Internet Bank Failures

Product failures happen more often than many people would think. The failure can result from many elements of a products campaign such as the introduction to a stale market, missing the target through improper ad campaigns, and most importantly, not modifying a products concept to appeal to a foreign market. Web banks, also known as internet-based banks, are one such example where the success that originated in the United States was not transferred to Europe. Instead, failure occurred because of three main reasons: the money plant, the lack of access points, internet fraud, and lack of unity among neighboring countries.

Banking in Europe before the introduction of web banks was very basic. People were drawn to the personal attention they received from the customer service staff, the multiple access points such as ATM's and local branches, and the ability to use new technology such as the internet to check balances and transfer funds. The banking structure was very similar across borders of countries and was what people were used to since the evolution of banking. People trusted their banks and showed a great deal of brand loyalty, an important factor that was overlooked when introducing web banks in Europe.

Web Banks very quickly turned into a large failure for many companies across Europe. The initial concept of web banks was that they would provide many services to you in the comfort of your own home, often at far lower rates than traditional banks. While many traditional banks such as Vontobel Holding AG have many requirements to hold accounts with them such as a minimum balance charge and low interest rates, web banks main concept was to offer banking for free with no balance requirements, multiple loan opportunities, and the tracking of many separate accounts under one umbrella. Realization soon came that most banks were built on the personal customer service that it provided and the money that kept the bank afloat was the money earned off loan interest and account charges. This left many bankers in Europe to second guess the new web banks. "It would have been hard for us to establish full relationships with new customers, and we couldn't really see where the revenue was going to come from." With no solid revenue stream and no personal attention, a cornerstone for banking success, it is any wonder that the proposed web banks even were invested in. However, after the success the United States saw with the new technology, Europe began to develop numerous companies.

Many factors contributed to the total failure of web banks. In no chronological order, first the money plant went askew. ABN Amro Bank of Amsterdam and KPN Telecom, a Dutch telecommunications firm, ended their eight-month collaboration on Money Planet, a joint venture that would have offered mortgages, insurance, and savings accounts over the Internet in the Netherlands, Germany, and Belgium.

"The worsened sentiment around Internet companies played a role in the ventures folding," said Tanno Massar, an ABN Amro spokesman. So too did research showing that the companies' planned investment of $180 million would not have brought in enough return on the initial investment. The companies had spent a few million dollars before folding the effort. Most of the spending was on about 40 employees, who have since returned to jobs in their parent companies. "The market for Internet financial services companies offering products from different parties under a stand-alone brand name is not convincingly viable."

A second reason for failure is the lack of multiple access points. An example of an access point is a walk up ATM or drive through

teller. While the convenience of banking at home on a computer saves time and hassle, the need to bank while on the go becomes almost impossible with today's internet availability. If you needed to bank while an hour away from home where you had no computer, going to the nearest ATM will do you no good. What needed to be implemented was an internet based multi-channel service where multiple access points could be utilized with your current web bank to maximize a user's availability to banking services. "There's a consensus today in the United States and Europe that successful strategy is multi-channel," said Gwenn Bezard, manager of the Paris office for Celent Communications, a global research firm.

A third reason for failure of web banks is that internet fraud detracts from potential users to place trust in the new technology. With e-commerce succeeding at such a great rate, thieves also have targeted many such companies. Web banks became a high profile target because of the large amount of money accessible. "Last month the International Chamber of Commerce's commercial crime unit uncovered $3.9 billion of fake bank guarantees on the Internet. The guarantees were published on at least 29 scam sites -- rigged so they appeared to be run by the international clearing house Euroclear Bank or the financial news provider Bloomberg News -- that tried to persuade people to invest in projects and finance schemes." Examples such as this cause internet companies to spend millions of dollars to protect their network