Calculator loan online payment

Are the old financial yardsticks still relevant?

They're not as common as televisions, radios, and microwave ovens, but personal computers (PCs) are gaining ground. They're now in the majority of U.S. households, and nearly two-thirds of all households have access to PCs at home or at work. And by next year, one-half of all households will have online access at home, according to "Online Banking: Serving the 'Wired' Member"-a survey report produced by CUNA & Affiliates and PSI Global, Tampa, Fla.

A growing number of credit unions continue to launch Web sites. About 30% of all U.S. credit unions have Web sites and about 27% offer online banking (Table I). More than 90% of credit unions with more than $100 million in assets have Web sites and offer online banking, according to CUNA's economics and statistics department.

Most credit unions that launch Web sites do so primarily as a strategic move rather than as a way to make money. They want to offer their members the service members expect. Most credit union online banking services are free. Some credit unions charge a small fee for some services, such as electronic bill payment.

And while some credit unions' circle of online users hasn't grown as quickly as they had hoped, most credit union information technology professionals would contend that their online ventures have been successful. After all, twice as many credit union member households are online as are nonmember households (41% vs. 20%, according to "Credit Union Members Today and Tomorrow: A Guide to Future Marketing Opportunities and Threats," a joint venture of CUNA and PSI Global.

MEASURING SUCCESS

Measuring the success of online banking programs isn't easy. While credit unions measure most of their programs primarily in terms of profitability, it's widely recognized that online banking programs aren't big revenue generators. So credit unions and other financial institutions use other criteria for gauging online success.

While methods vary, most credit unions measure online effectiveness by the number of hits to their Web sites, the number of members logging on, the most popular sections, the number of page views, the length of time members stay on the site, and the number of transactions they make.

Most credit unions' online services include the ability to check account balances and history, transfer funds, download statements, pay bills, and obtain product information. Some also offer e-mail services, links to related Web sites, 30-second loan approvals, credit card and line-of-credit applications, insurance offers, mortgage prequalifications, and calculator functions (Table II).

Some credit unions are moving to a portal configuration, where members bookmark the credit union's home page and access other ones through it, says John Bock, senior vice president and chief information officer of Community Credit Union, Plano, Texas.

Bock says Community's online banking initiative has been very successful. The credit union measures the success of its Web site in terms of the number of home banking users, bill-- payer users, hits on its site, page views, and penetration of its home banking program among its entire membership. One-quarter of Community's members use its home banking program each month, according to Bock. "That's better penetration than Wells Fargo," he adds.

The number of members using Community's home banking program has grown from 10,000 to 40,000 during the past three years, says Bock. Last year, site visits averaged 200,000 per month and 3.5 page views per visit. This year, the home page received 6.5 million hits per month and 400,000 site visits. "It's almost doubled in the past year, particularly since we implemented the portal at the end of last year," he says.

Other credit unions are also reporting impressive increases. Pennsylvania State Employees Credit Union in Harrisburg reports the number of its home banking users jumped from 42,000 in January 2000 to 73,000 in February 2001, according to David Jamison, e-services manager.

Pennsylvania State Employees has been a "net bank" for a long time, says Jamison. Technology has been the credit union's primary focus because it serves 270,000 members with only two branches. "Most members will never come into a branch," says Jamison. "They'd rather use some sort of automated means, whether it's the phone, the Internet, or automated teller machines [ATMs]."

Only 1% of the credit union's members apply for loans using traditional paper loan applications. The other 99% apply online or over the phone. The credit union grants about one-- third of all its loans online. "That's pretty impressive, considering this technology didn't exist five years ago," Jamison says.

The credit union measures the success of its online services by the number of hits it receives and by the number of actual users because members can be authorized to use home banking without actually using it.

Pennsylvania State Employees uses a product called Web Trends to track online activity. It shows the credit union which members are connecting to home banking, where they're from, how long they stay on, and the most popular pages. The credit union can also measure how often users log on and the types of transactions they make.

Success of online banking can also be measured in terms of member convenience, says Mike Pytlik, vice president of information systems at Communications Family Credit Union in Saginaw, Mich. Some members work odd hours, so it's convenient for them if they get off work at midnight and want to check their account balances or transfer funds, he says.

"Measuring success isn't necessarily about making bundles of money, especially since turning a profit isn't always the motivating facfor when introducing technology services," he says.

CUTTING COSTS

Another method credit unions use for gauging the effectiveness of their online services is by looking at the way online services cut costs in other areas. Front-line staff, for example, spend less time on routine transactions, such as account transfers and inquiries. In some cases, credit unions have been able to operate with smaller staffs, fewer branches, and shorter hours.

Since Communications Family launched its dial-up service in 1995 and its Web site in 1998, calls for routine transfers have decreased 10%.

"We have much smaller staffs than other credit unions of similar asset size [$325 million]. So that's one way online services have lowered our costs," says Pytlik. "So long as we provide value through service, convenience, smaller staff size, and efficiency through technology, we're still in a cost-saving mode."

"Like most credit unions, we don't measure the level of online success in terms of profitability because we think of the service as a strategic delivery system just like an ATM or debit card," says Alan Darbe, vice president of information services at State Employees Credit Union in Lansing, Mich. "Members who use home banking tend to be the more profitable members anyway. It keeps them satisfied so they continue to do business with the credit union."

Online banking costs State Employees about $50,000 per year, which is about the same as the cost of an ATM, and it does more work than an ATM, says Darbe.

Online banking also helps reduce costs elsewhere. It's cheaper for the credit union to process a payment through its electronic bill-payment service, for example, than through the traditional check-processing system.

While most credit unions offer online home banking for free, some charge a small fee for bill-payment services as a way to recover their costs. State Employees charges 35 cents per bill paid online. Community Credit Union charges $3.95 for 15 bills per month plus 30 cents for each additional bill. The bill-payer fee is looked at as a way to offset charges from Digital Insight-the vendor that supports the billpayment service, says Bock. "It's just another service to members," he says. "And it's cheaper than using stamps."

Credit unions can incur other costs, too, adds Darbe. Discretionary transactions, for example, have increased since State Employees added its online banking service. So, he says, credit unions wanting to get into online banking should be aware of the potential-and sometimes hidden-costs of adding the service. These credit unions must purchase systems that can handle the increase in discretionary transactions. The bigger the system, the more expensive it can be.

"The increased cost isn't huge," adds Darbe. "If it was, we wouldn't have done it. Home banking gives members flexibility, but credit unions should understand that it has associated costs."

In some cases, credit unions recoup some of the costs of online banking through small fees or when members use debit cards like credit cards. Some of the costs can also be justified when you think of online banking as a way to retain high-income member house-- holds and attract new members.