`Bricks' or 'Clicks'?

Around 1998, many banks hoped that online banking would allow them to cut costs dramatically by closing branches. They are now becoming increasingly aware that because customers expect a choice of channels, absolute customer numbers are not a 'able indicator of the success of an online offering; rather, the number of active online customers is a more meaningful measure. Recognizing that it will take much er to realize the anticipated cost savings, banks are adopting various strategiespush customers online:

• using branches to educate customers in how to use online services;
• providing reassurances over security;
• offering lower fees and higher interest rates;
• giving staff incentives to encourage customers to use online banking services.

The 'bricks and mortar' bank branch, therefore, is unlikely to become redundant in the near future.

Generally speaking, traditional banks have not adapted products and prices or developed customized propositions for their online operations. 'Pure plays' (new sternet-only banks) have competed so far on the basis of products with aggressive pricing, innovative offerings and investments in new technologies. However, their efforts towin market share have been costly and will not be sustainable in the long term. In a very crowded marketplace, banks will increasingly try to 'poach' other online customers, which is a potentially more profitable strategy than encouraging existing customers to migrate to the Internet.

Some authors are now pointing out the irony that virtual banks are seeking to set up physical operations just as traditional banks create online ones. Gandy argues that competition is not about 'bricks' versus 'clicks': 'It's about integrating both — pulling together the best of what is available through the physical distribution with the best of the Web world' (2000: 122). Yakhlef (2001) examined four dominant banks in the Swedish banking sector to ascertain whether Internet banking was causing the Importance of bricks and mortar locations to diminish. The results indicated that banks have achieved better communications with their customers and lowered transaction costs whether they have used the Internet as a complement to or a substitute for their existing operations.

A further structural dilemma for banks is to determine whether their online operations should be integrated into the existing business or 'ring-fenced' as a separate Jivision. Gulati and Garino note that the issue of integration or separation is not a zero-sum game, and that companies should 'strike a balance between the freedom,

flexibility, and creativity that come with separation and the operating, marketing, and Information economies that come with integration' (2001: 113). In December 2001, the Bank of Ireland decided to merge its previously separate Internet bank, called F. Sharp, into its main operations after attracting just 2,000 customers. The rationale was that the online operation could not offer the high level of customer service on its awn that is necessary to support high-net-worth customers (e.business magazine, January 2002).