Research Says Online Banks Are Falling Short

by Philip Morton, Investors Offshore.com

03 July 2001

A report entitled 'Internet Banks Branching Out' issued by US-based Meridien Research recently suggested that online banking facilities are no longer just a competitive advantage, but a necessity for financial institutions. The report also predicted that worldwide, the number of active internet users would leap from around 23 million today, to over 32 million in the next two years.

However, there were also signs that pure online banking was falling short of customer expectations and losing business to 'bricks and clicks' institutions with an established physical presence. 'Pure online banks are starting to look like failed dreams,' said the report. 'Despite offering high interest rates and low fees, they haven't flourished because today's consumers are looking for greater convenience as well as value added services from their institutions.'

According to the report, the waning popularity of online-only banks has caused ventures such as Money Planet, the eight month collaboration between ABN Amro and KPN Telecom to fall by the wayside, and those companies that are prepared to take the plunge are making sure that they have bricks (or at the very least a network of ATMs) as well as clicks in place before launching their service. The report confirmed that a multi-channel approach is what investors are crying out for, especially when it comes to functions like opening an account, which can sometimes be a fraught process when attempted online.

Meridian Research suggested that the desire for human interaction as well as 24 hour access to account data might affect even the front runners in the online banking game, such as E*Trade Bank, and suggested that the organisation, which has a long history of online successes, might want to start looking at developing physical branches in addition to its network of ATMs if it wants to stand up against the online operations of banking behemoths such as Wells Fargo.

Co-author of the report and analyst for United Press International, Christine Schmidt, believes that the key to success lies in having a broad based business strategy into which online banking is integrated, rather than a narrow 'internet only' strategy. 'Successful banks see online banking as just another channel - though an increasingly crucial one,' she explained.

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