News that the ailing Chicago-based bank may be mulling the sale of its fledgling, stand-alone cyberbank,
, would suggest that its rush into online banking hasn't generated the expected returns. More seriously, the move may signal that other big banks soon will discover that the Internet can't bring high New Economy growth rates. Instead, the Internet may be little more than a shiny toy that banks must give to customers.
If that's the case -- and some banks say it isn't -- it's another expense that doesn't bring much in the way of extra revenue. That scenario would strengthen the view in a tech-smitten market that banks are implacably Old Economy institutions that won't be able to capitalize on the Internet.
The Wall Street Journal
reported Wednesday that Bank One had appointed investment bank
to possibly sell WingspanBank.com, which was launched in June last year. Bank One recently has suffered earnings-eroding operational difficulties that have forced management to consider selling parts of the bank to improve returns. Both Bank One and Morgan Stanley declined to comment on the report.
All large banks have set up online banking facilities for customers. But Bank One was the only big institution to set up an Internet operation that had a different name from its parent, as well as a semiautonomous management team. Wingspan was put under the control of Bank One's
credit card unit, which, before the bank's earnings warnings started in August last year, was considered the most entrepreneurial part of the bank. This hands-off approach probably was undertaken with the aim of preventing the more conservative, traditional banking culture from crimping the dynamic nature of Internet operators.
WingspanBank.com certainly got growth: It racked up 107,000 customer accounts in the first six months of operations ending December last year. But that may have come at a ludicrously high cost. The bank said it was going to spend up to $150 million on WingspanBank.com in its first year. If it's (generously) assumed that Bank One spent half that amount, then it paid around $700 per account. (Bank One declined to provide detailed numbers on WingspanBank.com.)
"That's high for a deposit account," says Laura Starita, analyst at the Stamford, Conn.-based
, which doesn't do investment banking work. And it's way above the estimated $190 that Net.B@nk,
Tuesday, is paying per customer.
Most of WingspanBank.com's spending would've gone for marketing. Its banner ads are seen on many Web sites. Peter Kuper, Internet banking analyst in Boston with
, believes WingspanBank.com spread its online advertising too thinly, instead of focusing on particular Web sites. He argues that it was the online equivalent of First USA's heavy credit card mailing strategy.
A Bank One spokesman didn't comment in response to this criticism, but a WingspanBank.com exec was recently quoted in
Bank Advertising News
saying that it was targeting women. (FAC Equities hasn't done any underwriting for Bank One and Kuper doesn't rate the stock.)
Clearly, possible problems at WingspanBank.com could be attributed to management dysfunction at Bank One and First USA. But "it's definitely one sign" that large banks in general may be struggling to get big gains from the Internet, says Kuper. A bank stock-hedge fund manager who requested anonymity adds: "There's no real profit in the Internet for banks; all the benefits flow to the customer."
Hard to Tell
The big problem for investors is that few banks give out detailed numbers on their Internet banking operations, even though they are keen to trumpet that they exist.
, which didn't return calls seeking comment, is something of an exception, as it breaks out what it's spending and making on its e-Citi segment, which includes online banking. e-Citi expenses were $527 million last year, and the bank had around 750,000 online banking customers, according to a survey in last year's third quarter by
, cited in
Retail Banker International
. But it's not known how much of the $527 million was spent on online banking, and over what period the 750,000-plus people came on board.
, however, generally perceived to be a leader in Internet banking with 1.7 million online customers, says it's seeing real financial benefits from online banking.
A spokeswoman says that around 20% of the 100,000 online customers it's signing up each month are new to Wells Fargo. Plus, she says, the proportion of customers the bank loses, or the attrition rate in bank jargon, is 36% lower for online customers, and 54% lower for those doing both online banking and online bill-paying.
When asked whether Wells sees the Internet as just one other way -- alongside ATMs and branches -- for customers to bank, or more of a way to significantly improve margins and growth, the spokeswoman says: "Both."