Banks need to target 16.5 million households by 2002

On-line financial services may be limited currently, but it's a strategic growth area with high profit potential, according to a new study of home-based financial services from SRI Consulting.

The study identifies the potential market for on-line banking and brokerage over the next three to five years; specifically, about 16.5 million households, or 16 percent of all U.S. households, will have the motivation or capability to conduct on-line banking, with about five million of these households as potential users of both on-line banking and brokerage services. Household preference for services will vary; about 10 percent of all U.S. households are potential home banking customers, while eight percent are potential on-line investors.

Early adopters are identified as people who are currently on-line with above-average investment needs. These people constitute six percent of U.S. households, of which two percent are capable of on-line brokerage and four percent are capable of on-line banking. But Larry Cohen, director of consumer financial decisions at Menlo Park, NJ-based SRI, cautions, "We're not saying that they are all here yet. While more than one million have tried on-line investing at least once, many still are not regular users."

Once the early adopters are on board, however, banks will need a "second wave" of users to roll in. And it's not going to be a free ride. "Users other than early adopters are going to cost more to service. Providers will need to expand the support functions for on-line investing so that they provide both investment information and technical advice."

Tapping the second wave of users will be determined by how much technical support can be generated in the way of software, training and 800 numbers. "These consumers also will need expert, impartial financial counseling," says Cohen. "When banks and other financial institutions invest in these types of enhancements, then the (market) penetration that we're forecasting will become feasible."


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