At the dawn of the online era, prophets saw a future in which banking by home computer took the place of a trek to the bank.
It wasn't a wild-eyed vision. Online banking has plenty to offer, and it continues to promise more for the consumer.
Take the convenience of paying bills by computer, for instance. Those who get in the habit wouldn't have it any other way: "I actually get annoyed when I have to write a personal check," says Christopher Keenan, marketing director at Hockessin consultants De Novo Corp.
Online security – perhaps consumers' top concern – has come a long way too. Compared to old-fashioned paper checks, "it's safer to write checks online, with encryption technology today," says Keenan, whose company advises the financial services industry.
But customers have been slow to embrace online banking, at least compared to those early forecasts. "This type of service really hasn't taken off the way we thought it would," says Marty Katz, Wilmington Savings Fund Society marketing director.
Perhaps half of U.S. households now have Internet access. Yet traditional banks that offer online banking find, on average, that only about 12 percent of their customers log on.
Internet-based banks, without physical branches, have so far carved out a tiny slice of the market. Such banks must build from scratch, while traditional banks can steer existing customers toward online services.
In June, Wilmington's WingspanBank.com became the latest casualty among the so-called "pure play" Net banks. Wingspan was too costly to keep aloft, says parent Bank One Corp. of Chicago, which also owns First USA Bank in Wilmington.
Still, traditional institutions and Web-based banks alike are confident that online banking will catch on. Their strategies vary, but banks are positioning themselves for that day. And consumers who take the plunge into online banking can choose among banks setting out a buffet of services at competitive rates.
When it comes to banking, though, many consumers are creatures of habit. "Most individuals are not in the market for a new bank too often," says David Shepherd of Internet developers and consultants Emeron in Wilmington. Add hassles such as buying new checks or changing over direct payroll deposit, and "the perceived cost of switching accounts can be high."
Net-based banks, without physical branches, face yet another hurdle. Despite federal deposit guarantees, among consumers "the perception is that if you can't see where your money is going, or get it out in a hurry if you have to, you are taking additional risk," Shepherd says.
A pair of Net-based banks in Wilmington are taking on the challenge. Juniper Bank, founded by former Wingspan executives, acquired some 200,000 customers and assets of $350 million from its October 2000 debut to the end of May. The bank expects to reach profitability "in the near term," says Tom O'Donnell, Juniper's director of banking products.
In part, Juniper's strategy has been to lead by marketing its MasterCard – on the theory that credit-card users are already comfortable doing business with a branchless bank.
Once customers are carrying Juniper cards, the bank can pitch its other products, which in turn are designed to let customers sample online banking a bit at a time.
For instance, Juniper's online bill-paying service lets customers pay from a checking account at any bank. "Over time, we can migrate those people to our checking account. But we don't want to put people in a position where they have to make an all-or-nothing decision," O'Donnell says.
ING Direct, another Wilmington bank online, wisely aims at Web-savvy customers, Keenan says. While traditional banks often target a wealthy older clientele, ING markets its savings accounts and CDs to those who are "younger, affluent, and more likely to bank online," he says.
And like Juniper, ING makes it alluring to test the online waters – in this case by offering savings accounts with attractive interest rates and no minimums.
"You can open an account with $1.... Try us out," spokesman Gregg Feistman says. "We don't want you to change your bank," he says – but if you have a few thousand sitting in a saving account, "we'll offer you a better deal."
From its October 2000 launch to the end of June, ING acquired 150,000 customers and built $2.3 billion in assets, including about $1.7 billion in deposits.
Neither Juniper nor ING Direct exist solely in cyberspace, though. For instance, Juniper customers can withdraw or deposit cash at ATM machines worldwide, or send deposits overnight from Mail Boxes Etc. stores.
ING is opening cafes where "the person who serves you a cappucino can answer questions about our products," Feistman says. The cafes aren't branches – no deposits or withdrawals change hands – but they're meant to give the bank a reassuring physical presence in its key markets. ING's New York cafe opened earlier this year, with another to open this fall in Philadelphia. A cafe has also been proposed for Wilmington, but plans aren't set, Feistman says.
While online banks are developing real-world storefronts, traditional brick-and-marble banks continue to branch onto the Internet. "I think there's a kind of convergence happening," says WSFS' Katz.
Perhaps. But meanwhile, WSFS is hedging its bets.
On one hand, the Wilmington bank has offered limited online services to its customers for two years. Last spring, WSFS bowed to customer demand and added online bill-paying, which Katz hopes will boost the 15 percent of bank customers now logging on.
On the other hand, not long after going online locally, WSFS also invested $5.5 million in Everbank – an Internet bank in St. Louis that now operates nationally as a WSFS subsidiary.
"We thought, 'What if the answer long-term is strictly online? We want to be part of that,'" Katz says.
Everbank aims at well-off, Web-savvy users – its flagship interest checking account requires a balance of at least $1,500 – and serves about 15,000 customers via its Web site and ATM network. The bank has assets of about $250 million.
"We hope they'll break even this year," Katz says. "They're doing better than we thought, but it's been tough."
Indeed, it's been tough all over for Net-only banks, says Vernon Hill, president of Commerce Bank: "The Wingspan theory, that online banking alone can be successful, has obviously failed."
Hill's Cherry Hill, N.J.-based bank began its push into Delaware last year, opening five branches with a dozen or more still planned. At the same time, Commerce has widened the reach of its online service to a healthy 27 percent of its customers.
Customers want the full array of banking channels – online, ATM, branch and telephone banking, Hill says. Online banking doesn't replace the others, he says: Commerce's typical customer visits a branch 7.8 times a month, while online users still use a branch 5.8 times a month on average.
"I still believe that's the main reason people choose a bank – there's a branch near where they work or live," says Melanie Westerfield, PNC Bank's online services manager. "Customers value that, even customers that don't go in very often."
Still, PNC customers have shown that they also value the bank's online services; between 25 percent and 30 percent log on. PNC reached that level in part by getting online early – offering Web-based bill paying three years ago, for instance.
Like Hill, Westerfield says that the main value of offering online services isn't in efficiencies and cost savings for the bank – it's in keeping customers happy with the bank.
At Wilmington Trust, "we're primarily looking at customer retention" as the driver for online services, says Michele Wilson, the bank's vice president of e-business. In addition to meat-and-potatoes services such as bill paying, the Wilmington Trust site offers online financial planning tools and a library of financial wisdom.
Sure, you could find similar resources elsewhere on the Web. But "banks understand that the breadth of information available to the consumer can be overwhelming," Keenan says. "That's why they're developing portals with information and customer services to help them make decisions."
Hill sees plenty of room for further growth in online bill-paying services. Most often, bank customers log on simply to check account balances. Ten percent or fewer pay bills electronically, he says – but that will grow as the technology improves and customers warm up to Web banking.
That could take a few years more. Katz compares the adoption of online banking to the early days of the ATM.
"It was really difficult initially to get people to start using the ATMs. It took a few years of demos and education," he says. "Now, it's the No. 1 delivery channel.
"With both ATMs and online banking, there are psychological barriers and behavior patterns that people have to get through. That takes time. I don't know when that's going to happen, but it will – three or four years, or maybe 10, but not more," Katz says.
With banks vying online for retail business, "it's a revolution in the approach to convenience for customers," Keenan says.
"In the old days, you'd choose your bank by location. Today, you can choose a bank based on who's going to treat you with the highest level of service with competitive rates," he says. "The greatest success story in all this is for the consumer."
