Report: Are Online Banks' Days Numbered?



In the race for online survival in the financial services arena, traditional banks with online channels will stay in business longer and acquire more customers than online-only banks, brokerages, and insurance companies, according to a recent report by IT services firm Extraprise.

In predicting the future of the online financial service market for consumers, the report, "The E-Financial Services Shakeout," predicts that financial institutions operating strictly online eventually will fold or become acquisition targets. That's because people tend to be more familiar with the offline presence of traditional banks, says David Hybels, an Extraprise adviser who co-authored the report. Adding an online channel, Hybels says, gives people another way to access accounts opened in the offline world.

The picture for the online-only banks is not nearly so rosy. "They're not going to survive," Hybels says. "People need advice and the security of a physical branch." Even partnering with brick-and-mortar companies, as Internet-based Juniper Bank did with Mail Boxes Etc., may not result in sufficient staying power. According to the report, "Consumers might find it awkward to bank at Mail Boxes Etc."

Extraprise predicts there will be a shakeout among online financial services companies, and that only a few of the larger, diversified firms with a physical component will survive.

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