• by Paul Gough , November 7, 2003

The Internet once had pundits declaring the end of the neighborhood bank.

The speed, ease and convenience of the Web would make such offline institutions as branches, telephone calling centers and even automated teller machines a thing of the past. Or at least they'd become less important (and less costly) to banks. It would only be a matter of time before the Internet would be the channel of choice for consumers to connect with their banks.

No one thinks like that anymore. While features continue to grow and more consumers go online to check balances, get rate information and pay bills, the old brick-and-mortar isn't due to be replaced anytime soon.

But a new study by New York-based eMarketer finds that instead of being the channel of choice for the some customers, online banking has become one of a number of ways consumers are doing business.

"The majority of banking customers, even with the upsurge in online banking, still do it in person," said David Hallerman, a senior analyst at eMarketer, whose report "Interacting Banking in the US: Making the Most of a Multi- Channel World" was released this week. He said that even the most involved online bankers, when they need cash, still go to the ATM, for instance. And from the banks' point of view, anything really involved still requires in- person contact that's all about the branch.

"The retail face of the bank - the branch - isn't going away," said Hallerman.

The report said that online banking is becoming an important - but not sole - part of a customers' financial behavior. The most common online activities include paying bills, viewing statements and checks, transferring funds and checking balances - all of which are still being done in person, by mail and over the telephone. Increasingly the savvy banks are finding that the Internet complements its marketing of more long-term financial products like mortgages and financial planning, Hallerman said.

The report predicts that by 2005, 33 percent of U.S. households - and 45 percent of Internet households - will bank online. The demographic will grow to 38 percent of total households and 50 percent of online households by the end of 2007. Hallerman attributes the growth in part to the increased penetration of broadband and consumers' comfort with online banking and its safety.

And even if things didn't work out the way banks had thought, it's still got a significant upside. The average Internet user is better educated and has a higher income than the average American. Hallerman said banks are using the online channel to reach desirable customers and sell them more products, along with retaining them.

--Paul J. Gough