E-Banking Blooming, But Needs New Apps, Best Practices

While millions of Americans are migrating from offline to online bill payment, research says that the banks offering online banking services must come up with new applications, if they are to remain competitive in the future.

Gartner Thursday released a new study on the growth of the online bill payment market in the U.S. The report says that in 2003 online bill payment is growing in popularity, and it expects the market to grow by close to 38 percent to 40 million users.

With the surge in popularity, Gartner expects banks to lower prices and create incentives to garner online banking customers. The study says that while most consumers that utilize online banking view and pay their bills, banks need to do more to create other applications, which will hook customers into other revenue streams.

Gartner says it conducted its Web-based survey of online banking habits in September 2002 of more than 1,000 adults that spend time online. The survey found 79 percent of those surveyed view their bills directly at the biller’s site, while only 10 percent views bills through what it calls “a bank consolidation service.”

Gartner says that many consumers go directly to billers’ sites because it is simple and free to pay at those Web locations. Gartner in its study challenges banks to “provide more value with their online bill payment applications to attract and retain profitable customers as well as reap the significant payment-relate revenue,” it said in a press release.

Gartner says online bill payment is an effective customer retention strategy, and that consumers that pay bills through their bank online are twice as likely to stay with their banks. The study says consumers don’t switch, in part, because of the trouble of setting up online payments with another bank.

The survey goes on to say 45 percent of consumers use online bill payment in an effort to save time, while 10 percent said cost savings is the main reason they’ve migrated to online bill payment.

Gartner suggests bank consider discounts and free trial online banking services in an effort to attract and retain customers. Gartner goes on to say that bank should consider offering “value-added features such as customer self-service, automatic enrollment, bundling of automated payment plans and a user interface that does not impose bank preferences on the customer.”

A separate study released by The Pew Internet & American Life project in November 2002, found that 37 million Americans have done some of their banking online, a 164 percent increase since early 2000. Pew’s Online Banking Report predicts that more than 50 million U.S. households will bank online by 2010.

On a global note, an extensive Ipsos-Reid study – compiled from more than 6,600 interviews across 12 countries – found that online banking nearly doubled from 20 percent in 2000 to 37 percent in 2002. Data from Ipsos-Reid indicated that online banking is most prevalent in Canada, the U.K., Germany and the U.S., where more than 40 percent of Internet users had banked online.

Meanwhile, a report from Celent Communications takes a look at home American online banking stacks up against the global picture. Celent measured U.S. penetration at 22 percent in 2002, with predictions of 38 percent by 2010 – if the U.S adopts some of the best practices in use by other countries.

“While the dot-com party may be over, U.S. retail bankers are just beginning to celebrate their online banking accomplishments. With national adoption rates reaching 20 percent in North America, online banking is becoming a mainstream phenomenon. Twenty percent, however, is just the tip of the iceberg. Banks in Nordic countries and South Korea have pushed adoption beyond 35 percent,” said Alenka Grealish, retail banking analyst at Celent Communications.

Grealish cites two specific best practices that can aid American adoption. “First, banks successful at generating activation have made bill pay the centerpiece of their online banking offering – not an add-on service. Sec-ond, banks successful at tapping the mainstream are focusing significant resources on educating and galvanizing their branch staff. For newcomers to online banking, encouragement and expla-nation by a branch staff has proven to tip the scales from awareness to action.”

Disparities in Online Banking

Related reading