Online banking gets physical

The Irish-based Internet financial services group First-e will adopt a `clicks-and-bricks' policy by opening a series of branches to boost customer acquisition and enhance customer service.

The company, which has some 120,000 customers in Britain and Germany, is looking for branch locations in both countries. It has appointed US consultancy John Ryan to devise a retail strategy that could see First-e teaming up with a number of retail chains such as Marks & Spencers.

The decision to create a physical presence to complement its Internet presence was taken following a strategic review of the company's operations. Executives hope it will reduce the bank's marketing costs. "You want to use the branch to acquire customers and have the physical ability to have the customers coming in or use the telephone," says Mr Gerhard Huber, chief executive of Enba, First-e's holding company.

The branch structure will be minimal, with possibly 50 branches throughout Britain, he adds.

By establishing a physical presence, First-e intends to build trust with potential customers. The bank has had a difficult first year in Britain, following adverse press reports on the concept of offshore Internet banking.

"That hurt us and I think it was unfair," says Mr Huber.

However, First-e's clicks-and-bricks strategy will face scrutiny from financial regulators, who could decide that the policy means the company would have to pay corporate tax in any country in which it has a physical presence. It is likely, however, that the physical strategy will go ahead regardless of the tax implications.

"In the future, there will not be a standalone bank without an Internet offering and there will not be an Internet pureplay without physical outlets," Mr Huber adds. Mr David Nolan, head of e-marketing and communications at BOIe, Bank of Ireland's Internet arm, agrees.

"The integrated approach is the right approach, with branches, Internet and telephone as banking channels," he says. "

Bank of Ireland established its online banking service almost three years ago. It claims to have 65,000 users of its Banking 365 service and offers customers the ability to view accounts, pay bills and make third-party money transfers. Along with most of the major Irish banks, Bank of Ireland's Internet offering has grown in importance in recent years. This has resulted in a tenfold increase in staff numbers at BOIe, to 100 people, and a two-year budget of €100 million, says Mr Nolan.

AIB, which last week cancelled its plans for a standalone Internet bank, is pushing ahead with its Internet offering and claims to have 85,000 users of its online service. But even with this number of customers, and approximately one million Internet transactions per year, the Internet offering does not achieve returns for AIB.

"Our Internet bank offering is a customer-retention strategy and a way to attract young customers," says Mr David Roberts, e-marketing manager at AIB. New features added to the online service could create more trust in Internet banking and provide additional revenue streams.

AIB is using technology provided by Irish firm Orbiscom to provide customers with unique credit card numbers, which can only be used once, reducing the risks associated with making transactions online.

The two main Irish banks will introduce online share dealing in the near future. Bank of Ireland is investing £8 million (€10.2 million) in its partnership with Davy's stockbrokers. AIB is teaming up with Goodbody's.

Irish Permanent unveiled its online mortgage service this week, as well as taking an equity stake in Ascotfirst.com, a property website. The consensus appears to be that, while the standalone Internet banking bubble may have burst, the Internet is becoming an increasingly important channel for the distribution of financial services.