Finovate Blog

2003 Results

During 2003, online banking continued to grow at a rapid clip, adding 5 to 6
million new households, bringing the U.S. total to around 33 million, an 18%
increase over 2002. Worldwide totals grew at a faster clip, up an estimated 25%
to 30%, or 25 to 30 million households, ending 2003 at more than 130 million.  

Table 3

Consumer Households Using Online Banking: U.S. vs. Worldwide

millions of households actively using online banking and/or
online bill payment

Source: Online Banking Report estimates, accuracy estimated at plus or minus
12% U.S., 25% worldwide

Table 4

Annual Growth Rate of U.S. Online Banking Households

millions of U.S. households and percent change from previous
year

Source: Online Banking Report estimates, 12/03; accuracy estimated at plus
or minus 12%

Definitions

As the market has matured, we’ve noticed much less variance in the estimates
from most major researchers. Most of the differences can be explained by
variances in the definition of what constitutes and online banking household.
For example, Gartner counts all banking products, including
checking/deposit accounts, credit cards, bill payment, and email payments, while
Jupiter tracks payment accounts separately . Another major difference:
Gartner tracks individual online users while Jupiter, Forrester,
and most others track household usage.

At OBR, we track at the household level because it’s consistent with how
financial providers usually look at the market. And like Gartner, we use the
broadest definition of an online banker (Table 4, below) including
deposit-account access, electronic bill payment, credit card access, and
biller-direct payments. 

Table 5

OBR Definition: Online Banking Household

Someone in the household must have done at least ONE of the
following during the past 6 months:

•        Viewed balance or transaction data online* for a
  checking account, credit card, or loan/mortgage

•        Authorized a bill payment online at any bank, non-bank,
  portal, or biller site

•        Transferred funds online using third parties such as PayPal, MSN, or Yahoo

Does not include:

•        Viewing a nonfinancial billing statement online but
  paying it by paper check, preauthorized debit, or credit/debit card

•        Point-of-sale transactions whether paid by credit card,
  debit card, electronic check, PayPal, and so on

*Any connection from home, work, school, or other place where data can be
viewed through any device (Web phone, browser, proprietary software,
Quicken, Money, etc.)

Table 6
OBR Track Record: Accuracy of Prior Forecasts
millions of U.S. households banking online

Source: Online Banking Report, 1998 – 2003
Fore = Forecast; Act = Actual results; Err = Error (difference between forecast
and actual)

Table 1

Online Banking Timeline
number of U.S. households using online banking/bill payment

Source: Online Banking Report estimates based on industry data plus or
minus 15%, 12/03

 

Every spreadsheet and business plan needs a prediction of
future demand. So every year we gather forecasts made by prominent researchers
and analysts, compare and contrast their results, layer on our own insights, and
develop a 10-year forecast. Accuracy is estimated at plus or minus 15% for years
one through three, plus or minus 20% for years four through seven, and plus or
minus 25% for the out-years.

Over the years we’ve demonstrated a respectable track record . Our first
comprehensive forecast made six years ago (year-end 1997), predicted that online
banking usage would increase nearly 6-fold (560%) from 4.5 million in 1997 to 29
million households by year-end 2003. That prediction was nearly dead-on, perhaps
10% low, with an estimated
29 to 35 million households banking online today.

 

 

Table 2
Online Banking Evolution

Phase	Period	Product Positioning	Primary Market
Beta	1983 to 1996	Beats keying data into Quicken.	Outliers
Version 1.0 Novelty	1996 to 1999	Beats calling an 800 number with convoluted menus.	Financial geeks and early adopters
Version 2.0 New	2000 to 2002	More efficient record keeping and easier for routine transactions	Early adopters and early mainstream
Version 3.0 Early mainstream	2003+	Better management of personal finances with less effort	50% of U.S. households

Source: Online Banking Report,
12/03                                                       

 

 

To many long-time bankers, online banking hadn’t proved its worth prior to
2003. However, with usage surpassing 30% of all U.S. households, and with
leaders such as Bank of America pushing past 40%, even the skeptics are
beginning to recognize the potential. By the end of the decade, total U.S.
penetration is expected to approach 50%.

Unlike many new technologies, online banking delivers on three levels:
improved customer satisfaction, increased sales, and cost savings. Now that
these institutional benefits have actually been documented, the rest of the
decade promises to see an extraordinary build-out of online capabilities, much
like the explosion of ATMs in the late 1980s as the channel became profitable.

Looking back at the last year, three changes stand out:

• The onslaught of email spam and scams causing short-term headaches and
  long-term credibility problems.
• The change in U.S. press coverage from somewhat negative to very
  positive (except for the phishing problem).
• The marked rise in awareness (by financial services execs) of the online
  channel’s upside potential.

On the innovations front, it may not have been 1997 again, when seven of the
20 all-time top financial innovations debuted, but there were several
significant developments including:

• OBR’s Innovation of the Year, premium fee-based online banking (Money
  HQ from Online Resources)
• Real-time credit of online deposits, both electronic (E*TradeBank)
  and an “honor system” for mailed paper items (PESCU and Pentagon
  FCU)

The next few years promise a whirlwind of activity as financial institutions
implement fixes to email-security concerns, expand the level of email-alert
services, dramatically increase online cross-selling and self-service, and see
tangible benefits from the investments of the past six or seven years. Online
banking initiatives will once again be prominent on the radar screens of top
execs. Enjoy the spotlight.

— Jim Bruene, Editor & Founder