Consumer adoption of Web banking has been a major success story in Canada, leading some to wonder if that success can be duplicated south of the border, particularly among Canadian banks with retail operations in the U.S. There are many differences in the markets, but there's also a commitment among the likes of Toronto Dominion Bank, through its TD Bank subsidiary based in Cherry Hill, NJ, and Bank of Montreal, through its Chicago-based Harris Bank subsidiary, to share best practices across the border.

Last quarter the Canadian Bankers Association released a study that found that for the first time a majority of Canadians, 53 percent, bank online. What's more, 35 percent use the Internet as their primary banking channel-more than in-person transactions, 24 percent, and ATMs, 28 percent. The survey also found high satisfaction and trust in bank's technology initiatives: 79 percent of Canadians surveyed said technology has made banking more convenient, and 80 percent are confident that banks continually update technologies so online and electronic transactions are safe.

By comparison, according to Celent research, overall Internet banking household penetration in the U.S. is about 40 percent. The difference in online acceptance is thanks in part to Canada's online head start over the U.S., says Barbara Dirks, svp of e-channel services at Harris Bank. "Canada, like Europe, was far quicker in its adoption of the Internet," she says.

Ron Shevlin, a senior analyst at Aite Group, says there are "very specific and important reasons that Canadian Internet adoption is higher than the U.S., and has been for the past seven to eight years. ...And the reasons are less about the institutions and more about the environment." First, he says, is Canada's very quick adoption of broadband. That high-speed Internet experience immediately made the online banking experience more enjoyable than in the U.S., where broadband adoption lagged.

Second, echoing the comments of Dirks, is the size and concentration of the Canadian banking market. About 90 percent of Canadian deposits reside in the top five banks. Because the industry is smaller and simpler than the U.S. market, where the top five banks control 50 percent of deposits, it is highly coordinated and can roll out solutions easier. For instance, the presence of the Canadian Payments Association allowed electronic billpay to become widely adopted years ago, and a more coordinated ATM network drove people to electronic channels.

Lastly, says Shevlin, online adoption is higher in Canada because consumers use the branch for different reasons than in the U.S. In Canada, the branch is not a place to conduct transactions, it's a place for new account openings and building relationships. In the U.S., the branches are staffed with tellers and are heavily oriented toward transactions.

George Tubin, a senior research director at TowerGroup, notes Canadian banks' online technology has been top notch. That's combined with under-investment in the branch channel to equal strong channel migration. "Canadians do tend to be more self-service and that's because the branch service is not as good as in the U.S.," he says.

But that's not all good news, says Gene Blishen, the general manager of the Mt. Lehman credit union in western Canada. "We've done such a good job getting them online, they don't come into the branches, and then how do you market to them?"

Nor are the U.S. figures as lackluster compared to Canada as they first might seem. Even though the overall Internet banking household penetration in the U.S. is about 40 percent, Ed Woods, a senior analyst at Celent, says that once you back out consumers without Internet access and the unbanked, online banking in the U.S. is reaching 67 percent of the "addressable" market, and he predicts that figure will rise to 80 percent by 2012.

Bankers and analysts alike warn that the industry should not fixate on online adoption figures. "The online channel is a key driver of customer satisfaction, but it's not just about one channel. It's really about transformational change," says Dirks. For this reason, Harris and other Canadian-linked banks are being more open about the use of U.S. vendors. In the past, Canadians viewed American technology as needing too much customization to consider, "but that's changing," she says.

Jack R. Allison IV, vp and senior director of complimentary channels at TD Bank, says his bank is just starting down the road of integration between Commerce Bank and Toronto Dominion, but the expectation is "that a lot of great capabilities are going to come together." Like Dirks, he said penetration rates per channel are not the whole story. "If you have a wealth management focus, and only 25 percent penetration online, but all of those are engaged in wealth management, that's great."

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