Rural Banking and Information Technology: A Community Bank Perspective

RMA Journal, The, Feb, 2001 by Albert Kagan, Neilson Conklin

Only a few of the surveyed banks plan to use the Internet as a tool to expand their markets. Although many of the banks in this survey have Web sites, most of them provide only basic information about products, office location and bank hours. Few of these sites offer interactive features like account information, bill paying, or loan applications. Without these advanced features a Web site does little to enhance a bank's competitive position.

These results suggest that the information revolution will have a significant impact on rural community banks and the structure of rural financial service markets. Consumers with low information intensity who have access to national markets for financial services via the Internet stand to benefit substantially from the information revolution. However, the effect of information technology on consumers with more information intensive needs and consumers without access to the Internet is less clear.

Recommendations

As non metro community banks focus on Internet based strategies the following issues need to be ascertained: Cost of the Internet banking implementation. Does this investment reduce the cost of doing business relative to the traditional banking structure? What is the effective cost of the infrastructure and maintenance of the Web-based delivery model. Assuming that the costs are lower for business operations and a sustained effort in upgrading and improving technology are evident then the implementation can progress.

Understanding the dimensions of the target market and the implications of customer driven demand needs to be determined with respect to Internet banking applications. Do customers want a complete banking array available on line? Is a subset of banking functions adequate to structure a Web based implementation. Following the completion oftentimes forces the hand of market participants. The use of technology within the banking sector technology has been rapidly embraced from a competitive focus. This approach should also foster Internet banking facilitation.

This study has indicated that non metro community banks have not adequately structured a strategic view of the Internet banking question. The need for a strategic approach to Web based banking is critical to the overall success of the firm. Many industries have lacked a strategic focus to Internet business activities and this had led to lower than expected performance as competition gains an advantage position. Given the changing role of non bank competition, industry consolidation, cooperative lender restructuring and shifting demographics community banks face challenges that Internet banking may be able to counteract with proper Web directed strategies and implementation.

Kagan is professor, Morrison School, Arizona State University Tempe, Arizona; Conklin is director, Markets and Trade Division, Economic Research Service, Washington, D.C.

Sources

Emmons, W. R. and S. I. Greenbaum. 1996. "Twin Information Revolutions and the Future of Financial Intermediation." Working Paper OLIN-96-48, Olin School, Washington University, St Louis MO.