Early Agreement, Lack of Competitors Boosts Online Banking Adoption In Canada

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Canada has a higher percentage of people adopting online banking and bill payment than the United States, largely because there are so fewer major banks there, Canadian bankers say.

The figures are dramatic-52% of the Canadians who regularly use the Internet to pay their bills at their bank's website, versus only 10% of online U.S. residents, according to a report last month from Forrester Research Inc.

Payment processing is faster and easier when there are fewer banks involved, the bankers there say. Moreover, Canadians have taken readily to paying bills through their banks' websites, and there is less competition from the billers themselves. Unlike in the United States, person-to-person payments are a standard offering from Canadian banks.

"Ten thousand banks is not the same as six- it is easier to get consensus with six around the table," said Michael Lozeau, the senior vice president of e-commerce at National Bank of Canada.

Agreement Among Providers

In the early 1990s Canada's largest banks agreed to build an integrated platform that allows for the overnight processing of electronic payments, whether they are made using debit cards, the telephone, or the Internet. This laid the foundation for a faster settlement system that has helped spur the adoption of online bill payment.

"At the end of the day, bill payment is fundamentally different in Canada than (in) the U.S.," said David Johnston, the senior vice president of the Internet channel at Canadian Imperial Bank of Commerce. In the United States, the actual flow of payments from one financial institution to another can take three to five days, but it occurs overnight in Canada, he said.

Bob Grant, the senior vice president of electronic banking at Bank of Nova Scotia, said that overnight settlement means that Canadians harbor fewer concerns about security or whether transactions will clear.

"They may not like us, but they trust us." As a result, Internet bill payment "has been as successful in Canada as anywhere else in the world," Grant said.

A survey released in June 2002 by the Canadian Bankers Association found that the percentage of Canadians who bank primarily through the Internet had doubled from two years earlier, to 16%, and that about a third of the population did at least a portion of their banking online.

Urging Consumers To Reevaluate

"Canadian banks have already divvied up all the checking accounts in Canada-the Internet becomes a way of getting consumers to reevaluate" their choice of bank, said Christopher E. Musto, a vice president of research at Gomez Inc., which compiles yearly rankings of Canadian banks' websites.

In the Waltham, Mass., firm's most recent "scorecard" of Internet banking operations, issued in late December, the Canadian banks scored markedly higher than the top U.S. banks. Gomez found that five Canadian banks had implemented "pay anyone" services, and a sixth, Royal Bank of Canada, planned to start offering it this year. Carolyn Burke, the senior manager of e-commerce strategy at Royal Bank, said it already facilitates person-to-person payments between its customers and will expand the service to include noncustomers in the fall.

Catherine Graeber, a senior financial services analyst at Forrester, said there are no demographic differences between the people who pay their bills online in the United States versus those who do so in Canada-both groups tend to be people in their mid-40s who have been using the Internet for about four years.

From The Cradle

As Lozeau of National Bank of Canada put it, the difference is: "Our customers are acquired at the cradle. . Online banking helps (banks) keep them."

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