. Skinner uses her 
debit card or online billing services to pay for 
almost everything. She has also applied for a 
loan  online  and  uses  cash  and  checks  only 
occasionally.
“About  95  percent  of  my  banking  is 
probably electronic or online,” she says. “The 
only time I go into a bank is to cash a random 
check every once in a while.”
Skinner  is  representative  of  a  rapidly 
growing  number  of  consumers—usually 
young and educated—who have turned to the 
electronic world to serve their financial needs. 
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r9 SPRING 2009 • TEN
While roughly half of consumers still conduct 
their  bank  business  face-to-face  at  physical 
offices, surveys show that electronic banking 
services have become much more popular, says 
Eric Robbins, a policy economist at the Federal 
Reserve  Bank  of  Kansas  City.  He  recently 
examined consumers’ attitudes and adoption 
of e-banking with Jeanne Hogarth and Casey 
Bell of the Federal Reserve Board of Governors’ 
Consumer and Community Affairs staff.
“Looking at the entire population, slightly 
more than 50 percent prefer in-person contact 
at brick-and-mortar locations,” Robbins says. 
“But those who use online banking are much 
more likely to prefer electronic banking services 
over face-to-face interaction.”
Robbins  found  that  shifting  consumer 
attitudes  of  e-banking  services  have  led  to 
greater acceptance of the new technology over 
the last several years. The group’s research is 
based  on  two  national  surveys:  the  Survey 
of  Consumer  Finances,  which  is  conducted 
every three years by the Federal Reserve and 
the Internal Revenue Service, and the Surveys 
of  Consumers,  conducted  by  the  University   
of Michigan.
“The  biggest  factors  that  influence 
consumer  attitudes  about  e-banking  are  the 
perception  of  security,  the  perception  of 
convenience  and  consumer  knowledge  and 
familiarity,” Robbins says. 
Changing attitudes
At F&M Bank, employees like to say that 
the institution, which has nine branches in the 
Tulsa, Okla., area, is high-tech without losing 
its  focus  on  the  “high-touch”  service  many 
customers prefer.
Asa  Adamson,  senior  executive  vice 
president/cashier, remembers the early days of 
online banking and the challenges 
of providing a secure electronic 
banking environment.
“The  encryption  technol-
ogy was pretty crude,” Adam-
son says. “While some cus-
tomers were eager to use 
online banking, there were many who weren’t 
interested, so we went several years before we 
offered it. We kept our ear to the ground and 
monitored our customers until we saw that of-
fering online products would impact their de-
cision of where to bank.”
The  bank  outsources  its  retail  and 
wholesale online banking products to a third-
party  vendor,  and  customers  appear  to  be 
happy with the level of service and products 
provided.
“It’s too expensive for a community bank 
to be a pioneer in many of the online products 
being offered,” Adamson says. “We simply don’t 
have  the  resources.  But  we  are  close  behind 
what the large banks are offering. While our 
system isn’t proprietary, it allows us to remain 
competitive.”
Adamson  notes  that  even  with  the  im-
provements in technology, many customers are 
still  concerned  about  security.  Industrywide, 
those concerns are among the largest barriers to 
e-banking adoption. Robbins found that more 
than half of the U.S. consumers surveyed re-
ported that they are concerned about the safety 
of their money and the security of their per-
sonal information when it comes to e-banking.
Publicity surrounding recent data breaches 
doesn’t help ease those worries, Robbins says. 
Banks must also battle spam e-mails, phishing 
attempts and computer viruses in their effort 
to reassure customers that electronic banking 
is safe.
“Adoption  of  e-banking  is  still  positive, 
but improving confidence in the security and 
privacy  of  these  technologies  could  result 
in  even  more  people  moving  to  e-banking,” 
Robbins said.
Guaranty Bank & Trust in Denver, which 
has  34  branches  around  the  Denver  area,  is 
among  the  institutions  putting  a  premium 
on  security  when  it  comes  to  electronic 
transactions.  The  bank  has  instituted  a 
multifactor  authentication  system  that  asks 
customers  several  questions  to  verify  their 
identity as they access their online accounts.
“It’s vitally important that customers feel 10 SPRING 2009 • TEN
0
10
20
30
40
50
60
70
80
Younger than
35
35 - 44 45 - 54 55 - 64 65 +
No
High School
High School
Diploma
Some 
College
Bachelor’s
Degree
Post-Graduate
Degree
0
10
20
30
40
50
60
70
80
Source: 2006 University of Michigan Surveys of Consumers
The Michigan Surveys of Consumers show 
that higher income households are more likely to 
have a bank account and thus are more likely to 
use e-banking products such as online banking, 
debit  cards  and  account  transfers.  However, 
Robbins says the growth in the number of low- 
and  moderate-income  (LMI)  households  using 
electronic banking services is notable.
For  example,  the  percentage  of  LMI 
households using preauthorized bill payment has 
doubled from 1999 to 2006. Likewise, online 
banking  among  the  lowest-income  consumers 
grew from 17 percent to 30 percent over the 
same period.
E-banking adoption also is tied closely to 
age. In general, the younger the consumer, the 
more likely they are to use ATMs, debit cards 
and online banking.
But  older  consumers  are  catching  on 
quickly.  From  1999  to  2006,  the  number  of 
older consumers using ATMs and preauthorized 
bill payment doubled; the number using phone 
banking  tripled;  and  the  percentage  of  older 
online bankers increased tenfold.
In  addition,  education  appears  to  be  a 
significant  factor  in  the  usage  of  e-banking 
services, the researchers found. E-banking levels 
are rising across all education levels, but there is a 
sizeable gap between less-educated consumers 
and those with the most education.
“That gap may be more of a function of 
who  has  Internet  access,”  Robbins  says.  “The 
populations with less education are less likely to 
have computers or high-speed connections, so it 
makes sense that they are less likely to use online 
banking services and other electronic products.”
Based on demographic information collected in the Survey of 
Consumer Finances and the University of Michigan’s Surveys 
of Consumers, Kansas City Fed economist Eric Robbins and 
his Federal Reserve System colleagues have developed a profile 
of consumers who are likely to adopt e-banking services.
Age
Level of education 
Percent of consumers  
who bank onlineSPRING 2009 • TEN 11
their transactions are safe and their privacy is 
being guarded,” said Nancy Smith, senior vice 
president at Guaranty.
Convenience, familiarity
Another  issue  that  has  affected  the 
acceptance  of  e-banking  is  consumers’ 
perception  of  convenience.  Since  1999,  the 
Michigan Surveys of Consumers have shown 
that a growing proportion of consumers feel 
e-banking  helps  them  better  manage  their 
finances.  In  addition,  consumers  are  less 
concerned with not being able to interact with 
people while conducting transactions.
“Financial institutions that want to increase 
the adoption of e-banking can help show how 
these products make banking easier,” Robbins 
says. “For example, setting up preauthorized 
payments can help consumers pay their bills on 
time and avoid late fees.”
Similarly, improving consumer knowledge 
and  familiarity  with  e-banking  services  can 
increase adoption of such products, he says.
“Increasing  familiarity  of  e-banking  ap-
pears to provide the opportunity for the larg-
est boost to consumer adoption,” Robbins says. 
“The data we reviewed indicate that if consum-
ers become more familiar with e-banking and 
have greater access to the technology, overall 
adoption could increase significantly.”
Looking to the future
While e-banking products such as online 
bill  payment,  debit  cards  and  direct  deposit 
have continued to gain widespread acceptance, 
consumers  and  banks  are  already  focusing 
on  emerging  technologies  such  as  mobile 
payments.
Not  surprisingly,  surveys  show  that  it’s 
the youngest group of consumers—those born 
after 1980—that is most receptive to using cell 
phones or PDAs to pay for things and carry out 
bank transactions.
As  with  other  e-banking  services,  there 
are also concerns among consumers about the 
security  of  mobile  payments.  Robbins  says 
a common worry is that losing a cell phone 
equipped  for  mobile  payments  would  be 
similar to losing a wallet.
“There  is  a  barrier  of  familiarity  with 
mobile payments,” Robbins says. “Right now, 
many people say they are unlikely to use it. 
There are also infrastructure issues as to how 
mobile  payments  would  work.  There  is  a 
need to develop a common platform for the 
technology.”
F&M Bank’s Adamson says the lack of a 
common platform is one reason why his bank 
has decided to wait and see how the mobile 
payments arena evolves before stepping in.
“There’s  a  real  lack  of  standardization,” 
Adamson says. “What works well with one cell 
phone provider doesn’t work with another.
“The very competent computer and PDA 
users  are  the  most  confident  users  of  our 
electronic  products.  A  lot  of  people  are  still 
getting PCs for the first time and would be 
more reluctant.”
Skinner, who is in her late 20s, says the 
idea of using mobile payments is intriguing, 
but she, too, is concerned about security.
“For me, I would be concerned about my 
phone  getting  stolen  or  lost,  or  accidentally 
buying something,” she says. “But 10 years ago, 
I wouldn’t have thought I’d use online banking 
as much as I do now.”
BY BILL MEDLEY, SENIOR WRITER
T
COMMENTS/QUESTIONS are welcome 
and should be sent to teneditors@kc.frb.org.
f U r T h E r   R E S O u R C E S
“U.S. hOUSEhOLDS’ ACCESS TO AND USE  
  Of ELECTrONIC BANkINg 1989-2007” 
By Eric Robbins, Jeanne M. Hogarth and Casey J. Bell
“LOCATION, LOCATION, LOCATION:    
  hAS ELECTrONIC BANkINg AffECTED  
  ThE IMpOrTANCE Of BANk LOCATION?” 
By Eric Robbins
KansasCityFed.org/TEN

E-banking evolves: shifting consumer attitudes lead to growing acceptance

http://www.kansascityfed.org/publicat/ten/pdf/spring2009/ebanking.pdf

E-banking evolves: shifting consumer attitudes lead to growing acceptance

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