Vontobel's Failed Online Bank Has Serious Repercussions For Partner And Other Web-Based Offerings

Ulrika Lomas, Tax-news.com, Brussels

23 March 2001

The failure of Swiss bank Vontobel to get its Internet banking project "y-o-u Bank" off the ground was widely-reported, and rightly so. The whole episode is noteworthy from a number of angles. It has not only led to the most public of downfalls for three top Vontobel executives, but it's had major ramifications for other interested partners, not least Swiss company Think Tools AG, which held just over 18% of the failed venture, and must surely now be regretting its involvement. The question to be asked is whether the cancellation of "y-o-u Bank" was just a one-off, a result of internal failings within Vontobel, or whether it could have implications for other banks and financial institutions looking to develop standalone offerings for their clients.

When Vontobel pulled the plug on "y-o-u Bank", which had been in the offing since March 2000, it cited costs and timing as the principal reasons. But then a fortnight later, the private bank promptly announced a "change in management" amongst its executives, and three were shown the door. Vontobel was the first Swiss bank to proudly announce the establishment of an independent e-banking businesss, and yet it's turned into such an embarrassing fiasco which no doubt the bank would sooner forget.

But it is not being allowed to. For one, a major partner in the project, Zurich-based Think Tools AG, this week actually had to issue a profit warning as a direct result of the failed venture, in which it had invested a hefty SFr25m, and made no bones about the severe financial impact its cancellation has had on the company.

A statement from the company said: 'In accordance with the principle of prudence, Think Tools AG will depreciate the whole investment of CHF 25 million in the financial year 2000 as an extraordinary financial write-off. Think Tools AG is taking all necessary steps to recover its investment in the "y-o-u Bank" project in full. Think Tools AG is still awaiting payment of invoices for the amount of SFr 6,125,000 (excluding VAT) for work done on the "y-o-u Bank" project. We are uncertain when this payment will be. Although all appropriate steps will be taken to secure payment, we are recording a provision in respect of this sum in the financial year 2000 as well.'

The problem is that developing standalone offerings is an expensive and time-consuming business, as Vontobel found out, and already many banks and institutions are preferring to integrate online services with their existing operations, rather than plumping for completely separate entities. It's undoubtedly quicker and cheaper, and probably would not be subject to the same scrutiny as a completely independent offering. Vontobel's "y-o-u Bank" was much vaunted, so when it failed, it drew a similar amount of attention.

The shenanigans at Vontobel are hopefully isolated and will not be repeated amongst other Swiss, indeed, international banks. Vontobel was unlucky but other banks and financial institutions should not ignore the lessons to be learned. Some already have, realising that online services per se will not satisfy all clients and are rapidly moving in the field of more "personal services", such as investor centres and face-to-face advisory services. The convenience of having absolutely everything online is sometimes not enough. This isn't really what happened in Vontobel's case, but it has served to highlight the vulnerability of purely Internet-based banking and financial services provision.

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