Direct Bankings Third Act: Brick-n-Click Wins the Day

August 8, 2006


San Francisco, CA, USA August 8, 2006

Direct Banking's Third Act: Brick-n-Click Wins the Day

By 2010, Celent expects, "brick-n-click" banks will garner 19% of the total deposits gathered online洋ore than US$72 billion.

In a new report, Direct Banking's Third Act: Brick-n-Click Wins the Day, Celent analyzes the performance of 20 "click" banks and constructs an economic model of a "brick-n-click" bank. It finds that the tarnish on "click" banks' performance has not yet rubbed off. Most have been unable to make up for their inferior net interest margin through cost infrastructure savings. In contrast, the "brick-n-click" economic model shows strong promise of being superior to both the "click" and the "brick" model. Celent finds that a "brick-n-click" bank sacrifices less than 25bp in net interest margin but gains both efficiency and profit margin if it pulls in 25% of its deposits online.

"Banks will find the brick-n-click strategy effective in today's mature market, in which competitive success depends upon innovative deposit gathering strategies. Internet-only accounts offering significantly above average rates will prove to be an effective tool. The days of offering teaser rates of up to 400bp above average, however, will be numbered because banks cannot sustain a net interest margin below 200bp for long," says Alenka Grealish, co-author of the report and manager of the Banking group at Celent.

Attractive rates will not guarantee long-term "click" banking success. "Successful players in Act III will achieve alchemy with four factors: an integrated channel strategy to capture cross-sell opportunities, marketing prowess, user-friendly technology, and security," comments Madhavi Mantha, co-author of the report and senior analyst.

The report is 42 pages long and contains ten figures and nine tables. A table of contents is available online.


Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

San Francisco, CA, USA August 8, 2006

Direct Banking's Third Act: Brick-n-Click Wins the Day


Executive Summary 3
Setting the Stage 5
  The Cast: 20 Direct Banks 5
  Direct Banks Not Created Equal 7
  The Direct Banking Model Is Worthy 9
Direct Banking's First Two Acts 12
  Lessons Learned: Customer Acquisition 12
  Lessons Learned: Snaring the Credit Customer 14
Act III: The Brick-n-Click Model Takes the Leading Role 16
  Comparing Brick and Click Economics 16
  Attractive Financials of a  Brick-n-Click Bank 19
Keys to Taking a Leading Role 22
  Best Practices 22
  ING Direct 27
  E*Trade 32
  Capital One 34
Act III: How the Drama Will Unfold 38
Objectivity and Methodology 41

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