The stock of Internet broker E-Trade rose recently from $10 to about $50. Amazingly, 28% of retail equity trades were made on-line in 1998, up from less than 5% only two years ago.

Is a repetition of these phenomena possible in banking?

The primary motive for on-line trading is price, not convenience or better access. Yes, broker Web sites now offer free services such as third- party equity research and stock screening. But, in contrast to banking customers, brokerage clients know they pay for each transaction. Prices as low as $5 a trade are a big motivation.

Virtually all on-line trading occurs through on-line discount brokerage accounts. There are now some six million of them nationwide, and they are growing by 20% to 30% a year. Discount broker revenue will account for about 17% of total securities industry revenue in 1998, up from a mere 1.3% in 1980.

This dramatic change is permanent. Yet it is so new that the full- service brokerage firms don't offer an equivalent.

They are fighting back by spending an estimated $5.2 billion on new broker platforms. Their logic is that on-line trading today is concentrated among "active traders," who constitute less than 1% of the industry's 70 million brokerage accounts.

The non-active investors have different motivations and may be more profitable. They trade less frequently, have longer-term investment horizons, buy funds instead of equities, or lack the ability to select their own securities. Because they pay higher commissions, they generate more than 90% of all brokerage revenue and will continue to be an attractive customer segment.

It's a good bet that the explosion in on-line trading isn't over yet. Tower's view is that within five years, 30% to 40% of all brokerage revenues will come from on-line-enabled accounts, and the remaining full- service broker accounts will offer on-line access.

With this as backdrop, let's look at the situation in banking's core retail business: deposit gathering.

Right now, an estimated 3% to 4% of U.S. households use PC banking. The term "use" means these households have the technology or have established appropriate access. The growth rate of 50% a year is reasonably high.

Yet there has been no equivalent to E-Trade. There is no fundamental, high-volume, revenue-generating banking transaction now conducted on-line 30% of the time-for four reasons:

Home banking already has a legacy. About half of home banking customers still use dial-up technology and personal financial management software.

The dial-up channel is relatively cumbersome, which is why all future growth will be in the easier, browser-based approach. Note that only Charles Schwab and Fidelity ever tried dial-up connections, and even they disbanded support.

Home banking is not profitable, and won't become so in the near term. It is a channel, a new way to deliver existing transactions to the customer. We estimate average industry losses at about $6 per customer per month.

Almost all banks are focusing their home banking efforts on their current deposit customers. Deposit gathering is a very mature business and doesn't benefit from the bull market the way equity trading does. The large banks recognize that deposit customers are sluggish and slow to switch.

Deposit gathering is still a very fragmented business. Community banks, thrifts, and credit unions generally define themselves within a geographically based local market. The concept of running a national operation is not appealing to them. However, with a branchless bank, national operation becomes practically mandatory.

These factors won't change quickly. There are too many differences between banking and brokerage to make the E-Trade equivalent of banking a reality.

Deposits, especially checking accounts, are a mass market product. Too much paper is still in the product, whether dollar bills or deposited checks. Customers don't like depositing checks by mail, or not having something physical nearby. Few demand deposit account customers know or care what they actually pay for the account. Those who do are either high- end and already bank at a broker, or low-end and don't use a bank at all.

Consumer motivation is also different. Trades are exciting. As a form of gambling, they offer entertainment value. Payments and deposits offer no such benefit. Derived from the unfortunate necessity of paying for other things, deposits, as a business, may remain on the consumer's list of less noticed items.

Even specialized on-line banks like Telebank could grow rapidly for years, but have less than 0.1% market share. As Internet stocks they may have high market valuations that give them momentum and rewards not available to normal banks. But they will still face challenges, particularly in marketing. Can they reach prospects without destroying their profitability?

A "killer application" is needed to give the consumer an incentive to switch to PC banking. Many believe that bill payment and presentment fit that bill.

Last year, companies in the United States issued about 19 billion "bills," defined as a statement of account requiring a payment. Recurrence is not mandatory, but is frequent. The most common billers, in order, are for credit cards, telephone service, utilities, insurance, vehicle and consumer loans, rental housing, cable television, and mortgages.

Banks issue about 25% to 30% of these bills and are also the lockbox operator for about 13%. About 90% of payments are by check. The cost to billers and consumers for this archaic procedure is roughly $50 billion a year.

Electronic bill payment is still in its early stages. About 50% of payments are still made by paper-for example, a check and a list. An advantage for providers is that certain switching barriers are created by gathering the requisite data on the consumer's payees and payment history.

Electronic bill presentment is the obvious next stage. Not only does it eliminate consumer data entry, it forces the consumer into an electronic payment.

Of course, the whole issue of electronic communication be-tween biller and customer is raised. Bills also act as statements and marketing pieces, helping to build relationships for the billers. Banks need a bill concentrator function to collect bills, present them to consumers, receive data and authorizations from them, and initiate payments.

One key issue is whether this function displaces the existing (paper- based) statement and marketing functions, or whether it only augments them. For example, telephone-call details could continue to be sent by paper, while the concentrator function handles key financial data. A second issue is who will provide and control the new function.

Bill payment and presentment are unlikely to replicate the on-line trading experience during the next few years. The reason is simple: too many changes by too many parties are required.

On-line trading is essentially a solitary activity that one person can practice. Bill presentment necessarily involves more than a dozen separate billers per household. Until they act in concert, large masses of consumers will not change their behavior.

Needless to say, paying bills will never be an exciting activity offering potential gains to the financially astute.

The role of on-line technology will differ in each retail financial line of business. Expensive, valuable, and important transactions enacted by niche market segments will be shifted into on-line technology first. We see this clearly today in on-line trading.

Deposits and payments will happen slowly-but it will happen. Costs are somewhat hidden, and a great deal of paper remains. Investments and consumer loan products have operated without physical presence through call centers in higher proportion than deposit products for the same reasons. Bill presentment should be an important catalyst within the next five years.

Many on-line displacements will be led by new entrants who have the motivation to take the risk. As such, they threaten the established players. For example, Schwab now has a greater market capitalization than Merrill Lynch. Telebank's market capitalization-to-deposit ratio is higher than typical super-regional banks, and could certainly go higher.

Yet the time horizon for these changes insulates established players and destroys a sense of urgency. Few, if any, deposit banks have seen any measurable deposit loss. All major retail banks are working on PC banking, which may become a commodity. Super-community banks may lag on-line on purpose, waiting until more movement occurs.

The bottom line is that early action is better than late action. Precise timing is difficult. Players aiming for a long-term future need to be fully invested in watching and learning with the new medium. Mr. Teixeira is the president of Tower Group, a financial technology research firm in Needham, Mass.

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