holders and $4 million of assets -- hardly a candidate, it would seem, to offer Internet banking services. But customers at the Newport News, Va.-based nonprofit can hop on the Internet to apply for loans, check their balances, and transfer funds from one account to another.

"Small credit unions can't be on every block," said chief executive officer Janet L. Harris. "You can't have 27 million branches. By going virtual, we became accessible to our members everywhere."

To be sure, Riverside Health's situation is somewhat atypical. In the span of a year, the state-chartered credit union (www.rhsecu.org) has gone from having no checking accounts whatsoever to offering Internet banking, electronic-only accounts, and a biometric kiosk that recognizes customers by their fingerprints. "Checking accounts were too expensive, so we decided to go total electronic," Ms. Harris said.

Big credit unions like $11 billion-asset Navy Federal Credit Union (www.navyfcu.org), Merrifield, Va., offer Internet banking services, too. In its first eight months on-line, Navy Federal signed up 129,000 members.

But the widespread creation by credit unions of transactional web sites is a bona fide phenomenon -- and is putting the nonprofits on a more equal technological footing with their bank peers.

According to data collected by the Federal Deposit Insurance Corp. and credit union consultant Callahan & Associates, 594 credit unions have fully transactional web sites, about three-quarters of which also offer bill payment services. That compares with 634 banks and only 48 thrifts.

Industry sources say Internet banking and credit unions are a natural match.

"Credit unions, by nature, need to use alternate delivery channels," said Paul D. Fiore, co-founder of Calabasas, Calif.-based Digital Insight Corp., the leading third-party provider of Internet banking services for credit unions.

For example, Mr. Fiore said, many credit unions are located on the campus of the business that sponsors them.

That can pose a logistical problem for employees who retire or switch jobs, and for non-employee family members who never worked at the firm at all. For such people, he said, the Internet is a convenience.

Not having to worry about shareholders or profitability also makes a difference, said Mr. Fiore, whose firm has Internet referral deals with more than 20 core data processors and recently applied to go public.

"The first question we generally get when we're making a presentation to bankers is regarding payback," he said. "Whereas in credit unions it's generally, 'How will this product provide better service for my members?' "

Penetration rates tend to be better at credit unions, too.

At Boulder (Colo.) Municipal Employees Federal Credit Union, for example, a $22 million-asset nonprofit, 930, or 19%, of the credit union's 4,900 credit union members use its banking web site (www.bmecu.org).

Dan Schoenherr, senior vice president at Callahan & Associates, said that in many cases, credit union customers are simply more comfortable with computers.

"A lot of credit unions serve high-tech companies, government agencies, or educational institutions," he said. "Those three types of organizations have been users of the Internet themselves for a long time."

The surprising popularity of Internet banking among credit unions does have some potential downsides.

A report issued last week by the General Accounting Office, for example, found that the National Credit Union Administration was far behind its regulatory peers when it came to supervising institutions' web sites.

According to the GAO, the NCUA has not conducted a single Internet banking examination, lacks sufficient staff expertise, and has yet to even develop an examination manual.

"They're trying to get out from under a learning curve and hire some expertise," the study's lead author, Richard J. Hillman, said in an interview Monday.

"But that's a large task to complete with so few resources. So we continue to be concerned about their ability to turn this around."

(In its response to the GAO, NCUA said it will beef up its supervision of credit unions that offer services over the Internet. However, the agency insisted it is not behind on its exams.)

Riverside Health's Ms. Harris continues to grin. "The members love it," she said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.