Many marketers of on-line banking services are discouraged by results so far, leading them to question their strategic choices and the development dollars devoted to them.

But there is one sure thing-the number of potential customers-that argues for no letup in commitment.

The Internet is booming, and banks need only tap into a fair fraction of that activity to make their strategies pay off. In a typical week, some 40 million people make their way on-line, according to the World Wide Web monitoring firm Media Metrix.

Surveys show that somewhere between four million and six million households-up to 6% of the U.S. total-do banking or financial transactions on-line. Companies like BankAmerica, Citigroup, and Wells Fargo, each well into the hundreds of thousands of enrolled customers, have their sights on 10% or more.

Banks' challenges will surely get greater. They are sorting through options for electronic bill payment and presentment, which has still not lived up to "killer app" billing. And on-line brokerages like E-Trade, Ameritrade, and DLJ Direct seem to have stolen some of the marketing initiative.

Banks and nonbanks alike must figure out how they fit within portals- such as America Online's Personal Finance channel, Yahoo Finance, Intuit Inc.'s Quicken.com, and Microsoft Corp.'s MoneyCentral-where much of the wired public goes before zeroing in on a financial provider or service.

In a carryover from the physical world, there are questions about profitability. First Manhattan Consulting Group, which has been harping for years about how a minority of profitable retail accounts carry entire banks, has found the on-line skew to be even more extreme.

First Manhattan vice president Wayne Cutler said Web banking customers are up to 50% more affluent than the industry average, but 70% of them are either unprofitable or break even. "Channel optimizers" - people who maximize transaction volumes because of easy accessibility and perceived low costs-flock to the Web.

But most observers say the cost structure can be turned to an advantage, with appropriate market segmentation and pricing.

"This will be a growth area," said Peter Carroll, head of Oliver Wyman & Co.'s retail banking practice. "But the total cost of distribution has not gone down. Banks have to align their pricing."

The latest of a series of reports from Nielsen Media Research and CommerceNet indicated that 78 million North Americans used the Web in the first six months of 1998, 36% more than in a September 1997 study. Of the 78 million, 48 million used it as a shopping tool and 20 million actually bought something.

Nielsen found that 6.9 million had used the Web to check bank account information, 5.1 million did banking transactions, 12 million checked on stock investments, and 5.1 million bought or sold stocks. Over the nine- month period, those totals rose by 53%, 38%, 41%, and 76% respectively.

Forrester Research of Cambridge, Mass., estimated that 6.2 million households would be banking or investing over the Web this year, up 68% from 1997 and rising to 21.3 million in 2002.

One cloud-insecurity about privacy-still darkens the outlook. In an Opinion Research Corp. study released this fall, 82% of consumers said proper arrangements for protecting confidentiality were a major concern. But even that has a silver lining.

"This is a perfect opportunity for financial institutions to take advantage of the high level of anxiety by emphasizing the security of their systems," said Opinion Research senior vice president Elliot Savitzky. Once that is addressed, they can get down to delivering the access to services, financial analyses, quotes, and low fees that consumers are also insisting on.

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