Internet banking poised for European growth, study says

More of Europe's money will be moved over the World Wide Web as the market for Internet banking rapidly grows during the next three years, according to a new survey.

More of Europe's money will be moved over the World Wide Web as the market for Internet banking rapidly grows during the next three years, according to a survey published yesterday. Internet banking will become an important and low-cost distribution channel for Europe's banking institutions, according to London-based Booz-Allen & Hamilton, the international management consultancy that conducted the survey.

The survey asked 37 European banks about Internet investments and operating costs as well as technical, operational and marketing strategies. "Our surveys indicated that while current functionality is limited, about 80% of respondents are planning to upgrade their functionality to provide an advanced Internet site capable of conducting most traditional banking transactions within three years," says Booz-Allen principal Michael Berger, in a prepared statement. "We are also witnessing the emergence of the first full-featured, Internet-only banks," he says.

"There is no doubt that the Internet will become a fully fledged delivery channel in a very short period of time, so that ultimately all banks will have a Web presence," Berger says.

Widespread concerns about security on the Internet are more an issue of perception than of real obstacles, says Booz-Allen principal Claus Nehmzow in a statement. "Security on the Web can, for all practical purposes, be addressed to provide levels at least as high as in traditional delivery channels," Nehmzow says.

The survey confirms that Internet banking presents a low-cost alternative to traditional forms of retail banking. More than half of the banks participating in the survey spent or are spending US$25,000 to establish a Web site and 63% are spending less than US$25,000 a year to maintain the site, Booz-Allen says. In total, it takes between US$1 million to US$2 million to establish a virtual Internet bank, while it takes US$1.5 million to US$2 million to establish one traditional bank retail branch and up to US$350,000 annually to maintain it, according to Booz-Allen.

"Internet banking is clearly far less costly," says the Booz-Allen statement. The study also found that 154 European banks already have sites on the World Wide Web, with most banks being in the start-up phase, offering mostly information about the banks services and products, but no transaction capabilities.

Booz-Allen published a similar study of US banks in July, which found that over 16 million US households will use Internet banking by the end of 2000 and that these households will include some of the banks' most profitable customers, representing close to 30% of all retail banking profits.

Booz-Allen can be reached on the Web at http://www.bah.com.

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