First-e demise raises online banking fears

Industry experts are predicting harsh times for Internet-only banks in the wake of the demise of First-e, the European online...

Industry experts are predicting harsh times for Internet-only banks in the wake of the demise of First-e, the European online banking business.

After just over two years in business, the owner of First-e, Banque d'Escompte, finally decided to pull the plug last week. Operations in the UK and Germany will close next month, although the company will continue its French online operation.

A notice on the company's Web site assures UK customers - an estimated 50,000 - that they can "smoothly change over" to Self Trade UK, an online broker which is part of DAB Bank, a German internet bank/brokerage.

According to Ian Richardson, the e-director for Barclays Bank, First-e's troubles were indicative of the "difference between dotcoms and established brands".

"Having a one-flavour access model will make it tough to survive," he said. "Private brands are difficult to promote. What is needed is a cross-delivery approach and strength of brand.

In spite of the demise of First-e, however, some companies spoke of their long-term faith in the sector. A spokesman for Cahoot, a stand-alone operation backed by Abbey National, said he was confident that the company's business model was robust enough to prove its longevity.

"We are not worried about the First-e failure," he said. "We are 14 months old and have 200,000 accounts."

A spokesman for Egg, the Prudential's online banking division, was equally confident. "The mood of the market is behind us to break even during the last quarter of 2001," he said.

Contrasting with this optimism, Patricia Lueer, a financial services analyst for Jupiter MXI, said that stand-alone internet banks with no offline subsidiary were facing an uphill battle. "Offline subsidiaries are necessary to promote trust with the retail customer and to offer them somewhere to go for advice about complex products," she said.

Phil Alcock, a senior vice-president at the financial technology and consultancy provider Fiserv, said: "First-e was a business with a deeply flawed strategy from day one, using an interactive channel to offer a narrow product range that required minimal interaction."

"As a result, the product and service innovation critical to success could never be achieved effectively," he said.

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