The buzz around online banking is long gone. Snazzy features like transferring funds to external accounts and retrieving check images have become must-have, me-too service staples, just as bill pay and email alerts did earlier. Major banks' websites even let customers open and fund accounts simultaneously.

But the industry is far from exhausting the potential for online banking.

Many companies have an opportunity to save money and boost revenue by getting more customers to use their websites.

Consider Citigroup, which leans heavily on electronic self-service channels due to its spare branch network. A recent survey by Javelin Strategy and Research found that only 41 percent of its customers log in on a weekly basis, well below the industry average of 59 percent.

Javelin also found that RBS Citizens of Providence, R.I., still has 47 percent of its customers coming into branches to transfer money between their accounts. Even at Bank of America and Wells Fargo-trailblazers known for their acumen with online and mobile banking— 9 percent of customers routinely visit branches just to check their balances.

"None of the banks are where they need to be from a channel-penetration perspective," says Terry Moore, managing director and head of the North American banking practice for the consulting firm Accenture.

But getting there is becoming more urgent. Banks are expected to lose nearly $37 billion of revenue from new regulations on overdraft fees, and potentially billions more from restrictions imposed on debit interchange fees as part of the financial reform legislation.

These fees have traditionally subsidized free checking and branch overhead. Mike Moebs, chief executive of the consulting firm Moebs Services, says nearly all of the nation's top 29 retail banks are already "beyond their economies of scale," saddled with operational expenses that will diminish revenue without substantial service changes.

In a July report examining the impact of the overdraft changes, Celent senior banking analyst Bart Narter said that banks could resort to creating "bare bones" checking accounts that will incur fees for all but Internet, mobile and card transactions. Soon afterward BofA announced its plan to roll out an e-banking account nationwide. The account would be free to those who opt not to receive statements by mail and don't use the branch for any transactions that can be handled by an automated teller machine; customers would incur a monthly $8.95 fee otherwise.

To Mark Schwanhausser, a senior analyst with Javelin, these are changes banks should have been looking to make years ago-not just to diminish branch visits, but also to eliminate a division between teller and Internet transactions that often keeps customers from embracing new channels.

Online services that don't link to loans or savings products, or that don't account for pending items in balances, confuse people, he says. "They don't have a real understanding for why one arm of a bank can't communicate with another arm of the bank. Ultimately, the idea of silos within a bank is something that should go the way of the dodo."

Extinction could be many banks' own fate if they fail to tackle the problems behind low online utilization. The smallest banks are high on the endangered list, as they have always been followers of innovations that emerge at competitors.

According to Javelin's survey, community banks generally have a lower percentage of fund transfers, bill-pay activity, account openings and customer service contacts through the Web than the big banks-or even credit unions, which Schwanhausser says have been ahead of the curve in online services the past decade. Community banks also trail when it comes to getting the most value from consumers who do use online services. According to Javelin, large-bank customers pay their mortgage through online bill pay 40 percent of the time; with community banks below $30 billion of assets, it's only 32 percent.

Merely offering bill pay is an area where many banks lag. Though 64 percent of online banking customers use this service either through banks or direct billers, 36 percent of banks still do not offer it, says the digital research firm comScore.

If improvement were just a numbers game, banks would have a hard time hacking their way out of the thicket. Growth is stagnating as the channel matures and customer satisfaction with bank websites is dwindling, as measured by comScore.

But an opportunity exists for banks that do better at serving customers online and subsequently improve cross-selling.

Aite Group analyst Ron Shevlin says online customers are more affluent, which could influence how a bank promotes its services. BofA and Wells Fargo might be drawing a lot more urban customers, versus U.S. Bank, which has a lot of branches in the Midwest, he says.

U.S. Bank has one of the highest branch transaction rates among top banks; 46 percent of its customers use a branch weekly, compared with 33 percent for BofA, the Javelin survey indicates.

It plans to roll out personal financial management with a new website soon, says Rick Hartnack, U.S. Bank's vice chairman. Though it also plans to continue chasing market-share growth by adding branches, "the perspective here is to make each channel competitive and attractive, and work hard to make sure clients understand the availability of the channels," says Hartnack.

Accenture's Moore points out that the industry still struggles to calculate the profitability of an online customer. Banks might know the savings from eliminating a branch transaction, but they don't yet have true metrics on how services like PFM equate to cross-sell propensity. They also struggle with measuring the cost of obtaining customers through paid search ads compared with search-engine optimization, or SEO. Even so, Moore views online customer acquisition as a valuable opportunity. "Banks spend a lot of money online doing paid search," he says. But by investing in effective SEO, "you can reduce that cost through nonpaid search and getting a lot of traffic through the storefront."

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