GeoTrust’s TrustWatch Toolbar

There’s a reason why everyone and their uncle are offering toolbar’s that
plug-in to Internet Explorer. They are a convenience to customers and a
tremendous branding opportunity. The latest entrant from GeoTrust’s TrustWwatch
unit: a privacy toolbar. It’s similar to Ebay’s Account Guard function with a
green light for “verified” websites, yellow for “not verified,” and red for
“warning,” websites on their black list. If you are working on a bank-branded
toolbar (see OBR 85), consider licensing this functionality from GeoTrust
 Also, if you haven’t already done so, make sure your website is verified by
submitting it to one of the trusted third party certification authorities such
as Entrust, Betrusted, or GeoTrust.


Electronic Messaging Opportunities and How to use for Cost-Reduction Benefits

Electronic messaging is wide-open for innovation. The content, delivery, and
style of your electronic messaging provide numerous points of differentiation,
and the business case is positive with potential retention, cross-sale, and
cost-reduction benefits (see OBR 91/92 for a complete analysis).

Source: Online Banking Report, 9/04

Washington Mutual Small Business Resource Center

Although not as robust as Barclays, Washington Mutual is
the only top-10 U.S. bank with prominently targeting startups. Through its
partnership with StartupNation, the bank has posted several articles on
its website, and also sends users to a cobranded

 website to sign on for more tools and resources including webinars, resources,
and coaching. We don’t know the terms of the relationship, so we can’t judge the
cost effectiveness. However, we definitely like how WAMU is positioning itself
as a supporter of
small business. 

Innovators in Small Business Online Delivery

Innovators in small business online delivery


Table 55

Watchfire/Gomez Small Business Scorecard



Dec ‘03

Number Sm. Biz Clients

1 (tie) Bank of America


2.5 mil1

1 (tie) National City



3 (tie) Key



3 (tie) Wells Fargo


1.3 mil2

5 (tie) Chase



5 (tie) Fleet



5 (tie) Wachovia



8 Bank One



9 (tie) HSBC America



9 (tie) U.S. Bank



Source: Watchfire, 6/04 <>
Other banks evaluated, but not making the top 10: Bank of New
York, BB&T, Citibank, Citizens Bank, Comerica, Fifth Third Bank
(150,000 clients), LaSalle, PNC Bank (200,000 clients),
SunTrust, UBOC, Washington Mutual (250,000 clients)
1American Banker, May 18, 2004, BofA total includes
2American Banker, Oct. 1, 2003

Our first report on small business banking was produced in the fall of 1997
(OBR 29).
At that time, few banks were specifically targeting small businesses. Then,
a Yahoo search for “small business” and “banking” yielded only 19
results compared to 2.5 million today. In the late 1990s, most banks were
still busy building out their consumer interfaces. Even as recently as 2001
(OBR 70/71), we found few major innovations to report on. Our
favorite small business banking service was OneCore
 which was
shuttered shortly thereafter, at least as a direct provider.  

Today much has changed. Everywhere you look, banks are innovating to
serve the small business market more effectively. According to
GomezPro unit the best small business banking sites
are Bank of America and National City, tied for first place in
its year-end 2003 scorecard (see Table 55, right). 

Other online innovators in the small business market:

  •          Barclays Bank (London; $800 billion) uses its
    website to target startup businesses with a broad array of support
    services that many startups would find essential, including a free
    business checking account for the first year. It’s so impressive, we’ve
    given it our second Best of the Web award this year
    (see next page).
  •          PNC Bank (Pittsburgh, PA; $70 billion) and
    have both announced plans to offer remote check deposits,
    something most U.S. banks will support within a few years. One of the
    last reasons to visit the branch will be eliminated when clients can
    feed paper checks into a scanner instantly depositing the cash into
    their account and storing the image into their online banking archive

    This service is a shoo-in for an OBR Best of the Web once it goes
  •          NetBank (Alpharetta, GA; $4.1 billion) which
    launched a new small business initiative a year ago, has attracted 1,600
    businesses with $38 million in deposits ($24,000 average deposit). If it
    keeps to the announced third-quarter launch, NetBank may be the first
    bank to offer remote paper check scanning



Barclays provides valuable services for startups

Why do the U.K. banks do a better job serving small businesses online
compared to their U.S. counterparts?1 Perhaps U.S. banks are
underestimating the value of services targeted directly to small business
owners. Or maybe they’ve found it too difficult because business owners
won’t bother switching bank accounts to save a few bucks a month. That’s why
it makes so much sense for Barclays Bank to focus on startups
at its business website <>. After all, if you
succeed in being a startup’s first bank, you have the inside track to retain
its business over time.

Barclays business homepage (see below) is dominated by a shaded
area asking the important question, Starting a business? Even though
the vast majority of visitors already have a business and a banking
relationship with Barclays, those most likely shopping for services are
startups. The bank also offers Pain relief in a box, a proprietary
business management and accounting program targeted for tiny businesses or
startups that haven’t settled on an accounting software system.

1Two out of three of our Best of Web winners for small
businesses are headquartered in the U.K.


Barclays’ small business Starter Accounts consist of the following
features and benefits:

  •          Current account (checking) with an overdraft facility; free
    for the first 12 months, 18 if you also maintain personal accounts at
  •          Savings account
  •          Loans, subject to credit approval of course
  •          Insurance
  •          45-minute free consultation with a business/marketing
  •          45-minute free consultation with an accountant
  •          30-minute free consultation with an attorney



NetBank and PNC to offer remote deposits

According to recent press reports, both NetBank (American Banker,
May 20) with 1,600 small business clients and PNC Bank (Wall Street
, June 8) with 200,000, will launch remote deposit service for their
business customers. Although details of the yet-to-be-launched services are
sketchy, it is expected that business customers will be able to scan paper
checks into a remote device that transmits images to the bank for immediate
deposit. PNC estimates the scanners will rent for $15 to $25 per month. No word
on pricing from NetBank. The NetBank service is expected in late third quarter
and PNC expects to roll-out by yearend. Alogent
 is the
technology provider for NetBank.

Benefits for small business owners:

1.   Saves time/money: Frees business owners from the daily/weekly
trek to the branch, something 80% of online self-employed households reported
doing during the past 30 days according to Javelin Strategy

2.   Improves cash flow: Checks can be deposited immediately rather
than collecting dust waiting for the owner’s next trip to the branch

3.   Streamlines record keeping:

i.    the original check can be filed as a paper receipt if desired

ii.   a back-up electronic image is stored at the bank if questions arrive

4.   Improves customer service: Check images can be quickly retrieved
and emailed if
a dispute arises

5.   Saves storage space/cost: Paper checks can be destroyed much
sooner, eliminating storage and security issues

6.   Improves management control: Owners can spot-check deposit
activity by looking at actual check images, rather than staff-entered accounting

Speaking as both as a small business owner and an industry analyst, this is a
great service and a strong candidate for a Best of the Web award once it
becomes operational.


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, ,
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,  $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

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., 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
 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
Brokers Charles Schwab
Calculators FinanCenter
Credit Cards & Loans
Debt Management Credit/Debt Mgmt.
Estate Planning
Financial Planning Financial Engines
Financial Portal MSN Money
Full Service Broker JP Morgan Online
Fund Families Vanguard Group
Fund Selection Morningstar
Life Insurance
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