Online Banking Continues to Disappoint

Banks offering online services report that only 5 to 10 percent of their customer base use such services, eMarketer found. This means that, for many financial institutions, online banking has not lived up to its promise.

According to eMarketer’s U.S. eBanking Report, the Internet is not the only technology that has fallen short of its promise for banks. Other technologies such as electronic bill presentment and payment (EBPP), account aggregation and customer relationship management (CRM) technologies have also come up short — so far.

“All of these technologies, including the Internet, are reasonably new and it would be premature to discount any of them,” said analyst Paul Mulligan. “Still, many bankers have fallen for the spurious argument that ‘if you build it, they will come.’ Clearly, this ideal only works for dead baseball players, not live banking consumers.”

Despite the warnings, eMarketer still predicts that the number of consumer households banking online will grow from 12.2 million by year-end 2001 to 18.3 million by 2004.

Much of the disappointment surrounding online banking is due to ambitious forecasts that predicts consumers would bank from home when given the opportunity, all but eliminating the need for bank branches. But consumer surveys show otherwise. Some 69 to 78 percent of bank customers, including those who also bank online, use bank branches about the same or more often than they did last year.

A study by Gomez, Inc. is more ambitious in its estimation of online banking’s popularity. It found there are already 13.6 million of what it calls “Active Web Bankers” in the United States, up from 6.1 million at year-end 1999. Another 16.3 million prospective Active Web Bankers are poised to fuel further growth in consumer adoption. Gomez says these customers are shopping for financial products online, prefer the Internet to other channels for routine customer care and are interested in some, but not all, of the online services that banks are rolling out.

“Web banking has become a major component of the product, service and delivery strategies of major banks and it’s becoming a business in its own right,” said Chris Musto, Gomez’s vice president of research. “But banks have yet to put their Internet delivery capabilities to use in maximizing their profits. Web banking customers present compelling opportunities to improve the bottom line while improving the customer experience.”

To help banks generate revenues from online bankers, the Gomez study points to opportunities to cross-sell financial products by examining how online banking customers applied for the last financial product they acquired and how they intend to go about acquiring their next financial product. Identifying a strong readiness among online bankers to use the Internet for a range of customer service tasks, the study suggests that banks could be more aggressive in migrating online banking customers more fully to Web-based services.

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