The Internet banking craze hit Europe a tad later than the US, but the Europeans appear to be making up for lost time. Andersen Consulting cited a "dramatic change" in the general electronic commerce climate of Europe in a report released in September that tracked the previous 12 months. Almost two-thirds of respondents said electronic commerce provided a real competitive advantage, compared with only 51 per cent a year ago. More than 1,200 European financial institutions offer Internet banking today, more than twice as many as six months ago.
It is forecast that by 2003 there will be 170 million Internet users in Europe, about the number forecast for the US. "There have been some very positive and encouraging changes in European ecommerce since our study last year, when there was still a prevailing wait-and-see attitude," said Ms Rosemary O'Mahony, Andersen Consulting's managing partner of technology for Europe, the Middle East, Africa, and India.
In the financial services arena, a few banks have set their Internet ambitions very high, making nothing less than panEuropean Internet banking their goal. Besides the Dublin-based Internet start-up First-e, established institutions such as Barclays Bank, Deutsche Bank, Credit Lyonnais, and Axa Group are said to be angling for an Internet presence that stretches across Europe.
"Pan-European Internet banking will occur," said Mr James Greene, financial services partner at Andersen Consulting. "I wouldn't have said that a year ago." The difference is that now Europe's large commercial banks "get it", he said. "The Internet is giving them the opportunity to reinvent themselves."
Mr Greene sees the pan-European method being adopted by all sorts of institutions, from small Internet-only banks to traditional big-league players. Although only a small number of pure Internet banks exist now, "you'll see more in the next three to six months," predicted Mr Greene. "They'll grow their footprint in their indigenous markets and then grow to create a panEuropean Internet bank." After 2000, he expected many US financial players to seek to expand their presence in Europe. In addition, "there'll be a proliferation of pan-European Internet banks driven by the current largest incumbents," he said.
The quest to build an online European banking presence will no doubt be complicated by current laws and standards, which differ from country to country. "At what point can regulation and pricing get to some level of commonality," asked Mr Greene. The current variations, he said, "pose obstacles to borderless Internet banks".
"There is plenty of regulation to overcome," acknowledged Dr Gerhard Huber, chief executive officer of Enba, the holding company for First-e. "But nothing is insurmountable." Mr Anders Bons, head of strategy and competitive intelligence for Internet banking at SEB AG in Stockholm, agreed. The introduction of the euro, for example, had not changed the way European banks conducted business, he said. Mr Bons said he saw local legislation eventually subsiding and Europe becoming a more harmonised market.
First-e received its banking licence from Banque d'Escompte of France, allowing it to operate anywhere in the 15 EU countries. Although it is based in Dublin, First-e went live first in Britain and will roll out its services in France in the first quarter. Germany, Italy, and Spain will follow late next summer, said Dr Huber, who was instrumental in setting up Germany's first discount broker, Direkt Anlage Bank AG, as a subsidiary of Hypovereinsbank.
Enba recently agreed to form a joint venture with Wit Capital to create Wit Capital Europe. It will begin operating early next year under a brokerage licence from the Central Bank of Ireland. It will let Europeans participate in US initial public offerings and have access to Asian capital markets through Wit Capital Japan.
Though other pan-European Internet institutions are expected to emerge, Dr Huber said he believed that no others besides Enba existed today. "I hear of major banks like UBS and Paribas creating personal financial management and asset management vehicles on the Internet. But I think apart from having a massive balance sheet, they have no competitive advantage over us."
Scandinavia's largest asset management bank, SEB, is striving to play a larger role across Europe via the Internet. Last month, SEB with 305,000 online customers in the Nordic region, agreed to acquire BfG Bank AG of Frankfurt from Credit Lyonnais SA of France and other holders. SEB hopes to use BfG's customer base of one million as a springboard to attract German customers to its Internet banking platform.
Mr Bons said SEB's ambition was to become a pan-European bank, though it did not consider itself one yet. For the most part, he said, financial services were still connected to local financial infrastructures. SEB, with $83 billion (€81.21 billion) of assets, hopes to have five million customers banking via the Internet by 2004. It offers a full range of services that include banking, brokerage, mutual funds, loans, mortgages, and bill pay and presentment.
It is already running a pilot for its private banking clients by offering information services and stock quotes over wireless devices. SEB has the benefit of serving a populace of avid Internet users. Finland boasts the highest Internet penetration rate in the world, with about 60 per cent of the population hooked up, and Sweden is second, with about 50 per cent.
Indeed, banks were the first in Sweden to market Internet services, said Ms Avivah Litan, research director at the Connecticut-based GartnerGroup. This enabled them to capture market share before the portals became big. In Sweden, "people consider banks their portals", Ms Litan said.
Banks in other European countries have entered this new world. In Germany there is Direkt Anlage Bank, Comdirect from Commerzbank, and Bank 24 from Deutsche Bank. In Italy there is OnBanca from Banca Popolare Commercio e Industria, a regional co-operative bank. And in Finland there is Merita-Nordbanken, with its Solo effort.
A factor helping to accelerate Internet use throughout Europe is the continent's single telephone standard for wireless communications. Europe's Global Standard for Mobile Communications (GSM) and the Wireless Application Protocol allow for uniformity of applications, unlike the US, where multiple standards exist. "When it comes to wireless telecommunications, the US is like an emerging country," Dr Huber said. "Wireless communications can be developed faster in Europe and we'll see online transactions over wireless devices."
In certain markets, the Internet banking focus is less on building a pan-European presence, and more on duking it out with nearby competitors. In Britain for example, two established players have set up Internet companies with snappy names - Egg from Prudential Banking and Smile from Co-operative Bank. They are competing fiercely for customers against First Direct and Virgin Direct, both of which started out by conducting transactions over the telephone and now have added Internet access. Halifax PLC's Greenfield Internet bank and Abbey National PLC's standalone Internet bank are scheduled to go live next year. Enba's Dr Huber noted that the British entrants were tending to emerge in the form of separately branded initiatives from traditional banks. "Europe doesn't have independent players like E-Trade, Ameritrade, Net.Bank, and Telebank in the US," he said.
Instead, the Europeans are following a model similar to Bank One's WingspanBank.com, where an Internet distribution channel from a traditional player is renamed and is allowed to cannibalise the customer base of the existing bank. "This is a courageous move and the only possible move for a traditional bank," Dr Huber said.
Prudential's Egg has managed to make a bigger impression on the British market than Bank One's Wingspan has in the US, which has attracted about 50,000 customers over about six months. Egg, with more than $12 billion of deposits and 600,000 customers, celebrated its first anniversary in October. These numbers make Egg six times bigger than Telebank, a US branchless bank that has been on the Internet for four years and has $2 billion of deposits and 100,000 customers. Egg aims to have two million Internet customers by 2004. It got off to a fast start by offering savings rates that were several percentage points higher than the norm.
Mr Nick Jones, electronic commerce analyst at Jupiter Communications in London, said the British Internet banks were spending a lot of marketing dollars for very little return. Enba, for example, has secured private equity funding of $61 million to market First-e to 25- to 40-year-olds. Last month, its television advertising campaign began in Britain in addition to advertisements in print media and on billboards. But Mr Jones said "when you look purely at on-site functionality, there's very little differentiation" among them all.
