After reviewing the latest research and projections from various technology companies and research organizations, we are sticking close to our January 1998 (OBR 1/98) forecasts for online banking usage, although we’ve slightly broadened and clarified the definition of “online banking household.”

In the past, we only counted users that had banking or bill payment activity during the past months. We’ve lengthened that window to 90 days. We also now include the relatively small number of users who access credit card and loan data online, but are not yet hooked up to their checking accounts. These changes had the effect of increasing projections by 5% to 10%.

Definition: Online Banking Household

For the purposes of our forecast, we consider a household to be using “online banking” if they have done any of the following during the past 90 days*:

•  Registered for online** access to checking, credit card or loan (including mortgage) data.

•  Signed up to pay bill(s) online.

•  Paid a monthly fee for an online banking or bill pay program.

•  Accessed balance or transaction data online for a checking account, credit card, or loan (including mortgage).

•  Authorized a bill payment online.

* Households that haven’t used the system for more than 90 days are considered non-users.

** Online is defined as any use of a computer and modem connection through a private line, proprietary dial-up connection, Quicken, Money, Managing Your Money, or the Internet; access can be from home, work, school or public terminal.

It looks like we are on track to hit our mid-range projection of 7.5 million U.S. household users by year-end 1998. Here’s what’s going on:

Negative Impacts to Forecast:

•  Bill presentment looks like a non-starter this year. We figured MSFDC, Checkfree and other bill
  
  presentment providers would have contributed a half million new users by year-end 1998.
  (Note: To fit our definition, a user need only pay a single bill online every quarter to be counted). Next year should be different, barring any unforeseen catastrophes. We figure 1 to 1.5 million incremental users industry-wide by year-end 1999.

•  Y2K debugging/hysteria is sapping more resources than anticipated.

•  The merger mania among the banking titans has diverted resources from some of the larger online banking programs, especially NationsBank, Bank of America, and Bank One.

Positive Impacts to Forecast:

•  Low mortgage rates and the proliferation of solid mortgage and home buying sites such as GetSmart, QuickenMortgage, and NextCard have resulted in higher-than-expected adoption of online lending services (see OBR 5/98).

•  Despite merger uncertainties, Internet banking has finally arrived at a number of major banks including NationsBank in February, First Chicago and Citibank in June, Fleet, PNC and National City in July; and BankBoston in August.

With the usual annual fall marketing blitzes, total online banking enrollment will likely near 10 million by year-end, resulting in 7 to 8 million households meeting our definition of “online banking” (see sidebar at left). When and if the enrollees are converted to actual users depends on how well the industry executes activation and education programs.

More importantly, migrating your online program from a pain-in-the-budget cost center to a growing profit center hinges on marketing and delivering credit products, preferably on a preapproved basis, to your captive audience of Web users.