Internet Banking in the Age of Ecommerce

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Internet Banking in the Age of Ecommerce
February 3, 2000

• Paul Schrick

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• I believe strongly that the Internet will change
  everything we dobut we are not moving fast
  enough.
• --Chase Manhattan banks CEO William Harrison
  in a letter sent out to all employees before
  creating a new organization called Chase.com

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Internet Banking

• What is Internet banking?
• Using the Internet to provide banking services to
  clients
• Allowing customers interactivity with accounts
  and services offered by bank

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Internet bank types

• E-bank
• exists only on the Internet
• no paper
• no limitations of place or time
• E-branch
• brick-and-mortar bank - Internet as branch
• customers still pay for brick-and-mortar
  operations

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Growth potential

• 2000
• 49 households with PCs
• 37 with Internet
• 2002
• 65 households with PCs
• 58 households with Internet

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How many online
Online Population Worldwide
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US Ecommerce Revenue
US Ecommerce 1998 - 2003
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Number Banking Online
US Online Banking Population 1998 - 2002

• 2000
• 10 million households (7) bank from Internet
• By 2001
• 18 million households (15) bank on Internet
• 2002
• 50 million households online
• 25 million banking online
• Growth rate projected from 41- 80 per year

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Advantages

• E-banking and time pressured lifestyles
• 75 of Internet banking sites hosted by banks
  with less than 1 billion in assets
• Fixed costs of offering Internet banking not
  barrier for smaller banks

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Advantages cont.

• Cost savings offers competitive advantage
• Offers electronic bill payment and services
  beyond traditional bank offering
• Allows better service of small businesses
• Large amount of potential growth

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Savings

• Cyberspace is cheaper to operate in
• Transaction costs fall
• Average 1.07 at a full-service bank
• Average 0.27 at an ATM
• Average 0.01 at online

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Cost Saving Example

• Wingspan.com (e-bank) vs. Bank One
• Checking
• Wingspan - 4.5
• Bank One - 1
• Mortgages
• Wingspan - 60 choice lenders
• Bank One - 15 choice lenders
• Electronic Bill Payment
• Wingspan - free
• Bank One - 4.95 per month

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The leaders

• Security First Network Bank
• World's first Internet only bank
• 150,000 e-banking customers
• NetBank
• industry's first profitable e-bank
• currently 330 million in deposits
• Wingspan.com
• offers mortgages, insurance and investments from
  multiple vendors

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The leaders cont.

• Telebank
• 51,000 customers
• over 1 billion in deposits
• Wells Fargo
• Division of Internet only accounts
• 1 million Internet clients
• Intrust Bank
• brick-and-mortar bank offering e-banking to 10
  of its customers

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Small Businesses

• US small businesses represent large market
• 42.9 billion banking and financial services 1998
• 61 billion by 2002
• Small businesses contribute to large of profits
• Small business underserved
• 80 of largest banks have no program for small
  business

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Small Business cont.

• Smaller banks can market services to a wider
  number of customers
• Customer service helped by technology
• Banks focusing on small businesses will find
  growing, profitable market

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Why invest in E-banking

• By 2003 - Internet will be indispensable
  information utility
• Banking on Internet natural as trading stocks
  (25 trades online)

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Invest in E-banking cont

• No web site is a gamble
• Bankers facing competition from e-branches and
  e-banks
• To stay competitive, e-branches and e-bank must
  be developed

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Invest in E-banking cont

• Online banking customers most profitable
  customers
• Online customer support can bring banks closer to
  customers
• 61 of consumers would prefer to consolidate
  financial services with bank -Forrester Research

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Future trends

• Electronic banking will be the norm
• Competition will be great
• Banks moving to offer financial "hub"
• bill payment
• financial planning
• estate planning
• Insurance
• loans
• brokerage services

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Future trends cont.

• Banks offering real-time chat service integrated
  with their call centers, trouble-shooting
  questions immediately
• Video banking services over the Internet
• offer ability to talk face-to-face banking
  specialists

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A required entity

• Internet banking become more of a standard than
  option
• Two competing business models
• brick-and mortar/e-branch vs. e-bank
• Competition will be fierce