Review/Preview: 2000 Delivered a Net Gain for Bank Branches
Eljas, Miriam, American Banker
All the breathlessness, expectation, and zealotry about Internet-only banks seems to have amounted to one resounding conclusion: People like branches.
A year or two ago every expert and analyst around was telling bankers at traditional institutions that unless they got religion about the Internet, they would soon lose their flocks to nonbank companies with greater faith.
Many bankers heeded the call and quickly set up online divisions. Some, like Citigroup Inc. and Bank One Corp., went one step further by establishing quasi-independent Internet banks. By last year it was a point of orthodoxy for bankers to believe in the power of the Internet as a delivery channel.
While 2000 may have been the year that a record number of bankers and entrepreneurs set up branchless Internet banking operations, it also stood out as the year when more people began espousing the once-heretical notion that Internet banking will never be very popular. Survey after survey confirmed that people like branches whether or not they rely heavily on them, and the Internet-only entities picked up paltry numbers of customers.
Indeed, pure-play Internet banks grabbed only 2% of the new online customers last year, and traditional banks -- which expanded and improved their online offerings -- got the rest, according to a recent survey by the consulting firm Cap Gemini Ernst & Young of 125 financial institutions around the world.
James Scurlock, senior manager at the firm's financial services practice in Boston, said he believes Internet banks have tapped as much customer growth as they ever will.
News of a weakening among Internet-only banks is continuing into 2001. First Internet Bank of Indiana announced Wednesday that it would lay off four of its 20 employees. Last month the bank announced that is had experienced its most rapid growth yet.
Also on Wednesday, NetBank, a $1.7 billion-asset Internet-only bank in Atlanta, said it had introduced a redesigned Web site and hired an outside consulting firm to audit and test its site and its customer care program.
"Our surveys have shown that the fastest growing customer online is the one-stop shopper who wants everything in a single source -- they look to traditional brick-and-mortar banks," said Paul Jamieson, senior analyst for banking and payment services at Gomez Advisors in Lincoln, Mass.
Only 12% of U.S. banking customers have online accounts, according to Ray Graber, senior analyst of e-banking at TowerGroup of Needham, Mass.
"If these numbers are correct, then you have missed the majority of the population," Mr. Scurlock said. "They do not have their needs met by pure-plays. The challenge here is in the right mix of channels."
Nancy Bush, an equity analyst at Prudential Securities, said in a telephone interview Wednesday that she had reached the once-heterodox opinion that "the Internet is not a huge threat" to banks.
"Certainly, banks cannot ignore the long-term demographic implications of the Internet," given the reality that younger people are more comfortable banking there than others, Ms. Bush said. "But it has been proven pretty definitively that, as a free-standing distribution network, there is not a lot of attraction."
Mr. Jamieson cited Citigroup Inc. as a leading example of what a brick-and-mortar institution can do with Internet banking.
In October, Citigroup launched a site that gave consumers a choice of several online channels, including Direct Access (the Internet version of the bank's decades-old online banking software) and Citi f/i (the bank's attempt at a stand-alone Internet bank).
By combining these offerings, "they created a super platform of services and products well beyond anything out there," Mr. Jamieson said. "They haven't even integrated everything yet. As they do, you will get a super sweep of services. When a traditional bank looks at the Internet as a real channel, you get what Citi is rapidly becoming. …