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Online banking is clicking with more customers

By EILEEN ALT POWELL
The Associated Press

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A study released yesterday of online banking at the nation's 10 largest financial institutions found that 22 million consumers logged in to their accounts in March, a nearly 30 percent increase from a year earlier.

Most went online to view their checking or savings account balances, the study showed. But many were monitoring their credit cards, paying bills, managing credit lines or paying mortgages.

"The banks are doing a lot of promotion of their services," said Jim Larrison, head of the banking practice division at comScore Networks, which conducted the study. "The (online banking) leaders are also spending a lot of time and technology resources creating applications that are really user-friendly."

One of the main attractions of online banking is the 24-hour convenience.

"I was traveling quite a bit and often away for quite a while, and I worried about keeping current," said Diana Nichols, 73, a retiree who lives in San Francisco.

Nichols, who described herself as "not particularly computer literate," said she set up her Bank of America online account so her bills would be paid automatically.

ComScore said that Bank of America, based in Charlotte, N.C., remains the leader in attracting online banking customers while New York-based Citibank has seen the strongest growth in the adoption of online bill paying.

Both banks "have focused internally on their existing customers," luring them from brick-and-mortar branches to the Internet, Larrison said.

"They offer great savings products and pay great interest rates," Larrison said, adding that the site makes it easy for consumers to transfer money among a variety of accounts at different institutions.

Online banking use expanded more than tenfold from 1996 to 2003, TowerGroup Research, based in Needham, Mass., said in a report last month. TowerGroup expects nearly 37 percent of all U.S. households to be registered to bank online by 2007 — a total of 42.5 million households.
 
Bank of America already has 10.9 million active online banking customers, 4.3 million of whom pay bills online, said Sanjay Gupta, an e-commerce executive at the company.

Gupta said that to encourage Internet use, the bank eliminated all fees for online bill paying activities and provided a "zero-liability guarantee" to assuage security concerns.

"We find that as customers use of online banking and bill-paying grows, they become much more loyal customers," he said. "They also have higher balances and higher loan balances."

Arkadi Kuhlmann, chairman and chief executive of ING Direct, said the online bank's customer base has grown to 2 million since it was launched in the United States in 2000.

"Our approach is very simple, straightforward commodity products ... so we can keep our sales and service very focused," Kuhlmann said. The bank specializes in savings accounts and mortgages.

Allyson Mediano, a 25-year-old nursing student, opened an ING Direct account three years ago that she uses to deposit money and earn interest until she needs it for school or living expenses.

"I can go online at work or at school," she said. "It's easier to keep track of your finances because it's all right at your fingertips."

ComScore's study found that online bill paying has grown rapidly, but that there still is room for expansion.

More than 4.6 million Americans paid at least one bill via a bank online payment service in the first quarter this year, up from 1.9 million two years earlier, the study said. The average customer, it said, "pays more than 14 bills per quarter with a total value of more than $3,500."

Still, the results found that most consumers — 84 percent — still prefer to pay bills through a utility or merchant's site rather than through a bank site.

Larrison said he believes consumers think they have more control that way.

"And there's a perceived timing issue," Larrison said. "If you're on deadline, it's easier to go to the direct site and pay them because the account gets credited immediately. With a bank, it can be a question of how long it takes."

Larrison also said the growing adoption of high-speed Internet access should spur further online banking growth.

"As broadband penetration approaches 50 percent, this dynamic will likely translate to both increased acceptance of online banking and more effective cross-selling opportunities for banks," he said.