RDS SPECIAL: The Next Generation of Online Banking

Generation Y members and 22 million small business customers represent two huge untapped markets that banks can reach through online banking, according to a panel of experts and some bank customers during BAI's Retail Delivery Show in Las Vegas on Nov. 15.Catherine Graeber, VP and principal analyst for Forrester Research, says that Gen Y consumers show a preference for podcasts, Apple computers, mobile phones, social computing and networking. "Why should banks care?" Graeber rhetorically asked the audience.

Because Gen Y currently makes up 15 percent of online households and is the only generation that is growing in size. By 2011, the generation will comprise 29 percent of all online households, she says.

Another reason banks should care about this group is their banking behavior, which generally costs banks less than that of older generations. "You don't have to convince them to give up checks," because they have never used them, Graeber says. Members of Gen Y also are the most likely to apply online for financial products..

These consumers want financial institutions to categorize their spending for them and want to go online for money management tools, she says.

B. Michael Rauh Jr., EVP of sales, service & delivery for The Washington Trust Company explained why he thinks U.S. small businesses are also an untapped market for online banking services.

These "micro-businesses," of which there are about 22 million in the United States, are very small, often with less than five employees. Banks have problems even recognizing the owners of these businesses because they tend to have minimal separations between their business accounts and their personal accounts.

Most banks don't have set services for the smallest of business, although these businesses have some traditional business banking needs. While they may not need large scale cash management or treasury services, they are still often dealing with payroll, accounts receivable and payable, and numerous deposits.

Banks are missing out on the opportunities these business provide, Rauh says. They should find ways to serve their specific needs and make them stickier customers.

Following Graeber and Rauh's formal presentations, three consumers - one a Gen Y and the other two small business owners - explained their online banking behavior and needs. The panel then answered audience questions. The one thing that they all wished they could have, but don't currently is a way to deposit their checks remotely, to avoid ever having to visit a branch.Generation Y members and 22 million small business customers represent two huge untapped market that banks can reach through online banking.