Allied Irish Banks (AIB) has announced it will shelve its stand-alone eBank plans.
This has been a bad week for Internet banks – First-e has dropped its multi-million pound advertising campaign and refused to rule out job cuts, and now AIB and Sanwa Bank have both called time on their plans to launch stand-alone Internet banks (eBanks). In a change of sentiment that parallels the demise of IPO-mania in Spring 2000, it seems that the banking community is now waking up to the reality of the Internet. Some of the rules may have changed but, fundamentally, the game remains the same.
AIB’s decision is based upon the claim that the rationale for a stand-alone bank no longer applies. But did it ever? It is arguable that established retail banking players should not attempt to establish stand-alone banks at all, particularly given the enormous costs associated with branding and marketing a start-up, which extend well beyond the Internet where they will operate.
Moreover, the Internet is still a place where concerns about security, and a wider confusion among less experienced people online, mean that the established names of existing banks present a powerful magnet for those seeking reassurance and a familiar ‘face’. So Barclays remains the UK’s largest online bank. In the face of mounting costs, increased competition, relatively conservative consumer attitudes and the tangible failure of all but a few eBanks to acquire significant volumes of customers, it is easy to see why AIB’s claim stacks up.
The lack of a rationale, now or in the past, for stand-alone eBanks, poses serious questions for recent entrants such as Cahoot and IF. While Egg can cite its continued ability to win new customers, based largely on the strength of its first-mover advantage and significant marketing communications effort, those in its wake may face a long, hard struggle to justify the substantial sums being invested in them by wealthy but misguided parents.
