- The Washington Times - Friday, August 31, 2001

Consumers are losing interest in Internet-specific financial institutions and are increasingly conducting business online with traditional banks, according to a new survey.

The number of visitors to traditional banks' Web sites jumped 111 percent to 13.4 million in July compared with a year before. Meanwhile, traffic at online-only banks fell 8 percent to 1.1 million in that same time, according to the survey released Wednesday by Jupiter Media Metrix, an online research firm.

"In the past, people that were becoming the latest customers of online banks were primarily early adopters male, highly educated," said Jupiter analyst James Van Dyke. "Today we're getting more into the mainstream population, and they have told us repeatedly that factors more important to them are very traditional things."

More than half of consumers surveyed said access to customer service, nearby ATMs, and close branches are the top three things they look for in a bank, even if they plan to mostly use its online services.

"Customers want to be able to go in a branch on occasion, as well as access online banking on occasion. So except in limited instances, [online-only banks] are at a disadvantage," said Doug Johnson, a spokesman for the American Bankers Association, the main trade group for the nation's banks.

Both men agree that online-only banking can survive but that the industry must adapt.

To grow, an online-only bank is better off choosing "a specialized, niche audience," Mr. Van Dyke said. "It can't compete with traditional banks after the general audience."

The other option is for online-only banks to become physical banks, he suggested, pointing to NetBank, the largest online-only bank, which acquired Market Street Mortgage, of Clearwater, Fla., with 41 offices in 11 states.

But NetBank's chief executive officer, D.R. Grimes, said the online-only industry is not threatened by rising consumer use of traditional banks' online services.

"The more people we collectively bring to the Internet, the more potential customers for NetBank there are, and the more efficient our industry will be," Mr. Grimes said.

NetBank has grown dramatically since it was started in 1996. During fiscal 2000 the bank's income grew 182 percent to $8.59 million from $3.05 million the year before. The company reached profitability in 1998, coming from a loss of $5.57 million the year before.

But another online-only bank, Wingspanbank.com, has not been as lucky.

Wingspanbank, which had about 225,000 customers, closed down two months ago and was incorporated into its parent company, Bank One, the nation's fifth-largest bank holding company.

Bank One started Wingspanbank in 1999, but the online-only bank never broke even; Bank One's own online banking services were also three times the size of Wingspanbank's.

Jupiter's survey says traffic at traditional banks like Wells Fargo, Chase and Citibank grew the most between July 2000 and July 2001.

"Most banks are recognizing that customers are viewing Internet banking as an extension of existing services," Mr. Johnson said.


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