While the downturn in equity markets takes its toll on online brokerage, Internet banking in Europe continues to attract more than 1 million new consumers a month, according to a new brief by Forrester Research (Nasdaq: FORR).

“More than a third of European Internet users — 42 million people, or 14% of all European adults — bank on the Net today,” said Forrester Analyst Charlotte Hamilton. “Net banking correlates strongly with users’ education, attitudes, and assets, and among online users, Net bankers are 23% more likely to have a higher education than those not banking online. But as the Net becomes increasingly pervasive and online tenure overcomes security concerns, online banking will penetrate more than half of the continent’s Net users in 2005 — 110 million Europeans.”

“Our strong growth forecast for Net banking over the next four years rests on the assumption that Net offerings will continue to improve. Why? Because these customers are simply too good to lose,” said Dr. Therese Torris, group director at Forrester’s European Research Center in Amsterdam.

To sustain their investment in Net banking, Forrester believes that Europe’s financial firms will retreat from expensive noncore Net investments, such as independent online brokerage arms, and will redirect funds from these unprofitable single product ventures to their banking offering. Forrester also believes that they won’t invest in new proprietary online product offerings but will outsource from third parties. Also, Europe’s banks will seek cheaper transaction costs through self-service and automation; they will lower their investments by integrating third-party transaction platforms into their Internet banking service — enabling customers to apply for and purchase multiple products online. Finally, banks will drive greater customer loyalty online by using Web features like personalization and automated advice.

“To maximize their return on online banking investments, we advise Europe’s banks to encourage customer migration to reach critical mass by clearly communicating the benefits of Net banking — highlighting the availability of information, analysis, advice, and real-time transactions,” Hamilton added. “To keep customers from turning to more expensive channels like the telephone, banks must also weave customer service throughout their sites. So, when customers have a query that isn’t answered at the site, banks should encourage customers to email rather than phone the call center and then automate routine customer-service queries. Equally, banks must use their Internet services to cross-sell more profitable products like life insurance, thus justifying promotional offerings like high-interest savings accounts or low-rate loans. Finally, online banking must be made easier for tomorrow’s less patient users. Simple Web design improvements, such as letting users know in advance how much data entry an application requires or reducing the number of clicks necessary to perform a transaction, will improve sales by up to 30% in one design overhaul.”