The study - which covered Germany, UK, France, Italy, Spain and Nordics - found that the number of consumers using Web banking grew by almost two-thirds between 2002 to 2005, from 39 million to 63 million.

Germany has the highest number of customers banking online with 15.4 million followed by the UK with 12.1 million in 2005. But the Nordics continue to be one step ahead of the other European countries in terms of Web banking penetration, with 43% of customers in the region banking.

For customers ease, convenience, and speed have been the key reasons for signing up to online services, while banks have seen the Internet as a new sales channel that is cheaper than the branch or contact centre. Datamonitor says it expects the online channel to continue to be a strategic focus for European banks and that IT spend for Web banking will increase at a sustained rate. For exmaple spending on Web banking IT by UK banks is expected to grow 17.5% between 2006 and 2009, from US$600m to US$705m.

But despite the strong take-up and continuing investment, customers use the Internet as a servicing channel rather than a sales channel and switch to more traditional methods of banking when they need products. Therefore the potential of the Internet still remains unfulfilled by both providers and end-users, says Datamonitor.

A report released last year by Forrester Research found that although financial firms encourage consumers to apply for products via the Web, none of the UK's top six banks and building societies provide site visitors with strong content and functionality for researching and applying for credit cards.

Karina Purang, financial services analyst at Datamonitor, says a big problem is that banks are struggling to integrate the Internet with other channels and where there is integration in many cases this remains confined to the transactional level, rather than in terms of integrated business processes and a single customer view across multiple channels.

This has a negative impact on the customer experience, says Purang, and also prevents banks from gathering customer interaction data.

Inactive customers and high dormancy levels are also a problem, says Datamonitor. While banks have been successful in signing up customers to online banking a significant proportion of these customers still do not actively use the service.