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Monday, 20 March, 2000, 15:20 GMT
Banking on the net
Access to cash machines is crucial for e-banks
Access to cash machines is crucial for e-banks

by Business Reporter Mandy Baker

Once upon a time they were just nouns; now perfectly decent words like egg and smile have become financial brands, thanks to the marketing minds of the new e-banks.

Where once you had to go to a branch or pick up the phone to satisfy your banking needs, now you can get online and deal direct with your bank's computer.

US banks pioneered internet banking
US banks pioneered internet banking
The main High Street institutions may have been accused by Don Cruickshank of stifling competition in their traditional markets, but on the internet competition is thriving.

There is a huge array of banking services available to the customer who wants to do it on the net.

Lloyds TSB, Barclays, NatWest and HSBC all have "integrated" services, as they like to call them, whereby if you are a branch customer you can use the internet in addition to or instead of over-the-counter services.

Then there are the "stand-alone" accounts which operate solely on the internet and have more interesting names, such as Egg (from Prudential), Smile (from the Co-Op), If (Halifax), Cahoot (Abbey National) and First-E.

Cheaper services

But will online banking really replace branch banking?

And will that benefit the big High Street banks or their e-commerce competitors?

The attraction of online banking is twofold for the financial sector.

First, at the moment most of the people who bank online are exactly the kind of customers banks want to attract - young, well-to-do, and high-spending.

Secondly, online banking is much cheaper for the bank than providing branch services - a tenth of the cost, in fact. The stand-alone banks say they pass this saving back to their customers in terms of lower charges and better rates of interest.

At the moment, the traditional banks do not. They believe they are giving choice by providing an online service on top of a full branch network, the opportunity for face-to-face advice and a big range of financial services.

Yasmin Choudhary of Barclays says her bank was the pioneering online service. It was launched two years ago and 4,000 people a day are joining up. "We are building a long-term partnership with customers. Internet companies with wacky names do not faze us," she says.

The trend for using unconnected names for online services comes from a desire to separate the backer with the shiny new brand. Dave Smith from Smile says that name was chosen in preference to Co-Op Online, for instance, because "we wanted to make a distinction with the Co-Op tradition".

Behind many of the e-banks, however, are some major European banking groups eager to break down national barriers and access the lucrative UK domestic market.

First-e, for example, is partly owned by Banco Santander, Spain's largest bank.

Taking on the e-banks

Some of the big High Street banks plan to launch their own, separately branded internet banking services.

Lloyds TSB is to launch a stand-alone at the end of the year, but has yet to decide what to call it. The bank's spokesman, Carl Membery, declined to give details of the new service, but said it would compete with the likes of Egg and First-e.

"The service is a response to the changing needs of our customers," he explained.

For its part, Egg welcomes any new competition. The company's Pema Radha says more choice in the marketplace benefits the consumer.

But she shares the concern of Don Cruickshank over charges imposed by banks for use of the Link cash machine network.

"Internet customers rely on Link, and we don't want to have to charge our customers extra and erode the savings they enjoy through banking online," she says.

Internet banks crucially depend on the use of cash machines from other banks to enable customers to make withdrawals.

The Cruickshank report pointed out that the High Street banks have a lock on money transmission services.

So how successful the e-banks can become will partly depend on the outcome of the Cruickshank recommendations to break that monopoly.

The wealth of banking choice on the internet means there is an alternative to the High Street branch. But with 60% of the population reluctant to try even phone banking, it will be a long time before banking online really takes off in this country.

And that means that the major clearing banks will also be around for a long time to come.

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See also:

15 Nov 99 | Business
Why banks love online customers
21 Feb 00 | Business
Internet lures Deutsche Bank
27 Oct 99 | The Company File
Abbey plans new e-bank
29 Sep 99 | The Company File
Co-op unveils Internet bank
25 Aug 99 | The Company File
Net bank offers cheapest mortgage
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