After a decade of building, marketing, and enhancing Internet-based capabilities, U.S. financial institutions now sit at a crossroads. Online banking simultaneously faces tremendous opportunities and considerable challenges. According to the 2004 Pew Internet & American Life Project, approximately 53 million Americans are banking online, or about one in four adults. However, many Web users do not trust online financial institutions to protect their accounts. Phishing scams, identity theft, and other forms of online fraud have become part of the popular culture mainstream. The sensational nature of such cases has made many online banking users and potential users more aware of the negative aspects than the positive. In Mintel’s online consumer survey for this report, for instance, 40% of respondents who have bank accounts but do not use online banking services (which would project nationally to about 70 million adults) state that they do not trust transactions on the Internet.

While a number of industry and governmental forces are combining to fight Internet fraud, financial institutions continue to invest heavily in online services. The benefits are too great to turn back, despite worries about security. Active online banking users not only show greater loyalty to their bank, but they almost always carry higher balances and are more willing to refer the bank to friends and family. In an age where even the largest financial institutions are willing to fight for every single customer, these benefits are huge.

The forces driving the growth of the Internet--increased broadband access, new innovations that provide a secure environment, and the coming-of-age of more tech-savvy people--will combine to propel online banking as well. Too much money rides on the success of the online banking sector for financial institutions to allow it to miscarry. Mintel expects that online banking will continue to grow and become more profitable for financial institutions, particularly as the Internet matures and subsequent generations become more technologically literate.

This report examines the factors impacting online banking, including the trends within the industry and the socio-economic forces behind changing demographics. The report emphasizes the role and place of the consumer in the channel, providing a glimpse into the possible future for online banking.