Banks will be forced to transform their business in the new millennium because of the internet boom, a study shows.

And the competition from online start-ups will bring increasing good news for customers.

Bank bosses know billions of pounds' profit are at stake if they fail to change and make the most of the opportunities offered by online trade, says the study by Deloitte Consulting.

The company has published a list of the top 10 millennium predictions for the banking and securities industry, forecasting that the industry will move on to the offensive in a big way next year.

Deloittes says the rise of the internet has just begun - and the runaway success of internet banks such as Egg has intensified pressure in the market, luring customers away with better interest rates.

In its first 18 months of operation, Egg has won 600,000 customers - 1% of the UK market. Average balances are six times those of a traditional UK bank, yet the business model is neither tried nor tested.

Howard Lovell, of Deloitte Consulting said: "Whatever the success of internet banks like Egg and Smile in the long-run, the impact has been a real sharpening of focus on both products and services in the banking industry.

"The speed at which competitors are launching and penetrating the market is now measured in internet time.

"However, it is still not clear just how effective the internet-only business banking model is."

He said online banks are wondering whether they will need other channels, too, to build a lasting and profitable customer base.

The fight-back begins

Traditional banks are spending large sums of money already on new systems and retraining staff in electronic banking, the study found.

And many more banks will launch internet businesses in 2000, it says.

John Reeve, of Deloittes, said: "Contrary to popular belief, they are not going to just sit there and let the internet start-ups walk all over them.

"Now is a great time for consumers, especially the profitable ones, as the banks should be fighting for your custom more than ever and prepared to pay for it in terms of better rates and better service standards."

He said the big question is whether the established bricks and mortar banks respond to the internet in time to stop profitable customers deserting them for internet-only start-ups.