Whether she’s logging on to her computer or making a rare trip to the teller’s line, Stephanie Laws has one overarching banking need: convenience. She’s not alone.Banks and banking

Brye Steeves

English

Research Papers in Economics

For the past five years, Laws hasn’t had to.
“I love online banking,” she says. 
Laws, of Kansas City, Mo., does the major-
ity of her banking from her home computer, 
logging on for just a few minutes three to five 
times a week to check account balances, pay 
bills and monitor direct deposits. 
It’s easy, convenient and, most important 
for the new mother and young professional, 
banking online saves time, she says. 
Laws  estimates  she  visits  her  bank  only 
once or twice a month, but she still ranks loca-
tion as one of the most crucial features a bank 
can offer its customers. 
Laws is not alone. Despite increasing use 
of  electronic  banking,  the  majority  of  U.S. 
households  still  consider  bank  location  the 
most important factor in choosing their pri-
mary financial institutions, says Eric Robbins, 
a policy economist at the Federal Reserve Bank 
of Kansas City. 
“Widespread  use  of  online  banking   
technologies doesn’t mean the importance cus-
tomers place on bank location has declined,” 
Robbins says.
Robbins  recently  researched  the  effect   
electronic banking has on the importance of 
bank  location  to  consumers.  His  research  is 
based on interviews with banks from around   
the  Tenth  District,  which  includes  western   
Missouri,  Nebraska,  Kansas,  Oklaho-
ma,  Wyoming,  Colorado  and  northern   
Despite online technologies, customers value bank location
E
ven though Stephanie Laws is responsible for the family 
banking, she refuses to balance the checkbook, rush to the 
bank before closing time or stand in long teller lines. 
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stephanie  Laws  likes  banking  online  for 
its  convenience.  Although  the  popularity  of   
e-banking has increased, a large percentage of cus-
tomers, like Laws, still opt to visit their bank and value 
its location.
New  Mexico,  as  well  as  the  Federal  Reserve 
Survey  of  Consumer  Finances,  which  is  a   
triennial  interview  that  includes  financial   
services  information  from  more  than  4,000 
U.S. families. 
Robbins  concludes  that  although  the   
popularity  of  e-banking  has  grown  in  the 
past 10 years, a large percentage of custom-
ers  still  don’t  use  these  online  technologies.   
And  those  who  do,  continue  to  value  their   
bank’s location.
 “E-banking is not a perfect substitute for a 
physical presence in the marketplace,” Robbins 
says.  “Bank  location  is  relevant  to  consum-
ers for the same reason electronic banking is   
relevant—bank customers value convenience.”
E-beginnings 
More  than  a  decade  ago,  the  banking 
industry  underwent  considerable  change. 
As  banks  were  consolidating,  e-banking  was 
emerging. In 1995, Wells Fargo Bank was the 
first  to  offer  online  account  statements  and   
Security First Network Bank became the first 
online-only bank, although it has since discon-
tinued Internet operations. 
At  that  time,  35  percent  of  households 
with bank accounts had an ATM card, 20 per-
cent used a debit card and a mere 4 percent 
used  some  type  of  online  banking  service,   
according  to  data  from  the  Survey  of   
Consumer  Finances.  However,  more  than   
50  percent  of  U.S.  households  used   
direct deposit. 
During the early years of e-banking, bank 
location was still a key factor in choosing a 
bank for most households. Among 31 possible 
factors, nearly half of those surveyed said lo-
cality was most important. With the exception 
of the number of services offered and low fees, 
other factors were almost insignificant.  
“The importance of bank location is not 
surprising given the options available to con-
sumers  at  that  time,”  Robbins  says.  “Most 
households didn’t have ATM cards and were 
not using debit cards.”
Since  1995,  computer  banking  use  has 
increased by more than 800 percent and deb-
it  card  use  has  increased  by  more  than  200 
percent.  Use  of  automatic  payments,  ATM 
cards  and  direct  deposit  services  also  has   
increased significantly. 
In  many  cases,  consumer  adoption  of 
some e-banking products appears to be reach-
ing maturity. For some products, the growth 
in adoption peaked between 1995 and 1998, 
Robbins says. 
However,  research  shows  30  percent  of 
banks  still  don’t  offer  online  banking.  And 
many that do, like Peoples Bank in Lawrence, 
Kan.,  view  it  as  another  feature––not  the   
banking wave of the future. 
Face time
The smell of fresh baked cookies fills the 
air, inviting guests to the comfy living room to 
“   Widespread use of online banking technologies doesn’t mean  
  the importance customers place on bank location has declined.  ”
7 WINTER 2007 • TENwatch TV or read, in addition to doing their 
banking. The cozy setup is actually the lobby of 
Peoples Bank, where the motto is “banking un-
usual.” That means “people over technology,” 
says Wint Winter, president and CEO. 
“We absolutely value the face-to-face over 
online contact,” Winter says. “In our case, it (e-
banking) will never substitute or act as a proxy 
for face-to-face consultative service.”
Peoples  Bank  customer  and  local  attor-
ney Steven Massoni does a large portion of his 
business and personal banking online, but says 
there are some things, like making deposits, 
that he’ll always go into his bank to do.
E-banking  technologies  may  not  be  a   
perfect substitute for personal interaction. 
“Rather  than  acting  as  a  substitute 
for  services  offered  by  bank  branches,   
e-banking  products  are  likely    viewed  by   
consumers  as  complementary  to  bank   
locations,” Robbins says.
Roughly  44  percent  of  customers  visit 
their bank at least once a month, according to   
Robbins’ research, and they still want face-to-
face service, even if they do the majority of 
their banking online. 
Data from the Federal Reserve show most 
customers who use online banking services do 
so to monitor their accounts and only about 
half of them pay bills online. Those most likely 
to e-bank are younger, more educated, higher-
income households. 
For Peoples Bank, which has 14 locations, 
online banking is viewed as an extension of 
service, like ATM or phone banking, Winter 
says. Instead the bank focuses on customer in-
teraction, offering personal attention and small 
perks, such as gourmet coffee, with each visit.
Still,  Peoples’  customers  are  banking   
online. In the last 14 months, the number of 
online users has nearly doubled, as have users 
of online bill pay. But, this doesn’t mean Peo-
ples will shift its efforts electronically, although 
it  already  has  upgraded  its  website  and  will 
continue to do so in the future.
“The bottom line is: Focus on service but 
don’t  ignore  e-banking,” Winter  says.  “We’ll   
always choose that strategy.”  
Location, location, location
Robbins  says  the  importance  of  bank   
location may vary depending on a number of 
factors,  such  as  a  consumer’s  distance  from   
a bank. Data show the majority of U.S. house-
holds are less than five miles from their bank. 
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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Location Low Fees/  Many Services  Recommended  Personal  Other
    Minimum Balance  Relationship
1995 (all banking customers)
2004 (all banking customers)
2004 (e-bankers)
Customers’ Most important reason for Choosing a bank
Source: Federal Reserve Survey of Consumer Finances
 WINTER 2007 • TEN.................................................................................................................................................................................................................................
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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Location Low Fees/  Many Services  Recommended  Personal  Other
    Minimum Balance  Relationship
1995 (all banking customers)
2004 (all banking customers)
2004 (e-bankers)
Those  who  live  a  greater  distance  from 
their bank may place less emphasis on its loca-
tion because they don’t have options like those 
who live near multiple banks. 
Even  though  they  may  be  miles  away, 
Bank of Commerce customers in rural Raw-
lins,  Wyo.,  and  the  sparsely  populated  sur-
rounding area also prefer to visit their bank 
rather than log onto the bank’s website, says 
Sherrod France, president. 
Bank of Commerce was the first in the 
county to offer online banking about five years 
ago, but today only about 15 percent of cus-
tomers use the service. 
As a result, the bank’s strategy is to grow 
physically rather than electronically, with ad-
ditional branches and ATMs within the 100 
square miles of the county.
This  seems  to  be  the  trend  nation-
wide.  Despite  the  increased  adoption  of   
e-banking  and  overall  consolidation  among 
banks,  the  number  of  bank  branches  and 
ATMs has steadily grown, Robbins says. Since 
the early ,90s, the number of new branches has 
increased by 2 percent on average, increasing to 
about 3 percent by 2005. ATMs have boomed 
since the early ,90s, from less than 30,000 to 
nearly 400,000 by 2005.
Additionally,  growth  in  retail  branches, 
such as grocery stores, is outpacing stand-alone 
bank branches, which increased by 12 percent 
in 2005. 
“As a result, even bank customers who do 
not  adopt  sophisticated  e-banking  products, 
like  online  banking,  can  benefit  from  more   
convenient locations,” Robbins says.
E-banking on the future
Although he founded Bank of Blue Valley 
and serves as president of its five locations in 
eastern Kansas, Bob Regnier has gleaned some 
insight,  not  just  from  industry  experience, 
but also from one of the bank’s customers in 
particular: his 25-year-old son, who lives in 
California but banks with Blue Valley via the 
Internet. 
“Younger bank customers have a differ-
ent approach,” Regnier says. “(Online bank-
ing) isn’t an additional selling point. This is a   
necessity.”
While Regnier acknowledges bank loca-
tion is most important now, he predicts a large 
shift toward e-banking as younger demograph-
ics,  like  his  son’s,  characterize  the  majority   
of  banking  customers.  But  in  the  mean-
time,  Bank  of  Blue  Valley  likely  will  build 
branches every few years, Regnier says, noting   
online banking will never completely replace   
location banking. 
Robbins says survey data may not reflect   
a  shift  in  importance  of  bank  location  to   
e-banking;  it  may  be  too  early  to  see  the   
impact.  As  younger  customers  continue  to 
adopt e-banking, the impact will become more 
prevalent. 
“Ten years from now, five years from now,” 
Regnier says, “if you don’t have an online prod-
uct, you’re not going to be competitive.”
f u r t h e r   R e S o u R C e S
BY BrYe SteeVeS, SeNIoR WRITeR
T
Location, Location, Location: haS  
eLectronic Banking affected the impor-
tance of Bank Location? By eric Robbins
www.KansasCityFed.org/TeN
commentS/QueStionS are welcome  
and should be sent to teneditors@kc.frb.org.
aLthouGh  he  prefers  to  bank  onLine,   
steven Massoni still visits peoples bank regularly. he 
chose peoples because of its proximity to his office.
 WINTER 2007 • TEN

Still earning interest: despite online technologies, customers value bank location

http://www.kansascityfed.org/publicat/TEN/PDF/Winter2007/E-banking.pdf

Still earning interest: despite online technologies, customers value bank location

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