Bank One has been forced to raise its Internet banking subsidiary’s fees to make it profitable.
Bank One has announced that its online banking subsidiary WingspanBank.com will raise prices on several products and services. This has raised questions about the impact increased prices will have on WingspanBank’s customers, as well as the validity of the Internet-only banking business model. Nonetheless, Bank One has made a very sound strategic decision. The altered fee structure should move WingspanBank towards sustainable profitability without seriously jeopardizing its customer base.
There is an element of risk involved whenever a business decides to increase the prices of its products and services. However, in the case of online banking, the potential rewards far outweigh the risk. Bank One’s business logic is sound since it understands the value proposition that drives online adoption and customer retention: functionality, not pricing, is consumers’ primary concern. They want to be able to conduct all their financial transactions conveniently online. Banks must deliver services such as electronic bill payment and presentment (EBPP). Online banking customers will accept marginal price increases if combined with additional applications that improve convenience and trust.
Online-only banking is also viable from the corporate perspective. Internet banks can initiate and execute banking transactions at a much lower cost than traditional banks that rely on large expensive branch networks; they are in a superior position to minimize manual intervention in the transaction processing cycle. This should translate into massive cost savings, creating a permanent competitive advantage over traditional players. Furthermore, as applications such as EBPP are deployed and adopted by the mass market, traditional banks will actually lose income in areas such as the interest earned on checks that are outstanding in the bill payment cycle.
The ultimate winners in the online banking marketplace will be the institutions that fully recognize the relative price insensitivity of consumers and capitalize on the functionality they demand. Bank One has made a difficult yet wise pricing decision. Examples such as NetBank prove that online banks can attract and retain customers profitably. As long as WingspanBank maintains a competitive pricing strategy compared with its online rivals, it will survive and eventually thrive.
