Be assured - virtually

On the face of it, financial services companies would seem perfectly positioned to make use of the Internet as a means of communicating with existing customers and attracting new ones. The financial services sector leads the field as the UK's biggest spender on IT, and its products are easier than most to describe or deliver via the computer screen.

Earlier this month Barclays Bank announced that it was offering an online banking service to users of Microsoft's Money personal finance program. The service is being aggressively promoted, and Barclays expects significant numbers of customers to transfer from other banks to take advantage of it. Earlier this year, the online service CompuServe announced a similar tie-up with the TSB, bringing the prospect of home banking to its UK users.

Such moves mirror trends in the US, where not only have "virtual banks" - with no physical branches - started to appear, but also ordinary branch- based banks commonly offer various forms of Internet or on-line access. In this respect, UK banks are generally behind those in the US: the Midland's "Hexagon" online service, for instance, is expensive, relatively user- unfriendly, and has proved attractive to only an extremely small proportion of the bank's customers.

Financial services companies outside the retail banking sector - and which do not rely on the Internet to deliver or sell their services - have also been slow to come to terms with the Internet. Although the number of sites offered by such companies has exploded over the past 18 months, the content is highly variable. Companies that have won praise include Allied Dunbar, which has provided downloadable software to help customers to work out insurance needs, and Barclays Bank. Barclays has tended to be at the forefront of Internet exploitation, and in addition to an innovative site for Barclaycard customers has developed an on-line shopping mall.

But many financial services companies have fallen into the trap of seeing the Internet as a way of displaying fancy graphics and advertising messages: easy to do, but irritating to users, many of whom would prefer to spend less time waiting for arty images to appear, and more time obtaining hard information. Few companies, for instance, provide a simple e-mail route to their customer services specialists. Absurdly, customers may browse companies' Web sites - but are still obliged to write or telephone their queries.

A survey of the usage of new technologies among financial services organisations recently published by Price Waterhouse Management Consultants found that over a quarter of the responding organisations had no plans to introduce Internet-based initiatives. Despite this, Alan Johnson, a partner at the firm, is loath to use words such as "complacency". "Pragmatism is a better description," he insists. "Financial services organisations are probably ahead of most companies in other sectors in their willingness to experiment with its potential."

Nor, he believes, are the oft-voiced concerns over security as genuine as they are sometimes held to be. "A sense of perspective is important - people will quite happily quote their credit card number over the telephone, or give their card to a waiter in a restaurant. With the latest encryption techniques, security is more than adequate."

"It appears that many financial services organisations are yet to be convinced of the benefits of the Internet, and want to see hard evidence before making a commitment to it," he concludes. "This could be short- sighted, particularly in view of the Internet's explosive growth."

Barclays' view is that the investment is worth the risk. "It's not about making money now - it's about helping us to understand how the Internet, and electronic commerce in general, might work for us in the future," explains its director of Internet services, Keith Bellamy. With financial services organisations rapidly splitting into two camps - those that are willing to invest in the Internet, and those that are not - it should soon be possible to see which stratagem is correct.