The Skinny on Small Businesses Banking Online

By Paul J. Mulligan

When bankers finally realized retail clients weren't all that interested in online banking, they had a collective thought: Let's focus on small businesses. Perhaps this change in target markets is paying off. In their 2000 Small Business Market Track, PSI Global asserts small businesses (defined as businesses with $500,000 to $9.9 million in annual sales) have taken to the internet. The number of small businesses with online banking services has increased nearly 81% -- from 132,002 in 1998 to 238,422 in 2000.


Yep, 238,422 small businesses -- some 11% of the 2.15 million small businesses with sales between $500,000 and $ 9.9 million -- now have online banking.

I have a treadmill.

Actually, I'm not sure I have the right to call it a treadmill. Presently, two of my pullovers, a pair of jeans, and a very red tie I recently wore to a holiday party are draped over it. At its base lie a number of my 6-year-old son's action figures -- he uses it as a stage for their epic battles. So, I guess my treadmill is getting some use -- just not as a treadmill.

"Use" is the operative word, here. I have a treadmill, but I don't really use it. More than 238,000 small businesses have online banking. But do they really use it?

Not according to the 876 small businesses surveyed by PSI Global for their survey. Tracking the use of banking channels, PSI found small businesses prefer the phone or a person over the internet for routine transactions. Indeed, when it comes to using online banking services for more complicated transactions like applying for credit, small businesses might as well be using my treadmill. No small business owner claimed to use the internet for obtaining credit; only 1% of them claimed to use it for obtaining information on credit rates. "So far, small businesses' use of the internet to obtain credit from the new dot-com providers is largely hype," says Roger Swales, PSI Global's president and CEO.


The truth is there's just not enough value added with online banking as of yet to motivate small business owners (or retail customers) to use it over and above the phone or a person. Forget trying to claim the value-added comes in the form of incentives like higher interest rates. Incentives are rarely strong enough to change people's ingrained habits.

Take me, for example. My son has to write sentences for his spelling words every week. One of this week's spelling words was "fat" -- as in "My dad is getting fat." You think that should have given me enough incentive to take the clothes off my treadmill and start using the thing. It didn't. Instead, I told him to clean up his stupid action figures that he always leaves lying around and then I grounded the disrespectful little brat.

Paul J. Mulligan wrote eMarketer's eInvesting Report, which examines the state of the online investment services industry and outlines the challenges and opportunities before it. eMail him with comments, questions, and suggestions at pmulligan@emarketer.com.

First published on BankersOnline.com 1/29/01.