Internet banks need a high street presence

Online-only banks will have to consider establishing bricks-and-mortar branches if they want to survive as long as their high street competitors, says the ebusiness man at the Chartered Institute of Bankers (CIB).

Tony Gandy, head of ecommerce at the CIB, speaking at the eFinancial show in London last week, cited the example of US online bank Directbanking.com which opened up a 'bricks and mortar' branch in Boston this month.

"People don't buy a PC just to do their banking on. Most of the major banks have internet operations anyway," he said.

The internet-only banking model isn't working despite the lower interest rates offered, according to Gandy. He said that trust is vital for getting more customers and establishing a branch where customers can get personal contact is vital to this process.

"Market research shows that if an online only bank opens up a branch in an area where it has a lot of customers it can increase its business by 50 per cent," he said.

Customers are expensive. US online bank WingspanBank.com spent $100m on marketing when it set up - about $18,000 per new customer.

"Even now that figure is only down to something like $6000 to $7000 per customer," said Gandy.

UK Online bank First-e announced last week that it is cutting its TV advertisement campaign because the increased competition in the sector is driving up the costs of acquiring new customers.

First published in Computing