What is E-Banking?

Electronic banking (e-banking) describes all the functions that allow users to conduct financial transactions via the internet instead of visiting a physical bank branch. E-banking will enable consumers to access many typical banking services through a variety of resources and tools. Users generally only need an internet-connected device and an account with their banking provider to access and use the services. 

While online banking transactions vary by institution, customers can generally expect to find essential services such as transfers, bill payments, and access to account information. Some institutions offer e-banking services that allow customers to open accounts online, apply for credit or debit cards, and even deposit checks. E-banking is provided by banks that operate exclusively online or traditional banks and credit unions that offer e-banking options along with traditional banking services.

What is the Purpose of E-Banking?

Similar to the goals of all financial digital products, the primary purpose of e-banking can be boiled down to convenience. Users can access their accounts and perform transactions whenever and wherever they are. Instead of observing banking hours, customers can take care of banking tasks anytime, day or night, without traveling or waiting in line. This can be a pivotal service for businesses and personal banking customers since banking hours are often restricted to work hours. In addition to 24/7 banking, online access offers users the convenience of real-time financial management. When users can access their financial information anytime with the click of a button, they're more likely to make sound financial decisions. 

E-banking also conveniences the banks and credit unions that offer these services. By providing customers with e-banking options, staff members can decrease repetitive tasks like reporting account balances and fielding phone transactions. As a result, they can accomplish more, concentrate on high-level tasks, and offer improved service to customers visiting the physical location.

Understanding Online Banking

All too often, a lack of familiarity with new technology can make consumers leery of using it. For instance, the first ATMs were introduced in 1967, but nearly a decade and a half later in 1981, an employee had to stand outside a U.S. Bank in rural Tennessee to persuade customers to try the new technology. With nearly 500,000 ATMs in use in the US, the majority of banking customers are familiar with the service today. 

While remote and digital transactions may seem like a recent technology, the need to make financial transactions rapidly has led to the transition for centuries. Take a look at the changes in the financial system over time that led to the innovative e-banking options we have today.

A Brief History of Online Banking

Before Online Banking

• 1871- Wire transfers were introduced to provide the ease of same-day money transfers.
• 1910- The American Bankers Association implemented routing numbers, allowing universal processing of personal checks.
• 1950- The first credit card was introduced. The Diners' Club allowed the first 200 cardholders to eat at 14 New York City restaurants.
• 1967- The first ATMs were introduced.

The Launch of Online Banking

Upon the arrival of the 1980s, a series of global changes in the world of finance began to shape the e-banking services we use today.

• 1980- United American Bank partnered with Radio Shack to produce a secure custom modem for its TRS-80 computer, allowing bank customers to access their account information securely.
• 1981- Four top banks in New York City made home banking access available to their customers as a test pilot program to see if the initiative would take off.
• 1983- The Bank of Scotland offered customers a way to bank by connecting to the internet through their televisions and using their telephones to transfer money and pay bills.
• 1994- Stanford Federal Credit Union was the first financial institution in North America to provide all its customers with online access to their accounts.
• 1996- The technology for EMV chips was developed.
• 2006- 80% of all US banks were providing internet banking services.
• 2007- The launch of smartphones brought mobile banking into apps.
• 2009- The world's first all-digital bank, Ally Bank, was founded.
• The 2010s- Peer-to-peer payments and voice banking were introduced.
• 2022- 80% of banking customers globally are regular users of mobile banking technology.

Advantages of Online Banking

Online banking and all types of e-banking services offer multiple advantages for users and the institutions that provide the services. While many users were accustomed to the convenience of banking online before 2020, pandemic restrictions increased the adoption of the services significantly. According to an analysis by Fidelity National Information Services, there was a 200% jump in new mobile banking registrations in April 2020. When you consider these advantages, many will likely maintain the use of online banking services.

• Customers have 24/7 access to their account information and customer service. 
• Users get improved speed and efficiency without waiting in the drive-through or long banking lines. 
• Customers may be able to take advantage of online bill payment options for automatic or routine online payments.
• Some banking costs may be lower with the use of online banking.
• Account monitoring is easily accessible, which can help customers stay on track financially through the ability to review transactions and spot fraud immediately.
• Transferring money from one account to another is fast and easy.
• Employees at banks and credit unions can eliminate many repetitive tasks because customers can find information online.
• Banks and credit unions can improve customer satisfaction by offering e-banking services alongside traditional banking services. 
• E-banking can help financial institutions cut costs over time.

Disadvantages of Online Banking

While online banking has a lot to offer consumers, there are still some potential downsides. Traditional banking services take all the guesswork out of banking, which makes some customers more comfortable with their financial transactions. These are potential reasons that online banking services might not be the perfect solution for every user.

• Security issues can arise if the financial institution or the customer doesn't take proper security precautions.
• There is a learning curve for users unaccustomed to digital services and e-banking.
• E-banking lacks the personal contact provided by traditional banking services.
• Online-only banks aren't likely to be able to provide a full range of banking services.
• Complex transactions typically can't be completed through online banking services.
• Cash deposits can't be made online, and options for getting cash may be limited.
• Customer support might be limited.
• Large purchases or financial transfers are likely not possible with e-banking options.
• Technology disruptions like a power outage or poor internet connection can affect your ability to access your account.

What are Three Types of Electronic Banking?

Electronic banking doesn't describe a single product, tool, or service. E-banking is a group of services that fall under the category of digital financial transactions. Some financial institutions that offer electronic banking services have no physical branch, while others provide both physical and electronic banking options. These are the most widely recognized forms of electronic banking.

Online or Mobile Banking

Although the terms online banking and internet banking are sometimes used interchangeably with e-banking, online banking is just one type of electronic banking. Online banking allows customers to make financial and non-financial banking transactions through a web page or application. This can include transfers, bill payments, access to account or loan details, changes to account details, deposits, and withdrawals. Mobile banking allows users to complete many or all of the same tasks as online banking through the use of an app. 

Automated Teller Machines (ATM)

ATMs are one of the most well-known and commonly used types of e-banking services. These machines allow people to withdraw funds, deposit them, and set or change card PIN numbers. ATMs may be bank-owned and located at the bank or individually owned and located in other public places. Many banks and credit unions provide free ATM use of company-owned ATMs, but a fee might apply for public machines. 

Electronic Funds Transfer

An electronic funds transfer (EFT) is the transfer of funds from one party to another via a digital connection. Many different types of fund transfers can be used in various situations. The most common types of EFT payments include:

• Debit or credit card transactions
• Direct deposit
• Phone payments
• Electronic Checks
• Internet transactions

How Credit Unions Benefit from E-Banking Services

Like banks and other financial institutions, credit unions provide customers with financial services that meet their needs. Many consumers consider e-banking services a necessity of modern banking. In fact, 40% of Americans aren't visiting bank and credit union branches in favor of online and mobile banking. E-banking services provide vital customer benefits and can also offer distinct advantages for the credit unions that provide them. 

Business Growth

Online banking is considered a staple in banking services for many users. After all, consumers shop online, conduct business online, and even attend doctor's visits virtually. 31% of 25-34 year olds and 36% of 35-44 year olds do their banking entirely online. Credit unions hoping to increase their client base will be at a huge disadvantage if they fail to offer the services prospective customers are looking for. 

Consumers often prefer credit unions because they typically offer lower fees, higher savings rates, and a more personalized approach to customer service. When credit unions offer all these advantages and the convenience of e-banking, they're more likely to attract new customers and accelerate business growth. 

Customer Retention

The explosive growth of online banking during the pandemic isn't exclusive to customers accustomed to digital options. Yet, when users had few options, many turned to digital banking options and were reluctant to give up the convenience. As credit union customers increasingly seek more convenient digital and mobile opportunities in everyday life, they're more likely to switch to another financial institution if their current organization doesn't offer them the convenient financial services they seek. However, credit unions that introduce digital financial products are more likely to retain loyal customers.

Improved Services 

When credit unions offer e-banking services alongside traditional banking options, they have the opportunity to provide customers with the best of both worlds. Customers get the convenience of 24/7 banking, the financial security of continual account monitoring, and services they can't get through traditional banking methods. Furthermore, when customers depend on e-banking services to meet their immediate needs, customer service is improved at the physical branch since eliminating redundant tasks frees up time for personnel.

Finding the Right E-Banking Service for Your Credit Union‍

There's no doubt that e-banking services can offer your customers improved services and convenience. However, the task of selecting an e-banking service is not one to be taken lightly. When comparing providers, it's essential to find a client-focused partner intent on providing you with scalable services that meet your customers' needs. Cotribute is a modular platform that works with leading e-banking solutions and helps credit unions thrive in the digital era. Schedule a demo to learn more about how we can help you increase your digital offerings to meet the needs of modern banking customers.