- The Washington Times - Friday, June 29, 2001

The end of Wingspanbank.com, the first Internet-only bank, illustrates the moneymaking problems strictly online banks can run into when they are not backed by traditional banks.
Bank One, the nation's fifth-largest bank holding company, announced yesterday that it is absorbing Wingspanbank.com's resources and most of its nearly 100 employees. Wingspanbank.com, which has about 225,000 customers, will cease to exist as a separate entity this fall.
"We'll avoid the expense of supporting another brand," Bank One spokesman Thomas Kelly said.
Bank One, which started Wingspanbank in 1999, will use what it learned from the experience to help better serve its own online banking customers, Mr. Kelly said.
Before deciding to absorb Wingspanbank.com, Bank One formed a consumer Internet group to determine how Bank One could "put things together and eliminate redundancies," he said.
Bank One will now be able to focus on supporting its own online system, and it will work to transfer all Wingspanbank.com's former customers to Bank One.
Mr. Kelly would not say whether Wingspanbank.com ever broke even financially.
Wingspanbank.com's start-up costs were somewhere between $100 million and $150 million, Mr. Kelly said.
Joan Goodman, an analyst for Pershing/Division of DLJ estimates that Wingspanbank.com never broke even.
"Expenses got out of line," Ms. Goodman said. "A great deal of money went into the start up, but it wasn't paying off."
She said the company expected a big payoff, but needed more technical help in taking care of all its customers.
Ms. Goodman said investors pressured James Dimon, Bank One's CEO, to increase earnings, and at a recent meeting he was encouraged to close that portion of the bank.
Wingspanbank.com did not have any branches or tellers to reach customers in more ways than one. This was a problem, said Denis Laplante, an analyst for Kelton Fox-Pitt.
The more "tie-ins" a bank has with its customers the better it will do, said Mr. Laplante. He applauded banks that use the Internet as one of many ways to touch customers.
"The more touch points you have with customers you have, you tend to increase retention," Mr. Laplante said. "If you only have one relationship with your bank, you're more likely to say 'See ya.' "
Bank One's own online banking system had more than three times the customers its Wingspanbank.com had, Mr. Laplante said.
In starting Wingspanbank.com, Bank One had the idea that it would attract new customers, said analyst Matt Snowling of Arlington's Friedman, Billings, Ramsey. Bank One considered Wingspanbank.com to be a innovative service that would attract a younger, more technologically savvy crowd. It didn't work.
While Wingspanbank.com floundered, other online banking services run directly by traditional banks such as WellsFargo flourished and took the lead in attracting online bankers, said Mr. Snowling.
The future of virtual banks is unclear. While online banking appears to have caught on, virtual banks without the backing of traditional banks can look forward to tough times in the future, Mr. Snowling said.
"The Internet-only bank is a flawed business model," he said. "Banks have to figure out that the best model is one that offers customers a choice."

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