Online customers make up only a small part of the small-business customer base, but they are important - and distinctly different.

Though they use online channels for only a portion of their banking needs (most continue to require branch or person-to-person contact), they generate higher revenues and profits and are more satisfied with their banks than offline customers are.

Working with seven major regional banks, we learned that the online customer exhibits highly attractive traits:

• Larger demand deposits. E-banking small businesses maintain an average balance of $59,000, 2.8 times the average for those that bank entirely offline. This means a much-improved profit contribution.

• Higher loan balances. Similarly, the credit balance of the average online customer is $87,000, more than twice that of the average offline borrower. Bigger loans help banks leverage the fixed costs of origination, underwriting, and processing - again fueling improved profits.

• More accounts. Online companies have average three accounts, versus 1.7 for other companies. Multiple accounts is a key measure of performance for many banks.

• More satisfaction. Online customers seem more satisfied with their banking relationships - with an average attrition rate of 10%, versus 14%. Online seems to create the "stickiness" desired from Web banking.

In many cases, however, we believe that online has simply become an additional cost of doing business, a requirement rather than a differentiating factor.


We remain skeptical of the online opportunity for enhancing revenue growth directly, except with certain limited customer groups.

Though online customers are demonstrably more attractive, even they use online functions selectively. Personal preferences, limited functionality, and the need for security and training inhibit online use.

Our survey of small businesses points to online activities being largely focused on passive requirements. Close to 70% of online users obtain account balances online and slightly more than 40% make wire transfers online, but only 15% say they have made an online credit application or have bought or sold investments online.

Many small-business owners prefer to go through a banking officer for transactions that they view as more sophisticated or complex. Similarly, online service fails to measure up to the best service available from a branch. Service levels have to become more consistent if a bank wants to switch more of its customers to online channels.

Our survey shows that small businesses cite security as the No. 1 criterion for comfort with e-banking. Customer education and support seem nearly as important.

Branch personnel play a critical role in introducing online banking to customers and in providing small businesses with ongoing training. Though technophiles may be willing to invest the time and energy required to learn how to conduct e-banking, most customers either will not see the value in doing so or will be alienated by a process they view as daunting.

Though online banking changes everything, on one level it is just another faddish way to try to boost the bottom line. A year or two ago some saw successful branding as the key. The previous fad was reengineering; before that it was total quality management.


We believe that the 15% of customers who now access their bank accounts online will increase to more than 50% over the next three years. The pace of technology adoption is fast, and the benefit to the customer of online use is increasingly apparent to them.

Many bank managers want to use the Internet to promote increased self-service in sales and account management. But customers may be willing to cooperate in only a limited way.

Banks may be pushing their customers, even their online customers, too far toward high-tech/low-touch. A better alternative may be to employ a high-touch approach in those cases where the customer economics allow it.

The rate of technology adoption and the extent of online use will continue to vary dramatically by customer segment. As we will discuss in our next column, banks should offer only one value proposition to small businesses. Any bank that tries to force customers instead of adapting to their needs will alienate them and retard the transition to online.

With some customers, e-banking is an important retention and revenue tool. With others it is mostly a way to cut costs. And with some it may be largely irrelevant for maximizing profitability.

Editor's note: This is the third of four columns by Mr. Wendel on this topic.

Mr. Wendel is president and Ms. Williams senior engagement manager at Financial Institutions Consulting in New York.

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