Branching Out, Banks Try to Deposit More Clients Online

Viewing Internet customers as a more loyal and potentially more profitable clientele, banks are steering their traditional accounts online as quickly as they can.

Although the majority of the estimated 7 million online bank customers in the U.S. are simply adding the Internet to the traditional ways they deal with their banks, the banks themselves perceive the online world as a means to sell customers more financial products, such as investment advice and insurance.

“The banking business in the U.S. is about $400 billion in revenue. And at best, it’s flat and probably declining,” said Richard Kovacevich, president and chief executive of Wells Fargo & Co., which is signing up 100,000 online customers each month. “The financial services industry is about a $2-trillion business that’s growing quite rapidly, and that’s what we’re all going after now.”

And if the banks don’t lure their customers online, other financial services companies will.

Last month, American Express Co. launched an online banking service that can also be accessed by telephone, mail and automated teller machines.

Also in July, E-Trade Group Inc., the online brokerage, announced a merger with Telebanc Financial Corp. in an effort to become the first Internet pure-play to have both online banking and brokerage services.

Telebanc also announced a deal to integrate personal financial information with Internet directory Yahoo so that as people are checking their stock quotes and e-mail at Yahoo, they have easy access to their Telebanc account information as well.

Going online is “a reaction by banks to say, ‘Hey, if these other institutions want to get into my bailiwick, then I’m going to get into theirs,’ ” said George Barto, an analyst with Dataquest.

But banks’ more traditional assets--branches and ATMs--are their strongest advantage.

Combining a strong physical presence with a pervasive Internet one will give banks a leg up against their non-bank competitors, said Robert Sterling, an analyst with Jupiter Communications.

Sterling pointed out that Charles Schwab continues to open more physical offices despite its lead in online trading, while Web Street Securities Inc., another online brokerage firm, opened its first retail office in Beverly Hills in June.

“Face-to-face will never go out of style,” said Avi Fox, chairman of Web Street, which plans to open as many as 12 offices nationwide by the end of next year.

And physical reminders do have sway over retail customers.

Robin Lubitz, for example, had been dissatisfied with her previous bank and was looking for a new one. The ubiquity of Wells Fargo branches and automated teller machines in her Irvine neighborhood is what sold her on the bank, she said, not the Internet service.

Although Wells Fargo says that online customers do visit branches less often than other customers, other banks report no change.

“Online banking service hasn’t solved the problem of getting cash into customers’ hands,” said Heather Robinson, vice president and manager of interactive markets at Union Bank of California. “We thought that if we gave people the means to access their accounts online that they would use the other channels less often, but instead they use the teller and the ATM just as much as before.”

The next task for banks is to get more customers to not just view their accounts online but also to pay their bills over the Internet since check processing costs more than electronic transfers. In addition, bill paying builds loyalty.

“We see online bill payment as an incredibly strong customer retention tool, and those customers are really the creme de la creme,” said Jeanine Brown, head of the interactive banking group at Bank of America, which is adding about 80,000 online customers a month. “It takes effort to set it up. And once you do, you’re not likely to undo it in a hurry.”

At the end of last year, about 41% of online banking customers used the networks to pay bills, according to Dataquest, a figure that is expected to increase to 57% by 2003. The research firm forecasts that 24.2 million people will be banking online that year.

The key to mass acceptance of online bill paying, most agree, will be for bills to be presented electronically, as opposed to being mailed to customers.

But the potentially lucrative online bill presentment arena will require tremendous coordination among a variety of players, and banks, financial institutions and technology companies, including Microsoft Corp. and America Online Corp., have already positioned themselves to slug it out over who gets to play what role in the market.

For customers, the main question isn’t the players but the ease of use.

Lubitz, the Irvine Wells Fargo customer, tried online banking a year ago. For the first few months, she used the Web site just to check on her balances and see if checks had cleared.

After several months, she ventured into paying a bill online. Now, she pays all of her major bills online.

“There was just an initial feeling of discomfort that this was something new,” said Lubitz, who is a sales project manager at Experian Information Solutions Inc. “Although I feel comfortable doing things on the Internet, when it’s your money, you feel more nervous. But now that I know how it works, it’s really easy. It’s made the whole bill-paying process a lot quicker.”