E-Trade said last year that it would buy Card Capture Services Inc of Portland, Ore., to gain access to its network of 8,500 automated teller machines. Internet-only Security First Network Bank added bricks last year when its parent, Royal Bank of Canada, bought Prism Financial Corp., a Chicago mortgage company with 150 U.S. branches. Royal Bank's efforts to penetrate the U.S. market through Security First, which it bought in 1998, produced lackluster results. In an interview with American Banker last year, James T. Rager, vice chairman of Royal Bank, said the bank purchased Prism because it recognized that Internet-only banks are not proving effective in acquiring and satisfying customers. People need to be able to connect to something they know and see.
Financial services are difficult for people to understand and be comfortable with.
One thing consumers are definitely comfortable with is low fees. Without the overhead expenses of branches, Internet-only banks have an undeniable cost advantage. Mr. Grimes certainly thinks so. The absence of expensive start-up costs for Web banking opens a wide door to new competitors. Web bankers don't even need to build the technology - they can subcontract.