Online Users – Worth Their Weight in Gold!

Examining the economic value that online channel users represent to financial institutions.




In today’s competitive market, credit unions constantly find themselves beating back the ever-infringing big banks ─ a practice that often drives them to seek new ways to grow and retain their membership. Many have turned to the online channel to reduce their costs to serve, expand services to members and then return the benefits of efficiency to members. But one strategic question has long remained in the minds of credit union administrators: just how much economic value do online channel users represent?

In 2003, Bank of America and Forrester conducted a study to look at the value of online bill payers to the institution. The study looked at groups of users over a period of nearly three years, and found that online bill payers became substantially more valuable to the institution than their offline counterparts. In fact, it found that, compared to a similar offline customer, a bill payer was 31% more profitable to the bank after 31 months.

But would these findings hold true for credit unions?

Study Confirms the Stickiness and Strength of Online Relationships

Working with its clients, Digital Insight Corp. recently conducted a study of nearly 500,000 credit union members to find out. The study examined accounts and balances for both online and offline members, as well as their usage of various transaction channels. The study looked in depth at credit union members over a seven month period, and considered demographic information, transaction volumes by channel, online banking and bill pay usage, and accounts and balances records. Users were divided for analysis into three major groups – offline users, users of Internet banking only, and users of online bill payment. Demographics across the three groups were nearly identical, except that bill payers tended to have a slightly higher average income – about $62,000 vs. about $53,000 for offline and Internet banking users.

The final result: online bill payers maintained aggregate balances up to 257% higher than their offline counterparts, and were 78% more likely to stay with the credit union over time than were their offline counterparts. In effect…

Online members, and especially online bill payers, are the most profitable members for financial institutions
Retaining online bill payers is of great importance due to the potential impact on the bottom line
Providing “free” online bill payment services that are best-of-breed is a competitive advantage and offers significant long- term economic rewards

Online Members Have Higher Balances

Balance and account differences between the various groups are shown in Figure 1, below, which compares the various groups (users of only Internet banking, and users of online bill payment for various tenures) to the offline user group. In every case, the groups had a steadily increasing improvement in accounts and balances, resulting in deeper, higher-balance relationships with the credit unions.

Figure 1 – Increases in accounts and balances for online bill payers

Online Members contribute more to the Credit Unions

Net annual value to the credit union, per member, averaged $812 higher for online bill payers than for offline users, and $241 higher for Internet banking users than for offline users. These were differences of 287% and 85%, respectively, and factored in net margin value of both loan and deposit balances, as well as the cost to serve members of each of the user groups.

There were several components to this net value to the institution. Lower per-transaction costs for the online channel was one small part of the equation, offset by the costs of providing the Internet banking and online bill payment functions. The two strong drivers of value were the improved retention of the online user base, due to the “stickiness” of online channel services, and the increased balances held by online users.

Though the total cost to serve online users was, in general, higher than the cost to serve offline users (based on estimated per-transaction costs plus costs of Internet services, offline user costs averaged approximately $34 per year, while online bill payment user costs averaged approximately $112 per year), online users tended to have many more transactions than offline users, reflecting their generally deeper relationships with the institution. While they continued to use the branches and call centers, they also tended to heavily use lower-cost channels. Yet, this is a relatively small portion of the savings compared to the effects of the deeper relationships built by the online users.

A graphical depiction of the attrition differences is shown below in Figure 2. Again, each group of online members shows improvement over the offline users, with up to a 78% improvement in attrition rates.

Figure 2 – Reduction in attrition among online members

As a final confirmation of the differences in behavior among the various user groups, a regression analysis was conducted to identify potential predictors of larger balances and accounts, as well as improved retention. The two strongest predictors of value to the institution were transaction volumes of online channels and of checks – both indicators of the primacy of the financial institution. Usage of both Internet banking and online bill payment strongly predicted a reduced attrition rate as well.

What should my credit union do next?

The results of this study confirm that Internet banking and online bill payers are very valuable to the institution. It is important, then, for institutions to take care of their online users in terms of providing excellent service through that channel. In spite of the marginally higher service costs for those users, institutions stand to benefit by attracting and retaining high-potential members to and through the online channel, with the intent of encouraging the member to make your credit union their primary financial institution. The credit union can then reap the net margin and retention benefits that accrue from these larger shares of members’ wallets and their greater loyalty.

To take advantage of this class of member, credit unions will need to structure their budget to allow for promotion of the online channel, at least to those members most likely to be of higher value to the institution. In addition, credit unions should consider offering other value-added and cost-saving services to the online channel, including online statements (to reduce printing costs), check imaging (to reduce service costs) and funds transfer (to encourage inflows of member funds).

About Digital Insight - Digital Insight® Corporation is the leading online banking provider for financial institutions. Through its comprehensive portfolio of Internet-based financial products and services built upon the company’s unique architecture, Digital Insight enables banks and credit unions to become the trusted transaction hub for their retail and commercial members. Digital Insight offers consumer and business Internet banking, online lending, electronic bill payment and presentment, check imaging, account-to-account transfers, Web site development and hosting and marketing programs designed to help increase online banking end user growth and more. Each Digital Insight product and service reinforces the strength of its financial institution clients.




July 31, 2006


  • would enjoy seeing a case study in addition to the summary totals.
  • This article makes a good case for the potential benefits of online users to credit unions. However, in order to attract and retain online customers a credit union must be of sufficient size and sophistication to provide a full suite of products and services to their members. Some credit unions are so small that they are barely able to provide even the basics.
  • The primary purpose of attracting more members is to increase the membership value. This can only be done though effective management of hte credit union's profitability at the product, member, SEG, IL levels.