E-Service 2.0* — Service with a :-)

Making the case for improved online customer service is easy. Online banking
customers now prefer it almost 3-to-1 over telephone support (see Table 1,
). Done right, e-service
can increase customer satisfaction, decrease support costs, and lead to
increased sales. What’s not to like?

The problem is that costs are front-loaded and benefits are difficult to
measure. Bottom line: You’ll spend hundreds of thousands or more in anticipation
of future, largely hidden, returns. That’s a tough sell in any environment, but
especially in the low-margin financial services arena.

What’s a banker to do? Start by demonstrating the reach of your website to
both online banking users and other bank customers. This requires an effort to
persuade non-online banking users to register so you can track them over time to
measure the entire impact of self-service.

Next, continually add self-service tools and content to improve the online
experience. You can do this in baby steps if need be. For example, add one
capability each quarter, such as an online tutorial
on how to pay bills. If resources are tight, look for college interns or
tap in-house volunteers to do the work.

Table 1

Service Channel Preference

percent of respondents preferring each channel, n = 2000



Preferred Method of Support





Any electronic channel




    Email/online forms




    Live online chat












        Online instructions/tutorials








Source: Vividence survey of online banking customers, Mar. ‘04 and Sept. ’03;
Question: “Which would you prefer to use most often?”, n = 2,000 both years

Another option is to outsource the entire process, including live tech
support if desired. Experts such as SafeHarbor, the company powering much
of Washington Mutual and SunTrust’s self-service capabilities, can
provide speedier implementation and state-of-the-art knowledge. In any event,
the day of the annually updated two-page FAQ are over. Customers expect and
deserve more dynamic help as they attempt to do business with you in cyberspace.

— Jim Bruene, Editor & Founder

WAMU & EBAY Test CD Auctions

Washington Mutual testing the waters by selling CDs with

In January, Washington Mutual became the first bank to test selling
certificates of deposit with eBay. The test was conducted on a standalone
co-branded site, rather than being integrated with eBay. Users were required to
register to participate in the CD auction. EBay credentials were not accepted
nor did the certificates turn up on regular eBay searches


Although not the first to try retail CD auctions, Washington Mutual
(Seattle, WA; $289 billion) is the first bank to team with eBay to add
legitimacy to the unusual deposit-gathering scheme at  http://www.wamucdauction.com/
a co-branded site, hosted by eBay. The Bid Your Rate test is
scheduled to run from Jan. 15 through February, with one-hundred $1000, 6-month
CDs auctioned per week, for a total of 600. Apparently WAMU approached eBay with
the idea and paid an undisclosed fee for the development and limited marketing
to eBay users.

Auctioning CDs was tried by several banks in the late 90s, most notably by
Bank which ran auctions on its website for about a year beginning
in Sept. 1999. Several other smaller banks, including the now-defunct USA
, gave it try but it never caught on. But that was also before
eBay became a cultural icon.

How it Works


It’s much like an eBay auction but the bidding runs in reverse. The
auction begins with a high interest rate and is bid down in increments of 5
basis points. In our tests we found the reserve to be 10% and proxy bidding, as
is customary on eBay, was not used. Your bid was automatically entered at the
lowest rate you selected.

From our observations, the bank needn’t have worried about using a 10%
reserve price since all the CDs were quickly bid down to competitive levels. For
example, at mid-day Feb. 9, the 12 CDs closing later that day had all been bid
down to 2.05% or 2.10% rates. In comparison, that day
http://www.bankrate.com/  pegged the
average U.S. 6-month CD rate at 1.23%, with Stonebridge Bank offering the
highest at 2%. You could also get 2% with a savings account at ING Direct.
In Washington state, Washington Mutual’s website offered a 0.95% rate on 6-month
CDs. That CD featured the option of adding to it at any time during the term for
the same rate.

Apparently the test was promoted on a limited basis with banners and links on
eBay, although we never saw one. However, there is no integration with the eBay
search engine. We tested various search terms and found no mention of the WAMU
CDs. Washington Mutual issued a press release on January 14, but is not widely
promoting the service. We found no mention of it on the bank’s website (Feb. 9)
nor did it appear in site search results.

Here’s what you see after entering a successful bid (in
this case 10%) that’s met the reserve and taken the lead, at least for the
moment. Final winning bid was approximately 2%.


At this point, CD purchasing on eBay may be too small a niche for a large
bank to profitably serve. However, it might be a good way to attract hot money,
without repricing your current deposit base, or to create some interest in your
deposit and/or online services. Long-term, we are more optimistic and expect
deposit auctions to eventually become a common practice; after all retail
investors already purchase T-bills directly from the U.S. government in a
similar fashion.


Doug Marshall is SVP Deposit Strategy and Product Management at
WAMU; Gary Dillabough is VP Strategic Partnerships at eBay.


MBNA’s Bill Pay Choice

The credit card giant offers online payment of outside
bills even if the merchant payee does NOT accept credit cards.



MBNA ($142 billion, 40 million cardholders) offers something we’d
been expecting for years, a bill payment program that draws payments from a
credit card. The company even posts the transactions as cash equivalents,
offering the same 15- to 45-day float afforded regular card purchases.
However, bill payments do not earn points in MBNA’s reward programs.
Furthermore, payees are limited to those that can be paid electronically by
CheckFree, although that’s now covers 70% of the processor’s volume.

Consumer Benefits


  •       Added float, as one message board poster said, “why worry
    whether you get a few days float (from your bank), when MBNA provides a
    whole month”
  •       Convenience of tracking more expenditures through the
    card-management system.
  •       Ability to repay over time.
  •       Option of charging bills to an MBNA card or debiting from any
    checking account.
  •       Free, so long as the cardholder initiates at least two payments
    per month from their card account (see fee schedule opposite)


  •       No real drawbacks, except for the confusing price schedule.
    Consumer advocates might argue that it encourages cardholders to take on
    more debt, but they could already do that by paying bills with convenience

Financial Institution Business Case

We’ve long maintained that loan generation is the most important
institutional benefit of online bill payment because. Why? If given the
opportunity, users will likely charge several bills per year to an
integrated credit line .

While you will lose money on convenience users who repay the charges each
month, revolving balances should more than compensate. For example, in our
back-of-the-envelope calculations, we estimate a total net profit of $60 per
year per user of credit card bill-pay, or $600,000 annually across a
10,000-user customer base. 

The Most Confusing Fee Schedule in the World:
MBNA’s Bill Pay Choice may be among the most flexible online, but
its fee schedule is utterly confusing. Perhaps the company should consider
charging a nominal flat fee that’s waived if charging 2 or more bills.


Of course, any new credit card program must be monitored closely for abuse,
both outright fraud, by setting up a phony electronic merchant, and less
sinister gaming of the system where a user becomes an electronic merchant on
CheckFree’s system and pays himself each month to earn the float. However, since
no reward points are awarded, there is far less incentive to play games.

Card issuers could limit their exposure by setting a maximum monthly amount
of bill payments, especially for new cardholders.

How it Works

MBNA cardholders must first register for online access at MBNA’s NetAccess
 After that, they register for Bill Pay Choice. Users can pay bills either by
charging to their MBNA card or debiting any U.S. checking account. MBNA does not
offer its own checking account; however, payments can be drawn from MBNA’s money
market account.

The service is free unless the user pays bills only from their checking
account, in which case the fee is $0.75 per transaction. Users may qualify for
unlimited free checking-account bill payments provided they charge at least two
bills to their card each month.


Table 13
Mini Business Case: Card-based bill payment

monthly benefit, assuming 6 payments totaling $1000





Direct Costs  


Cost of float 30 days at 2%


Cost of transactions 6/mo to CheckFree


Cost of service/mo internal


  Total cost/mo  


Direct Revenues  


Increased outstanding balances $167 x 12 months
x 5% spread*


Fees from DDA trans  


  Total revenue/mo  


Net profit/mo  






Extra interchange from increased charge
1% x $300/yr


Increased retention 2% increase x $150/yr


Total per user
   per 10,000 users



Source: Online Banking Report estimates, +/- 33%, 2/04
Revenue assumptions: 1 out of every 10 bills will be revolved (10%); revolving
balances will be repaid in equal installments over 12 months (6 months average
life); interest rate spread = 5% (net of charge-offs)

Website Usability (part 2): Card Application

In part one of our series on website usability, we looked at the
all-important homepage. But the best homepage won’t do you much good unless
you can convert visitors into paying customers. For that you need an
effective sales process capped by an easy-to-use application. Online credit
applications have evolved considerably during the past five years and are
now relatively painless to complete, usually far superior to their paper
counterparts, which are plagued with missing data, illegible markings, not
to mention transcription errors in your own back office.

At OBR, we’ve looked at online application-form design on a number of
occasions, finding a wide variety in quality (see Table 11, below). This
time, we are using a more rigorous approach applying our proprietary OBR
WebCheck criteria www.webcheckanalysis.com
 and scoring Citibank’s application across 54 criteria. Although the
bank’s application is very good, there is still much room for improvement,
as witnessed by its sub-50% score.

Citibank credit card application

Card application

Table 12
Citibank Credit Card Application Process

OBR analysis using WebCheck* criteria


Source: Online Banking Report, 2/04 Wt = weight with 5 the highest

Ten Lessons From The Card Marketers

Without expansive brick-and-mortar operations to generate
business, card companies typically devote far more resources to direct
marketing and cardholder retention than retail banks. You can learn a lot by
watching what the card companies do online.


Develop a Killer App

Profitable online originations involve good marketing and a great
application. It must be short and sweet and loaded with imbedded help for
every term, otherwise only the desperate or dishonest will submit it. Most
major credit card applications today are a model of simplicity. For example,
Juniper’s online application (below) consists of a single screen
posing just seven questions beyond standard identification information
(name, address, phone number, etc.).



Screen Out Improper Applications Before Submission

One of the main problems with non-preapproved credit card applications is
all the worthless applications received. Not only has time been wasted
researching the applicant’s credit report, but also your company must
carefully follow regulatory requirements for communicating denials, lest you
become a target of class-action litigators. Financial institutions,
especially credit card issuers, now start the application process with two
or three screener questions to reduce the number of applicants applying for
products for which they are completely unqualified. This is a win-win,
saving the bank application-processing costs, and helping applicants prevent
lowering of credit scores due to application denial. Juniper uses a popup to
deliver the screener questions (below).




Segment Your Base with Regular, Gold, Platinum, and So


We believe that premium channels will be the next big thing in online
banking. That’s why we selected Money HQ from Online Resources
as our top innovation of 2003. A review of the credit card industry provides
clues as to how online banking may play out. American Express was a
segmentation pioneer, rolling out a Gold Card in 1966, only eight
years after the introduction of its standard charge card. After the huge
success of the Gold strategy, widely copied by bankcards in the late 80s,
the company further segmented its card base with the Platinum in 1984—again,
widely copied by bankcards in the mid-to-late 90s. Now American Express
operates a half-dozen card lines: Green, Gold, Platinum, Optima, Delta
SkyMiles, and Blue, with plenty of sub-segments of each.

We expect to see the same thing happen with online banking. Now that
leaders such as BofA, Wells, and Citibank have offered online banking for 15
years or more, and with penetration closing in on 50% of their checking
account bases, the companies will begin offering different versions of their
online programs. Expect to see differentiation around payment capabilities,
credit access, account aggregation, service levels, human attention, and
account alerts (see Table 9, below).

Table 9
Premium Online Banking Offerings

possible features and benefits


Source: Online Banking Report, 2/04



Use Real-time Payments to Drive Users Online

According to Gartner’s latest research,* in the United States, biller
direct payment is used by six million more adults than online bill payment
through a bank, 18 million vs. 12 million. However, according to Gartner,
respondents prefer bank sites for payment by almost two-to-one, 19 million
vs. 10 million, although both options trail preauthorized debit, preferred
by 26 million, and snail mail preferred by 116 million.

Banks can tap into the growing popularity of electronic payments by
offering simpler bill-payment sites that allow users to make one-time
payments or setup preauthorized debits, without a lengthy signup process.

Banks can also win more user by offering more choices, such as paying via
credit card.

Table 10
Bill Payment According to Gartner

millions of U.S. adults paying bills online


Source: EBPP Future Blends Direct Bank Aggregation Models,
Jan 13, 2004, by Avivah LItan, Gartner,
data from survey fielded May 2003
AutoPay =  preauthorized electronic debit
*Can choose more than one option, so the sum is higher than 100%
**Total the still wants to receive bills via snail mail




Credit card issuers have long been far more aggressive than banks
pitching ancillary services, such as credit card registration, credit report
monitoring, and credit insurance. They are beginning to take that approach
to online marketing. For example, last year, Chase’s credit card
group sent me more than 40 sales/service email messages. Issuers have also
found profits selling all types of unrelated products and services from
flashlights to magazine subscriptions. While, we don’t think banks should
start pitching knife sets online, they could be more aggressive in selling
related products, especially credit report monitoring, insurance, and value




Use Email for Retention


Credit card issuers are much further along in providing email messages to
users. Card companies are using email to remind users of payment due dates,
confirming charges and payments, marketing messages, balance transfer
offers, line increase notifications, credit card check offers, e-statements,
credit report and other ancillary product sales, holiday messages, and other
relation-enhancing messages: even early collection efforts have gone
electronic. Chase is one of the most prolific emailers. During 2003,
we received  at least 70 email messages from the bank about our active
credit card account, 46 of the messages (at least the ones we saved), were
marketing/service oriented (see example left) and the other 24 had to do
with scheduling and confirming payment of the bill (see OBR website for more



Provide Compelling Online Account Management

Card issuers provide an online experience on par with similarly sized
banks; however, some are becoming more creative with their
account-management websites. For example, American Express offers its
Small Business Dashboard to manage charge card (see screenshot left).
One of its distinguishing features is a credit-status bar that graphically
shows whether the charge account is approaching its limits (e.g., green
means in good standing, yellow means charging privileges at risk,
and red is account suspended).

Card issuers are also making online statements interactive with the
ability to click through to get more information or dispute a charge,
contact the merchant, or re-sort transactions.



Make Transfers Simple

For several years, companies such as Bank of America
www.easybt.com  have
provided simple online balance-transfer solutions for cardholders. Banks too
should make it simple for users to consolidate deposit and loan balances in
a similar manner using account aggregation technology and interbank-funds
transfers. Citibank’s new A2A service and Money HQ from
Online Resources
are on the right track.


Integrate with Direct Marketing

The latest trend is to provide special URLs and/or application numbers
in preapproved snail-mail solicitations so recipients can respond quickly
online. For example, Fleet’s
 This is a win-win, giving the customer faster direct access to the special
offer and providing an interactive environment for the card issuer to
encourage balance transfers or other upsells. This integrated technique will
quickly become a standard practice for financial direct marketing.



Get Rid of the Paper

With ever increasing printing and postage costs, the business case for
e-statements continues to grow stronger. Although paper-suppression efforts are
still in their infancy, we expect credit card issuers will be the first to
successfully wean a critical mass of users off paper. Although it will take
years of marketing efforts, for example, we’ve already received eight messages
from Chase encouraging us to switch to a
credit card e-statement; the formula for adoption is relatively simple: 

Lessons from the Card Marketers

Innovating in online marketing and delivery

Credit cards have
always fascinated me. From my first card in 1982, through my stint as a card
product manager in the late 80s, I’ve been a student of the industry,
watching and learning from the best: American Express, Citibank, First USA,
Capital One, and others.

As we entered the Internet era in the mid-to-late 90s, I fully expected
the credit card issuers to lead the financial services sector online. For a
while, it looked like a good prediction. Many of the early online banking
pioneers, NextCard, Providian/GetSmart, Wingspan Bank,
C2it, Juniper Financial, had their roots, and business plans,
centered on credit cards.

But a funny thing happened as that story was being written. Recession.
Whether it was an unseasoned portfolio (NextCard), problems at the parent
(Wingspan), or an over reliance on sub-prime (Providian), these pioneers
lost their funding and retrenched (Providian, Juniper) or disappeared (NextCard,
Wingspan, C2it).

But as card companies recover from the beating they’ve taken during the
past three years, we are seeing renewed innovation from the sector. For
example, after a decade of struggling to get traction, the card companies
have put online bill payment on the map with their convenient card-payment
options. As a result, card issuers have some of the largest registered user
bases in the financial services arena (Table 1 below):

Table 1

Top 5 Online Cardholder Bases, Year-end 2003
number of online cardholders


Online Users

Cardholders (WW)

% Online

American Express

12 mil (e)

60 million

17% to 21%


10 mil (e)

140 million

6% to 10%

Discover Card

9 mil (e)

50 million

17% to 20%

Capital One

8 mil (e)

47 million

15% to 18%


6 mil (e)

40 million

13% to 16%


Source: Companies, (e) Online Banking Report estimates, +/- 25%, 2/04

We still believe that long-term you are better off wrapping your direct
banking efforts around plastic rather than paper ( “Will that be Paper or
). If NextCard had been more patient in building its portfolio,
they could have been a powerhouse today. So who will take their place as
The Internet Credit Card
? It’s one of the more intriguing opportunities
of the decade.

Table 2

Top 5 Online Cardholder Bases, 2000 to 2003
number of online cardholders


2003 Dec

2002 Dec

2001 Dec

2000 April

American Express

12 mil (e)

8.9 mil

5.2 mil

1.8 mil


10 mil (e)

7.6 mil

5.5 mil

1 mil (e)

Discover Card

9 mil (e)

8.0 mil

6.0 mil


Capital One

8 mil (e)

6.3 mil (d)

3.5 mil (d)



6 mil (e)

4.5 mil

2.7 mil


    % change

45 mil

35 mil

23 mil

4 mil

Sources: Companies except, (d) Dove, (e) Online Banking Report
estimates, +/-25%, 2/04


Online Card Usage

According to a recent Forrester report,1
75% of U.S. credit card customers have online access, and of those 36% (20
million) access their card statements online. More than 60% of those users
(12 million) accessed their account regularly. Fisite Research, a company
founded by ex-Gomez payments analyst, Paul Jamieson, found even higher
usage; with 57% of online cardholders saying they manage some aspect of
their card online2 (see Table 3, right). Whether the true
number is 20 million or 30 million or somewhere in between, we do know that
the use of online credit card management has exploded. Three years ago
(year-end 2000), fewer than five million households accessed cards online (see
full details, Table 5, opposite
). Now, at least five individual card
issuers have online user bases of five million or more (see Table 2,

There is even a greater disparity in estimates of the number of
cardholders paying their card bill online. Forrester found that just 36% of
online card statement viewers
(7 million HHs) pay their bill online, while Fisite reported 74% of online
card managers paid online.2 Gartner estimated that 22 million
adults pay their card bill online, either directly or through third-party
bill pay.3 Based on these estimates and usage numbers from
individual card issuers, we estimate 16 and 18 million households pay their
card bills online directly at the issuer, up nearly 20-fold since less than
one million users at the beginning of 2003.

1How To Right-Channel Credit Card Customers, by
Catherine Graeber, Forrester Research, Jan. 2004, $675,
http://www.forrester.com/ ,
fielded, Q2, 2003
2The TSYS Summer 2003 Executive Online Credit Card Survey,
Finite Research, $2495,
 fielded May/June 2003; the numbers
may be higher because respondents included pay-anyone third-party
payments in their answers
3EBPP Future Blends Direct Bank Aggregation Models,
Jan 13, 2004, by Avivah LItan, Gartner,
http://www.gartner.com/  $95,
fielded May ‘03


Table 3
U.S. Online Credit Card Usage Estimates





Credit card households

75 mil*

75 mil*

% of cardholders online

56 mil

% of online cardholders using online card account

20 mil

32 mil*

% of online card managers using it regularly

12 mil

% of online card HHs paying their card bill online

7.2 mil

24 mil*

22 mil**

Source: Companies, Online Banking Report, 2/04
*OBR estimates, Fisite reported usage as a percent of cardholders responding
to its online survey fielded summer 2003, household extrapolations by OBR
**Includes online payment direct at card issuer or through third-party bill

Table 4
Online Card Evolution



Product Positioning

Primary Market

Beta 1997 to 1999 Easy way to apply for a card Geeks and scam artists
Version 1.0 Novelty 2000 to 2001 Cool  to check your card online Early adopters
Version 2.0 Utilitarian 2002 to 2003 Easier way to pay your card bill Early mainstream
Version 3.0 Value-add 2004+ Save time and money with total credit
50% of U.S. households

Source: Online Banking Report,



The convenience and reliability of paying card bills
online will continue to drive online credit card growth. For 2004, we
project overall growth of five million new online credit card households
(range: 4 to 7 million), the same number of newcomers as in 2003. However,
the rate of growth will slow slightly to 25% compared to 33% last year. Ten
years from now, online credit card penetration is projected to grow to 47
million, 40% of U.S. households, compared to 19% today.

Table 5
Online Credit Card Forecast

U.S. households using online credit cards at

Source: Online Banking Report projections based on industry data (+/-
30%), 2/04





Table 6a

Consumer Households Using Online Credit Cards: U.S. vs.

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

Source: Online Banking Report estimates 2/04, accuracy estimated at plus
or minus 30% U.S., 40% worldwide

Table 6b

Annual Growth Rate of U.S. Credit Card Households

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

Source: Online Banking Report estimates, 2/04; accuracy estimated at
plus or minus 30%


Table 7

OBR Definition: Online Credit Card Household

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

  •        Viewed balance/available credit or transaction data
    online1 for a general purpose2 credit or charge card

  •        Authorized a card payment at the site of the card issuer
    (not at a third party such as a bank’s pay-anyone bill-pay service)

Does not include:

  •        Online point-of-sale
    transactions using a credit card

  •        Debit or prepaid card account management, application,
    or purchase

(1) 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.)

(2) Visa, MasterCard, American Express, Discover

Table 8

Gomez Top Card Companies

Q3 2003 Scorecard


Source: Gomez, 1/04

“Check’s in the Mail” Good Enough For PSECU

Innovative Upost@home provides real-time credit for
mailed deposit items


In a remarkably simple yet highly innovative service Pennsylvania State
Employees Credit Union
(Harrisburg, PA; 290,000 members; 160,000 online
users) www.psecu.com
 gives qualified members immediate credit for items “deposited” online.
Users logged into online banking simply choose the Move Money tab and
follow the simple instructions. Members then have 10 days to get the deposit
to the credit union via U.S. mail before the items are backed out. There is
no fee.

To limit fraud and errors, only about 20% of the CU’s member base is
eligible for the program. These 65,000 eligible members start with $1500 in
deposit credit, but it can be increased at the discretion of the credit
union to as much as $8000 based on usage. Deposited funds are immediately
available for use and earn interest from the day of the online deposit


PSECU has long used a similar system for ATM deposits offering credit as
high as $20,000. The online version Upost@home, the brainchild of VP
Tom Ruback, was launched in November 2001. However, until
recently it hadn’t been publicized widely outside its member base. Four
months ago a second CU, Pentagon Federal Credit Union’s  http://www.penfed.org/
  launched a service modeled on PSECU’s.  Pentagon Federal’s Trust In
program has tighter limits, beginning with only $750, and increasing
to $2500 based on usage.


The CU already had experience with real-time credit of ATM deposits,
suffering minimal losses across its 68,000 users (making about 180,000
deposits/month). So it was confident members would continue to be
trustworthy through a similar online system.

The online version’s volumes are lower, but are building. In December,
nearly 11,000 members made 24,000 deposits, worth $10.5 million. In the
first two years, more than 19,000 members have made deposits of $125
million, $83 million of that in 2003. More importantly for anyone thinking
of recreating the program, the service has lost only $2000 to fraud, while
saving the CU more than $100,000 in interchange.

Active users average two deposit sessions per month, with each session
containing slightly less than two items, for a total of 3.8 items per month.
At an average of $260 per item, total monthly deposits average $1000 per
active user.

Consumer Benefits

Since it’s an unusual benefit, members often need coaxing to try the
feature. PSECU sends online banking users a letter explaining the service.
Follow-ups to non-users contain a $1.37 check that can only be deposited
through the Upost service. Repeat usage is high once members
experience the benefits.


  •       Added convenience of simply dropping deposits in the mail; no trip
    to a branch or ATM, no waiting in line
  •       Peace of mind knowing an image of each item will be available in
    case of dispute
  •       Earns interest immediately
  •       Can immediately withdraw cash or make payments with the virtual
  •       A record of each deposited item is viewable within the check
  •       Preaddressed envelopes are available at no charge (NOT prepaid)


  •       Must order or provide envelopes and locate and pay for stamps
  •       Must remember to mail within a few days
  •       Failure to mail deposit could result in negative balance and
    bounced checks

Business Case

For a credit union serving 290,000 members through two branches (10 total
teller windows) and 20 deposit-taking ATMs, the remote deposit program is a
win-win. Members like it for all the reasons mentioned above, and the CU
saves more than $0.70 per deposit compared to foreign ATM interchange fees.*
The CU can continue to minimize its bricks and mortar costs (90% of its
members have never set foot on PSECU property) while offering an innovative
benefit to online banking users.

*The CU estimates each Upost deposit cost $1.16 to process
including an “inflated” value for lost float. In comparison, it pays
about $2 for each deposit put into a non-PSECU ATM.

Table 19

Deposit Float

calendar days to receive online deposits, 2003

Source: PSECU, 1/04, deposits processed Jan through Nov 2003

How it Works

Initiating a deposit online is a simple process:

1.    Within the CU’s online banking area, members then choose the
Move Money
tab (screenshot 1).

2.    Choose Start to initiate a new deposit

3.    Member enters five fields: check number, date check written,
amount, who wrote it, who it was made out to (screenshot 2):

4.    Repeat 3 for each deposit item, choose Finished

5.    Write the session number in the space provided on pre-printed or
blank envelope

6.    Drop the deposit into the mail

7.    Deposited items are processed and images posted; the deposit line
is reset

Members receive instant credit for the deposit and can view deposit
details either through the Move Money interface, by selecting
Deposit Details, or by clicking on the deposit within their online
check register. Once the paper items have been processed, members can view
images of the deposited items.

The CU contacts the member by phone if the deposit has not been received
by the eighth day. In 2003, 81% of Upost deposits were received by
day four and more than 98% were received by day eight. Just five out of
every 1000 (0.5%) never arrived.         


Table 20

PSECU Online Deposit Activity for 2003

Upost usage by PSECU


Source: PSECU, 1/04


Greg Smith is CEO, gsmith@psecu.com

Tom Ruback is VP Card Services,





The 10 Most significant Innovations & Developments of 2003

Looking back at 2003, we selected 10 industry
developments that provide the best glimpse at the future of online financial
services delivery.

Innovation of the Year

Premium Online Banking: Money HQ from Online Resources


Money HQ from Online Resources earns 2003’s Innovation
of the Year
and number 15 on our all-time list for its innovative
packaging of several advanced features into a fee-based premium service. The
new service, powered by CashEdge, combines account aggregation and
interbank payment services. It’s accessed via a tab (far-right) on Online
Resources Internet banking platform (see screenshot below left). 

The premium service offering is optional for client financial
institutions, but with zero out-of-pocket costs, the company expects
widespread adoption. Currently, 40 out of 500 clients are live with the
service, including First Command Bank (Fort Worth, TX) and
Pinnacle Federal Credit Union
(Edison, NJ).


Suggested retail price is $5/mo plus transaction fees for certain A2A
transfers. Revenues are shared between the financial institution and Online





Phishing undermines trust (for now)

Not coincidently, just when mainstream users were beginning to trust
online financial services, along comes the mass phisher, spamming the world
with hundreds of millions of fraudulent emails purporting to be from the
user’s bank, credit card company, or ISP. Unfortunately, the problem is
going to get worse before it gets better. Anti-phishing.org, a
non-profit bankrolled by Tumbleweed Communications, identified 60
unique phishing attacks in the two weeks before Christmas, which unleashed
an estimated 60 million fraudulent messages. Not until an authentication
protocol is widely adopted (hopefully, by early to mid-2005) will the
onslaught of fraudulent emails slow. 

A recent phishing attempt aimed at Bank One went out under
the guise of a phishing warning. Recipients were asked to login
to their Bank One accounts to learn more about fraudulent

The media is beginning to jump on this story, with phishing mentioned
in 103 major articles during the past 30 days, compared to just 17 during
the entire first half of 2003. The resulting consumer awareness will help
keep users from being caught in the trap, but it will also lead to
significant problems in marketing new services via email, hampering
financial institutions’ efforts to turn a profit online. For a sobering view
on the subject read the Wall Street Journal Online’s Jan. 19, 2004
article, Stink in Your E-mail Box Means Big Trouble for Marketers.  

Long-term, as techniques such as digital signatures eliminate most casual
phishing efforts, it will be a non-issue. In fact, these scares tend to be
good for existing financial institutions whose customers are even less
likely to venture to a new provider .



Banks move to boost security perceptions

After a quiet first half of the year, banks were hit with a number of
highly publicized security intrusions. First, the South Africa press had a
field day with a keylogging incident that became public knowledge in May
. Other incident in the UK and New York were also publicized, but at a far
lower level than the South Africa incident. Then beginning with two Wall
Street Journal
stories this summer (July 22 and August 19) and
continuing until year-end, the endless phishing attacks garnered a
significant amount of press, nearly 500 articles in the past six months
contained the word phishing


Banks, understanding what’s at stake, took decisive actions to reassure
online banking users and prospects. For example, within weeks of its
keylogging breach, ABSA Bank installed numerous new authentication tools to
virtually eliminate the threat. Its most visible change: an optional virtual
keypad allowing wary users to “type” in their PIN codes (see inset).
This defeats most keylogging since the hacker would have to map mouse
coordinates to determine which digits were selected. In addition, the bank
instituted a rotating secondary password requirement for users to move money
out of their accounts or change personal information.


Citibank launches interbank transfers (A2A)


Five years ago (Oct. 1998), when the ill-fated CompuBank first
launched its online services, it included an innovative interbank
funds-transfer system (A2A). At the time, we expected it to become common
within a few years. But other than the Internet-only banks such as ING
and E*TradeBank, the service has not caught on in the
United States. In fact, no major U.S. bank offered it until the fall of 2003
when Citibank added interbank transfers to its online banking
program. CashEdge, which also powers Money HQ from Online
Resources operates the transfer system behind the scenes.

Citibank, which for several years has boasted a top-rated online banking
service based on ranking
by Gomez, Forbes  www.forbes.com/bow
 and others, may earn a new round of kudos by being an industry leader in
A2A. Just this week Forbes bestowed its Best of the Web on Citibank
once again (see Table 15, right), specifically mentioning the A2A

Table 15

Forbes Favorites: Personal Finance & Investing


Best of the Web

401k Advice MPower Cafe
Auto Insurance InsWeb
Banking Citibank.com
Brokers Charles Schwab
Calculators FinanCenter
Credit Cards & Loans Bankrate.com
Debt Management About.com Credit/Debt Mgmt.
Estate Planning Nolo.com
Financial Planning Financial Engines
Financial Portal MSN Money
Full Service Broker JP Morgan Online
Fund Families Vanguard Group
Fund Selection Morningstar
Life Insurance Quotesmith.com
Mortgages Quicken Loans
Tax Planning Internal Revenue Service

Source: Forbes, 1/04



Press turns positive online banking and other online
financial activities

A year ago, much of the mass media was negative or neutral on the overall
benefits of online banking. Reporters were still looking for examples of
dot-com excesses and often invoked the names of Wingspan,
, and Citi f/i as examples of online banking’s failed
promise. Never mind that the service was growing faster than ever in terms
of net new households. During 2003, the negative reporting gradually gave
way to new stories about convenience, ease-of-use, and good value
(especially with the elimination of bill pay fees). In 2004, we expect a
mini-backlash as the press focuses on the phishing threat, but overall we
expect the media to embrace online banking for years to come.


Bank of America hits seven million users


On its homepage, BofA is currently promoting free bill
payment’s potential cost savings of $53
(Jan 20, 2004).

At year-end, Bank of America had as many online banking customers as
all U.S. banks combined had five years ago (at year-end 1998). The bank’s 7
million active users account for 43% of its checking account base, and 22%
of all households. Year-over-year growth was an impressive 50%, with 2.3
million new active users. Total enrollment, active and inactive, is now 10
million. Bill payment growth was even stronger, spurred in part by its
high-profile campaign touting free bill payment which began in mid-2002 and
continued through 2003 (see inset). More than 1.2 million new bill
pay users came on board in 2003, a 67% increase, ending the year at more
than 3 million, the largest bill payment base in the country. 



Table 16

BofA Online Banking & Bill-Pay Users Trend

active users (past 90 days)


Online Banking

Bill Payment

Date Reported


% OB

Dec. 18, 2003

7.0 mil

3.0 mil


Oct. 21, 2003

6.6 mil

2.8 mil


Sep 22, 2003

6.2 mil

2.6 mil


Aug. 26, 2003

6.0 mil

2.6 mil


July 24, 2003

5.7 mil

2.4 mil


June 19, 2003

5.5 mil

2.3 mil


Mar 25, 2003

5.0 mil

2.0 mil


Jan. 1, 2003

4.7 mil

1.8 mil


Nov. 27, 2002

4.4 mil

1.5 mil


Oct. 30, 2002

4.3 mil

1.5 mil


Aug. 2002

4.2 mil


May 9, 2002

3.3 mil

1.1 mil


March 2002

3.1 mil



Dec 2001

2.9 mil


Dec. 2000

1.8 mil


3-year growth

5.2 mil



Source: Bank of America, 2001-2003
DDA = demand deposit account (checking)



Table 17

BofA Online Banking & Bill-Pay Metrics

November 2003

Website Traffic    Value

Unique visitors per month*

8.9 million

Number of visits per month*

71.0 million
Online Banking  

Total subscribers

9.9 million

Active subscribers (past 90 days)

7.0 million

Inactive subscribers

2.9 million

Active subscribers, % of all HHs


Active subscribers, % of DDA HHs


Subscribers added monthly*


% BofA associates actively using

Online Bill Pay  

Active bill payers

3.1 million

Bills paid per month*

16.1 million

$$ processed per month*

$4.5 billion

eBills delivered per month



Online bill pay customers have:  
80% lower attrition rate  
30% fewer calls to call centers  
38% higher deposit balances  
45% higher loan balances  

Source: Bank of America, 11/03

*average monthly rate past 3 months




The decline of paper statements begins

Although it will take the better part of the decade before even 50% of
online banking customers turn off their paper statements, 2003 marked the
beginning of the inevitable decline in paper statements.

Table 18

Market Share: Paper Statements vs. Electronic Statements

U.S. checking/share draft accounts


Source: Online Banking Report estimates, +/- 50%

1Percent of all online-enabled demand deposit
accounts (DDA) receiving monthly paper statements, can also be receiving an
electronic statement

2Percent of all online-enabled DDAs with
paper statement

3Percent of all DDAs receiving a monthly paper statement, can
also be receiving an electronic statement

4Percent of all DDAs with no paper statement


Banks redesign websites for Yahoo-like clarity

Each year since the industry got through its Y2K headaches, bank websites
have made dramatic usability improvements. Last year, the most notable
redesign was at Web-banking pioneer Wells Fargo. Every financial
institution should show similar restraint in limiting homepage promotions
and extraneous text. National City and Wachovia also
introduced similar-looking homepage styles.


Real-time credit for remote deposits

E*TradeBank and Pennsylvania State Employees Credit Union
both earned OBR Best of the Web awards with creative solutions to the
remote banking bugaboo, delays and uncertainties in deposit posting. PSECU
was especially innovative, earning the 23rd spot on our list of all-time
online banking innovations by providing immediate credit for deposits being
mailed to the CU. Not only is it a great online banking benefit, it has
saves the CU more than $100,000 in interchange costs. Pentagon Federal
Credit Union
launched a similar service in October, dubbed Trust In


Identity Theft 911 provides a credible source to fight
ID theft


Identity theft was raised from an obscure crime to dinner conversation in
late summer when the FTC released survey results indicating that everyone in
America has assumed the identity of someone else, or so it seems if you read
all the press accounts. Actually, the FTC reported that 10 million U.S.
adults (5% of the total) fell victim to identity theft (including credit
card theft) during the past five years, far higher than anyone suspected.
Even if you discount the results due to survey methodology, identity theft
claims more than one million victims a year, a huge problem.

Luckily, the private sector stepped up to the table with consumer
protection services. Identity Theft 911 appears to be an early leader,
offering insurance, victim resolution services, credit report monitoring,
and educational material. The company markets directly to consumers, but its
business model revolves around wholesaling services to banks and corporate
employee-assistance centers.               


Four of the top-20 Innovations Debuted in 1998

Class of 1998

Four of the top-20 innovations debuted in 1998.
Only one exists today in the same format, albeit under new ownership:


Table 13

The Top 10 Annual Innovations: 1999 to 2002


Source: Online Banking Report, 1995 – 2002                  *Due to high
activity levels, two lists were prepared in 2000.


Table 14

The Top 10 Annual Innovations: 1995 to 1998


*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


A History of Banking Innovations

Online Banking Report has covered online banking for nine calendar years
beginning in 1995. In that time, we’ve seen the industry go from a
premium-priced niche service used by just one of every 300 households to a
mostly free, mass-market offering used by one of every three households.
Following is a list of the top 25 online banking innovations of all time.
There were two additions this year, Online Resources “Money HQ,” at number
15, and PSECU’s Upost@home at number 23.  

Table 12
Top 20 Web Banking Innovations of All Time (North America

Source: Online Banking Report, 12/03

Forecast: 2004 Through 2013

Last year, we predicted there would be 32 million U.S. households banking
online by year-end 2003. Actual results appear to
be slightly higher, with an estimated 33 million households as of Dec. 31.*

The payments area continued to be a major factor in the household growth,
as direct bill-pay at billers’ websites increased 20-fold, from 1 million
users at the beginning of 2001 to 20 million at year-end 2003.

Not only is online banking penetration growing, but the level
of usage is also increasing. Power Users, households that access bank
accounts AND pay bills, have grown five-fold in the past three years; from
3.5 million to 23 million. Less than half use their bank’s pay-anyone
bill-pay service, electing instead to go directly to the biller’s site to
settle the bill.

For 2004, we project an overall growth of 4 million new online
banking/bill-pay households (range: 2 to 5 million), about 20% fewer
newcomers compared to the 5 million added in 2003. Also, the rate of growth
will slow to 12% from 2003’s 18% (range: 7% to 14%). Online banking
penetration is projected to grow to 34% of U.S. households, compared to 31%

*More precisely, the year-end total is somewhere in between 29 and 36
million households based on our estimated accuracy of minus 12% and plus

Table 7
Online Banking Forecast Summary

U.S. households using online banking and/or


Source: Online Banking Report projections based on industry data (+/-


Table 8
Consumer Online Banking1 and Bill Payment Forecast
millions of U.S. households using online banking and/or bill
payment each month

Source: Online Banking Report, 12/03            HHs = households      n/o
= not offered
Accuracy estimates: US: 1994 to 2003: +/- 12%; 2004 to 2006: +/- 15%; 2007
to 2009: +/- 20%; 2010 to 2013: +/- 25%; WW: +/- 35%


Table 9
Small Business Online Banking13 Forecast
millions of U.S. small businesses using online banking

Source: Online Banking Report, 12/03
Accuracy estimates: 1994 to 2003: +/- 25%; 2004 to 2013:  +/- 35%


Table 8 & 9 Footnotes

1)       See account definition, in table posted this month

2)       Has used at least 1 of the 7 listed online banking/payment
services during the past 6 months (+/- 15%)

3)       Has accessed at least 1 of the 4 account types during the past 6
months (+/- 20%)

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

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

6)       Includes users of account aggregation (e.g., Yodlee, uMonitor)
at any site, bank or non-bank (+/- 40%)

7)       Includes email notifications and statements (+/- 30%); excludes
marketing- or service-oriented newsletters and messaging

8)       Has used any of the 3 listed epayment services during the past 6
months; does not include online purchases using a credit or debit card (+/-

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

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

11)   Remits/sends money to any person or business using interbank funds
transfer, does not include online POS payments using electronic funds
transfer (+/- 35%)

12)   We have less information on worldwide usage, so our estimate (+/-
35%) is less precise than for the United States (+/- 15%)

13)   Includes online access for any checking, credit card, or loan
account used to process business transactions (can be a personal account if
used for business purposes)

14)   We use a broad definition of small businesses, including any
individual or entity producing $50,000 or more in annual revenues, includes
self-employed contractors and sole proprietors.


Table 10
What Others are Saying: Topline U.S. Online Banking Forecasts from
Major Research Companies
millions using online banking and/or bill payment each month

Source: Companies, 9/01 through 12/03

Notes: (1) Month/year the most recent data was collected; (2) Estimates
from 2001 and earlier were number of individual users, 2002 and beyond are
households with at least one member using online banking; the figures are
relatively comparable because up until recently very few households had more
than one person using online banking;
(3) Year 2000 estimate was made in Dec. 2000, 2001 through 2003 estimates
made in July 2003 and cited by eMarketer, 2004 to 2006 estimates made in May
2002; Forrester clients may access current forecasts at its website; (4) As
cited by the Wall Street Journal, 9/4/2002; (5) Estimates are not year-end,
the data is collected in late first or early second quarter of each year; we
assigned its market size estimates to the prior year’s year-end, e.g., we
assigned the March 2002 estimate to the year-end 2001 column; (6) Jupiter
clients can access new online banking forecasts published Dec. 2003; (8)
User base as of Sept. 2001 includes: 30.3 million tracking balances online,
17.6 million transferring funds online, 32.2 million doing at least one of
the two; in Feb. 2002, Digital Insight quoted Gartner as estimating that
18.3 million households banked online at year-end 2001


Table 11
Comparison of Online Banking Definitions: What’s Tracked

Source: Companies, 12/03           *Often left to the interpretation of
the survey respondent; who may or may not consider these activities part of
“online banking”