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Banks Reviewing Stand-Alone Internet Banking

KPMG Survey Reveals Banks Reviewing Stand-Alone Internet Banking Services

Many international financial institutions are reviewing their approach to internet banking as a result of the dot.com crash and the poor performance of stand-alone internet banks in 2000, the Chairman of KPMG’s Banking and Finance Group, Andrew Dinsdale said today.

Mr Dinsdale was launching KPMG’s 15th annual Financial Institutions Performance Survey, which reports and comments on the performance of banks, finance companies and other financial institutions.

“Globally, investors in technology stocks took a pummelling in 2000. The first three months of 2001 have been equally volatile with the slowdown in the United States economy impacting on technology stocks even further.”

Mr Dinsdale said internationally, huge amounts of money were being invested in dot.com Internet start-ups with no track records, business plans or balance sheet strength. Underlying share losses for investors was the fact that the projections for the level of business and profitability of internet business were not being achieved.

The New Zealand banking industry was not immune. While the number of customers using online banking grew during 2000, the virtual banking model developed overseas came under pressure.

“Banks around the world are abandoning or cancelling Internet banking projects. In recent months, Onebank in Australia, Alliance & Leicester, Allied Irish Bank and Sanwa Bank have all pulled back from such projects. Banks are coming to the consensus that the Internet must be integrated with other channels for distributing financial services.”

Mr Dinsdale said there were three different, high profile entities active in the New Zealand market as stand-alone Internet or direct banking operations: BankDirect, AMP Banking and E-Loan.

“During 2000, each have reassessed part or all of their activities and made significant changes to their operations.

“The significant dissatisfaction customers are seen as having for their traditional banks has not translated into a rush into online banking. Inertia seems to prevent people changing banks or banking habits.

“In theory, an Internet banking service can be delivered at a fraction of the cost of a ‘bricks and mortar’ service. But finding a formula that works has proved difficult in most countries where it’s been tried.

“The problem is that online banking still appeals to a niche market and the volumes are relatively small. But the set-up technology is expensive and the amount a bank needs to spend on marketing to be noticed in a virtual world, is considerable.

“In spite of the significant investments being made by financial service firms on introducing and marketing stand-alone online financial services, research shows that relatively few consumers use them. Fewer still use them for purchasing new products and services or resolving problems.”

Mr Dinsdale says online banking needs to be supported by other distribution channels and contact points. For the moment, the banking industry must work at excelling in a “clicks and mortar” environment.

Ends
For further information contact:
Andrew Dinsdale
Chairman, Banking and Finance Group
KPMG
Telephone 04 802 1214 or 029 437 354

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