Abbey National launches Cahoot

Abbey National banks online with Cahoot

Abbey National has joined the competition in the online banking market with the launch of its internet bank, Cahoot.

However, on a day marked by technical problems on the internet, hundreds of customers were prevented from opening accounts with the new bank.

Cahoot managing director Tim Murley said the website had crashed in the morning, after taking several 100 applications.

He said the situation had improved later in the day, but the problems had still not been resolved.

"It's not gone as well as we had hoped," he said, adding that they had yet to uncover what had gone wrong.

He said Cahoot had had considerable interest, with applications peaking at about 1,000, but many people had not been able to get through.

The flotation of rival internet bank, Egg, was also marred by technical problems which prevented private investors from selling their shares in the crucial first hour of trade, although the problem was later cleared up.

The big sell

To lure customers in an increasingly competitive market, Cahoot is offering credit cards and overdrafts interest-free for a year to its first 25,000 customers.

Over the longer term, the bank will offer credit cards and overdraft interest rates of between 7% and 11%.

The bank also plans to introduce other products, such as share dealing, savings and personal loans.

"We don't make much money on the zero per cent [interest rates], but it is really about establishing yourself," said Tim Sawyer, Abbey National's marketing director.

"We're expecting a good response, not a deluge," he said.

Low-cost player

Cahoot, with only 56 staff, wants to attract customers by being the lowest-cost players in the market and plans to target the individual needs of customers.

"We're going very much on individualised pricing offering rates based on credit history," Mr Sawyer said.

The bank aims to have 100,000 customers and 150,000 accounts by the end of this year.

By 2003, it hopes to have 5% of the online banking market, with 300,000 customers and 630,000 accounts.

Abbey National joins a slew of financial institutions which are launching online banks.

The Cooperative bank recently launched Smile.

Egg, the online bank of UK life insurance and pensions group Prudential, starts trading on the stock exchange on Monday.

Halifax plans to launch Intelligent Finance in July and Lloyd's TSB's evolvebank.com will kick off toward the end of the year.

All the banks are offering low costs for customers and competitive rates through new technology, such as mobile phones with internet access.

Analysts say that banks are unlikely to make great profits from online banking, but say the competition among banks to cut costs will be passed onto the consumer.