According to the survey of 300 small businesses, 45% of SME's are using the net for banking, up from five per cent in 1999 when two thirds of small businesses still used branches.

Overall branch usage by SMEs has dropped by a third, with 65% of SMEs saying they expect to locate most of their financial services and funding solutions online in five years time.

Royal Bank of Scotland (RBS) SME customers use of online banking is currently the highest at 56%, says Xbridge, and is expected to rise to 72% in the next five years. Whilst around 50% of RBS customers currently use their branch, only 22% still plan to do so in the future.

Almost three quarters (73%) of Barclays Bank customers surveyed say they will switch to online services in the next five years, an increase from the 41% currently using Internet banking. Lloyds TSB's small business customers are also turning away from branches, with 44% fewer expecting to use their branch in five years.

Conversely, over 56% of NatWest customers suveyed say they will still use their bank branch in five years time.

Xbridge says banks will have to respond to the change in demand from SMEs and treat the online channel as a primary means of servicing the needs of small businesses as well as driving new customer acquisition.

Brad Liebmann, Managing Director of Xbridge comments: "Small businesses are increasingly adopting the Internet and the convenience that it affords them. Few banks currently offer their customers a quality online experience. Those who continue to ignore this growing segment of small business customers will lose market share."