The initiative is part of an electronic banking strategy expected to cost £100m over three years.

The Co-op is poised to launch Smile

The move into online banking follows similar schemes by the Halifax, the Prudential and the Co-op.

They believe e-banking will be hugely popular with customers in future and will save their own overheads.

The Halifax last month announced plans to set up Greenfield.co at a cost of £100m.

The Prudential launched internet bank Egg in October last year and expects start-up losses of £200m, despite attracting hundreds of thousands of customers.

The Co-op says its internet bank, smile, to be launched soon, will be the first truly internet-only bank.

Businesses booming

Abbey chiefs revealed their plan as they unveiled a third-quarter trading statement.

They said the former building society had seen strong growth across all areas of business.

New life assurance business had risen 41% to more than £2.5bn in the first nine months of 1999 and was already higher than for the whole of 1998.

Abbey also said it had sold more than double its typical share of the personal pensions market in the autumn after launching its prototype stakeholder pension plans.

The pensions are described by bosses as a "forerunner" of the government's proposed stakeholder pensions - aimed at creating simple portable pension plans.

Mortgage applications in September were also "significantly higher" than last year at £2.5bn.

Sales of tax-free Individual Savings Accounts were still good, said the Abbey, but it said the initial burst of enthusiasm for Isas had waned since they were launched in April.