I wouldn't bank on it

Online banking: do you, don't you, and why? The chances are most people with an internet connection will indeed be doing something in terms of banking using the wires. It's a me-too product. If you think your bank doesn't allow its customers to bank electronically then you need to change your bank or find a bank manager within the group who won't fib to you like that. Elsewhere in this issue Dennis Jarrett compares the offerings of the various banks once they are online, but the essential fact is that they are all there in cyberspace.

Except they are often to be seen in different forms. Take Barclays: yes it is an online bank like all the rest, but it is also a bank that offers the ClearlyBusiness start-up software and accounting package (which is basically Quickbooks with a few extra branding bits chucked at it). Others, such as Abbey National, perceive that their customers want free banking and less of the bells and whistles, thanks. No doubt they are both right for their particular catchment areas.

It is instructive, though, to look at who is using internet banking and who isn't - and who, above all, is using it for static statements and other services that simply duplicate what is already happening on paper. Barclays gave us the following information about its customers:

· Just under half of owner-managers under 25 use the internet for business purposes, with greater usage in businesses under a year old (58%). There is a higher usage among businesses with sales totalling over ?50k where 70% use it.

· Owners of new businesses that have come from management jobs are more likely to be computer literate as they will probably have been trained in the workplace and therefore don't have to take time out to learn how to use them.More than 71% of over-50-year-old owner-managers own and use a computer in their business.

· Consultancies and businesses with low levels of cash tend to find internet banking useful as they can manage the majority of their finances online. However, businesses such as local shops which are cash intensive, really enjoy the benefits of internet banking, because they can manage their funds outside of shop hours without having to close up to visit the branch. New services such as our business cash advantage now enable customers with cash to deposit money in the night safe outside of bank hours so they can now deposit and bank even when the branch is closed.

· There are businesses in a range of sectors who are late adopters, perhaps due to cashflow issues preventing them from investing in new IT equipment for their business (ie a traditional small manufacturing business).

There are more than a few businesses in this position, too, suggests research from the British Bankers Association. If only 15% of small businesses - that is 440,000 of you - bank online, why are the rest holding back?

Some of the answers may lie not in what the banks do but in what they don't offer. Tim Burfoot, head of financial services at financial consultancy Detica, says it is amazing how quickly net banking has become a boring commodity subject.

"Most applications offer little more than yet another alternative means of checking static account information and making routine payments," he says.

"Moreover, few banks appear to understand or manage the relationship between internet banking use and contact centre volumes so it is very difficult to tell how much contact centre traffic (and cost) is actually driven by internet banking usage."

He points to a number of discrepancies in the banks' offerings: "Customer sophistication with financial products varies widely, yet, when it comes to using internet banking applications to drive product sales, systems deliver a 'one size fits all' that risks bamboozling the inexperienced customer or talking down to the more financially sophisticated." The logic seems pretty inescapable; how many businesses consider they share nothing in common with each other but are forced to use the same banking options?

There are also other inhibitors, which numerous people (all of whom have vested interests naturally) believe could be overcome. In a recent Mori survey it was established that:

· 6 million more people would bank electronically if it were not for security worries;

· 28% of respondents saw security as the biggest barrier to e-banking. The survey was commissioned by - wait for it - a security company, RSA Security, and the figures relate to consumer banking rather than businesses, but the figures are still telling. Barclays, which claims credit for launching internet banking in the UK in 1998, has made a number of forecasts as to how some of the current attitudes will change. It suggests:

· Customer numbers banking online will double by 2006;

· By 2008, 40% of transactions will happen online, compared to the current 20%;

· Customers will continue to use the internet in addition to, rather than instead of, standard banking - this is in contrast to predictions being made at the time of the dotcom boom, when we were all going to do everything including making the tea online;

· Although the online banking community remains male dominated the balance is now only 60/40, and this will continue to right itself;

· 46% of customers initiate payments online, and this figure will grow;

· 62% of UK adults, whether at home or at work, have access to the internet.

The difficulty will remain differentiating a service: once a customer is online, then typing and clicking the mouse is a brand-neutral activity. Many of the banks claim victory for their small business and software initiatives; currently Barclays looks the most serious with its ClearlyBusiness initiative. Others are using sticks rather than carrots; at least one of the big four is reducing the interest it pays on current accounts for business if the customer doesn't log on enough for the company's liking in a given month.

Whether this is sustainable remains to be seen; certainly the banks are keen to push their customers towards the new medium and, given the effect it has on their overheads, you can see why. The benefits to customers are clear, too: out-of-hours service is invaluable from an industry that honestly thinks it took a revolutionary step forward when it extended opening until 4.30pm when everyone is still at work.

It is worth stepping back and doing a little reality check. Sure, only 15% of small businesses actually bank online, but only 19% of the population overall does so (source: Mori), so expecting massive take-up is unrealistic.

On the other hand, if online banking has everything to do with efficiency and having an internet connection in the first place, you can be forgiven for wondering why business should be behind rather than ahead of the consumer market on this occasion - it's the businesses who'll be spending money paying their employees to stand in a queue at a counter, not the consumers, who obviously do it in their own time.

Internet banking has been with us now for around five years in its current form (prior to that, most online banking happened through direct links to the banks). It's arguable that a 15% penetration is a good result from a standing start, and that a lot of companies will be noticing the benefits of handling their money in this way. It still leaves 85% in the queue or hanging on the telephone, which costs money.

It will be interesting to revisit the figures a year from now and see the effect that broadband's increasing ubiquity has on the market.

Banking is big business

· Research from the University of Birmingham suggests businesses are being let down by the banks: in spite of banks being the most likely place to get financing, they're not trying to simplify or cheapen the borrowing process. Also, whereas in Europe the regional banks are structured in favour of small business, banks in the UK are much more aligned with big business customers and their needs.

· Finance guide Business Moneyfacts has surveyed the big four business banks and found changes in small business accounts have had little effect on the services on offer and that smaller banks still offer better deals. The big four have disputed the conclusions and findings.

· Research company Hitwise found that online banking grew 65% last year, including both business and personal banking in its information.

· Nevertheless, figures from the British Bankers Association suggest that although online banking is growing in the business community, only 15% of small companies in the UK use the internet for their finances.

Drawbacks of the system

Of course, we mere users of the banking services are terribly naive, but there are a couple of services that, if they can work in e-banking, you'd think could be done in cyberspace or vice versa. Take cheque clearance. You walk into a shop or even log on to a suitable website, you hand over your Switch or Delta card (or the details) and they can have the money in their account in seconds. Someone who owes you money sends you a cheque and it takes five days - five days! - to clear. If they or you pay by BACS it takes three days.

We asked a Barclays spokesman why this was. "We alone cannot change the clearing system, which is why we have found an alternative for customers, through instant banking," he says. "It is not possible for any bank to change unilaterally the clearing cycle, and this would be a major project for the whole industry. We are willing to participate in any discussions about the clearing cycle and its future."

Cheques, he explains, still need to go through money-laundering checks and other regulated procedures, which are prescribed by law; indeed there are a lot of procedures that have to happen for a transaction to be recognised legally, he explains. "We still have to present a cheque for payment to the bank on which the cheque is drawn," he says. "This occurs on day two and determines the length of the clearing cycle." Even then, Barclays for one will stump up ?1,000 for a customer while a cheque is going through the process, but that applies to personal rather than business customers for the moment.

So much for cheques, but what about electronic transfers, surely they should happen instantly by now?

"The potential market for same-day low-value payments is limited," he says. "It is currently difficult to make the business case for banks to invest heavily in systems to enable this."