Established banks in Europe are better positioned than new entrants or stand-alone Internet banks to exploit the Internet channel, said a report from KPMG Financial Services, the business advisory firm.

"The giants have taken time stirring from their slumbers, but they will do so, and they are powerful," said Philip Middleton, partner and head of financial services strategy at KPMG London. "They have well-established brands, deep pockets, and a strong legacy customer base, all of which they can exploit."

Though dot-com financial services companies have generated a lot of buzz, "they have not cannibalized the major players or reduced them to quivering heaps of jelly," Mr. Middleton said.

The KPMG report - which predicts in its title that Europe's big banks will "win the e-commerce revolution" - differentiates between new, "pure play" Internet start-ups and "brand stretch" champions, the established nonbank companies reaching beyond their core brands.

"The future of retail financial services will not be determined by two guys in a garage in Helsinki," Mr. Middleton said in an interview.

Incumbent European banks have three competitive advantages: traffic, trust, and multichannel access, he said. Their customers already generate lots of daily banking traffic, but new Internet banks must start from scratch at bringing in customers, which is costly and time-consuming.

A multichannel presentation - including branch networks, automated teller machines, telephone, Internet, and interactive television - is crucial to building an online customer base, the report said, and again the established companies have the advantage. Some traditional banks that promote online banking options sign up most Internet customers in branches.

The only institutions in the world with more than a million online banking customers are established banks: Bank of America Corp., Wells Fargo & Co., and MeritaNordBanken, now called Nordic Baltic Holding Group after a merger with Unidanmark.

The report said large European banks have drawn heavily from the early experiences of U.S. banks and banks in the Nordic countries. By yearend, the total of online bank accounts in Europe should exceed that of the U.S., 7.25 million versus 6.8 million, according to KPMG.

The firm said there are 863 Internet retail bank sites in Europe and 1,676 in the United States. When KPMG ranked these sites in terms of functionality, it decided that 476 European bank sites - or 55% - are "advanced cyberbanks." In the United States, only 249, or 15%, won that designation.

Most retail banks in Northern Europe offer online banking to retail customers. "There's not a great deal you can do online except look up accounts, move money, check balances, and deal in brokerage," Mr. Middleton said.

Two paths seem to be emerging in Europe: one for banks setting up separately branded "baby banks" on the Internet and the other for those integrating Web services into the bank itself.

In the first category are such British Internet banks as Cahoot, from Abbey National PLC; Intelligent Finance, from Halifax PLC; and Smile, from the Co-operative Bank. In France, BNP Paribas has its Banque Directe, and in Spain, Banco Bilbao Vizcaya Argentaria of Bilbao (which also offers Internet banking under its own brand) has its Uno-e.

One other example is Egg, the Internet-only bank that was launched by Prudential Banking PLC in the United Kingdom and which has signed up one million customers in 18 months. Mr. Middleton said Egg has spent $460 million building an "impressive customer list" and offering "an interest rate subsidy," but it has yet to make money. "The big question for Egg is how to strategically try to migrate its customers to profitable products and relationships" before they move on to another institution, Mr. Middleton said.

Taking the opposite tack are banks like Barclays, which "says the Internet is part of what we offer," Mr. Middleton said. "It uses the Internet to reduce costs, but it also says it's about improving customer service. Barclays' argument - which I agree with - is to get internal processes reconfigured so the customer has a seamless experience."

Mr. Middleton said the Internet-only school of thought will not work. "Classical retail banking is too complex, and people are too rooted" in their banking habits.

The other problem with Internet-only banking, he said, is "it's very clunky. In the U.K., it's faster and more efficient to pay a bill by phone than the Internet."

Mr. Middleton predicted that "mobile financial services and digital television are going to be far more significant than the PC-delivered Internet, which is actually a transitional phase."

In the United Kingdom, HSBC Holdings PLC and Abbey National already offer financial services over digital television sets.

Internet banking is far more popular in the Nordic countries than in Southern Europe. International Data Corp. said 31% of the population of Finland is online, compared with 2.6% in Greece. Growth is expected in mobile banking because ownership of mobile phones in Europe is exceptionally high and could climb even higher with the advent of Wireless Application Protocol technology. Dataquest estimated that, within three years, seven in 10 Europeans will own a mobile phone.

The Scandinavian countries are ahead, Mr. Middleton said, because of their geography, the way their banking systems are structured, and the fact that they are home to some of the world's leading telecommunications companies - Nokia and Ericsson.

KPMG estimated that European banks will spend $14 billion on Internet ventures this year.

"Just to compete requires top-of-the-market rates and high levels of customer service," the report stated.

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