In many ways, the Internet is their natural home: just about everyone who is (or is about to be) on-line has a bank, a broker, a credit card, or a mortgage, and for a long time the business has been a matter of numbers flickering between one computer file and another. The Internet, of course, has also fostered new offers, such as electronic comparison shopping and data aggregation.

This combination of service and innovation is bearing fruit. Quicken’s Web site closed approximately $3.5 billion in loans from March 1999 to March 2000, and many major banks count their on-line customers in the millions. Indeed, some economic commentators have suggested that the volume of on-line trading helped power the long bull market in the United States.

But the plunging values recently suffered by the stocks of on-line brokerages suggest that it is hard to make the economics work. Too many firms doing business on-line appear to assume that the customers they are spending large sums to acquire will have the same characteristics, and display the same on-line behavior, as the earliest users of Internet-based personal financial services. In fact, people in the second wave don’t trade as heavily as those...