Has Dot.com Banking Peaked

Bricks to clicks Who could forget banking industry analysts' predictions in the mid-nineties that clicks would replace bricks as the customer's primary mode of conducting financial services? They also predicted that the traditional branch would disappear within 10 years, as the Internet became the banks' preferred way of servicing customers due to the cost savings, which are considerable: The cost per transaction at a traditional branch is over $1.07, while over the Internet it's only $0.01. These low transaction costs looked very attractive to banks trying to control operational costs. To discourage customers from visiting a branch, one midwestern bank went so far as to charge a transaction fee! This policy was met with customer outrage, and the institution quickly rescinded the policy. The Internet provided banks with a service delivery channel that was believed to be the wave of the future. With the e-commerce explosion in the late nineties and the attendant hoopla, many banks launched Internet banks and Web sites to capture a share of this exciting and fast-paced market. The unfortunate reality is that cyber-banking is not as profitable as originally forecast. Banks that launched e-banks found they could attract deposits through low rates. One Internet bank, WingspanBank.com, offered to pay 10% interest on checking accounts. The new customers, however, were not as loyal as the traditional branch customers. It is nearly impossible to build relationships with customers online; therefore they are quick to move to another institution if it's offering a better rate. This lack of loyalty on the part of the online customer has resulted in very high turnover rates. In fact, Cyber Dialog estimates that the customer churn rate for online customers could be as high as 50%. This startling -- and costly -- turnover rate was not expected by the banks that ventured into cyber- banking. Send Loans please Internet banks not only have struggled hanging onto their customers, but they also are having a hard time making money. The loan is the product that provides revenue and profits for banks. Internet banks such as Wingspan are struggling to post a profit. One of the primary reasons is that these cyber-banks have difficulty attracting quality, profitable loans. Most customers prefer to apply for and secure their loans through physical branch facilities. Most community banks have built their loan portfolios based on the personal relationships they have with their customers. This face-to-face encounter is not possible in the Internet world. So cyber-banking is not at all what it was predicted to be. Banks had to buy their deposits at premium rates, had incredible customer churn rates as others offered higher returns, and struggled making loans, and ultimately a profit. As Michael Cleary of Wingspan said, all about convenience and customer experience. Bank customers still believe convenience is a branch office close to where they live, work, or shop, and it is difficult to have a memorable experience in cyberspace. It's in the mail Another problem for Internet banks is deposits. Customers who do not have direct deposit rely on the mail service. Besides being time-consuming, this creates a sense of risk for the customer, who worries that the deposit will get lost in the mail. Even after a 2-to-3-day delivery cycle, the customer must wait for the check to clear. These difficulties almost guarantee that the Internet bank will not be the primary financial institution of most customers. Banks offering Internet banking Many community banks have developed online banking, while maintaining their traditional service delivery channels, branches, and ATMs. They have introduced this new channel to attract new customers. Once again, there were predictions of huge growth. The results have been far from overwhelming. After an incredible surge, Internet banking growth has slowed considerably, from an annual rate of nearly 40% several years ago, to 12% predicted for 2001. …