Despite certain risks, on-line customers are proving more profitable than others, Wells Fargo says.

"We are all in a hurry to get (on-line) customers-it's where the power is," said Clyde Ostler, a group executive vice president at Wells Fargo & Co. "The budget at Wells Fargo is a very large number for on-line banking."

Internet banking was among the hotter topics at last week's Bank and Financial Analysts Association conference in New York.

The San Francisco-based bank said its on-line customer base has grown to 700,000 at yearend, from 20,000 in 1994. Wells Fargo projected that on-line customers generate 50% more revenue than the bank average, hold 20% higher balances, drop their servicing costs by 14%, and use 50% more products.

Other companies have seen the Internet as an opportunity to get more of customers' money in one place.

"Financial services are the first legitimate services offered on the Internet," said D.R. Grimes, chief executive officer of Atlanta-based Net.Bank, which operates exclusively on-line.

However, Mr. Grimes warned that on-line banking presents the risk of adverse client selection.

"We see some pockets of activity with people you would not want to be in the same room with, let alone open a bank account for," Mr. Grimes said. "They are banking on anonymity, and as a result, we do things like credit and employment checks before we grant a loan."

E-Loan, a Palo Alto, Calif.-based mortgage site, hosts mortgage products from the likes of Chase Manhattan Corp., Citigroup, and Countrywide Home Loans, and it originated about $1 billion in closed loans last year. That is a pretty big slice of the total on-line origination, but Deutsche Bank Research reports that E-Loan underwrote $25.5 million of mortgages as of September 1998 to market its site, spending nearly three times as much on marketing as it has on technology.

E-Loan has taken another step this month by hiring Joseph Kennedy - the man credited with making Saturn a nationally recognized automotive brand-as its senior vice president of marketing and development.

Chris Larsen, E-Loan's chief executive officer, said the difference between his strategy and that of traditional banking is: "We have the biggest share of companies in a single location to serve the entire country."

Mr. Larsen said E-Loan is no threat to brokers and bankers off-line - as long as they have a niche.

"There is always a place for boutique companies, but they are going to have to focus on giving advice, because there are always people who are going to want to have their hand held," Mr. Larsen said. But he said E-Loan poses a competitive threat to lenders who are "just pushing paper and trying to get a process done."

Countrywide Home Loans offers its mortgages through E-Loan, Home Shark, Quicken.com, and Owners.com It has three other channels through which to deliver retail loan products: wholesale, Internet, and traditional retail.

"All of those channels are created to drive up the number of loans in their servicing portfolio," Mr. Larsen said. "Their Internet and retail channels hate our guts because we are competitors, but their conduit channel loves us because we are free distribution for their products."

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