Source: Online Banking Report, 1995 – 2000             

*1995 list is not directly comparable; it simply lists the top 10 financial Web sites of the year.

 

Top 10 Industry Events

 

1

 

Net-Banking Usage Soars: It’s funny how quickly things change. Just a year ago everyone was talking about the Cyber Dialogue survey (released Aug. 19, 1999) which revealed online banking usage had stalled at 6.3 million users with virtually zero year-over-year growth with as many people dropping out as were signing up. We were skeptical of the data at the time, and now it turns out it was either erroneous or a statistical anomaly. In late 2000, Cyber Dialogue released new results showing 75% growth in online banking users from third quarter 1999 to second quarter 2000. It will be a couple months before year-end numbers are in, but it appears the online banking user base may have grown 60% to 80% or more in 2000.

2

 

Banks Trip over Themselves to Embrace Account Aggregation: We believe in account aggregation for the long haul. In fact, Citibank’s myciti.com, a site built by Yodlee, was named our number one innovation of the year .  But given the sparse customer demand for the service, we don’t quite understand the big-bank feeding frenzy surrounding it. A year ago, not a single bank, large or small, had publicly endorsed the service. Now, most of the top retail banks have either launched the service or will launch it within the next 6 to 9 months.

Interestingly, the Internet-only banks, which are presumably more in touch with online users, have been slower to adopt aggregation. Virtual Bank and DirectBanking.com are the only two Net-only banks live with the system today, and NetBank has a beta test with 6,000 users in progress.

Does this mean the big banks are out-maneuvering the Net-only banks? We don’t think so. We believe the Net-only banks are simply being pragmatic, rolling out the service after more of the bugs have been ironed out. These companies realize significant costs are associated with educating consumers, staff, and vendors about the ins and outs of account aggregation. Without deep pockets to draw from, the Net-only banks are content to wait, taking the role of fast follower instead of leader.

Dick Vague, CEO of Juniper Bank, told us at BAI’s Retail Delivery last month that his Net-only bank would introduce aggregation in first quarter 2001, not because they expect users to flock to the service in the short-term, but so the bank can gain experience selling and servicing aggregation before it takes off.

3

Net Finance Market Caps Plummet: During 1999, market caps skyrocketed giving Net startups unprecedented power to influence the Internet financial services market. After the 2000 crash, things are back to normal with startups fighting every day for revenue, investors, and survival. Overall, this trend is likely to favor the incumbents. But the plethora of media attention surrounding stock declines and bankrupt startups negatively affects the ability of even established companies to get internal funding for new Net-related projects.

4

Net-only Bank Brands Regroup: Closely related to number 3, several of the higher-profile, and higher-cost, Net-only efforts were scuttled or scaled back: Citibank ditched the Citi f/i brand and went instead with the Yodlee-built myciti.com account aggregation site; WingspanBank began touting its Bank One relationship in advertising; X.com drops out of retail banking to focus 100% on its PayPal payment system; and NextCard shelved its retail banking plans for NextBank.

5

 

Turnkey Interbank Funds-Transfer Systems Become Widely Available (from vendors): Although it will be a year or two before these services are widely available for end-users, we believe the programs from CashEdge, ECash Technologies, and CertaPay, along with home-grown systems at bigger banks, will become a must-have feature across all online banking programs. Unlike account aggregation, interbank funds transfer is straightforward and doesn’t require customers to be trained on the system or educated on its benefits.

6

The “Bill Presentment at Bank Sites” Fantasy Fades Away: With the demise of Microsoft’s bill presentment play, Transpoint (sold to Checkfree, Feb. 15, in a stock transaction valued at $1 billion at the time), the future of bank-facilitated bill presentment looks considerably dimmer.

We’ve debated this issue with execs from Checkfree and other payment companies for years. The payment vendors paint a rosy picture of tens of millions of consumers logging into master bill-pay consoles housed at their bank’s Web site. We never bought it. We couldn’t understand how the extra effort to post bills at a third party could be justified when billers and consumers can exchange bills, payments, and questions directly through email; an interface already mastered by most Web users.

If you’ve ever been to a bill presentment conference, you’ve probably heard Richard Crone’s diatribe against retail bank involvement in the space. His “bills are compelling content” argument for the so-called “biller-direct” model is slowly coming to fruition. Crone recently left CyberCash and is marketing his expertise as an independent consultant once again.

Contact: Richard Crone, rcrone@aol.com , (650) 592-4006.

7

One Million Hours¹ Wasted in “Wireless Strategy” Meetings: If you are in North America, you are wasting your energy planning for the wireless Web. Sure, some day we’ll all use the Web from a wireless device. As a matter of fact, 20 or 30 years from now there won’t be keyboards or modems or monitors. We’ll just speak into a mike embedded in our clothes (or skin) and receive answers directly to a speaker or screen mounted in a similar fashion.²

While these technologies make great science fiction, banks should not be wasting energy on them in 2000 or 2001. Rather than debating how your services work on a 2-inch screen in a coffee shop in Northern California, concentrate on how to service customers effectively with an email-based service optimized for an office or den in Peoria. If you do that right, you’ll have something that works for desktop PCs, tiny wireless devices (that receive standard email), and anything in-between.

8

Net Banking Becomes Far Easier to Use: Many banks went through exhaustive Web makeovers this year. As a result, navigation is better, copywriting is more professional, graphics are more appropriate, servers deliver pages much faster, online banking demos do a better job selling, online applications are understandable, and online banking login is on the home page. As a result, Web banking programs have become much more popular, especially for novice users.

9

Y2K Task Forces Redeployed: It seems so long ago, but remember how many resources were sucked into that non-event in 1998 and 1999? This year, Web banking received far more IT attention, and it showed.

10

Fraud Made a Bad Situation Worse for Online Retailers: While Net retailers were far less popular with investors, employees, and suppliers, one group enthusiastically embraced the B2C sector: thieves. While fraud levels were a closely guarded secret at most retailers, a few revelations, such as Expedia’s disclosure that it was taking a Q1 2000 charge of $4.1 million to cover credit card fraud, provided a glimpse of the magnitude of the problem.

The significance for online banking is clear: merchants desperately need a solution that works better. PayPal for one is working on a payment system that bypasses the credit card system and delivers good funds to merchants for about the same price as the “non-guaranteed” (card not present) funds from a credit card purchase. Banks also have the opportunity to step in and create workable good-funds systems that protect both online buyers and sellers from fraud and loss of privacy.

¹The one-million number is a wild guess and is probably on the high side, but it sounds good. Derivation: 10,000 financial institutions times 10 people involved per company times 10 hours per person.

²Our favorite fictional vision of the Web’s future is Neal Stephenson’s “Snow Crash,” a widely acclaimed sci-fi book first published in 1994.