With its decision to slap a host of fees on customers who carry low account balances, WingspanBank.com is defying the business model that has been Internet-only banks’ foundation.

Starting Jan. 18, the Internet-only arm of Bank One Corp. will charge customers who have checking account balances of less than $1,500 a $10 monthly service fee and $6.95 a month to pay bills online. In addition, low-balance customers will be reimbursed only $2.50 a month for automated teller machine fees, half the amount other customers are rebated.

Michael Cleary, president of Wingspan, defended the move as necessary to support new products and services. But it flies in the face of the operating principle Internet-only banks have followed since they emerged about two years ago and began touting their low-cost, branch-free infrastructures as the key to being able to provide their chief competitive advantage: low fees and high interest rates.

In many cases, customers of Wilmington, Del.-based Wingspan, which was launched in June 1999, will pay higher fees than users of bankone.com, who can circumvent most fees by avoiding teller visits. Bank One’s Basic One checking account customers in Chicago, for example, pay a monthly fee only if their account falls below $0. They pay $4.95 a month for electronic bill payment, a fee that applies to all five accounts available in Bank One’s Chicago market.

Mr. Cleary said it did not use Bank One’s fee structure as a point of comparison when setting its own fees. “As a general statement, ours are less than brick-and-mortar banks,” he said.

But Wingspan clearly is borrowing a strategy of offline retail banks by offering a break on fees to customers who maintain larger balances. Most Internet banks, meanwhile, are proponents of free or near-free banking for all.

USABancshares.com of Philadelphia, for example, charges no fees for monthly service, bill payments, or money transfers. Alpharetta, Ga.-based NetBank has no monthly service or bill payment fee and pays 3.05% interest on its checking account.

Even some brick-and-mortar banks are beginning to offer free Internet banking. On Monday $33 billion-asset Charter One Financial Inc. of Cleveland announced the introduction of a free Web service featuring no-fee bill payments and account transfers.

Mr. Cleary emphasized that Wingspan’s price changes will help it support new products and more comprehensive service. This month the Internet bank plans to begin offering its first savings account, which will pay interest of up to 6.5%, in addition to its high-yield checking account. In September Wingspan introduced high-yield certificates of deposits and $9.95 trades.

“We should focus less on the fees and more on the value proposition — such as ATM rebates, high rates, electronic transfer between accounts, and a 24-hour call center,” Mr. Cleary said.

Analysts generally cheered Wingspan’s move. Free services have been a stumbling point for Internet banks, because they mainly attract price-sensitive customers who produce lower revenues, they said.

“Internet banks cannot support someone providing less than $1,500 and not paying other fees, because at that level it is an unprofitable account,” said Paul Jamieson, director of financial services at Gomez Advisors. “I applaud Wingspan’s move as long as they are doing things to generate added value.”

Wingspan will lose customers over the new fee structure, but mostly only the price-oriented ones, said Rodgers Harper, a managing vice president at First Manhattan Consulting. “Those oriented toward convenience would just as soon pay the fees as go through the hassle of transferring their accounts. Those oriented toward price will leave, but Wingspan wouldn’t want them anyway,” Mr. Harper said.

“If you provide a valuable service, you cannot give it away for an indeterminate period of time because that is not a sustainable business model,” he added.

The new fees are the latest in a series of changes Wingspan has undergone since Bank One decided last September to bring the Internet operation under the umbrella of the traditional bank.

Bank One has cut deals with four automated teller machine networks to allow Wingspan customers to make deposits. And in the 71 Phoenix branches of Bank One, Wingspan is testing three different ways to open accounts: a Wingspan kiosk, a Wingspan representative, and marketing materials promoting Wingspan services.

Kevin Watters, senior vice president of marketing at Wingspan, said the bank is only about two months into the six-month pilot, which will determine how Wingspan will be promoted in the rest of Bank One’s 1,800 branches.

At the end of September, Wingspan had 206,000 accounts. Mr. Watters declined to disclose the number of new customers Wingspan has gained through the Phoenix pilot, but said, “We have seen significant account growth in all of our products."

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