Lloyds TSB to launch Net service

Lloyds TSB Group, which claims to be Britain’s leading retail banker, is to launch its own Internet banking service for Lloyds Bank customers later this year.

Lloyds Bank, in a previously unpublicised move, has begun recruiting online customers to take part in a pilot scheme beginning in May, before a full-scale roll-out of an online banking service later this year.

According to Andy McKechnie, senior manager of electronic distribution for the Lloyds TSB Group: “As market leader we have no choice but to respond to what rivals are doing. In that sense it’s a defensive strategy, but the service is designed to complement rather than replace the traditional branch network.”

Customers with Internet access will be able to check balances, look at account details, transfer money, pay bills, change standing orders, and transfer statement records into different formats on their own PCs or Macs.

The banking group, which has already attracted 18,000 applications for online banking service with TSB since launching a facility through CompuServe last year, has deliberately opted for “an open Internet-based system rather than one tied to a particular proprietary PC software or online service provider”, adds McKechnie. “We don’t want to dictate to the market.”

The banking group, which with 15 million accounts claims a 27 per cent share of UK retailing banking, will not be marketing the service aggressively, but is allowing Lloyds Bank customers to register their interest in the facility ahead of the launch.

A recent report on online banking by analysts Datamonitor is predicting that the existing number of online retail banking customers in the UK, estimated at well under 100,000 in 1997, will grow to between 2 million and 2.5 million by the year 2001.

Banks which are not currently enthusiastic about launching online banking services will be forced to match the services offered by established rivals and new entrants, according to the report.

Datamonitor analyst Eleanor Mack says: “If banks are to compete effectively against new entrants, exploiting the existing customer base will be essential. The added value from online banking comes in improving cross-selling opportunities and customer choice of delivery channels – branch, telephone, or the Internet – as and when they desire.”

The “soft” launch of Lloyds Bank’s recruitment drive for its pilot scheme coincides with the unveiling last week of the Co-operative Bank’s Internet banking service.

It too will operate on an Internet rather than proprietary PC banking system, which, though historically viewed as being more secure, limits access for an account holder to a specific PC.

Nationwide, the UK’s leading building society which offers current accounts to customers, has attracted 40,000 online banking customers, split across its own PC home banking service, launched in October 1995, and Internet-based service launched last May.

Nationwide is extending its involvement in the sector by launching itself as an Internet service provider this summer, in a joint deal with BT.

From a cost-saving point of view, high street retail bankers have everything to gain in encouraging customers with Internet access to use online services. After all, the cost of customers’ Internet or PC-based transactions is a small fraction of that taken up by branch or telephone-based banking.

But the opportunity of such substantial cost savings for established retail banking brands risks attracting new entrants willing to take on traditional banking or building society brands.

So while Nationwide is putting its brand on the line by entering the ISP market against the likes of Virgin and Which?, Co-op Bank’s chief executive Mervyn Pedelty last week struck a cautionary note to his fellow bankers.

“In the future as all banks share the same electronic channels, customers will come to see banking as a commodity,” says Pedelty. Weight of high street presence will be no guarantee of market share, he suggests.

“If everyone is conducting their banking through the Internet, banks will need a strong and respected brand, excellent service and competitive products in order to succeed. But historically, many banks have been woeful under-achievers in all these areas.”