Is pure internet banking dead?

Online banking seemed until recently one of e-tailing's success stories, but doubts have been cast on its viability as a online "pure play" following some US disasters and AMP bank's pullout from New Zealand.

Online banking seemed until recently one of e-tailing’s success stories, but doubts have been cast on its viability as a online “pure play” following some US disasters and AMP bank’s pullout from New Zealand.

Bank Direct, the almost-entirely phone and internet bank, says business is going well for it in its own sector of the market, despite scepticism of the viability of such ventures from Kiwibank.

In the wake of the withdrawal of AMP’s internet-based banking arm from the New Zealand market, Kiwibank chief Sam Knowles suggested that the pure internet-and-phone banking model does not stand up. Such banks have been closing down throughout the world, he says. Banking customers still need a branch structure.

Bank Direct general manager Kevin Leith says his bank has survived for five years and is “reasonably profitable”, and figured highly in a recent Consumers Insitute survey of bank customer satisfaction; but he notes that it appeals to a different market from Kiwibank’s.

“Kiwibank is a mass-market player, and there are a lot of people who still prefer to bank in the traditional way, at a physical branch.”

BankDirect deals mainly with “professional people” in Auckland, Wellington and Christchurch. They are busy “time-dependent” customers, who don’t want the hassle of standing in line at a branch.

“It’s an area of the market that has proved good to be in, from the point of view of the number of customers and the breadth of each customer’s business,” he says.

However, he acknowledges that there has to be a face-to-face or telephone contact for some business. For these transactions, Bank Direct uses the branch network of its owner, ASB. But its business is still “99% through internet and phone”, Leith says. “I think the pure internet-play banks have come unstuck.”

Knowles, at Kiwibank, is sticking to his guns, citing BankDirect’s need of ASB branches as proof of his point.

“The reality is, you don’t have to make the choice [between online and branch banking]. We offer direct banking too and we do a lot of business that way.”

There are sensible legal safeguards embodied in the Financial Transactions Act to deter money laundering and other irregularities.

“This means while you can use a bank account online from anywhere in the world, the act makes it hard to open an account in such a direct way.”

The Electronic Transactions Act, he says, does not impact this part of the Financial Transactions Act, which is “based on protocols between the banking industry and the police”. These legal provisions will always undermine the pure internet bank.

No matter how skilled and competent customers become at banking online, it will always remain “just another offering” in the banking repertoire, Knowles says.

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