Every year we publish a revised online banking forecast. The exercise is somewhat futile since we are skeptical of new technology adoption forecasts, knowing that by definition they are wrong. Yet, every spreadsheet and business plan needs a forecast as a starting point, so we do our best to deliver one that is hopefully less wrong than others.

Our process is to gather and review the forecasts from prominent online banking researchers and analysts, compare and contrast their results, add our own professional insights, and publish a forecast with accuracy estimated at plus or minus 20%. Over the years our track record has been respectable. Our first forecast in Jan. 1998 predicted 22 million households by year-end 2001. That prediction looks to be right on the money.

Definitions

Sometimes it seems as though the analysts are gazing at two entirely different planets. How is it possible for respected researchers at Gartner to claim more than 30 million online banking users while the equally savvy bunch at Jupiter says only 15.5 million? Usually when the numbers are dissected, you find that much of the variance comes from the definitions used; for example, Gartner is tracking individual online users while Jupiter tracks households. Furthermore, Gartner is counting all banking products including deposit accounts, credit cards, bill payment, and email payments while Jupiter is tracking payment accounts separately (see Table 5, below).

Like Gartner, we use the broadest definition of an online banker, (Table 4, below) including deposit account access, electronic bill payment, credit card access, and email payments through PayPal. However, we also track households rather than individual users.

The Latest Forecast

In our last major forecast update, (OBR, April 15, 2000) we projected 15 million online households by year-end 2000 and 20 million by year-end 2001. It appears actual results will be slightly higher, an estimated 15.5 million in December 2000 and 22 million by the end of this year. The biggest upside surprise was in the payments area with the huge growth in paying bills directly at billers’ Web sites. This activity grew from an estimated 1 million users in 2000 to 5 million in 2001, and is expected to hit 10 million in 2002.

Another important trend is the sharp increase in Power Users, households that access bank accounts AND pay bills. Beginning the year at just 3.5 million households, this category more than doubled, growing an estimated 4.5 million to end 2001 at 8 million households. We expect another 4 million households to attain power user status in 2002, ending next year at 12 million, more than triple the 2000 number. This shows that not only is online banking penetration growing, but also the level of usage is increasing.

For 2002, we project an overall growth of 5 million new online banking/bill pay households (range: 3 to 6 million), about 25% fewer newcomers compared to the 6.5 million added in 2001. Also the rate of growth will slow significantly from 42% in 2001 to 23% in 2002 (range: 15% to 24%). Online banking penetration in 2002 is projected to be 25% of all U.S. households (range: 22% to 28%) and 41% of online households (range: 36% to 46%).

Source: Online Banking Report, 9/01        n/o = not offered

1)        See account definition, Table 4

2)        Household has used at least one of the following 9 account access and payment services listed below (+/- 20%)

3)        Household has used at least one of the following 5 statement access services (+/- 20%)

4)        Includes any FDIC-insured deposit account (does not include brokerage cash accounts held in money market mutual funds) (+/- 20%)

5)        Includes users accessing credit and charge card accounts online even if they don’t use an online checking account (+/- 30%)

6)        Uses (not just registered) account aggregation services (e.g., Yodlee, uMonitor) at any site, bank or non-bank (+/- 40%)

7)        Subset of statement aggregation that monitors loan payments, balances, and helps user minimize total interest expense (+/- 50%)

8)        Subset of account access; any of hundreds of email notifications triggered by account balances or activity; includes full statement delivery as well (+/- 30%)

9)        Uses any of the following 4 epayment products; does not include online purchase using a credit or debit card (+/- 25%)

10)      Pays bills to multiple billers at a third-party site (not the biller’s site); the third party can be a bank, non-bank, Web site, Quicken, or Money (+/- 25%)

11)      Sends money to any person or business using email payments, e.g.,  PayPal (+/- 35%)

12)      Pays bills directly at the biller’s Web site, or directly to the biller in response to an email message (+/- 35%)

13)      Subset of third-party bill payment, e.g., PayTrust/PayMyBills.com, CyberBills (+/- 50%)

U.S. Households Banking Online (millions)