DUBLIN -British bankers seem to have fallen in love with the concept of stand-alone Internet banks, and now just about every major banking company in the United Kingdom has introduced an online-only service with a quirky or whimsical brand name.
Last year, Britons were asked to place their hard-earned pounds in Internet entities called "Egg" or "Smile." Egg was hatched in October 1998 by Prudential Banking PLC and says it has attracted 600,000 customers in 18 months. Smile was formed in October 1999 by Co-operative Bank, which has not released customer numbers. Both these banks let customers pay bills online and do a variety of standard banking transactions.
This year, four new Internet-only banks are to join Egg and Smile to compete for British pocketbooks. The most unusual-sounding one is Cahoot from Abbey National PLC, which is scheduled to open this spring. Abbey National says it is doubling its electronic commerce budget this year, to $310 million, and has raised money for Cahoot from venture capitalists. The site is to offer nonbank services through several partnerships, including travel services from Thomas Cook, video sales from Blackstar, compact disks from Boxman, hardware from Dell Computer Corp., and telecommunications services from British Telecom.
A more traditional-sounding entry in the Internet banking sweepstakes comes from HSBC Group PLC, which opened Firstdirect.com for business on March 1. The transactional Web site is the company's first entry into Internet banking, and HSBC acknowledged that it faces stiff competition.
"I'm sure not all will be successful," said Peter Simpson, commercial director of HSBC's First Direct unit. "Most likely, those with multiple channels and multiple products will succeed."
HSBC's First Direct is a 10-year-old direct banking division that until now has worked exclusively with two delivery systems: mail and telephone. HSBC decided to retain the First Direct name when it developed its Internet banking strategy, Mr. Simpson said.
For direction, it looked to Bank One Corp.'s WingspanBank.com in the United States but decided to reject that model. "I can understand why Bank One would do that, but we think the integrated channel is the way forward," Mr. Simpson said.
HSBC plans to build on the First Direct name and add remote delivery methods to the mix. Mr. Simpson said the company wants to supplement its existing channels with banking by television and by mobile phones that operate on the Wireless Application Protocol standard. "Our number of channels will increase significantly," he said.
First Direct introduced banking by personal computer two years ago for its one million customers. About 200,000 customers use this direct dial service, and the company wants them to migrate to the Internet service, Mr. Simpson said. "The majority will transfer," he said. "They see the Net as a secure alternative to direct dial."
HSBC is now promoting Firstdirect.com with an $8 million television advertising campaign. The tag line is, "the ebank you can talk to." The service now offers deposit accounts, loans, and credit cards; this summer, it will begin offering investments and insurance.
Nick Jones, an electronic commerce analyst at Jupiter Communications in London, said First Direct is the model for the other U.K. banks that are "jumping on the bandwagon" by setting up new sites. "They're thinking, 'Let's not get left behind,' " he said.
Mr. Jones said the U.K. banks have "seen the mistakes the U.S. banks have made and the success of the dot-com companies, and they have gotten wise."
Halifax Group PLC, one of the United Kingdom's main mortgage lenders, is opening not one but two Internet ventures this year and next: Intelligent Finance and Esure. It has committed $2.4 billion of capital to the projects.
Six months ago, it launched Halifax Online for its own customers, and in July it will open IF.com, which stands for Intelligent Finance. The latter is an Internet and telephone bank aimed at other banks' customers. Heather Scott, a spokeswoman for the initiative, said the name came from the bank's observation that "imagine if? is the most commonly posed question in financial services."
"Halifax already has around 20 million customers who are loyal to the brand," said Jim Spowart, chief executive officer of Intelligent Finance in Edinburgh. "Intelligent Finance has been launched to secure a different section of the marketplace," he said. "It does not expect much cannibalization of its existing customer base. IF's customer base will be built at the expense of the major clearing banks." Customers will have access to Halifax automated teller machines throughout the country.
IF.com employs 200 and will eventually have 1,200, Mr. Spowart said, of whom 900 will answer telephones and e-mail.
Mr. Spowart said he expects IF.com to sign up 500,000 customers in its first 12 months and wants to have two million by yearend 2004. The company plans to spend $50 million over 18 months on television, print, and online advertising. Initial services will include savings accounts, loans, mortgages, credit cards, and deposit accounts.
"We believe we are the fastest and most innovative bank to the marketplace," Mr. Spowart said. "It is our hope that we can develop internationally over time."
Early next year, Halifax plans to start another Internet venture, Esure.com, which is to sell auto insurance and homeowners' insurance. Halifax has 100,000 insurance policies on its books, and these would be integrated into Esure. It would become the first Internet-branded insurer in the United Kingdom, Halifax says.
Halifax said it plans to invest $240 million in Esure and projects employing up to 500 people after three years.
Esure is headed by Peter Wood, who founded Direct Line Insurance in 1985. It is the United Kingdom's largest private auto insurance company and does business with customers exclusively by telephone. With an American partner, Mr. Wood recently secured funding for a new venture in the United States, Response Insurance, which aims to replicate the success of Direct Line. The partners have also set up an operation for home insurance, called Homesite Insurance.
Even the United Kingdom's more traditional banks have succumbed to the lure of Internet banking. Lloyds TSB is to start a stand-alone, separately branded, separately priced institution in Spain within three months. "We will base it in Spain initially and then it will be brought back to the U.K.," said a spokeswoman for Lloyds in London. "We'll start advertising heavily to customers in the next few weeks." Lloyds has 21 branches in 12 Spanish cities.
In what now appears an unusual strategy for a British bank, Barclays has decided to keep its brand name in setting up its online division. Barclays Online Banking was introduced last May and has signed up 700,000 personal and business customers for the Internet service, more than any other U.K. bank.
Yasmin Choudhury, communications manager at Barclays, said it was the first bank to offer free Internet access to its customers. Barclays Online is adding 4,000 customers a day and aims to have one million by yearend, she said.
