There's a basic flaw in the belief that on-line banking is less expensive for banks than the traditional methods of account processing. Though it is cheaper to process such transactions, on-line banking is an added cost to a bank's profit-and-loss statement. On-line transaction volumes are not large enough (nor will they ever be) to offset traditional processing costs. Banks are carrying the full cost of two systems and saving nothing from the old system.

And here's the rub. Consumers aren't of a mind to pay for either option. They liked it when every deposit account earned money but didn't cost any. Those were the days when a free toaster or a set of china made the difference. And we know how consumers feel these days about ATM fees when a "foreign box" is used. Consumers love the idea of free banking. Even Generation Xers have somehow inherited the idea that banking services should be free. When bankers establish a precedent, it hangs on as if it were regulatory.

The Internet has created first-time-ever opportunities for lots of industries, including pornography, shopping, brokerage, search engine companies, access companies, start-up software companies that went public with nothing more than a dot-com name, and online-only banks. For traditional banks, however, the Internet is more like a double-edged sword.

Internet banking is good as an additional delivery channel, but it is also what I call a differentiation destroyer. Every me-too player can now establish a presence, and before too long Web sites will be as common as billboards on a highway, with an occasional attention-grabbing Burma Shave series that kids loved to read even though they didn't shave.

Some bankers are relying too heavily on the Internet to cure other ills. What's worse, they are telling their mythical story now to securities analysts as if there will be no more quarters to report in the future. Someday, I expect an inquiring analyst will want to know how much those multimillion-dollar Internet investments have contributed to earnings. The answer won't be a good one.

The Internet will attract price shoppers, and there's no charging for its convenience. Three years ago I wrote an article for Computerworld titled "Opening Soon -- Microsoft National Bank." The response was strong and emotional. The popular attitude from these on-line users was: "We give our money to these #$% &* and save them money by going electronic, and now they want to charge us for it. No way."

Most bankers are missing the boat when it comes to building relationships. Now they are destroying the opportunity to do better by casting their customers into cyberspace, where the only thing personal is the device used to get there.

I once worked for a bank that ranks No. 8 now. It was 47th then. The genius behind that growth was diversification and dozens of acquisitions. But it also included a keen sense of not just knowing the relationship creed but practicing it as well. For example, making a mortgage loan to a Portuguese immigrant in Providence, R.I., guaranteed a solid bank customer for life. And we didn't need a Community Reinvestment Act in those days to stimulate fair-lending practices for all. In my own case, when Citibank granted me a $25,000 line of credit after I started my consulting practice, it assured them a customer forever even though I'm the only one who knows it.

Banking is still a good business as long as it's done right -- with new technologies as well as old-fashioned methods.

Back to the 47th-largest bank in the United States. In 1970 I was presenting a proposal to the management committee for $55,000 to experiment with a cash dispensing machine (now called an automated teller machine). That committee was headed by a tight-fisted loan officer who thought self-service banking was an idea that would pass.

One of our staff guys told me not to worry about Henry's reluctance to take risks. While in college Steve approached Henry with a request to borrow $1,000 to buy and repair a car as a summer project. Henry granted the loan and didn't even ask for the car's title. Steve fixed up the car, sold it, paid off the loan, and made next year's tuition.

I didn't get the $55,000 for the ATM experiment, but it was my own fault, not Henry's. I was promising it would replace tellers. On the third try, when I presented the idea on the basis of improved customer service, I was granted the investment, or maybe they got tired of seeing my ugly face every month. In my opinion, banking is about jumping into your customers' affairs and becoming part of their business. Get close, and though I would not suggest hugging, don't cast them off into cyberspace.

If bankers do a better job at the business of banking, they will not have to rely on the Internet as a savior. Today, I'm told, Internet banking is a young person's method of banking. But the young folks aren't the ones who deliver earnings to a bank. And they will click off in a cyberspace picosecond as soon as they surf to a better rate.

Like all good technology, the Internet has its proper place. It's a good add-on, but it will not be a replacement. Bankers should not get rid of reader/sorters, branches, or tellers yet. They should use technology to empower employees to foster better customer relationships.

At a recent cyberspace banking seminar for bank examiners, one examiner in my audience was concerned that I had contradicted myself. I had reported that in a survey I conducted among very affluent consumers 100% responded "never" to the question, "When was the last time any bank employee called you to sell you something?" The examiner felt the Internet should offer an answer to bankers' sales shortcomings.

I believe bankers should finally get into the selling business, in the flesh, and not rely on an impersonal medium. A tombstone ad in the local paper didn't do it. A Web site in cyberspace will not do it. "Know your customer" has a whole new meaning, and it has nothing to do with money laundering.

If I were a securities analyst, I would be more impressed with a CEO who outlined the implementation of a new sales, service, and relationship culture throughout every branch (a rare idea in banking) as opposed to a plan that says we too will have a presence on the Web.

I have 14 accounts at my bank, and three bank employees know the value of that relationship. Harry, Katy, and Traci know all about me, and they do valuable things for me behind the scenes. The best part is, I have never heard them say "Have a nice day" or "Go to our Web site." The latter is as unattractive to me as the former is meaningless. What they do say is, "I'll take care of that for you."

Which icon do I click to get that kind of service from a Web site?

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