Online or in line

As the run on Northern Rock accelerated, the crisis at the British lender took on a frightening turn for many customers when they discovered they could not get at their money over the internet.

Although a seize-up at its website appeared to play no part in setting off the run at Northern Rock, it was a brutal reminder of the intense panic that sets in when the immediacy of online banking hits the brick wall of system failure. At the height of the run, Northern Rock's website stopped working under pressure from customers trying to access their accounts, many of whom then joined queues outside the lender's branches.

Now with the run apparently over, European banks are nervously checking whether their internet sites have enough raw computing power to weather a crisis if tens of thousands of customers pile in at the same time.

"I would be willing to bet that at the very least, all of the IT [ information technology] delivery managers at big banks will be reviewing their systems and saying 'there but for the grace of God'," says Ken Allan, an IT specialist at Ernst & Young. The crisis at Northern Rock was not only a wake-up call for banks but for many other businesses, such as budget airlines, that have come increasingly to rely on the internet as the first and sometimes the only way to offer services to customers.

As word spread that Northern Rock had been thrown a financial lifeline by the Bank of England to help it stay afloat, an old- fashioned bank run started to gather pace - the first of its kind to be seen in Britain since the 1860s.

The internet era gave the Northern Rock crisis new poignancy. The anguish felt by customers who were unable to reach their accounts over the internet and switch money to other banks may have been even more acute than anything experienced by people queuing up outside Northern Rock branches to withdraw cash.

"I think it's that dislocated feeling that internet organisations have," according to Daniel Singer, a director in IT advisory services at KPMG in London.

"You are not quite touching an organisation when you are going through the website and when the system blows you have a real sense of loneliness and remoteness."

Paradoxically, a lot of customers seemed fairly patient about waiting in the street, sometimes for hours, before collecting their money from Northern Rock branches.

"People are happy to wait in line outside a bank branch but not to wait online in front of a computer," Singer says.

Banks can take stock but they are unlikely ever to devise a system of internet banking which is guaranteed never to fail.

"If everyone went online and tried to take their money out from any internet banking operation I am sure their systems would crash as well," according to a senior analyst at a credit rating agency in London.

The problem is not only crucial for internet banks such as ING Direct, owned by Dutch financial giant INIG, but for most retail banking operations throughout the developed world. Ernst & Young's Allan says: "All the real money is going into making internet channels more effective and secure. Banks need you to use the internet because it's cheaper for them."

He says banks and other organisations which rely on internet systems could prepare for surges in demand by customers by laying on additional capacity, known as bandwidth, and by making careful preparations for emergencies.

"The pragmatic approach is to have contingency plans - a layered approach," Allan adds.

"What is your on-tap capacity and near-line crisis capacity and what can be brought in at short notice?" When systems fail, having a second line of defence, such as a reliable phone-in service that is quickly scaled up in a crisis, can help quickly to reassure many clients that things are not spinning out of control.

However, anyone boasting that their internet systems will never let their customers down could be setting themselves up for a fall. A financial consultant warns: "It's a very dangerous attribution to use as a marketing vehicle because of the unpredictability, and you never really know whether you will be able to meet customer claims or fail, in an embarrassing and disastrous way."