The latest research is now available: Online Banking Report: 2012 to 2021 Online & Mobile Banking Forecast. The report includes our latest 10-year online banking, mobile banking and bill-pay forecast for the U.S. market. Online banking remains relatively flat, growing less than 5%, while mobile expanded by more than 40% last year (see note 1).

We still believe mobile is on a path to surpass online banking in the United Sates by the end of the decade (note 2). Although by then, the two will be very similar, if not identical.

The report also includes a revised 10-year forecast for U.S. peer-to-peer lending. After growing five-fold in two years (2011 vs. 2009), we expect continued strong growth of nearly 40% compounded annually through 2021.

Finally, we took one last look at 2011 and documented the top ten innovations or trends of the year (see below). We also updated our top-10 project priorities for 2012.

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Top innovations & trends of 2011
__________________________________________________________

The report includes a summary of the top ten innovations or trends during the past year (in alphabetic order):

• Ad-supported banking gains a foothold
• BillGuard launches transaction-monitoring tool (screenshot below)
• Capital One acquires ING Direct USA
• Mobile banking goes Android
• P2P lending doubles 
• PFM turns its attention to debt management
• Square re-engineers off-line POS
• Social media-fueled banking backlash
• Truly virtual banks arrive
• Youth banking gets a powerful new entrant

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New entrants to the OBR Hall of Fame 
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Each year we rank the top online/mobile innovations of all time (North America). There are a total of 46 achievements listed from 45 unique companies:

• 15 banks
• 5 credit unions
• 10 non-bank financial services companies
• 15 technology companies

The class of 2011 included three new entrants:

• BillGuard for creating a PFM application (transaction scanning) that provides tangible value to the mass market
• Doxo launches first full-featured virtual billing file cabinet 
• Mint for putting all the pieces together to create a compelling online personal financial management system (note 3)
• Personal Capital, for doing for wealth management what Mint.com did for retail customers

__________________________________________________________________

About the report 
__________________________________________________________________

Online & Mobile Banking Forecast (link) 
The next 10 years: 2012 through 2021

Author: Jim Bruene, Editor & Founder

Published: 6 Jan 2012

Length: 40 pages, 27 tables, 14,000 words

Cost: No extra charge to OBR subscribers, US$495 for others here

-------------------------

BillGuard is one of four new companies added to the OBR Hall of Fame in 2011 (9 Jan 2012)
Note: Powerful homepage message: Protect Your Money

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Notes: 
1. The penetration of online banking into U.S. households is relatively flat going forward. However, because each household accesses a larger number of financial accounts, growth at individual financial institutions is still growing on average. 
2. Forecast is for the United States. Mobile has already surpassed all types of banking in some developing countries. 
3. Mint.com is being added four years past its 2007 launch. Since it didn't pioneer any specific new features, we hadn't put it on the list. But, we've decided its legacy of improving the user interface for online banking is worthy of making it into the OBR hall of fame.

BankSimple has already become well known among the digerati and its notoriety is spreading to the mainstream press (here and here). Bank Simple's latest PR coup was being named Tuesday to the Bank Technology News annual top-20 innovators list (see note 1).

Quite a feat for a company that hasn't yet launched or even shown its service outside a small group of testers (note 2).

Lifehacker Asks, "Are you happy with your bank?"
Lifehacker, a popular blog (note 3) that deals with personal productivity and other minutiae of day-to-day living, positioned the BankSimple story as a backlash against traditional banks in a post titled, "Are You Happy with Your Bank?"   

After a few speculative paragraphs about Bank Simple, the blog concluded with a quick poll to see how motivated its readers were to switch banks. I expected this self-selected sample to be very anti-bank. But surprisingly, more than half the 3900 voters declared themselves relatively satisfied with their bank. Only 13% said they were unhappy and another 30% said they'd consider consider switching.

Given the sample bias, you can't read too much into the the data. But it does demonstrate that even in a worst-case polling situation -- where participants are pre-conditioned with a vision of a utopian entity that does everything right with nary a fee -- it's still difficult to budge consumers away from their existing bank/credit union.

Notes:
1. Four recent Finovate alums were also listed: Backbase, CashEdge, Intuit, and Segmint (see our Finovate blog post yesterday).
2. If you read all the published articles, a fairly thorough picture of Bank Simple emerges. It will not be a bank, but a simple web 2.0 interface (e.g., Twitter/Tumblr) on top of a checking account (e.g., what PayPal did for online payments ten years ago). 
3. According to Compete, Lifehacker averages about 1.2 to 1.5 million unique U.S. visitors each month.

I've often wondered how many people use the same username/passwords at their bank as they do at other random websites. I figured it was a substantial number, but never expected it to be as high as the 73% Trusteer cited in a recent white paper (note 1). That's why most financial institutions have used "multi-factor authentication" for years.

One of the most common multi-factor techniques is to ask additional questions if the bank detects a login from an unknown computer. However, it's possible that these same people are also using the same "secret question" answers at non-secure websites, defeating this multi-factor approach.   

Luckily, it's still relatively difficult to remove money from most U.S. consumer accounts because online interbank transfers are more tightly controlled, or simply not offered. However, if crooks are able to log in to online/mobile banking and determine the user's account numbers (debit, credit, or checking), a number of more lucrative frauds can be engineered.

What's a bank to do:

• Use secret questions that are not commonly used across the Web. Or allow users to create their own, but caution them not to use ones they see at other non-banking websites.
• Create an additional out-of-band authentication process (e.g., text message an approval code) for moving funds out of an account.
• Do not allow online banking users to see their own account numbers online
  (note 3)
• Educate/encourage customers to use different username/password for online banking than for other non-financial sites
• Financial institutions using Trusteer's Rapport service can identify which customers are sharing username/passwords at less-secure sites and ratchet up internal fraud control settings for these customers

And the most effective method, which we don't recommend because it's just too painful for the user experience:

• Force users to make more challenging usernames and/or password such as those with a capital letter, number and/or special character

Silicon Valley Bank (SVB) offers Trusteer's Rapport (link, 2 Feb. 2010)

Notes:
1. While 73% shared banking passwords with other sites, less than half the total, 47%, shared BOTH username and password. Two other data points:
- 65% of user-selected banking usernames were used elsewhere
- 42% of bank-selected banking usernames were used elsewhere
2. Trusteer's data was compiled over 12 months using its plugin software running on more than 4 million computers (see previous post).
3. There's still the issue of the easy-to-read account number on check images; it would be nice to mask it, but that's probably not worth the expense) 
4. For more info on Trusteer and other security topics, see our previous reports such as, Online Banking Report: New Security Techniques (Sep. 2008)

Last week, I attended the BAI Retail Delivery conference in Boston (for more background on the event, see note 1). I enjoyed the show tremendously.

What's not to like? Famous speakers, new products, several thousand attendees, statistics galore, and a floor filled with new bank tech. For me, the only disappointments were the non-industry keynoters, who are not why I attend, but are something to tell your friends and family about when you get home (note 2).

Like last year, I'll cut to the chase and hand out my personal awards for the event. I saw only a tiny fraction of the companies, so the list below shows merely my favorites culled from about two dozen company interviews. 

The Netbanker awards

• Biggest buzz: Person-to-person payments (we'll cover it in Online Banking Report soon) 
  Runner up: Mobile banking and payments
• Most likely to make the cover of FastCompany: Cardlytics (will cover next week)
• New solution most likely to be used by 1000 financial institutions: Continuity Engine's semi-automated, compliance task-management service
  Least likely: Microsoft Surface, as cool as it looks, I just don't see banks deploying it in large numbers
• Most audacious business plan: Moneta, winner of this very award last year, but did indeed appear in Boston with a major client win, SunTrust (see Celent's Jacob Jegher's not-at-all enthusiastic post on the announcement)
• Best ah-ha moment: When Joe Salesky, Clairmail founder, observed that mobile banking is a 100% solution, meaning it's for every customer NOT just the half that do online banking
• Biggest surprise: The buzz around person-to-person payments and relative lack of buzz around online PFM
• Most-talked-about vendor without a booth: PayPal which announced partnerships with three large bank tech companies: S1, FIS, and First Data's STAR unit
• Coolest online feature, not yet available: Credit card available-balance meter displayed directly on the user's PC desktop, powered by Worklight
• Coolest new GUI feature: Fiserv's ebill snapshots
• Best demo (I'd not seen before): Dynamic Card Solution's instant issue of a credit card with my picture on it along with a background image I chose from hundreds available
• Best-attended breakout session (that I attended): Checking 2.0 which analyzed what the product might look like if NSF/OD fee revenues are materially limited
• Best number: From the opening remarks by BAI director, Debbie Bianucci: According to BAI research five years ago, one-third of consumers preferred to deal with their bank remotely; now, two-thirds do
  Runner up: Bank of America's Doug Brown revealed in his presentation that BofA has 3.5 million active mobile banking users (see recent monthly growth below)
• Scariest number: A prediction from Sherief Meleis (Novantas) that new regulation could wipe out 20% to 40% of total checking account revenue
• Missing in action: Security solutions
• Coolest new event technology: Real-time text voting in the Checking 2.0 session
  Runner up: Wifi available conference-wide for the first time ever
• Most intriguing co-brand opportunity: Getting the bank logo on PayPal messaging (FIS, S1) to payment recipients or during payment sessions (FirstData STAR)
• Product I most wanted to use now: Digital Insight's (Intuit) FinanceWorks with Turbotax integration
• Best screenshot: Lamping on the iPhone (powered by ClairMail); I call it the "little red number" superimposed over iPhone icons, that tells you how many messages are available (see inset)
  Runner up: Worklight's visualization of its widget running in four environments with essentially the same GUI (see below)
• Best party: Geezeo's blowout at Lucky's
• Best freebie on the floor: Fresh lemonade from the wonderful people with a booth by the front entrance
• Netbanker spotting: Quote in BofA's Doug Brown's Powerpoint regarding BofA threepeat (in the mobile marketplaces)

And I'm always collecting usage stats and other numerical detritus delivered during the presentations. Here are my notes with (source in parenthesis):

• 27% of U.S. households are now mobile only (Doug Brown, BofA)
• New mobile customers at BofA last 3 months: 150,000 (Sep); 210,000 (Aug); 220,000 (July) (Doug Brown, BofA)
• In U.S. and worldwide, text message volume has surpassed voice call volume (Doug Brown, BofA)
• 99% of mobile users view balances, 90% view transaction detail, about $10 billion of funds have been moved via mobile transfers/bill pay; 15 million location-based searches being performed (annual run rate)
• BofA has 35% of all mobile banking users (Doug Brown, citing ComScore numbers in 2009)
• BofA has added 150,000 new checking accounts due to mobile offering
• BofA seeing voice calls decline among mobile users, but online banking usage holding steady
• In pilot, 94% of the users of TurboTax within FinanceWorks chose their host banks to deposit tax refunds (Digital Insight/Intuit)
• More than 50% of iPhone users have used mobile banking in past 30 days (Javelin Strategy)
• 33% of mobile banking users monitor accounts daily, 80% weekly (Javelin)
• Customer willingness to pay fees for (Novantas):
  -- Teller transactions 8%
  -- Bill pay 12%
  -- Mobile banking 12%
  -- Paper statement 19%
  -- ID protection 27% 
• At ANZ, 65% of its Yodlee-powered PFM (launched Oct 2008) users visit daily; 89% visit weekly (Doug Brown, ANZ; not a typo, there really were two Doug Browns)
• 81% of its PFM users rated the service at least 7 points on 10-point scale (31% rated 9 or 10; 50% rated 7 or 8)
• ANZ's PFM is a standalone free service that can be used by anyone; so far, 20% are non-ANZ customers; the business case for the service was built on customer acquisition, but they also may charge certain users for certain functions
• Yodlee-powered PFM users spend twice as much time online at the bank than regular users, and only 1.5% leave the bank each year compared to 7% of regular online banking customers 
• Worklight case study results:
  -- 8% to 15% of online customers install widgets within the first year
  -- 95% of widget users are active
  -- Customers conducted 15 to 30 sessions/month via widgets

Worklight widgets running on a variety of platforms (4 Nov 2009)

Notes:
1. About BAI Retail Delivery Conference 2009
BAI Retail Delivery is an annual rite of passage for bank tech strategies, delivery system analysts, and product managers. At the peak, in 1999/2000, there were as many as 10,000 people there (attendees + exhibitors) and close to 500 exhibitors stretching perhaps three or four city blocks in each direction through cavernous exhibit halls. It was a little like Times Square but without the highrises. Some exhibitors had massive 10,000 square foot booths filled with hardware. And the show-floor routinely sold out.

Financial institutions brought teams of people to pour over the new machines and software solutions, be inspired at the general sessions where Bill Gates, Roll Perot, Scott Cook, and other tech-industry luminaries showed up to win over the bankers.

Fast-forward a decade. It's still an awesome event which I highly recommend. I thoroughly enjoyed every conversation I had and most every session I attended. But the event has downsized considerably. This year, you could walk across the exhibit hall in a few minutes. And if you wanted to, you could have spent five minutes with all 180 companies during the show hours. That would have been impossible last year with around 300 exhibitors. But all-in-all, I'd say there was more energy on the floor this year because the attendee per square foot ratio seemed much better.

2. Unfortunately, on Thursday both Al Gore (planned) and Jack Welch (unplanned back problems) phoned in their keynote addresses via sat-link.

In an article in today's Austin Business Journal about the coming launch of mShift-powered mobile remote deposit at Randolph-Brooks Federal Credit Union, the CU revealed its penetration number in its EasCorp-powered, home-scanner-based service, eDeposits:

Total members: 300,000
Total checking account customers: 202,000
% of checking using remote deposit: 5%
Number of remote deposit users: 10,000 (derived)
% of members using remote deposit: 3+% (derived)

The San Antonio, TX-based credit union expects more mobile users than in-home users. The product, which debuted at Finovate on Sep. 29, is currently being tested with employees before it rolls out to select customers.

USAA was the first major financial institution to launch mobile remote deposits in August.  But WV United beat them to market in July earning our OBR Best in the Web award. And this week, speaking at BAI Retail Delivery, Bank of America's Doug Brown was bullish on the feature, leading many to believe that the giant would add the feature to its mobile offering at some point (see note). And if that happens, it's not inconceivable the feature could show up in television commercials, either from BofA or Apple.

Note:
1. In response to an audience question after his presentation, Brown said that the bank was seeing 1 million envelope-free deposits made at ATMs every day, and "there was an obvious use-case in mobile". Note that he did not specifically say, or even directly imply, that BofA would launch it, but he also didn't dismiss the idea. 

Feedback is important for improvement and reaching one's maximum potential. That fact is why businesses have regular reviews for top employees, the best athletes have coaches and elite schools have grades. In order to be their best, people and businesses need to regularly receive criticism, suggestions, advice and ideas from others. We at NetBanker are no different.

So we'd love for you to take 5 (or less) short minutes to fill out our annual reader survey (it's completely anonymous). This is your chance to tell us a little about yourself, what matters to you, how we can do better and more. Please help us serve you better by clicking the link below and filling it out right now:

http://www.netbanker.com/2009readersurvey.htm

If you'd rather give your feedback in a more personal way than this survey, please feel free to contact me at eric@netbanker.com. Thanks!

Eric Mattson is CEO of Online Financial Innovations, the parent company of NetBanker, Online Banking Report and the Finovate Conference Series. He can be reached at eric@netbanker.com or 206-331-1178.

Three substantial consumer studies were released this week. In total, more than 12,000 U.S. consumers weighed in on their banking satisfaction. All three projects came to the same and somewhat surprising conclusion:

Consumer satisfaction with banks and/or online banking has remained high, and relatively unchanged, despite the events of the past year.

I expected all the bad press, not to mention a couple trillion in bad loans, would drag down scores across the board. But apparently consumers are loyal to their primary financial institutions, or feel sorry for them, and continue to hand out high grades when market researchers come calling. That's a bit of good news for the future of the industry.

1.  Forrester's The Experiences that Satisfy Consumers 2009 (post here) has an interesting comparison across industries and across channels (phone, in-person, and Web) and Web banking was the star of the study (note 2):

• Banks had the highest satisfaction of all eleven industry categories (note 3) in the Web channel (84%). The low was 66% at health insurers and TV service providers.
• Banks had the highest satisfaction differential between their online and telephone channels, with Web beating phone by 12 points (84% vs. 72%). The next highest was PC manufacturers with a 9-point differential, followed by Internet service providers at +8 points.
• And surprisingly, given how much money is spent on branches, banks had the second-highest satisfaction differential between online and in-person, +5 points (84% vs. 79%). First place was airlines, with a 9-point differential. Third place went to wireless providers at +2 points. 
• Banking was only industry to increase its Web satisfaction rate compared to a year ago
• Only 2 channel scores beat banking's Web satisfaction and both of those were in-person experiences: retailers (88%) and hotels (86%)
  

2. comScore's annual state of the online banking industry (note 4, press release) found that overall customer satisfaction is relatively unchanged during past three years:

• Percent of total customers who were "highly satisfied" of their primary financial institution
  2007 = 70%             2008 = 72%           2009 = 71%
  

3. ForeSee Result's annual state of online banking (note 5, press release) found considerable growth in online banking satisfaction during the past 5 years:

• Out of 100 points, here's the scores for online banking:
  2003 = 73    2005 = 77   2007 = 78   2008 = 82   2009 = 83
• Credit unions had the highest satisfaction in the 2009 survey
  Credit unions = 86    Community banks = 82  Large banks = 82
  

Notes:
1. Forrester: Number = 4,500, fielded Q4, 2008; purchase here for US$749
2. Forrester broke out credit card issuers separately, but their Web and phone satisfaction rates were identical, so I've lumped them together to simplify the analysis.
3. The other categories: Airlines, health insurance plans, hotels, insurance providers, Internet service providers, investment firms, PC manufacturers, retailers, TV service providers, wireless service providers.
4. comScore: Number = 4,846, fielded last week of Feb. 2009
5. ForeSee Results: Number = 2,500, fielded March 3-18, 2009

Two-and-a-half years after USAA was first to offer remote deposit capture to consumers via standard scanners (post here), it appears the technology has failed to gain much of a following outside business circles (notes 1,2).

Quoted this month in Digital Transactions magazine (PDF here, pp. 58-62), John Leekley, founder of RemoteDepositCapture.com, estimates that only 75,000 consumers (and apparently 1 cat, see inset) use the service, less than 0.001% of all U.S. households.

Some other numbers from the article by Jane Adler:

• After 14 months, EasCorp, a CUSO out of Burlington, MA, has just 24,000 registered users across its 30 credit union installations, or 800 per CU (see previous post)
• Other EasCorp metrics:
  • Average deposited check = $900
  • Average deposits per session = $1,200
  • Total amount deposited in past 14 months = $80 million
  • At $900 per item, that amounts to about 90,000 checks processed, or about 4 per end-user
  • Cost per deposit for CU clients is $0.25 per item for "higher volume" customers
• The initial experience at First Command Bank is more encouraging: Since launching in November, First Command Bank has registered 1,600 users for its Deposits on Command across its online customer base of 65,000, for a 2.5% penetration rate (note 3). First Command has a total of 85,000 customers online and offline, so the overall penetration rate is about 2%.
  • Total remote deposits per month are 1,200; slightly under 1 per registered user per month
  • There is no fee for the service, but you must be an estatement user or have an investment account to qualify. Daily deposit limit = $5,000

First Command Bank homepage (14 April 2009)
Remote deposit capture (Deposit on Command) is one of two items that rotate in the top banner-ad slot 

Notes:
1. We are referring here to CONSUMER remote deposit, not to be confused with the very successful business remote deposit.
2. In the same article, Fiserv was cited as projecting growth to 1 million users by the end of 2009, although there was no indication as to when the prediction was made or whether it included business users.
3. If Bank of America had similar usage, it would be well on its way towards 1 million registered users (625,000).
4. Photo from CheckFree/Fiserv

In a completely unscientific poll of 123 LinkedIn users I conducted about two hours ago, I found they overwhelmingly prefer the online channel over all others when accessing bank transaction data (see notes 1, 2, 3).

I was expecting mobile to be higher. But unless you have a new-generation smartphone and your financial institution supports mobile, it's unlikely to be your first choice. So given that mobile's only been widely available in the United States for about a year, a one-in-ten preference is a strong start. 

I also expected a bit more interest in the other choices: ATM, voice and social network, which only drew 3% of responses in total. Social networks went 0 for 123, showing that it's not yet viewed as a place to review financial data (note 4), at least among LinkedIn users. In a much differently worded poll of Facebook users a year ago, we found that 13% willing to view their bank balance within the social network.

Q. All else being equal, how would you prefer to access bank transaction data?

Source: Netbanker/Online Banking Report poll of 123 U.S. Linked:In users who self-selected to respond to poll while logged in to Linked:In; fielded between 1 and 2pm on 1 April 2009 using in-network polling tool.

Notes:
1. The question is strictly limited to 75 characters, I couldn't make it as precise as I would have liked. For instance, I would have like to add "assuming its secure" and "your personal" to "transaction data." It's possible some respondents were thinking more about global banking data than their own personal transactions. The poll also displayed "by Jim Bruene, Owner, Online Banking Report" in the lower-left, potentially biasing results.
2. LinkedIn users are given opportunities to respond to polls while logged in to the service. There is no financial benefit to taking the survey, but they do get to see results after taking it.
3. There were significant differences based on demographics, for instance women were almost twice as likely to select "mobile." And zero men, and 4% of women, chose voice call as the preferred method. But due to the small sample size, these demographic breakdowns don't hold much weight. There also appears to be some mathematical errors in the demographic splits, so I'm not going to cite them further until Linked:in cleans up it algorithms.
4. An interesting result, given the poll was conducted within a social network among social network users. Actually, "the branch" beat social networks, drawing one "write-in vote" in the poll comments (it was not one of the five choices). 
5. For more info on mobile banking see our latest Online Banking Report on Mobile Banking 2.0 -- iPhone Edition. 

If you think your 2008 was stressful, imagine having to shut down for an extended and unknown period (it turned out to be 6 months) just 10 months after launch. Then spending hundreds of thousands of dollars on SEC paperwork that your major competitor avoided (temporarily it turns out), all the while watching that same competitor take your market share while you keep your mouth shut via SEC mandate.

That was Lending Club's year. But unlike so many horror stories of the past year, this one has a happy ending, at least so far. Not only did Lending Club reopen for business Oct. 14 at our Finovate conference (demo video here), within weeks they had already moved ahead of last year's origination pace (note 1).

As you can see in the table below, Dec. 2008 was substantially ahead of Dec. 2007 in all measures except average loan size and approval rate, which dropped a full 2 points:

• Number of applications increased by 78%
• Number of approved loans increased by 43%
• Dollars originated increased by 29%
• Average loan size approved declined by $1,000 (9.4%)
• Overall approval rate was 8.5% last month compared to just over 10% a year ago

Table: Lending Club loan origination results: Dec 2008 vs. Dec 2007

Source: Loan volume from Lending Club, site traffic from Compete, calculations by Online Banking Report, 8 Jan 2009

Here's the monthly origination chart (in US Dollars) courtesy of LendingClubStats.com who compiled the figures from data provided by Lending Club. 

Source: LendingClubStats.com, 8 Jan 2009

Also, site traffic is up 35% year over year according to Compete. 

Source: Compete, 9 Jan 2009

Notes:
1. The number/dollars of loans originated and applied for at Lending Club in Oct. 2008, Nov. 2008, and Dec. 2008 were all higher than the respective months in 2007. 

2. For more info on the market, see our Online Banking Report on P2P Lending.

In April, we reported on the robust adoption of Bank of America's online personal finance manager, My Portfolio (see note 1), used by 10% of the bank's 25 million online bankers. The results are especially impressive given that it's a full-featured module accessible via online banking, but not particularly well integrated.

In comparison, Wells Fargo offers a completely integrated PFM tool, My Spending Report, that's extremely simple to use, but offers limited functionality. On Oct. 29, the bank made an important improvement, adding a basic budgeting tool, Budget Watch, to what had been essentially a list of transactions divided by category.

The bank told me last week they have 1 million monthly users, making it the second online PFM provider to break the 1-million mark (after BofA). Wells has about 15% of its online banking base (note 2) using the tool, a slightly higher penetration than BofA. Again, not surprising considering how well it is integrated. The budget tools should boost penetration.

Who'll be the next one to join the 1-million club? Mint, with about 500,000 users in its first 15 months in business, is headed that way, possibly as early as late next year.  Chase/WaMu could get there in a few weeks, if they added online personal finance to their feature set. Quicken Online, now that it's free, should get there relatively quickly as well.

Note:
1. BofA's My Portfolio is powered by Yodlee.

2. Excluding Wachovia accounts.

Summary
Looking at the data from Compete's consumer panel, there were several significant swings in activity compared to a year ago (see note 1):

• Credit card applications, up 37%
• Checking account applications, up 28%
• Home equity applications/leads (see note 2), down 34%
• Refinance applications/leads, up 41%

 Commentary

• Credit cards seemed to settle down after the large jump in March. Both shoppers and applicants were down 1% compared to March, but year-over-year applications were up 37% (in comparison, last month card apps were up 53% compared to a year earlier)
• Deposit shopper volume stayed relatively consistent except for checking which saw a 9% increase. However, applicants for savings and high-yield savings dropped 17% and 12%, respectively. Last year, high-yield savings accounts were more in demand, with 50% more applications in April 2007 compared to April 2008. Declining interest rates appear to be impacting consumer demand. 
• In the home-secured sector, there was more activity in the refinance sector with a 4% gain in shoppers and a 3% gain in applications compared to last month. Compared to a year ago, refinance apps were up sharply 41%. 
• Purchase mortgage activity was flat.
• Home equity showed a significant decline, with shopping down 8% from March and down 17% from a year ago. Application levels were flat compared to last month, but down 34% year-over-year.

About the Financial Services Scorecard
A year ago, we introduced the Financial Services Monthly Performance scorecard produced by Compete. It summarizes the overall performance of 23 large U.S. financial institutions and lead-generation sites. Refer here for the detailed methodology as well as companies tracked.

Notes:
1. Year-over-year comparisons were added to the chart beginning in March. Because of ongoing methodology tweaks, the percentages in this table may be slightly different than if you went back to the data from a year ago and calculated the change. 

2. Leads/applicants = Leads or applications depending on whether the site being tracked is a lead-generation site or an actual lender.

No one said it was easy being a startup, especially a "Web 2.0 lender" in the middle of major credit turmoil. Lending Club, which had to shut down the retail lending portion of its service in April, is preparing to put the second P back into its P2P loan service (see note 1).

A big part of that process is filing with the SEC so the company can sell retail securities backed by its loans. For lenders, it won't be much of a change. The securities will be backed by the individual loans, just as if it were a standard loan. And at least initially, the securities cannot be resold. However, in the filing, Lending Club says it is planning on creating a secondary market for the securities through its platform. 

Lending Club posted an update on its website announcing the filing.

Lending Club discloses $500,000 monthly burn rate
Luckily for the company's followers, and competitors, the S-1 filed Friday (20 June) sheds light on what would usually be known only to its investors and creditors, the privately held company's inner finances. The company disclosed that during the fiscal year ending March 31, 2008, it experienced:

• negative cash flow of $6 million
• total net loss of $7 million on revenues of $450,000; the revenue total includes $200,000 in interest on deposit balances   

Lending Club itself is a significant lender on the platform
Another interesting disclosure: More than half the loans originated through the Lending Club platform have been funded by the company and its creditors/investors, even before it had to stop taking new retail loan commitments April 7.  That's an interesting dynamic for a so-called person-to-person lender. Because Lending Club sets the market clearing rates, its funding did not compete directly with the retail lenders, i.e., Lending Club stepped in to help fund deals that retail lenders had not fully funded. However, had the company not put so much money into the system, borrower rates could have floated higher, potentially increasing lender yields (note 2).

As of June 10, 2008, only $6.4 million of the loans made through the platform have been to "retail lenders." Later in the S1, Lending Club discloses that it has funded $7 million of the $15 million loaned through the platform as of March 31, and then $1.6 million of the $3 million loaned after March 31. That leaves Lending Club holding $8.6 million of the $18 million loaned through the platform.

The lending was financed primarily through loans from Silicon Valley Bank ($3 mil), Gold Hill Venture Lending ($5 mil). Also, through March 31, company insiders and investors had lent about $0.5 million.  

Other stats from the S-1
Other numbers (as of 31 March, 2008, unless indicated otherwise):

• $1.8 million spent on marketing, of which $270,000 was advertising
• $1.8 million spent on engineering
• 23 full-time employees
• Average loan amount per borrower is $9,100
• Number of loans = 1,669 worth $15.2 million (through 10 June 2008)
• 150,000 website visitors in March
• Average amount lent per loan per lender = $75
• 50% of loan volume has been through LendingMatch that automates the process
• $8.9 million had been outstanding for more than 45 days and had been subject to at least one billing cycle; of that amount, 98.3% was current, 0.88% was 15- 30 days late and 0.87% was more than 30 days delinquent. No loans had gone into default which is 120+ days delinquent
• On p. 48 is a detailed table of home ownership. job tenure, annual gross income and debt-to-income ratio by Lending Club credit grade

Loan purpose:

• 50% refinancing high-interest credit card debt
• 35% financing one-time events such as weddings, home improvements or medical
• 15% small business financing

Notes:
1. For more info on person-to-person lending see our Online Banking Report #148/149

2. I say POTENTIALLY increased yields. That would depend on whether the borrowers accepted loans at higher rates. And higher rates would lead to lower volumes, so even though interest margins would be higher, there could be substantially fewer deals. And that also increases the risk of adverse selection with only higher-risk borrowers accepting the higher rates.

Did your recycling bin feel a bit lighter last quarter? According to Mintel Comperemedia, financial service direct mail was down 10% in the latest quarter:

Total
Q1 2008:  4.2 billion pieces  Down 10%
Q1 2007:  4.6 billion pieces

Credit cards
Q1 2008:  2.6 billion pieces  Down 14%
Q1 2007:  3.1 billion pieces

I'd like to think that online marketing has turned the corner and is finally making a dent in traditional direct marketing. But it's probably more likely that card companies, using stricter underwriting, simply had 14% fewer credit-worthy prospects. Plus, a few more people are opting out of snail mail (see note below).

Assuming 80 million credit-worthy households in the United States (out of 110 million total), the average household received 53 mailings in first quarter. If you are prime or alt-prime credit, you likely saw little-to-no change in your junk mail pile. 

Note: photo credit
Proving once again that you can find anything online, the picture above is from Jason Carter's blog where he is collecting credit card offers. This is his first-quarter haul, 23 for his wife and 7 for him. While that is slightly below the national average, Jason has been actively opting out of direct mail offers, so it is not a representative example. 

Two months ago we published a table (here) showing active users at the leading online personal finance startups. Below is the table, updated with March traffic and the addition of one more player: Bank of America.

The bank, which offers a full-featured online personal finance management solution called My Portfolio, powered by Yodlee, has 2.5 million active users, according to BofA exec Marina Moore (note 3). That's an impressive 10% of the bank's online user base, and about 6x the total user base of all the online startups combined (note 4). 

For more information:

• Online Banking Report (131/132): Personal Finance Features for Online Banking
• Online Banking Report (142/143): Social Personal Finance
• Our FinovateStartup Conference April 29 in San Francisco, where Buxfer, Expensr, Jwaala, Mint, and Wesabe will present the latest in online personal finance features

Notes/Sources:

1. Users: per BusinessWeek Online, Feb 2008, figures are reported by the companies and may include inactive users; Mint has been updated to 180,000 from 130,00 based on new figures reported in the Bank Technology News article published in April 2008

2. Traffic: per Compete estimates of website traffic for March 2008, retrieved April 21, 2008. Compete estimates traffic from its online data and can be off by a factor of two or three-fold for smaller websites.

3. As reported in a Bank Technology News article published in April 2008.

4. This table does not reflect all the players, such as Intuit's new Quicken Online, just the ones highlighted in the BusinessWeek article.

Summary
According to data from Compete's consumer panel, both applicants and shoppers in all segments dropped in February. Recession fears appear to be negatively impacting sales activity. However, conversion rates stayed relatively constant except for credit cards, indicating that those still shopping are serious buyers. 

Commentary

• The credit card industry saw a slight decline in both shoppers and applicants (note 1). This has been the case for the past few months following the large holiday push by the credit card companies. Conversion dropped significantly to 23%, down 6% from January and down 9% from December. However, it's back to where it was in second quarter 2007, so it may be more of a seasonal drop than a falloff in demand. 
• Deposits saw losses across all three segments, especially high-yield savings which was down 25% in applications, as the Fed's rate cuts trickled through the banking industry. In checking, all but two competitors tracked saw decreased application volumes. 
• Refinance mortgages had the biggest drop in February, posting a 30% decline in shoppers and 19% in applications. Purchase mortgages saw a similar decline in applications (down 18%), but only an 18% drop in shoppers. 
• The home equity segment fared the best in the home loan category with 10% fewer applications and an 8% drop in shoppers.
  

About the Financial Services Scorecard
In April, we introduced the Financial Services Monthly Performance scorecard produced by Compete. It summarizes the overall performance of 23 large U.S. financial institutions and lead-generation sites. Refer here for the detailed methodology as well as companies tracked.

Note:
1. There was a change in Compete's methodology for measuring credit card shopping activity, so February's count January's cannot be compared. However, the 4% decline shown in the chart is correct, reflecting the change from what January would have been under the new methodology. 

Last week's post on P2P lending traffic prompted several comments on how worthless website traffic is as a metric, especially when the two major players make their loan-production numbers public. With that in mind, I present the Q1 total loan production for Lending Club and Prosper.

While Prosper still had twice the overall loan volume of Lending Club in Q1 ($21 vs. $10 million), Lending Club is closing the gap in the prime/near-prime market (FICO 640+) originating two-thirds the volume of Prosper in March ($4 vs. $6 million). But if you take into account Lending Club's more stringent debt-to-income requirements (max 30%), the newcomer actually surpassed Prosper in these lower-risk loans ($4.1 vs. $3.7 million in March).  

While the two-horse race is an interesting sidelight, the more important statistic is industry growth. In Q1, Prosper and Lending Club combined for more than $30 million in originations, up $10.7 million (55%) compared to about $20 million in Q1 2007. Only $3.4 million of the Q1 total (17%) was subprime, compared to $7.0 million (36%) a year ago.

Loan originations doubled in the prime/near prime (Prosper grades AA to C and all of Lending Club) ending the quarter at just under $27 million.

Why so much attention to a tiny sliver of the $2.5 trillion U.S. consumer loan market? It's new. It's different. It's social. And it's an experiment in online finance we get to watch in real time thanks to the transparency of the lenders. For more info on the market, see our recent Online Banking Report on P2P lending.

Q1 2008 Loan Volume: Prosper vs. Lending Club
in $ millions (U.S. only)

Source: Online Banking Report compilation of company data, 2 April 2008
*Loans made to Prosper grade AA through C borrowers (FICO 640+)
**Loans made to Prosper grade AA through C borrowers with debt-to-income (DTI) less than 30% 
***Lending Club only makes loans primarily to the "prime/low DTI" segment (FICO 640+, DTI <30%)

Note:
1. These prime/near prime/subprime distinctions can help financial institutions compare their prices to the marketplace rates.

Looking at February's Compete data, estimated traffic (see comment 3) at the three major U.S. person-to-person lenders grew by approximately 100,000 unique users compared to January, a 16% gain. Prosper still dominates the category with nearly 10 times as many unique visitors as its nearest rival, Lending Club. 

Update: In terms of funded loans, Prosper had double the volume of Lending Club in February: $6.0 million vs. $2.9 million. In January, the volume was $7.2 million vs. $2.8 million.  

Source: Compete.com, estimated unique site visitors during Feb. 2008                                         *Not launched

Summary
According to data from Compete's consumer panel, the deposit and home loan categories experienced significant increases in both shoppers and applicants during January (with the exception of home equity). Credit cards took a big hit as both shoppers and applicants dropped by double digits. Conversion across the board stayed relatively constant across the three segments, with credit cards moving the most with a drop of 3%.

Commentary

• The credit card segment experienced a decline in the new year as both shoppers and applicants dropped significantly at several large issuers. All but one of the major issuers being tracked experienced downturns.
• Mortgage refinance continued its upward trend from last month with a 16% jump in shoppers and 57% increase in leads/applications. The pushed the conversion rate up 2%.
• Purchase mortgages performed the best out of the home loans segment as more than half of the providers received at least 30% more applications during the month of January.
• Even though home equity jumped significantly in terms of shoppers to their sites, there was still a 7% drop in leads/applications. Home equity had a similar trend last month when leads dropped 6%. Even though home equity lenders were seeing getting their shopping traffic back, they were not successful in converting them to applications in January.
• Deposits saw the most growth of the three segments as it grew in shoppers and applicants across all three categories. Three major checking providers turned in 50% growth in both shoppers and applicants. Only one financial institution tracked showed a significant increase in conversion. This created an increase in conversion for the market of +1% with a similar growth rate in both shoppers and prospects.
• Savings performed even better than checking as all but two companies saw a significant jump in applications as well as shoppers. Because of the increases, conversion stayed stagnant at 6%.
• High-yield savings followed the same path as the entire competitive set saw double-digit increases in shoppers, and only one had a decrease in applications.

About the Financial Services Scorecard
In April, we introduced the Financial Services Monthly Performance scorecard produced by Compete. It summarizes the overall performance of 23 large U.S. financial institutions and lead-generation sites. Refer here for the detailed methodology as well as companies tracked.

Commentary
With the exception of refinance shoppers, most financial products experienced a downturn in both shopping and applications compared to November (see November chart below). This is not unusual during the busy December holiday period. Other observations:

• On the bright side, the mortgage refi category experienced a sharp spike, up 27% in shopping volume, as mortgage rates dropped for conventional loans. However, that activity did not lead to an increase in applications, as that total dropped 17%. The busy holiday period may be to blame for the lack of follow through or consumers may have held off anticipating further rate drops.
• Surprisingly, mortgage applications for home purchase actually increased 8% even though shopping activity dropped 5%.
• There was no good news with home equity, as shopping declined 10% and application/leads went down 6%. Several companies experienced double-digit drops in conversion and leads/applications.
• Credit card applications decreased 6% overall and with all but two of the tracked companies experiencing declines. The only good news: shopper-to-applicant conversion was up more than 3 points compared to November.
• On the deposit side, the number of shoppers and applicants was down across-the-board. Several large financial institutions saw double-digit drops in prospects and applicants.
• The biggest decline, most likely due to rate cuts, was in the high-yield savings category, which posted a 23% month-over-month decline in application volume. Conversion rates also slipped for all but two companies indicating that shoppers may have been disappointed with the posted rates.

Reference

About the Financial Services Scorecard
In April, we introduced the Financial Services Monthly Performance scorecard produced by Compete. It summarizes the overall performance of 23 large U.S. financial institutions and lead-generation sites. Refer here for the detailed methodology as well as companies tracked.

The latest Online Banking Report: 2008 to 2017 Online Banking & Bill Pay Forecast, is now available. It was mailed yesterday to subscribers. It's also available online here. There's no charge for current subscribers; others may access it immediately for a charge of US$395.

The report includes our latest 10-year online banking and bill pay forecast. This year we bumped our long-term usage forecast by 10% to 15% due to a more robust outlook for adoption, especially from mobile-only users (see note 1). For example, we are now projecting 64 million U.S. households banking and/or paying bills online by 2012 compared to last year's forecast predicting 56 million in the same period.

We're still not quite as bullish as Forrester, who's calling for 72 million online banking households by 2011 (post here), but we've closed the gap (note 2). 

In addition to the forecast, we summarized the top ten innovations of the past year. Thanks for the input from all the readers who answered our call for nominations in late December. We'll publish the list here in a few weeks, after subscribers have a chance to see it first.

Note:

1. While we show mobile usage as a separate line item in the forecast, mobile-only banking users are included in the overall online banking forecast. 
2. By comparison, our forecast for 2011 is 62 million. 

In April, we introduced the Financial Services Monthly Performance scorecard produced by Compete. It summarizes the overall performance of 23 large U.S. financial institutions and lead-generation sites. Refer here for the detailed methodology as well as companies tracked. 

Overall June highlights:

• Traffic of financial shoppers was up across all product types except high-yield savings which dropped 2%.
• More important, applications were up across all products ranging from 3% in savings to 26% in mortgage refinance.
• A total of 2.9 million product applications were booked; 200,000 more than the 2.7 million last month.

Specific financial institution performance:

• Bank of America improved its credit card conversion rates dramatically, booking a 30% increase in applications despite only 10% growth in shopping traffic.
• In checking accounts ING Direct, WaMu, and Wells Fargo all increased the volume of prospects looking at checking account options. 
• Emigrant, HSBC and ING Direct were all able to increase application volumes despite a flat or declining volume of potential prospects.
• Home equity prospect traffic grew at 12 of 16 providers and conversion rates were improved at 10 of 16. Bank of America, Citibank, Countrywide and Low.com had the largest month-over-month percentage gains in both prospect and application volume (note 1). 
• In home-purchase mortgages, Low.com nearly doubled its prospect traffic compared to May, while significantly improving lead conversion.
• In mortgage refinance, Low.com also posted the largest percentage gain in prospects but grew applications at a lower rate, resulting in a significant decline in conversion. Quicken Loans showed greater efficiency, almost doubling application volume with roughly the same number of prospects as in May.

Note:

1. For loan products, leads from lead-generation sites such as Low.com are combined with actual applications at financial institutions into a single "lead/application" category shown in the table.

The FDIC database has been updated with Q4 numbers, allowing all the data miners to slap on their hard hats and get to work. Since reporting on the tepid third quarter of ING Direct (U.S.) (here), we've been looking forward to the year-end data.

The biggest surprise is that the bank not only reversed the Q3 account run-off, it managed to add 220,000 new accounts, its best fourth quarter ever. However, things weren't so rosy in terms of deposit balances, which increased just $800 million, the lowest Q4 increase since 2001 when the bank had less than $3 billion in total deposits.

For the full year, ING added $7.2 billion in deposit for an 18% increase, the first time the bank had less than 40% year-over-year growth. And almost the entire increase came in first quarter. The bank essentially had no deposit growth in the final nine months of the year (see table below).  

It will be interesting to see what impact its new high-rate Electric Orange checking account will have on deposit and account growth. The account was growing rapidly during the final stretch of the invitation-only launch period, growing from $1 billion on deposit Dec. 31, to $2.2 billion by mid-February (see coverage here).

At its annual TransPay Conference, BAI unveiled new research into small business payment needs and opportunities. The most dramatic finding: More than half of small businesses (annual sales of $500k to $10 million) would be "likely" or "very likely" to switch banks for "better payment services." In comparison, only about 10% of businesses with sales between $50 million and $250 million felt the same way.

Obviously, there are some serious, unmet needs among small businesses. Some of the things they most wanted (percentages indicate how many small businesses desire each feature):

• Straight-through processing of payments from business to bank (70+%)
• Identity-management platform that safeguards the business identity and protects your accounts when conducting business electronically (70+%)
• Electronic payments package integrating accounts payables, accounts receivables, and expense tracking (65+%)
• Live intraday financial position (55+%)
• Bank services that can easily be integrated into your payroll and HR systems (60+%)
• Automated card-based, expense-processing system that ties in key partners (50+%)

Sizing the small business payments market
BAI Research also assembled an excellent summary of "payments by business size," shown below. It's interesting to note that the number of payments made by larger businesses is less than one-third of all business payments. The other two-thirds comes from small businesses, including almost 16% from the micro-business market (under $100,000 in annual sales).  While most of these businesses use consumer payment services, there is clearly an opportunity for more targeted micro-business payments. For more information, see Online Banking Report #107/108, Small and Microbusiness Banking 4.0.

Venture capitalists have reason to love the remittance business: Official estimates of overseas money-flows from the United States range upwards of $30 billion a year and are growing. The World Bank's estimate of overall remittances to developing countries is $167 billion for 2005, up 73 percent since 2001.

As a result, investment capital has been feeding innovative companies using modern technology, all planning to take market share away from industry leaders Western Union and MoneyGram International. There’s only one problem: According to a recent study by the Government Accountability Office (GAO), those estimates are at best optimistic, and at worst, wildly inaccurate—perhaps by two-thirds.

Continue reading "Do the World Bank's Remittance Estimates Add Up?" »

By 2007, debit cards will edge out credit cards as the Internet payment vehicle of choice, says Ed Kountz, senior analyst at Jupiterresearch.

According to Kountz’ research, online credit card payments accounted for 42 percent of all online purchase volumes, compared with 39 percent of payment volumes for debit. But by next year, those numbers will reverse—39 percent for credit and 42 percent for debit. And by 2010, says Kountz, credit cards will account for 35 percent of online purchase volumes, compared with 46 percent for debit. That translates to an 8 percent annual compounded growth rate for credit between now and 2010, compared with 14 percent for debit.

“The conventional wisdom you’ll hear from the associations is that there’s really no overlap (between credit and debit),” says Kountz. “And from a value perspective, credit will continue to predominate. I don’t think you’ll see debit wipe up the floor or eliminate credit—that’s much too simplistic to say. But issuers need to be prepared for that shift as it comes down the pike; the short-term impact on credit will be moderate, but longer term, it does clearly pose a challenge for what has traditionally been a credit-dominated world.”

Credit’s predicament is only compounded, according to Kountz’ research, by the rise of non-card payment alternatives available online, such as stored-value cards and peer-to-peer payments. Such alternatives won’t be taking over the space anytime soon, but the growth rates will be strong: 21 percent for stored-value cards and 12 percent for peer-to-peer payments. And even though they’ll be coming off a very low base (4 percent of online payments in 2010), and be restricted to items like wireless content, market share for those payment vehicles will more likely be cut from credit’s hide than debit’s.

This can’t be good news for the credit card business. Even though some analysts like to spin the shift in consumer preference from credit to debit spending as no big deal, since the issuers collect their fees from whichever card a buyer uses, the fact is that the credit apparatus is deeply entrenched in issuers’ establishments. This means that at a minimum, the increased use of debit will create internal shifts at those companies as credit revenues and transaction volumes decline. Since e-commerce sales is the fastest-growing segment of card payments, Kountz’ research is at best unlikely to give credit establishments much comfort looking forward.

This is especially true because, as Kountz points out, paying online with a debit card means low-fee, PIN debit transactions, since no signature can be given to authenticate the transaction. Today, no adequate online PIN-entry mechanism is widely deployed, but so-called screen-based floating PIN entry is one possible solution. That innovation involves an on-screen PIN pad into which the buyer makes PIN entries by mouse click, instead of using numbers on their keyboard, thus maximizing security by making it impossible for a keylogger virus to steal the PIN. ATM Direct is currently conducting a pilot program for this system.

”The alternative is some sort of token that’s not necessarily a hardware plug-in,” says Kountz. “I’m still skeptical of the whole token approach. You can lose them or not have them with you when you need them, and for a consumer, it’s just one more thing they have to manage. But assuming (floating PIN entry) can be done securely and effectively from a consumer perspective, it’s a much more intuitive approach than adding hardware.”

The implications of Kountz’ observations for issuing banks can’t be encouraging. Although he declined to speculate on how the phenomenon he describes would affect them, the fact is that revenues from credit card operations are a significant fraction of the largest American banks’ earnings. Some 60 percent of credit card earnings are debt, and PIN debit interchange is significantly lower than signature debit and credit card interchange.

To the extent that online transactions migrate from credit cards to PIN debit, then, it’s a small step to conclude that the fastest-growing payments sector today is set to yield lower per-transaction revenues than the rest of the cards sector, in turn minimizing the revenues growth curve for those banks’ overall card operations. This hardly means that credit cards are disappearing, but combined with the likely future minimization of interchange fees, either through regulation or litigation, it does mean issuing banks are going to have to start running faster, just to stay in place, and much faster to get anywhere.

“Certainly, credit profitability, and credit overall, has been moderating growth-wise, and I expect that trend to continue,” says Kountz. “Resting on the laurels of the past is no longer enough.” (Contact: Jupiterresearch, Ed Kountz, 617 423 4372)

In 2005, online sales growth outpaced overall retail sales growth, 25 percent to 7 percent according to the latest data from the U.S. Census Bureau.

Continue reading "US Census Bureau Says e-Commerce Outpaces Overall Retail Sales Growth" »

Forrester's Ron Shevlin weighs in Jan 10 with an estimate of the amount of deposit balances chasing higher rates online. Using recent (Q4 2005) survey data gathered from 4700 online households, he concludes that 30 percent of online consumers have $10,000 or more in liquid assets. Furthermore, three out of four of those households (24 percent of all online households) are interested in increasing the rate paid on their savings accounts. But one in four of those wouldn't move until they could get 3.5 percent or more in additional interest, an unlikely scenario for most consumers. That leaves 18 percent of online households (24 percent x 74 percent) ready, willing, and able to make sizable deposit moves online.

Analysis
To quantify the amount of deposits in play, a number of assumptions must be made: the amount of liquid assets held in checking accounts; the amount that would be available to move to another account; and the willingness to move balances for various rate differentials (see the Forrester report for complete details). Forrester's conservative analysis assumed that only those willing to move for 1 percent or less in rate differential (6 percent of all online households) would take action, potentially moving $28 billion from low-interest checking accounts to high-interest savings accounts.

Taking a less conservative approach, one could also argue that with many direct banks paying 3 percent more than typical interest-bearing checking accounts, the potential deposit switchers are much more prevalent, closer to the 18 percent we derived in the first paragraph. Under these less conservative assumptions, much more would be at stake, as much as $60 billion or more. Furthermore, the Forrester estimate considers money being held only in checking accounts and does not include other liquid assets in savings accounts, CDs, and money-market funds.

Whether $28 billion or $60 billion, the total deposits at play are a small percentage (0.5 percent to 1.0 percent) of the $6 trillion in insured deposits in the United States.

Action Item
We highly recommend the report for anyone looking to reprice deposits for online customers, or even if you just want to understand what's at stake. The report is available free-of-charge for Forrester clients, or $249 pay-per-view from its website.

--JB

Table 1
U.S. Non-agricultural Workforce, Self-employed vs. Total
 

Source: U.S. Small Business Administration, 12/04 Includes age 16+ with 15+ work hours during the survey week. Excludes agricultural industries.
 

If not for the foul economic climate and over inflated expectations of the late ‘90s, the online channel would be the toast of the industry. By most measures, online banking is a runaway success. Compounded annual growth since OBR’s founding, at year-end 1994, has been 80%. Worldwide, more than 100 million households now bank online, up 20-fold. In the U.S., household adoption passed 25% a few months ago, up 100-fold since 1994. Looking ahead, we project another doubling of usage in the U.S. to 50+ million households by decade’s end. Worldwide, the total is expected to triple to 300 million or more households.

Table 1

7.5 Years of Web Banking

Source: Online Banking Report estimates, +/- 25%, 11/02          WW=worldwide

* Using dial-up services such as Prodigy or CitiDirect in the U.S., Minitel in France

However, the industry is still young and has many challenges ahead including:

• difficulty in quantifying the benefits of online channel usage
• post dot-com skepticism from management, media, and nonusers
• security issues, real and imagined
• adverse selection problems with loan accounts generated online
• miniscule spread on deposits

In 2003, we’ll address these issues and more, helping you realize the full potential of the online channel, both internally and with customers.
Happy holidays.

Given that 90% of the online population still hasn’t used a comprehensive pay-anyone system, the Research & Planning Zone plays a key role in educating your customers and introducing them to the benefits of online payments.

It also has a less obvious, but far more profitable purpose of selling bill payment lines of credit and debt-consolidation loans. This could be accomplished by “sponsoring” the area with banners that take users to a loan-savings calculator with links to a streamlined loan application.

The Research & Planning Zone could be divided into two areas: the first would be free to all site visitors, customers and non-customers. The second area would also be free, but would require a short user registration (e.g., name and email required, optional fields for phone, address, and so on.)

Free Area Features & Functions

1.       Extensive FAQs & Contact Information: This area contains detailed questions and answers on epayment features and benefits. It also includes a question/suggestion box for users to submit questions and receive individualized answers.

2.       Service/Performance Guarantees: Build trust by outlining service standards, customer service capabilities, and payment guarantees. Explain how one goes about getting help when needed.

3.       Biller Lookup & Information Clearinghouse – Basic Level: This is the primarily free, value-added service to garner PR and Web traffic. Users would be encouraged to register to gain access to interactive features (see next section).

4.       Alternative Payment Sources: This section features solutions for getting the bills paid on time even when funds are running low. It contains links to your loan application and other loan areas on your Web. It could also contain ideas for those not able to borrow, such as links to local community organizations that are able to provide emergency funding.

1.       Biller Lookup & Information Clearinghouse – Interactive Version: This is a full-featured version of the read-only service offered in the Free Zone (see previous section). The interactive version would allow users to build a personalized biller database that can be saved for future reference. It also allows users to contact billers through embedded links and preformatted communication templates.

2.       ACH/Debit Signup Area: This interactive area helps users establish and maintain preauthorized debits for loan, insurance, and utility accounts. The area also includes detailed material on how preauthorized debits work; what the checking account statement entries look like; consumer rights under Reg. E; how to make changes; and links to biller customer service.

Patelco CU is one of the few financial institutions to offer two flavors of bill payment: Bill Payer for $2/month or Bill Payer Plus for $4.95/month https://pc24.patelco.org .

Two Years Ago in Online Banking Report

We focused on the emerging person-to-person payment market, featuring little-known startup Confinity, whose PayPal system received an OBR Best of the Web designation. At the time of publication, just 9 of eBay’s 3.4 million auction lots offered a PayPal payment option. Two years later, PayPal is offered as a payment option on more than 70% of eBay’s 6 million weekly auctions. Furthermore, PayPal has more than 11 million registered users in 37 countries. 

                        OBR, Nov. 29, 1999

PayPal now accepts all major U.S. cards.

Six Years Ago in Online Banking Report

We profiled one of the movers and shakers in online banking, Mark Twain Bancshares, which was experimenting with DigiCash’s eCash system. Its Web site was crude, but they were pushing the envelope. Back then, VP of Capital Markets Frank Trotter was running the DigiCash experiment. Since then, Mark Twain has been sold and DigiCash went out of business,¹ but the enterprising VP is now CEO of everbank, an OBR Best of the Web winner in February 2000.

                        OBR Nov. 30, 1995

¹The eCash system has been resurrected by eCash Technologies  www.ecash.net

The Top 10 Events: 1998 to 2000

Source: Online Banking Report, 1995 – 2000

(1) No longer in business

The Top Ten Events: 1995 to 1997

(1) The 1995 Top Ten is not directly comparable to other years; it simply lists the top 10 financial Web sites of the year according to the criteria listed in
     OBR

Online Banking Report has covered Net banking for seven calendar years beginning with 1995. In that time, we’ve seen the industry go from a premium-priced niche service used by just 1 of out of every 300 households to a mostly free, mass-market offering used by 1 of every 5 households. Following is our updated list of the top 20 online banking innovations of all time. The single new entry for 2001 is #20, real-time balance transfers from NextCard.

#1: May 1995 marked the beginning of the Net banking era; the month Wells Fargo first posted statement data on the Web.

#20: The most recent addition to the top 20: NextCard’s real-time balance transfers with seamless linkage to credit bureau info¹.

Top 20 Online Banking Innovations of All Time (North America)

Source: Online Banking Report, 12/01       ¹NextCard’s balance-transfer program is not currently available due to curtailed lending operations mandated by Federal regulators on Oct. 31

#5: Citibank

Citibank’s www.myciti.com  account aggregation site is Yodlee’s largest single customer with 486,000 registered users, approximately 25% of Yodlee’s entire registered user base of 2.0 million across 57 clients (as of Nov. 30, 2001).

#12: E-Loan

With a monthly pace of $300 million in closed loans (Nov. 2001), E-Loan achieved pro forma profitability and positive cash flow in Q3 2001, nine quarters earlier than projected in its 1999 IPO.

#14: DeepGreen Bank

Sporting a new look (as of early December) and a new first mortgage product cobranded with Homeside Lending, DeepGreen Bank continues to grow in volume and revenue. It began the year by taking 500 applications in January. By November, the bank was attracting 7,000 applications per month with about 30% resulting in closed loans.

According to both Jupiter Media Metrix and Nielsen NetRatings American Online is currently the number-one Web destination with many of its 40 million members launched onto AOL.com prior to surfing the Web (see Table, 23)
. The only purely financial sites in Jupiter’s top 50 are NextCard (#29) and American Express (#35). Homestore.com (#45) and iPlace.com (#48) also offer financial services as do the top portals such as Yahoo, AOL, and MSN. Next month, we’ll look at financial sites in depth.

Table 1

U.S. Web Activity

millions of adult (18+) users, Q2 2001

Sources: All info except buyers: Nielsen NetRatings, 10/01; estimated from panel of 62,000 U.S. at-home users, and 8,000 U.S. at work users
Buyers: NRF/Forrester, 10/01

* averages across active users    hrs = hours; mins = minutes; secs = seconds

Table 2

U.S. At-Home Connection Speed

millions of adult (18+) users, Q2 2001

Source: Nielsen NetRatings, 10/01; estimated from panel of 62,000 U.S. at-home users, and 8,000 U.S. at-work users, from

In May, Jupiter reported 32.8 million unique U.S. visitors to financial sites, up 2.4% year-to-date (see Table 20, below). In July, Jupiter redefined its categories, lumping financial sites with business. Under the new system, the company reported 52.4 unique visitors for the month, up 20% since February. Breaking out banks only, Jupiter estimated 18.4 million unique visitors across all banking sites, 19% of total users (see Table 21, below).

Table 3

U.S. Web Usage by Category (A)
millions of unique visitors during May vs. Jan. 2001

Source: Jupiter Media Metrix, 10/01  www.jmm.com

Table 4

U.S. Web Usage by Category (B)
millions of unique visitors during July vs. Feb. 2001, at home or work

Source: Jupiter Media Metrix, 10/01  www.jmm.com

Table 5

Top 35 Most Visited Web Properties from Jupiter Media Metrix
millions of unique U.S. visitors in Aug. 2001, at home or work

Source: Jupiter Media Metrix, 9/01, www.jmm..com, based on sample of 100,000 Web users: at-home and at-work users. 

(1) now part of Disney; (2) now part of InfoSpace; (3) now part of AOL; (4) now part of CNET; (5) data from July 2001

Table 6

Top 25 in August Across 3 Sources
millions of unique U.S. visitors in Aug. 2001, home or work

Source: companies, 10/01

(1) Does not include 40.6 million users at Microsoft.com which is ranked fourth

Table 7
PC & Online Penetration
percent of U.S. adults

Source:  Harris Interactive, telephone survey of 2,012 adults interviewed between Aug. 10 and Sep. 17, 2000

Table 8
What they Buy Online (U.S.)
millions of dollars

Source: NRF/Forrester Online Retail Index as reported by CyberAtlas from Internet.com, 10/01
Methodology: 5,000 responses to an online panel fielded by Greenfield Online during the first 10 days of each month

Table 9
What They Do Online
percentage of U.S. survey respondents indicating they do the following activities monthly

Source: Jupiter Media Metrix, 10/01; survey of online consumers fielded May 2001 and May 2000 asking, “Thinking about your use of the Internet over the last year, which of the following activities did you conduct online monthly or more frequently?”

As of August, Nielsen NetRatings   www.netratings.com  estimates that 173 million U.S. individuals (all ages), or 60% of the U.S. population, now have access to the Internet, an increase of 39 million since June 2000, but only up 9 million year-to-date. In August, 113 million (65%) actually used their Internet access (see Table 13, below).

Table 1

U.S. Web User Trend
millions who have ever used the Web

Sources: 1999-2001: Nielsen NetRatings, 10/01; Total Universe = number
of users of all ages (age 2+) with Internet access at home or work;
Active Users = subset of Total Universe, those who use the Internet that month; estimated from panel of 62,000 U.S. at-home users, and 8,000
U.S. at-work users
1996-1998: age 16+ users from IntelliQuest, www.intelliquest.com ;

1995: CommerceNet/Nielsen

(1) Feb. ‘00 total; (2) Nov. ‘99 total; (3) Jan. ‘99 total; (4) Nov. ‘97 total

Mediamark Research (MRI), tracking adult usage only (age 18+), found 101 million active users (used during last 30 days), in its Spring 2001 research. That amounts to 50% of all adults. Mediamark estimated that 133 million adults have Internet access, or 66% of the adult population. Among active users, 83% logged in from home and 48% did so from work.

Table 2

U.S. Internet Access by Location

millions of adult (18+) users

Source: MRI CyberStats (Mediamark Research), 10/01

(1) From 26,000 face-to-face at-home interviews from March ‘00 to April ‘01

(2) From 20,000 personal interviews conducted between Sept. ‘98 and Aug. ‘99

(3) From home, work, or other location

Worth Remembering #3

About 80% of U.S. adults with more than $75,000 in HH income used the Net
during the past 30 days

Table 3

Internet Access by Annual Income (U.S.)

millions of adult (18+) users

Source: MRI CyberStats (Mediamark Research), for Spring 2001 data, 10/01

Table 4

U.S. Internet Access by Age

millions of adult (18+) users

Source: MRI CyberStats (Mediamark Research), 10/01

Table 5

U.S. Internet Access by Gender

millions of adult (18+) users

Source: MRI CyberStats (Mediamark Research), 10/01

Table 1

Web Users Worldwide by Region
millions of users (any age)

Source: NUA, 1/98, 1/99, 2/00, 10/01,  www.nua.ie     ina = information not available

*interpolated by OBR from Sep. 99 and Feb. 00 NUA data

**across 28 countries tracked by Nielsen NetRatings, see Table 12,

The number of Web users worldwide passed the half-billion mark in August, up 14% this year. North America’s share is now just slightly more than 1/3 of the world total. Looking back at predictions from our April 2000 issue, The Computer Industry Almanac projected 490 million people with Internet access by 2002 and International Data Corp. expected an Internet population of 502 million by 2003. Both predictions were surpassed according to NUA, which compiles Web user estimates from around the globe.  Country-by-country breakouts are available on the NUA Web  www.nua.ie  

Worth Remembering #1

There are more than 1/2 billion Web users worldwide, 2/3 from outside North America

Table 2

The Nifty Fifty (U.S.)

year when more than 50% of U.S. adults did the following

1995: half of all adults use a PC at home or work (currently 70%)

1997: half of all PC users are online (currently 84%)

1999: half of all adults are online (currently 59%)

1999: half of all adults use a PC at home

2000: half* of all adults are online at home

2001: half** of all adults have ever made a purchase online

Source: Harris Polls: Harris Interactive telephone surveys of more than 2,000 adults (see Table 24)

*49% as of Sep. 2000

**48.2% as of March 2001

There is something powerful about crossing the 50% usage threshold for any product. If you remember nothing else from this report, make sure to commit these two numbers to memory (in round numbers): 70% of U.S. adults use a PC and 84% of those are online.

Worth Remembering #2

70% of U.S. adults use a PC, and 84% of those are online - 59% penetration…a majority!

Across 28 countries tracked by Nielsen NetRatings, the average Internet use in July was 9.6 hours per month per user with Internet access, an increase of 0.4 hours compared to June. South Korea had the highest average use of 19.3 hours. Ireland was lowest at 3.9 hours. The average number of online sessions each month was 18, meaning users logged on just a bit more than every other day. The average session length was just over 1/2 hour.
 

Table 3

Web Usage by Country (at home)
millions of users (any age)

Source: Nielsen NetRatings, 7/01; combined at-home and at-work usage drawn from worldwide sample of 171,000 users

Averages are calculated across the entire universe, active and inactive users

Even without the hype, Web banking usage spikes

Looking back at the Internet gold rush, it’s clear that most of the glitter was fool’s gold. But several rich veins of the real thing were discovered, and none show more promise than Web banking. Consumers have embraced it, with usage nearing 20% of U.S. households today, and heading towards 33% within four years .

If done right, banks are finding that online banking can increase customer satisfaction, boost retention, and improve profits. Last month, we identified hundreds of strategies for improving your online offerings.
But in today’s risk-averse environment, when most banks are looking for ways
to cut spending, it might be useful to remind everyone again why Internet banking still matters. As you come out of the shock/despair of Sept. 11, improving your online services may be one of your best bets to survive the coming lean months, and be ready for the inevitable prosperous times ahead.

One Year Ago in Online Banking Report

We focused on the emerging person-to-person payment market, featuring little-known startup, Confinity, whose PayPal system received an OBR Best of the Web designation. At the time of publication, just 9 of eBay’s 3.4 million auction lots offered a PayPal payment option, exactly one year later, the number had grown to about 3 million of 5.7 million total lots. PayPal also surpassed the 5-million-user mark in early December 2000.

                        OBR  Nov. 29, 1999

Five Years Ago in Online Banking Report

We profiled one of the movers and shakers in online banking, Mark Twain Bancshares, which was experimenting with DigiCash’s eCash system. Its Web site was crude, but at least they were pushing the envelope. Back then, its VP of Capital Markets, Frank Trotter was running the DigiCash experiment. Since then, Mark Twain has been sold and DigiCash went out of business,¹ but the enterprising VP is now CEO of everbank, an OBR Best of the Web winner in February 2000

                        OBR Nov. 30, 1995

¹The eCash system has been resurrected by eCash Technologies  www.ecash.net

Top Ten Wireless Internet Lies (in United States)

Sources: ZD Net Smart Business, Jan. 2001, pp. 56-62; The Industry Standard, 12/18/00, p. 41

Online Banking Report has covered Net banking for six calendar years beginning with 1995. In that time, we’ve seen the industry go from a premium-priced niche service to a low-priced mass-market offering. We’ve been somewhat surprised at the relatively slow pace of innovation and customer adoption, especially during the 1995 to mid-1999 period. Was it a case of banks wisely waiting for customer demand to materialize, or were banks slow to develop compelling offerings? The question is moot now as customers flock online, predominately at existing brick-and-mortar financial institutions. Next month, we’ll provide our predictions for the year ahead.

#1: May 1995 marked the beginning of the Net banking era; the month Wells Fargo first posted statement data to the Web.

#14: The most recent addition to the top 20: real-time, no-doc, home equity loans from DeepGreen Bank.

Top 20 Net-banking Innovations of All Time (North America)

Source: Online Banking Report, 12/00

Y2K was an interesting year. To the surprise of many, the year started without incident. The lights stayed on, the terrorists stayed home, and banks were able to move on to IT initiatives that had a positive impact on the bottom line. In the United States and much of the world, the year proved relatively uneventful in economic terms, unless you happened to work or invest in the dot-com sector. For those riding that bubble, hopes of a quick million or two rest, once again, on winning the lottery.

No major new online banking inventions surfaced, compared to three in 1999: statement aggregation, P2P payments, and scan-and-pay bill pay. But the year closes far from a washout. In terms of revenues and usage, it was the best year ever - the first where reality exceeded the hype. Read our Top 10 Industry Events and Top 10 Innovations for a recap.

While the results of year-end research are still being tabulated, early evidence leads us to believe that online banking household penetration grew 60% to 80% during the year, exceeding our baseline forecast of 43% growth and potentially beating our high-end forecast of 60% growth. We’ll update our annual forecast in April.

Part of the growth was due to increased demand for all ecommerce activities, but much of it was from across-the-board program improvements. Large banks, community banks, credit unions, and non-banks all made dramatic leaps forward on a number of fronts: Web site design, download speed, security perceptions, copywriting, products and pricing, and customer support.

Next year should be another blockbuster for online banking usage. Interbank transfers, email payments, email bill presentment, email alerts, and other services optimized for the Net are finally giving users a reason to hang up the phone and start interacting online. Enjoy the wave.

We’ve chronicled the growth of credit card sales over the Web during the past several years. The market didn’t take off until 1998 when NextCard and First USA launched high-profile online applications and marketing programs . Now, researchers estimate that 500,000 or more card accounts are generated online each quarter (Table 2 & 4). NextCard, consistently one of the Web’s largest online advertisers, draws more than 4 million unique visitors to its Web site each month, the highest total for any financial services provider, and more than the next two issuers, Discover Card and First USA combined (Table 1). Although NextCard has only been converting 4 out of every 1,000 visitors into new accounts, its upcoming secured card program will allow far more consumers to be eligible for a NextCard. As for the industry as a whole, Forrester estimates that the online channel will account for 6% of card loans originated in 2000, rising to 16% in 2003 (Table 2).

Table 1

Web Traffic at Top 12 Credit Card Issuers

unique monthly visitors (thousands)

Source:  PC Data Online www.pcdataonline.com ; Gomez Advisors Spring 2000 Credit Card Scorecard, rank among 17 card issuers www.gomez.com , 5/00; n.r.=not rated

¹accountonline.com is Citibank’s consumer statement access site, these figures do not include traffic at www.Citibank.com  or its business card statement access site

Table 2

number of accounts in millions, dollars in billions

Source: Forrester Research, 1999

Table 3

share of cards issued through online marketing, first half 1999

Source: Brittain Associates, 1999

Table 4

Q3 1999

Source: Piper Jaffray, 1/00; company reports

*Piper Jaffray estimates

Table 5

Credit Card Acquisition Costs

Source: R. K. Hammer, Thousand Oaks, CA

Table 6

unique monthly visitors

Source: Cyber Dialogue 12/99, American Internet User Survey of 1,000 Internet users and 1,000 nonusers; part of the Cybercitizen Continuous Advisory Service

Table 7

millions of users

Source: Cyber Dialogue 12/99, American Internet User Survey of 1,000 Internet users and 1,000 nonusers; part of the Cybercitizen Continuous Advisory Service

The e-billing and payments market continues to grow at a much slower pace than most analysts expected, including us. Currently, electronic alternatives are just not compelling enough to unseat the paper king. But as millions of users get their first taste of email-based payments through PayPal, we expect similar email-based systems for major bills to grow quite rapidly in popularity (Table 1 & 2). Finally, Checkfree continues to dominate the electronic bill pay processing industry (Table 7).
 

Table 1
Bill Presentment & Payment Forecast (U.S.)

billions of transactions

Source: Online Banking Report estimates, 5/00,+/- 35%; Tower Group for 2010 bills viewed online forecast, 1/00

¹Excludes bills that are available for viewing on a Web site, but are not accessed by the end-user

²Includes bills paid online that are received through snail mail

Table 2
E-billing & Payment by Business Model (U.S.)

millions of transactions

Source: Online Banking Report, 1/99

¹Only includes bills received (aka presented) and paid by the user via the given method, a purely speculative estimate provided as an illustration of how many ways the bill presentment pie will be divided; complex and unpredictable market forces will shape the actual results; does not include electronic payment of bills received via snail mail

²The bill pay center may be co-branded with a bank, but the user will think of it primarily as a service of the portal (e.g. Yahoo!)

³In year 2002, an estimated 10 million users will pay about 4 bills/mo presented to them online, for a total of 500 million payment transactions; in year 2006, 20 million users will pay 6/month for 1.5 billion total payment transactions

Table 3
Payments* by Type (U.S.), 1998

billions of transactions and dollars

Source: Greensheet 1999 Check Study, 8/99, Faulkner & Gray Credit Card Directory 2000, 8/99; NACHA, 4/00

*Includes commercial, consumer and government

Point-of-Sale (POS)

Table 4
POS Payments by Type

percent of transactions

Source: PSI consumer Trends and Opportunities in Financial Services Distribution Systems nationwide study of responses from 3,217 US households, Dec ’99.

ACH Usage

Automated clearinghouse (ACH) transactions are fully electronic and primarily displace paper paychecks and paper checks for monthly insurance and loan payments. ACH volume has been growing at 16% to 17% annually for most of the ‘90s and now accounts for 6.2 billion total payments per year. It’s an impressive total, but still less than 10% of the total number of paper checks. The one consumer area that has become highly electronic is the payroll sector. In 1999, 56% of private payroll and 97% of federal government paychecks were deposited electronically.

Table 5

ACH Volume (U.S.)

millions of transactions and trillions of dollars

Source: NACHA, 4/00; Green Sheet, 8/99; CAGR = compound annual growth rate

¹business-to-consumer and business-to-business payments

Table 6

ACH Penetration Rates

percentage of each transaction type paid via ACH

Source: NACHA, 1999 data

Table 7
Monthly Volume by Bill Pay Provider (U.S.)

millions of transactions and billions of dollars

Source: Online Banking Report, 3/00, 3/99 and 12/97, from company reports          
(e) Online Banking Report estimate, plus/minus 25%
¹Remote payments originated from any front-end including: dial-up PC, MS Money, Quicken, Managing Your Money, financial institution Web, third party Web, telephone; does not include preauthorized ACH debit. MasterCard RPS and Visa ePay volumes are not listed separately because they are included in the volumes originated at the processors above; does not include P2P payments from PayPal, X.com, etc.     
 ²Assumes 17 billion bills paid each year

Much of the recent growth in online banking can be attributed to the frenzied pace of adoption of email payments. Although the companies are vague about actual transaction volumes¹, we can see heavy traffic at their Web sites. Apparently, all it takes is a $5 referral bonus to drive traffic through the roof. Case in point, PayPlace.com already had 414,000 unique visitors one month after launch with no advertising. Compare that to SFNB’s 165,000 visitors 4.5 years after launch and after tens of millions in marketing, publicity, and premium-rate deposits. During a three-week stretch in May, PayPlace’s grew from

3,900 lots to almost 11,000 (see Table 1), 25 times as many as Bank One’s eMoneyMail

In total, traffic at the busiest P2P and bill payment companies has grown 2.5-fold this year (through April, see Table 2). And on eBay, email payment companies are mentioned on approximately 1.5 million auction lots (as of May 31, 2000), up from zero Nov. 15, 1999 (see Table 3). For an overview of email payments

PayPlace’s banner used by eBay sellers to earn $10 (bonus is now $5).

¹The exception is X.com that in recent conversations has said they are seeing about one transaction per user per month (18 million annualized) for an annualized payment volume of $1.1 billion. Putting the two numbers together yields an average payment size of $61, similar to average credit card transaction amounts.

 Table 1

number of eBay lots listing PayPlace as a payment option

Source: Online Banking Report, 5/00

Table 2

unique monthly visitors (thousands)

Source: PC Data Online <pcdataonline.com>, 5/00; blanks indicate that Web traffic was below the minimum threshold to be reported

 ¹PayPal is owned by X.com; ²Payme.com has been purchased by PayMyBills.com; ³mybills.com is Checkfree’s proprietary bill payment service

Table 3

listed as a payment alternative in eBay auction lots

Source: Online Banking Report searches of eBay auction listings, 11/99 to 5/00; nm = not measured; n/a = not available             e = OBR estimate

¹Number of eBay auction listings mentioning the payment alternative; many listings contain multiple payment options and many sellers have multiple listings; search strings exclude “.com” except for x.com; the percentage listed is the percent of total lots that includes at least one of the payment options listed.

²Beginning March 31, we began adding the wildcard ‘*’ after the search term, for example, x.com*, for most terms it increased the number of hits by approximately 10%. The exception was X.com, which doubled after adding the wild card.

³eBay stopped reporting the exact number of auctions in process after April 17, so we have estimated the number has remained flat at 4.3 million

⁴BillPoint is eBay’s in-house system which rolled out to the entire eBay base in April after six months of testing with selected high-volume merchants; on 2/29/00, Wells Fargo purchased a 35% share of BillPoint from eBay; we did not measure BillPoint volume prior to Feb.; beginning on Apr. 17, we began counting BillPoint lots using the special Billpoint search tool on eBay

⁵Beginning March 16, began searching “i-escrow” without hyphen, adding about 15%; currently offering escrow transactions of under $1,000 for free.

⁶In April, Payme.com agreed to merge with Paymybills.com

⁷dotbank was purchased by Yahoo! on March 23 and will be relaunched later this year as Yahoo PayDirect.

⁸Many sellers offer multiple payment methods, so we have estimated the total number of unique lots offering at least one alternative payment method, +/- 10%

At year-end 1998 , 17 non-brokerage financial services companies had registered user bases in excess of 100,000. Sixteen months later only 8 more companies have topped the 100,000 mark (see Table 1). These 24 companies have a combined registered user base of 15 million. We estimate that 20% to 25% of these accounts are inactive (no usage in the last 90 days); another 25% to 30% are duplicates with a single household having multiple online registrations. That leaves approximately 8 million unique households served by the largest 25 programs listed in Table 1, a 70% to 75% share of the estimated 11 to 12 million North American households currently using online banking.

Table 1
The 100,000 Club (North America)

estimated online banking (OLB) user base¹, ATM cards in millions

Source: Online Banking Report, 5/00; Faulkner & Gray, 6/99; e=estimate

¹Estimated number of registered users for online banking as of April 30, 2000; ²Number of ATM cards as of 1/1/99 per Faulkner & Gray’s Card Industry Directory, (800) 535-8403, a proxy for number of checking accounts, 60% to 70% of checking accounts have an ATM card, and of those that do, the average number of cards per account is 1.4 to 1.6; ³Includes PayPal users; ⁴Includes brokerage accounts; ⁵Number of charge cards worldwide; not directly comparable to the other ATM figures; ⁶Includes credit card customers accessing statement data at www.accountonline.com  ⁷Excludes another 1.7 million brokerage accounts at TD affiliate, Waterhouse; ⁸Includes 500,00 from Bank One/First USA and 150,000 from Wingspanbank; ⁹Excludes another 230,000 brokerage accts; ¹⁰Active users only; total registered user base is 1.8 million;  ¹¹OBR estimate +/- 20%

Table 2

Largest CU Programs (North America)

estimated online user base

Source: Faulkner & Gray, Directory of Home Banking & Financial Services, <faulknergray.com> 6/99; Online Banking Report, 5/00
¹Number of Digital Emp. FCU members that have logged in within last 90 days, 45% of its total member base of 148,000 (as of May 31, 2000)

Table 3
Biggest Gainers

increase in online user base*

*see notes under Table 1

Last month  we looked at trends in Internet use across all sectors. This month we focus on retail financial services, with a look at who’s selling what online. A couple caveats on the data. We don’t conduct primary research ourselves. Instead we compare and contrast data from many sources to develop a consensus estimate of what’s actually going on.

Second, there is no such thing as a “pure” online product sale. Buyers are influenced by information and brand images obtained on- and offline. Whether the actual purchase is transacted on the Web, over the phone, or in a store/branch, what really matters is whether the seller’s online presence helped make the sale. Even internally, this is difficult to measure. For outsiders it’s virtually impossible.

Luckily, increasingly sophisticated third-party measurements of Web traffic and activity provide important insights. So we’re working with PC Data Online www.pcdataonline.com  to bring OBR readers the latest traffic numbers for major financial Web sites. You can expect Web traffic trends to be an integral part of our analyses going forward.

*Costs are not directly comparable. Media Metrix and Nielsen provide a broader array of software tools and demographic data allowing ad agencies and their clients to fine-tune online marketing campaigns. They also include an allotment of ad hoc consulting and research services. We selected PC Data because it provides basic Web traffic reports at the lowest price. Readers are advised to look at all three companies when considering a subscription.

Table 1

Net Banking Timeline (U.S.)
number of households using Web banking*

Source: Online Banking Report estimates, plus or minus 25%, 5/00

*Includes anyone using the Web to view statements and/or pay bills, does NOT include dial-up banking  **Originally, the Net-only unit of Carolina First was focused on the Atlanta area and named Atlanta Internet Bank

Wells Fargo began posting customer statements on the Web exactly five years ago but it wasn’t until year-end 1997 that the total U.S. Net banking user base hit 1 million (OBR estimates, plus or minus 25%). At that time Net banking accounted for a little more than 1 of every 5 online banking users. Since then much of the growth in online banking has been on the Web, which now accounts for about 7 of every 10 users (see chart right). This trend is expected to continue approaching 100% within 10 years.

Table 2

Web Banking vs. Total Online Banking (U.S.)

millions of households primarily using each method

Source: Online Banking Report estimates, 5/00 (+/- 25%);
CAGR = compound annual growth rate

¹Includes any access method other than Web: Quicken, Money, MYM, etc.

²Per OBR mid-range forecast

Online Banking by the Numbers

Web banking is five years “young”

May 2000 marks the five-year anniversary of Online Banking Report as we publish our 60th monthly report, and coincidently, it’s also been five years since Wells Fargo first began posting customer statements on the Web, the first bank in the world¹ to do so.

Table 1

 Five Years of Web Banking

Source: Online Banking Report estimates except as noted, +/- 25%, 5/00             WW=worldwide

¹Summation (composite) of the unique users at 144 large banks tracked by PC Data and Top9.com

Last month we updated our online banking forecast, noting the uptrend in activity surrounding email payments. This month we report on the very positive trends in Web traffic and activity at financial sites For example, the ten busiest sites (Table 2) are up 84% over the past six months.

¹Stanford FCU offered Telnet-based banking prior to May 1995; also UK-based Secure Trust had an Internet banking trial in process in early 1995 but it wasn’t widely available.

Table 2

Top 10 Most-Visited Financial Services* Companies (U.S.)

millions of unique users¹

Source: PC Data Online <pcdataonline.com>; *not including financial news/quotes sites
¹Exclude estimated duplicate traffic among sites of the same company (Intuit, X.com is actual unique user total from PC Data)
²Sites: x.com, paypal; ³Sites: intuit, quicken, turbotax, qfn, insuremarket, securetax ; ⁴Sites: providian, aria, getsmart; ⁵Sites: Ameritrade, onmoney; ⁶Sites: bankone, bankoneonline, firstusa, wingspanbank; ⁷Includes overlapping visitors

The number of Web users worldwide passed the 275 million mark in Feb., up 37% since September. Despite the U.S.-centric approach by many Web companies, North America now accounts for a minority of Web users, 49% of the total, down from 58% in September. The Computer Industry Almanac projects 490 million people world-wide will have Internet access by 2002. International Data Corp. expects an Internet population of 502 million by 2003. Country-by-country breakouts are available on the NUA Web www.nua.ie

Web Users (U.S.)

At year-end 1999, Millward Brown Intelliquest estimates that 92.5 million U.S. adults age 16 or older (44% of total) use the Internet, an increase of 19.5 million (27%) in the last 15 months (see table 8).

Mediamark Research (MRI) found a similar total, estimating 98.1 million U.S. users in Q3 1999 (see table 9). More than 74 million (76% of all users) had used the Internet in the past 30 days.

Worth Remembering #2

30% of Net users buy online

Mediamark found that more than three-quarters (76%) of those with Internet access actually used the Internet within the past 30 days. Of those recent users, nearly three-quarters accessed the Internet only from home only or home and work.

Worth Remembering #3

three-quarters of those with Net access
used it in previous month

Web Traffic

Three companies track Web traffic. Media Metrix (which merged with Relevant Knowledge in 1998) is the granddaddy of the business, projecting total Web usage from its panel of 40,000 users. Another well-known tracking firm is Nielsen/ NetRatings and the newest entrant is PC Data.

PayPal (now part of X.com) was the top newcomer in February among 21,000 Web sites tracked by Media Metrix. PayPal debuted on the list with 1.3 million unique visitors (minimum of 500,000 required to make the list).

American Online is currently the number one Web destination with many of its 22 million members launched onto AOL.com prior to surfing the Web. Table 10 reports traffic by Web company, aggregating all the company’s Web sites into one single number (e.g., Microsoft includes microsoft.com, msn.com, hotmail.com, etc.). Table 11 looks at the most trafficked single domain names. None of the top sites are purely finance related, though many provide financial content within the context of their overall news and information. For example, Yahoo! Finance and Microsoft MoneyCentral. Next month, we’ll look exclusively at financial Web sites.

Table 5

Top 25 Web Addresses from Media Metrix
millions of unique visitors in Feb. 2000

Source: Media Metrix, 2/00, www.mediametrix.com , Based on usage of 40,000 Web users. *Reach=% of 74.6 million total users that visited the site from home or work at least once during Feb.
¹Includes altavista.com and altavista.digital.com

Table 6

Top 10 Home Destinations from Nielsen
percent of Web users visiting these companies in Feb. 2000

Source: NetRatings, 2/00, www.netratings.com

*Reach = percentage of 4,000 Internet users 18 years or older accessing the site from home during the Nov. (does not include AOL users with 16-bit browsers)

Table 7

Source: PC Data, 1/00, www.pcdataonline.com

Table 8

Time Spent Using the Web in February

Source: NetRatings, 11/99 through 2/00, www.netratings.com based on a panel of 38,000 Internet users age 18 or older

PC & Online Usage

Table 9

The Nifty Fifty (U.S.)

percent of total universe (adults)

•  69% of adults use a PC either at home or work
•  81% of PC users are online
•  56% of all adults are online either at work or at home
•  51% of all adults use a PC at home

• Source: Harris Interactive telephone survey of more than 2,000 adults in Dec. 1999

There is something powerful about crossing the 50% threshold for any product. If you remember nothing else from this report, make sure to commit these two numbers to memory (in round numbers): 70% of adults use a PC and 80% of those are online (U. S. numbers). See table 16 for trend data.

Worth Remembering #4

70% of (U.S.) adults use a PC, and 80% of those are online (56% penetration…a majority!)

Table 10

PC & Online Penetration (U.S.)

percent of adults that own a PC

Source: Harris Interactive, telephone survey of more than 2,000, 12/99

Table 11

Total Population vs. Web User Population (U.S.)