Bright Future for Internet Banking

Internet banking is "still in a strong growth phase," according to a report on retail Internet banking by Celent Communications (Boston). About one-third of U.S. households have active online Internet banking users, Celent estimates. That should approach 50 percent by the end of the decade, driven by broadband penetration and the further maturity of Web-based services, the report predicts.

To meet the increased demand, banks are expected to ratchet up their spending on Internet banking technology (see chart, below). External vendor solutions will experience the fastest growth rather than internal development. "As you get strong, out-of-the-box solutions from third parties, you're seeing that greater move toward external spending," says Alenka Grealish of Celent, a coauthor of the report. Part of the external spending is for solutions to problems that didn't exist before, Grealish notes, pointing to phishing as an example.

While Celent expects that spending on hardware will increase, it will occur at a slower rate than in the past. "Hardware always gets less expensive," says Grealish. "Also, leading application providers are figuring out how to get more out of the hardware."

Celent examined product offerings from Corillian, Digital Insight, Fidelity Information Services, Financial Fusion, Fiserv, Metavante, Online Resources, Open Solutions and S1 Corp. In doing so, it found that competitive pressures have narrowed the feature gap between the leaders and the followers. "Everybody's rounding out their stable of features," says Grealish.

Room for Improvement

Nevertheless, there's still room for improvement. "Although all large and mid-sized banks and a growing number of small banks offer online banking, their offerings are far from equal," the report, coauthored by Dan Schatt, notes. "User-friendliness is uneven, support varies and features menus differ notably."

As a result, banks may achieve the greatest impact by pursuing basic improvements instead of cutting-edge technologies. Celent recommends improvements such as online account opening, universal registration for multiple services and pre-populated application forms. To enhance the customer experience, banks should conduct usability tests and monitor user feedback; provide smooth navigation aids; incorporate easy-to-access contextual help; and minimize data entry problems with appropriate user interface elements, such as calendar widgets.

For several of these enhancements, the back office has to get involved. Specifically, banks are seeking to maintain a consistent look and feel across applications used by multiple lines of business; incorporate third-party offerings into the Internet banking channel; and create links between online applications, according to the report.