A wild chapter in bank technology history is closing.
Last week Canadian Imperial Bank of Commerce announced the end of bizSmart, an innovative attempt to serve the financial needs of small-office/home-office entrepreneurs through electronic channels. The announcement came about two weeks after the Toronto-based bank said that it would scale back or close its Amicus operation, another separately branded effort to serve customers electronically.
Amicus and bizSmart may be among the last attempts by traditional banks to profit from the Internet through truly radical approaches.
The addition of bizSmart to the online trash heap cements some truths banks have uncovered while tangling with the Internet: Customers are far more complex than the Web model gives them credit for, and building an independent brand - especially an online one - is more difficult and more expensive than it looks.
Banks large and small have shut down Internet-only arms designed to exploit what was seen as the Web's low distribution costs. Bank One Corp. famously opened and closed Wingspanbank.com, and Citigroup Inc. soft-launched citi f/i before shutting it down.
Royal Bank of Canada folded Security First Network Bank into its regular online banking lineup, and Bank of Montreal did the same with its mbanx. Merrill Lynch & Co. recently extricated itself from the Internet banking and brokerage venture that it jointly operated with HSBC Holdings PLC.
The smaller Internet-only efforts of Brookline Bancorp in Massachusetts and USA Bancshares of Philadelphia met with similar fates. Some institutions put their plans on ice before even rolling out an offering, as Synovus Financial Corp. did with its pointpathbank.com for newlyweds.
"Banks were looking at the Internet as an easy opportunity to generate incremental customers, but they learned that to make it work, you've really got to work hard," said Gary Craft, an analyst at Financial DNA LLC, a research firm that specializes in e-finance.
When CIBC introduced bizSmart two years ago, its draw was that it offered a set of services, including checking, bill payments, fund transfers, and direct payments, for free. Customers were supposed to access the services through the Internet, telephone, automated teller machines, or mini-branches in selected Staples stores.
But, as many banks discovered, customers crave more than just low fees.
The bizSmart accounts offered no personal interaction with small-business advisers, a feature many customers wanted, along with a wider variety of products, said Joe Heim, a CIBC spokesman. They were happy with the no-fee daily banking, "but many - as their businesses matured - found they needed more," he said.
The realization that customers are multichannel animals - as likely to drop in at the branch as they are to log on to the Internet - is spurring renewed investment in branches. CIBC has spent more than $200 million over the past three years to upgrade the service technology at its branches. Other large banks, such as Bank of America Corp., National City Corp., Royal Bank of Canada, Wachovia Corp., are also spending millions to revamp branch networks after trying and failing to get customers to adopt Internet banking whole-hog.
CIBC's use of nonbank brands to collect deposits was as elemental to its strategy as offering services through electronic channels. Amicus relied on the grocery store brands of its supermarket partners to create a bond with customers. The bank was known as Safeway Select Bank in the West, where it worked with Safeway; in the Southeast, where it worked with Winn-Dixie, it was known as Marketplace Bank.
The rise of companies such as Amazon.com made it seem like building a brand on the Internet was a lot easier than it actually is, said Deborah Chae, a managing director of Interbrand, a New York brand advisory company. "Traditional companies underestimated the return on investment and the length of time required to build up Internet experiences with credibility and consistency."
Other countries offer tempting examples of institutions collecting deposits through brands that have no relation to a bank. Tesco, a large supermarket chain in the United Kingdom, for example, has built up a successful banking business. And in Canada, CIBC has attracted about one million customers to President's Choice Financial, the online bank it created with the Loblaw's supermarket chain, after which Amicus is modeled.
But in the United States, big banks have stumbled when they have strayed from building services atop their strong, established brands. Bank of America abandoned its effort to build loans.com into a stand-alone Web site, and Citigroup dropped its finance.com experiment. Bank One is now so averse to nonbank-related brands that it is converting its First USA-branded cards to the parent brand.
Even affinity banking, in which institutions serve related groups of people, has bombed on the Internet. The concept did not work for the West Palm Beach, Fla.-based VirtualBank, for example, which initially sold customized Internet banking services to employees at specific companies, but quickly turned to other strategies.
Amicus "is a stirring example of how the Internet has not created opportunity for banks to raise money under new brand names," said Chris Musto, a vice president of research at the Waltham, Mass., research firm Gomez Inc. In the United States, "you need a bank brand to raise deposits," he said.
A few institutions continue to run Internet-only arms. ING Groep NV is still making a push into the U.S. market with its ING Direct. The Dutch company's experience may prove that customers need a compelling reason to bank exclusively on the Internet. ING Direct, which does not even bother with checking accounts, offers among the nation's highest interest rates on savings accounts.
American Express Co. and Toronto-Dominion Bank's TD Waterhouse continue to run Internet banking operations, but they target mostly existing customers in a low-key manner.
There are success stories in the United States. The Internet-only NetBank has strung together several consecutive profitable quarters, and E-Trade Group Inc. reported a 364% increase in third-quarter earnings per share from ongoing operations from a year earlier.
However, traditional banks may have never had as much to lose as the entrepreneurs that founded such companies. Bogged down with budgets and cost-cutting pressures, banks soon discovered that the benefits of operating a stand-alone Internet bank were not worth the effort.
"The banks didn't have the tenacity or the incentives to stick with it," Mr. Craft said.
