Ask the Experts: What Impacts Consumer Adoption of Online Banking Products?

In this edition of our “Ask the Experts” series, we catch up on the latest research concerning consumer adoption of online and mobile banking services with business experts from leading colleges and universities.

While banking was once characterized by quaint features such as the ability to stroll down to the neighborhood branch, where the tellers knew your name and might even give your child a lollypop, the combination of competition in the industry and advances in technology has fostered the simultaneous decline in face-to-face customer service and rise of electronic account management.  We’re now seeing paper checks make way to prepaid cards, banks offering online-only services in greater numbers, and a rapidly growing market for mobile wallets, among a number of other notable changes to the tools of the trade.

That’s no big deal for those of us who’ve grown up in the Internet-age, but it’s fair to wonder how our parents, other older consumers, and segments of the population that have limited access to computers and smartphones will manage to make full use of these newfangled products and services.  I mean, my dad just the other day asked me how to copy and paste something from an e-mail, how’s he supposed to digitize his payments?

Believe it or not, but Pei-Yu Chen and Mei Xue – a pair of researchers from Temple University and Boston College, respectively – have looked into just that.  (Well, just to be clear, they’ve studied the adoption of mobile banking services by consumers in general, not just my dad).  We at Card Hub recently caught up with them as well as a few other industry experts to get a better sense of the obstacles facing both the online banking industry and the consumers trying to operate within it.

You can check out their insights on the various issues listed below or simply jump to the Takeaways section for a quick synopsis:

How do age and technological savvy impact consumer adoption of online banking services?

Pei-Yu Chen - Temple UniversityPei-Yu Chen (Associate Professor – Temple University’s Fox School of Business):

Several factors are shown to impact adoption of online banking services: overall demand for banking services (e.g., those who invest a lot, those who have electronic transactions with more merchants, etc.), tech-savviness, privacy/security concerns, word of mouth or social influence, availability of complementary products or services (i.e., what you can do with online banking).

We find that consumers who have high demand of banking services, who are more familiar with using technology, who use ATM more, and who are younger tend to adopt online banking earlier. Moreover, people are more likely to adopt online banking when their neighbors or colleagues or people who [they] interact with also adopt it.

Mei Xue - Boston CollegeMei Xue (Associate Professor – Boston College Carroll School of Management):

Our study shows that age affects adoption negatively in a curve linear manner (concave) while technological savvy (a factor often positively affects customer efficiency) is expected to increase a customer’s odds to adopt or shorten the time it takes for him or her to adopt.

Linda Huyck - Michigan State University ExtensionLinda Huyck (Family & Consumer Sciences Educator – Michigan State University Extension):

Well, I guess [adoption] probably depends on the generation that you’re a part of. The only way that Social Security finally got everybody into the electronic pay benefit was to enroll them as they went ahead. I know that my mother would have given up her Social Security check before she would have had it automatically deposited. You know the older generation, they aren’t very easy adapters to electronic things. I think that the younger generation is more comfortable adapting to those technologies. From what I can tell from the people I’ve talked to, they’ve taken pretty well to having their food assistance on a debit card, a loadable card, and they’re pretty happy with that system. I think maybe it’s a generational thing.

Do the same adoption factors and patterns apply to smartphone-based mobile banking?

Pei-Yu Chen (Temple):

I would expect the same factors and patterns with smartphone-based mobile banking. On top of that, I think a reliable security mechanism (e.g. finger print scan with the use of mobile phone) can serve as a major facilitator toward mobile banking.

Mei Xue (Boston College):

I would think so. Some studies have shown that consumers seem to be faster to adopt mobile banking than Internet (PC) banking. I think it could be a result of consumers getting more comfortable with such remote electronic channels after using Internet banking.

Dr. Harlan Platt - Northeastern UniversityHarlan Platt (Professor of Finance – Northeastern University’s D’Amore-McKim School of Business):

I think the evidence, based on the slow adoption of this existing technology, is that people do not trust it. There is something magical about waving your phone and buying something even though technologically it is very close to waving your credit card. I suspect it will require a business model in which consumers actually get something back from using their phones as payment vehicles, much like banks that offer 1 or 2% cash back’s now for credit cards. … [Banks] will [also] need to provide guarantees that scammers won’t pilfer the technology and cost consumers money.


The federal government recently digitized social security benefits (now disbursing them via direct deposit and prepaid cards); will this be a seamless transition or will there be some major hurdles to overcome given that many recipients were previously unbanked?

Pei-Yu Chen (Temple):

I think direct deposit is a great idea, as it largely reduces the transaction costs associated with checks and mailing the checks. It would also offer some incentive for people to “bank up” again. While there may be some hurdles, I do not think it would be high, and crossing over that hurdle is very important and would be beneficial for the overall society.

Mei Xue (Boston College):

There could be some obstacles for some of the recipients of Social Security benefits, e.g. those who had been unbanked before. For the unbanked population, due to their lack of experience with electronic channels, there will be a learning curve for them to climb before they can get comfortable with ATMs and etc. Another population segment who could be affected by this significantly is the senior people. Their age and less experience with electronic banking channels could hinder them from adapting to these changes quickly.


How long does it generally take the mainstream consumer population to become accustomed to a new financial product or service (e.g. mobile wallets or prepaid cards)?

Pei-Yu Chen (Temple):

This really depends on the product/service. If the reliable security mechanism is cost efficient, I wouldn’t think it would take long. I think the major time constraint is to educate users about the effectiveness of the security mechanism so they feel comfortable in using the new service/product.

Mei Xue (Boston College):

Our study shows for the early adopters of Internet banking (those who adopted Internet banking by July2003), on average it took about one and half years for those consumers to adopt Internet banking. I don’t have the specific estimate for mobile wallets or prepaid cards.



So, what did we learn from these experts?  Here’s the Cliff’s Notes version:

  • Age negatively impacts adoption of online banking products and services:  This is true whether you’re talking about online account management or a smartphone-based mobile wallet.
  • Tech savvy increases a given consumer’s odds of and timetable for adoption of electronic banking:  Without having to learn how to use the technology in question, the primary barrier to entry is a consumer’s perception of the value of the product.
  • A number of other factors influence consumer adoption:  Social factors such as word-of-mouth and proximity to early adopters, product reputation, and compatibility with existing products and services are important as well.
  • It can take as long as 18 months for even early adopters to embrace a new product:  Timetables vary based on the nature of the product as well as its reputation and value proposition.
  • Digitized federal benefits shouldn’t present too many problems:  While there will undoubtedly be a learning curve for many people, particularly those who were previously unbanked, it should be neither long lasting nor particularly rough.
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