If banks were to ask their customers “how do I look online?” the average response would most likely be: “update needed.” That is because the average bank offers customers a generic online experience.

Although there’s no Finola Hughes of the TV show “How Do I Look?” [see below] to help the industry achieve a better, more-personalized look, a report released yesterday identified one makeover suggestion: take a cue from Apple and create an app store. But rather than associating it with a mobile phone, put the store experience online. In turn, consumers could decide which financial apps are important to them, while doing their online banking and “turn them on” to personalize their experiences. Such a move is “a step that could invigorate online banking and introduce innovation at the speed of fashion,” reads the Javelin Strategy & Research report. To find out more about the idea and its implementation challenges, Bank Innovation caught up yesterday with Mark Schwanhausser, a Javelin senior analyst of multi-channel financial services and one of the report’s authors.

The “Apple” approach “could open the doors to lots of developers who come up with pieces who could satisfy smaller amount of consumers’ [needs],” Schwanhausser tells Bank Innovation. In other words, customers would have more personal experiences online and banks could score more revenue.The challenge with such an effort, naturally, is large: how do you pull it off, especially given the typical bank’s mindset? Schwanhausser illustrates the problem with two main points:

1. Banks are used to having a single vendor partner they can call up anytime something goes wrong, while the Apple approach has a lot of “scariness” factor to it since it would require banks to deal with developers; and
2. There is a bit of a leap in logic to assume consumers’ willingness to download apps on their mobile phones will also be true of their willingness to “download” apps online.

“For it to work, it would require an intermediary,” he says, citing Yodlee or Fiserv as two examples of likely candidates to fill the roles. “They could act as middlemen, find developers and deal with all the liabilities that make bankers’ anxious,” he says.

Though he says it seems unlikely the execution of this idea would happen in 2011, Schwanhausser says the beginning of FIs deploying an app store online is possible within the year. “There’s an appetite to explore the idea,” he says. “I think there are plenty of reasons this could succeed, if players in the ecosystem can see enough of a pay off.”

Regardless of whether this idea could play out in reality, what this report is truly pointing out is the major deficiency in online banking. Mainly, online banking experiences are not good enough, even when they incorporate some PFM capabilities. [Read about more PFM issues here.] Schwanhausser explains PFM functionality gets “tucked away” on a tab where no one sees it, and, in turn, no customers use it. And when no one uses it, banks assume no one is interested in the functionality. Even when FIs move to personalize their online sites, they rely on their vendors for customization and that can be more of a Waiting for Godot-type experience. When FIs make specific feature requests, “vendors sit back and say ‘we can’t do it until we hear from enough people,'” he explains. Ultimately, this stifles innovation and restricts online banking, and just like fashion trends, those limitations can’t endure forever.

* For all the men out there, LBD = Little Black Dress