During the last 18 months, online banking has become a common activity among its primary targets, middle- and upper-income households. Here are the primary reasons why usage has continued to grow rapidly despite a poor climate for other ecommerce activities:

Major Milestones: 1999 to 2001

Source: Online Banking Report, 8/01

• Continued rapid growth in email payments: Email payments were the first online banking feature to gain “gee whiz, why didn’t I think of that” status; crucial for generating buzz and word-of-mouth. Although plagued by fraud and disgruntled customers, the dark side of the payments business, the leading provider, PayPal, has been able to dramatically raise prices while continuing to grow its business. The privately held company claims to be nearing profitability.

• Easier-to-use services: During 2000 and continuing this year, bank Web sites become far more user-friendly with easier signup procedures, prominent login buttons, good demos, well-organized FAQs, and better customer service.

• Strong growth in bill payment at biller sites: Forrester was the first to quantify this new trend in its July 2001 report, Bill Payment Goes Mainstream. In this report, Forrester found that 7% of online consumers pay at least one bill online at a non-financial institution. That total is up from nearly zero just two years ago. And it’s already equal to the 7% of online consumers that pay bills through a bank service, a number that has been growing at only about 20% per year.

• Word-of-mouth effects: Like the network effect important to high-tech product adoption, online banking has its “neighbor effect,” when your neighbor figures out how to bank online, you decide it’s worth checking out.

• Negative press: The current wave of ecommerce bashing hasn’t helped bank marketing efforts. But as the down cycle plays itself out, there should be new round of more optimistic stories.

• Less capital investment: Not only has the VC money dried up, many banks have curtailed their spending on online initiatives.