Three weeks ago, FleetBoston’s Blaise Heltai told the audience at American Banker’s technology conference that Fleet’s online base is now the size of its New York City market. His observation reinforced a point we’ve been making for years: online banking is not a niche play, but rather a substantial profit opportunity. Indeed, online banking has become the fourth pillar of retail banking success joining people, products, and branches.

Fleet with its 56% online banking penetration, highest among major financial institutions, may be a little further down the curve than most. But it’s amazing what the numbers at the bottom of your spreadsheet look like when 30%, 40%, or 50% of your customer base use the channel. And given the upscale demographics, raw penetration figures understate the total value. Many banks will soon find that online users account for the majority of retail banking profits.

The recent spike in usage has a dramatic impact on planning and budgets. Seemingly trivial Web site changes, things you could never have gotten into the 2001 or 2002 budget, now will significantly impact the bottom line. For example, during a routine technology upgrade, SunTrust found that its limited-use online chat function was generating $1 million per month in revenues.

At American Banker’s conference, speakers no longer debated whether online banking could be profitable; they debated how best to measure the OBVIOUS bottom-line contribution from new revenues, cost savings, and the more intangible retention benefits.* Bank of America recently discovered that online banking and bill payment advertising is driving in more new customers than other general advertising concepts. For example, the bank’s humorous, televised bill-pay spot features two men in a boxing ring competing to see whether the one with the laptop and BofA online can pay bills faster than his counterpart writing paper checks. In concept testing, the bank found that 9 out of 10 viewers said they would take some action based on what they saw, one of the best test results the bank or its agency had ever seen. You know you are on to something when bank advertising outpulls beer ads.