Projecting rapid growth in banking over the Internet, Booz-Allen & Hamilton is estimating that on-line households will generate 30% of the industry's retail profits by the end of the decade.

The profit contribution is currently below 1% but should jump to 3% next year, 8% in 1998, and 19% in 1999, Booz-Allen said.

In a follow-up to a study released in March, the New York-based consulting firm this week projected Internet banking households would total 16 million in 2000, up from 100,000 at the end of 1996.

The conclusions are among the boldest and most optimistic in this field of research. They assume that wired households are by definition among banks' most profitable and will proliferate as younger, computer-literate people come of age.

Out of about 100 million U.S. households, the Internet-banking estimate of 16 million may appear modest. That is the current total of all-purpose Internet surfers, split about evenly between those using computers at home and at work, according to a recent survey by Response Analysis Corp. of Princeton, N.J.

Payment Systems Inc. of Tampa also has adopted a projection of 16 million PC banking customers in 2000. By then, personal computers are expected to be in the vast majority of households, up from 35% to 40% by most measures today.

Under some of the more optimistic Internet scenarios, general-purpose usage will reach mass-market proportions by 2000. But this projection may be constrained by slower penetration of PCs, which could affect the availability of particular services like banking.

Booz-Allen is bullish on banking availability. Earlier this year, when it counted 285 banks on the Internet's World Wide Web, Booz-Allen said 1,500 would be on the Web by 1999, at least 500 of them offering full- fledged banking and transaction packages.

It seems a bigger leap to expect 16% of households to generate 30% of retail profits because of the on-line factor, but Booz-Allen contends these customers will be highly desirable and the costs of serving them will be well below what branch-based banks are paying.

"We've done the analysis for people today that use on-line services like Prodigy," said Bill Burnham, a Booz-Allen associate and leader of the Internet banking study. "The on-line users are more attractive than the average bank customer in any age or income group.

"Between the simple demographics - they are younger, more educated, and affluent - and the fact they use more products, the on-line customers will clearly be more profitable."

Though the data portray the electronic frontier as highly inviting, Mr. Burnham warned of a "double-edged sword" for banks: "tremendous opportunity but also substantial risks."

"Much of the profitability we are talking about is on the loan side," he said, "but a lot of the activity" in Internet banking so far "has been focused on consumer deposits and transactions."

"Looking at the credit card business," Mr. Burnham said, "the companies that have been most successful are nimble competitors who know how to segment their markets and understand customer profitability. The on-line banking world is primed for that sort of behavior, and banks that are good at that are likely to do well."

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