Net Banking Catches Fire

We’ve been waiting five years to write that title. Are we crazy?
Since August, when Cyber Dialogue reported that the online banking user base had flattened out at 6.5 million, the press has been writing online banking obituaries. Even Red Herring, one of the
most articulate sources of technology trends, recently led with this line in
its online edition (3/28), “It appears that banks and other financial institu-tions can’t go completely virtual—they need physical branches after all.”

That’s nonsense. Fidelity Investments has done quite well without branches. Same for Capital One, Vanguard, and hundreds of other financial services companies. Physical branches are great marketing tools and help deliver a few low-margin services such as safe deposit boxes, teller-assisted deposits, and face-to-face customer service. Clicks-and-mortar is a winning strategy, but certainly not the only one.

So why do we think Net banking is catching fire? One word, actually one letter, X. The buzz-building Silicon Valley startup X.com is delivering useful, low-cost, and easy-to-use financial services. Just look at the numbers posted in the four months since launch.

(1) All 134 banks tracked by PC Data, not including X.com/PayPal, had 12.5 million unique visitors

(2) There is considerable overlap between X.com and PayPal traffic.

(3) Combined X.com and PayPal; unique customers in March, some overlap prior to March

In Crossing the Chasm, Geoffrey Moore hypothesizes that new products
must cross a difficult barrier to move from niche appeal to mass-market acceptance. By integrating email with payments, X.com appears to have found a way across the chasm. Leveraging this appealing and viral product, X.com and a host of imitators will lift online banking household penetration to the 15% mark this year, 20% next year, and 25% in 2002..