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The Adoption of Internet Banking in the US

Electronic banking has been in regular use in the USA for years now, through many facilities like Automated Teller Machines, Debit cards and Direct Debits. ATMs and Debit cards have been particularly successful; 65 % of American households possessing at least one ATM card in 2005. (Anguelov, Hilgert, and Hogarth, 2004) ATMs and Debit Cards with their “anytime, anywhere” ease of use attributes have given Americans the freedom to choose when and where to access their money, without going to the bank or carrying huge stacks of bills in their wallets.

Apart from ATMs and Debit Cards, direct deposits and pre-authorised debits have also been in regular use in the USA for many years. Nearly two-thirds of all employees in the United States have their pay deposited directly into a bank account. More than four fifths of social security recipients have benefits deposited directly into their account, thanks in part to the U. S. Department of the Treasury’s EFT ’99 initiative to increase the number of federal payments made electronically. (Anguelov, Hilgert, and Hogarth, 2004) Preauthorized debits allow consumers to have regular, recurring bills automatically paid on specific dates.

The funds are electronically transferred from the consumer’s account to the creditor or payee. Unlike ATM cards and debit cards, which are considered to be “active” technologies in that consumers must interact with the technology while using it, preauthorized debits are thought of as “passive”, once the process has been established, the consumer does not need to do anything more until a change in operation is desired The emergence of the internet has opened a huge range of possibilities in numerous areas of human life and endeavour, and banking has not been an exception.

Bankers have been quick to recognise the potential of the internet to act as a business force multiplier and provide a host of products, services and conveniences to their clients. Internet banking services were introduced in a rudimentary fashion in the mid nineties and after a few years of gradual refinement and development caught the imagination of both bankers and customers, retail and corporate at the beginning of this century. In the last five years, 2000 to 2005 internet banking has grown significantly in popularity and usage.

The Pew internet foundation, which surveys the use of the Internet and its impact on society, reported in 2004-5 that there were more than 50 million internet users today and the number was growing steadily. (Fox, 2005) The purpose of this research is to investigate the various factors, causal reasons behind the growth and adoption of the internet by Americans. The assignment has focussed on the issue from two perspectives, bankers and customers and tried to analyse the unique features of this banking channel, the various features which have proved it to be the biggest force multiplier for the banking industry since the deployment of ATMs.

A large number of texts, journals and internet information listed in the bibliography have been used for the purpose of literature review and elsewhere for this exercise. A limited number of personal interviews have been used to give a qualitative dimension to the assignment and differentiate it from other number crunching efforts. The introduction of new technology is never without hiccups and apprehensions. Internet banking is no exception and has had to run the gauntlet of mistrust, justified and not so, and apprehension while providing a target for fraudsters, organised and individual crime.

The research assignment has tried to look at the issue holistically, considering all possible angles and perspectives in order to arrive at reasoned and researched findings and conclusions and will hopefully succeed in providing an accurate analysis of the phenomenon of internet banking and the American response. 2. Literature Review Internet banking is a recent phenomenon. It has not yet matured enough for there to be much definitive literature on the subject.

In fact while a number of journal articles, magazine pieces and books are available with the researcher in addition to internet sources and online libraries, most of them suffer from being written at stationary points of time while the process itself has been in a stage of rapid development. They are thus either incomplete or obsolete. The research has drawn upon texts available on the adoption and growth of the internet in the US as well as in other countries in Europe and Asia where international banking has strong footholds.

Internet banking has been introduced by major international banks practically simultaneously all over the globe; many of the issues faced by both bankers and consumers were thus similar in other countries as well. In fact, in South Asian countries, where international banks had embargos on the number of branches allowed, internet banking combined with multiple use ATM kiosks extended their reach manifold and gave them remarkable geographic spread and competitive advantage.

Increased use of technology (in India) also explains why the foreign banks did not add to their branch network substantially. In fact given the policy imposed constraint they were subjected to they had to exploit their strengths in technology to the hilt. Both they and the private banks have penetrated the market using technology-spawned devises such as ATMs. Another advantage (partly derived from technology) that the foreign and private banks have had is in purveying products such as credit cards and offering services that do not involve an outlay of funds.

That course, depending on products not involving funding, makes sense. The absence of a large network deprived them of low cost deposits. (New options to expand, 2002) The literature review has not focused on taking up individual texts and analyzing them on points of internet banking. Instead, separate topics relevant to the adoption and growth of internet banking have been taken up sequentially for review and discussion. The 2004 Survey of Consumer Finance has been consulted in detail and available figures used as necessary. (Anguelov, Hilgert, and Hogarth, 2004)

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