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Bank One: Nothing But Net

Finance: Banking

Bank One: Nothing but Net

Its Wingspan leaves bricks and mortar behind

John B. McCoy is a changed man. In the past 15 years, the Bank One Corp. chief executive has bought 119 banks, culminating with the $30 billion acquisition of First Chicago WBD Corp. in April, 1998. But McCoy says he has stopped shopping. From now on, he's determined to reach new customers through the Internet. "It changes everything," says McCoy, 56.

Skeptics might see McCoy's zeal for the Web as a cover for more material issues, such as the integration of First Chicago into the Bank One fold. Indeed, Wall Street analysts have been disappointed with McCoy's slow progress in cutting expenses at the combined institution, whose $256 billion in assets makes it the fifth-largest bank in the U.S.

But McCoy is doing more than talking about the Net. From a tech nobody without a Web site two years ago, Bank One has emerged as one of the most aggressive big banks in cyberspace. Its recently revamped Web site serves 350,000 online customers, and McCoy is spending millions on marketing deals with Web portals such as America Online, Yahoo!, and Excite to pull in more. And in perhaps his boldest move, McCoy is setting up a standalone subsidiary to offer branchless banking under a new

McCoy is going where no major banker has gone before. With Wingspan, he's following the lead of smaller, low-cost Net banks, which offer higher rates on deposits and lower rates on loans (table). Wingspan customers will have access to Bank One automated teller machines, but not to its 1,900 branches, which serve 9 million households in 14 states. In other words, Wingspan will compete with Bank One--and McCoy admits it will take away customers. "If you're going to be in E-commerce, you have to build a business that destroys the old brick-and-mortar model," says McCoy, who became the third McCoy to head the bank when he succeeded his father in 1984.

McCoy's move dramatizes how much is at stake for bankers on the Net. For decades, banks have been losing business to mutual-fund companies and investment banks. Now, anyone with $15 million in capital, a Web server, and a marketing plan can win approval for a branchless bank on the Net. And while there are only seven Federal Deposit Insurance Corp.-insured Net banks--accounting for less than 2% of online banking customers, according to market research firm Datamonitor PLC--their cost structures enable them to outbid traditional banks for deposits.

In theory, banks should embrace cyberspace because it's cheaper to serve customers there than at branches. But customers may want service both at a branch and on the Web--raising rather than reducing bank costs. For now, most bank sites are little more than electronic brochures, says banking analyst Joel Friedman of Andersen Consulting. "Toes in the water of the electronic economy," he calls them.FANCY EXTRAS. Not Wingspan. Unlike the Bank One site, which sells only the bank's products, Wingspan will offer mortgages, insurance, and investments from multiple vendors. It aspires to be more of a portal--providing bill-payment services for nonsubscribers and such fancy extras as an E-concierge service that can identify the best restaurants in Tuscany.

Wingspan figures to be a formidable competitor to smaller Internet banks--though it will likely soon have to contend with similar offerings from other big banks. "They're probably willing to take some losses to build a relationship," says Chris Musto, online banking analyst with Gomez Advisors Inc. "They'll make their profits later."

Or they won't. The company estimates the $150 million or so it intends to spend on Wingspan in the next year will knock about 5 cents off earnings. It's projecting the Net bank will add 5 cents to earnings the following year. A.G. Edwards & Sons Inc. analyst Diana Yates thinks Wingspan may be just the first of many Internet brands that Bank One will launch. "There's no reason that Bank One can't roll out 20 banks like this one," says Yates. Given McCoy's ambitions, the idea isn't so farfetched.Return to top

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