Online banking and bill pay on the rise in Canada

While Canadians are flocking to the Internet for paying bills and banking faster than their U.S. brethren, banks still have work to do in luring non-adopters, according to a recent report.

The Forrester Research Inc. study, Canadian Online Banking and Bill Pay Forecast: Robust Growth Continues, polled more than 25,000 Canadian households. The study predicts that by 2009, more than two-thirds of online Canadians will do their banking on the Web. And as for online bill payment, adoption should increase by 50 per cent during the next five years.

In 2003, 55 per cent of online Canadians were involved in Internet banking and 45 per cent paid bills online. The study attributes this to more Canadian households than U.S. households (14 cent more) with broadband access. Homes with this “always-on” technology are 33 per cent more likely to bank online than households using dial-up connections, according to the study.

Online bill payment is more mainstream in Canada, said Catherine Graeber, San Francisco-based electronic banking analyst and report author. But Graeber noted that the major Canadian banks — including TD Canada Trust, Scotiabank, CIBC and RBC — still have some work to do to lure non-adopters. Non-adopters need more incentives to bank online, Graeber said.

Some users simply prefer to use the actual physical bank; firms should adopt a “carrot-and-stick” approach to online banking, the report said. For example, TD Canada Trust offers a chequing account with unlimited electronic transactions but charges $1 for each human-assisted transaction.

Banks should also tout free online bill payment prominently on their Web sites, according to the report. In addition, there are still concerns surrounding security and privacy with electronic transactions. Banks can counter these fears by offering a zero-liability guarantee for its online customers, the report offered.

Currently, GenX/Yers make up the bulk of e-banking usage. By 2009, it is expected that this segment will account for 60 per cent of all online bill payers, the report found. On the flipside, baby boomers account for modest growth; by 2009 it is expected that this segment will comprise more than one-third of all online bankers and bill payers.

Toronto-based Carolyn Burke, vice-president, payments and e-commerce for RBC Royal Bank, noted that approximately 50 per cent of bill payments are currently being done online at the financial institution. The core demographic for online banking and bill payment is the 28-49 age group, Burke said. According to RBC, bill payments and transfers are among the most common actions performed online, accounting for more than 72 million transactions processed annually.

Concerns over security and privacy have lessened as users become more familiar with the technology, Burke said. In July, RBC became one of the first major Canadian banks to give clients direct access to digital images of paper-based transactions online. RBC gets about 1.2 million cheque trace requests annually. Online digital imaging enables paper-based transactions such as personal and business cheques, business deposits and personal credit line transactions to be stored in an image bank. These documents can be called up instantly, Burke said. It’s all part of RBC’s strategy to boost online banking participation, she added.

Indeed, Canada’s major banks have invested heavily in electronic facilities, adding online banking features such as money transfers, stop payments and third party payment services. And while their U.S. counterparts regarded e-banking as a more of a convenience option, Graeber said, Canadian banks have understood the value of getting more users to bank online as these users are easier to retain, cost less to serve, and generally have higher balances and more accounts than otherwise identical offline customers.

Overall, Canadian financial institutions have done a good job of enabling a wide range of electronic banking activities — including ABMs, IVRUs and the Internet — and reduced users’ reliance on physical branches and the use of paper cheques, the report found. The key for Canadian banks is in “right-channelling” — getting consumers to use the right channels for transactions and interactions, Graeber said. Banks should continue to increase customer use of self-service channels online, which translates into greater economic benefits for financial institutions, she said.

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