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 days¹:

•  Registered for online² access to checking, credit card³, or loan/mortgage account access.

•  Signed up to pay bill(s) online.

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

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

•  Authorized a bill payment online at any bank, non-bank, portal, or biller site⁴.

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

(2) Online is any computer and modem connection via proprietary software, Quicken, Money, or the Internet; access can be from home, work, school or public terminal.

(3) Most research companies exclude credit-card-statement-access-only households in their online banking totals, we do not; we estimate that this category currently contains 1+ million households.

(4) Simply viewing a bill at a biller’s site, with no payment authorization, is not included.

When we first started publishing OBR in April 1995, there were only about 300,000 online banking users in the United States. During the ensuing 4.5 years, the user base has grown 30-fold, but the promise of online banking has still been largely unfulfilled. Consider these tidbits fresh from the spreadsheets of the top market research houses:

•  Users may be dropping out as fast as they are being added: In a study fielded in July, Cyber Dialogue www.cyberdialogue.com found 9.4 million households that had ever used online banking, but nearly a third, 3.1 million had stopped using it, leaving 6.3 million active users, just 100,000 more than a year earlier.

•  Bill payment is still a bust: Some 15 years after its introduction, Forrester found only 2 million active bill pay households at year-end 1998; and 45% of those had just begun using it in 1998, leaving only 1.1 million experienced bill payment households.

•  Bank Web sites are anything but sticky: Forrester found that only 3.6 million households visit their bank’s Web site more than once per month; and only 9.3 million have ever visited their bank’s Web. Another way to look at it: the monthly unique users of all U.S. banks combined would fall somewhere between MSNBC.com’s 6.3 million (#28 on Media Metrix’s Top 50) and iVillage’s 4.5 million users (#34). Note: This is bank customer traffic only, not including the substantial number of non-customers checking out offers for credit cards and other products. For example, Media Metrix pegs NextCard’s traffic at more than 750,000 unique visitors per month.

Except for Cyber Dialogue, most research indicates that industry growth remains strong this year, but is running behind the pace we had expected. In December (OBR 12/98), we predicted 70% industry growth, or five to six million new online banking households in 1999, resulting in a total market of 12 to 13 million by year-end. It now looks like year-over-year growth will be more like 50% to 60%, adding three to four million households, for a year-end total of 10 to 11 million . Here’s what’s going on:

Negative Impacts to Forecast:

•  Bill presentment has fizzled (again): We figured Transpoint, Checkfree and others would have pulled in more than a million new users by year-end; the actual results will probably be about one-tenth that amount. (We weren’t alone in our optimism. In a Dec. 98 report, Jupiter Communications predicted 3.5 million bill presentment users in 1999.) The new scan-and-pay providers may jump-start the market in 2000 and 2001 if they hook up with brand name financial institutions (OBR 6/99), but their numbers will be insignificant in 1999.

•  Usage is lagging: Clearly, banks are having success in registering new users: BofA has more than doubled its reg. base to 1.4 million; Wells Fargo also has doubled in size to 1.2 million and says it is growing at 100,000 accounts per month (July). But, since registration is often free, that

Survey of Current Research**   

millions of U.S. households using online banking

*Does not include HHs paying bills online but not doing any banking. **See Research Notes , for more explanation and forecasts doesn’t mean a whole lot. Some banks are even subsidizing online access with discounts on other banking services. For example, in the Seattle market, Wells Fargo customers are offered free checking if they simply agree to register for (free) online banking. This cross-subsidy has been advertised heavily and partly explains the bank’s phenomenal online account growth. It may be a long time before these “free” accounts become actual online users; but at least Wells has their email addresses. That’s more than you can say for my bank, US Bancorp, where I have used online banking for six years but have yet to receive my first email (not counting messages downloaded within the Microsoft Money interface.)

•  Email isn’t being used to boost usage: In our Increasing Online Usage feature (OBR 3/99), we discussed the importance of using email to keep your online banking program in front of users. While no major players have fully integrated email into their online banking programs, a trickle of activity has begun. For example, First USA now notifies cardholders via email when they’ve posted a new statement. But we are still waiting for First USA’s offspring, WingspanBank, to send us our first email, two and one-half months since we opened an account (see sidebar right).

Positive Impacts to 1999/2000 Forecast:

• Web-based financial firms are beginning to saturate the Web with advertising. In fact, GetSmart, NextCard, Capital One, and Wingspan, had recently had banners on weekly Top Ten Most Seen lists distributed by Nielsen/NetRatings. In August, NextCard was the fourth most prolific advertiser on the Web as measured by total reach. The company’s banners were served up to 30.8% of all U.S. Web users. Only Microsoft (46%) and Amazon.com (45%), and AOL (32%) reached more Web users. WingspanBank was sixth at 27.1% (source: Ad Age/Nielsen).

• New big bucks entrants such as Wingspan (OBR 6/99), CitiFI , American Express (OBR 6/99), and E*Trade/Telebank promise to increase public knowledge and awareness of Net banking

With the usual annual fall marketing blitzes, especially credit card offers by Wingspan/First USA, NextCard, Capital One, Providian, Citibank, and free everything from Net.B@nk, CompuBank, and others, total online banking usage should tick upwards at a faster pace than the first part of the year. Whether the new enrollees are converted to active users depends on how well the industry executes activation and usage programs (see OBR 3/99).

Update on OBR’s WingspanBank.com Experience

Last month, we reviewed WingspanBank’s Web site and product line in depth (OBR 6/99 ), rating it an “OBR Best of the Web.” However, we continue to be surprised at the lack of follow through with new accounts: (1) The bank never informed us whether our overdraft line of credit had been approved; we had to log in to our account and look to see that it had. (2) We were beginning to wonder how we possibly could have missed winning $100 for being one of the bank’s first 10,000 accounts. Finally on Sept. 3, nine weeks after applying online, we received a snail mail letter telling us we’d won the $100 providing we jumped through one more hoop. To claim the dough, we had to return a snail mail form agreeing to the terms of the contest. We are still waiting (as of 9/15/99).