Boston-based Capital Crossing Bank has designed its online services more to satisfy existing customers than attract new ones.

Internet banking was professed to be the new frontier. But now that many Internet-only banks have gone by the wayside, it’s time for brick-and-mortar banks to improve their Internet offerings, according to a new survey by Waltham-based Gomez.

Banks have moved away from the race to keep up with the competition, a philosophy that first inspired many to begin Internet services. Instead, banks are looking for return on investment by using the Internet to enhance customer loyalty, reduce attrition rates and enhance services and cross-selling.

According to research by Gomez, customers who open accounts online are more likely to apply for checking accounts and additional credit cards online. Banks therefore must work harder to make Internet banking easier and ensure that transactions are completely electronic, rather than requiring paper documents such as signature cards and mail-in forms.

Capital Crossing Bank is one example of a local institution that uses the Internet as a means to enhance its customer relationship development instead of relying on the Internet as a stand-alone product designed to woo new customers. The bank’s main clients are businesses. It launched its Internet platform in 1999 to “accommodate” its regular customers, said Nicholas W. Lazares, chairman and co-chief executive officer of the Boston-based bank. Between 500 and 750 customers regularly use the Internet banking option, said Lazares. “It’s a small volume; it’s really a convenience,” said Kenneth Sullivan, senior vice president in charge of operations at the bank.

Measured by the Gomez Fall 2001 Internet Banker Scorecard, Capital Crossing provides most of what Internet banks should, including an interactive demonstration of their online banking. That approach is preferable to frozen screen examples, said Moriah Campbell-Holt, a Gomez researcher. The importance of the online demo is often overlooked, she said. Only 30 percent of banks rated on the scorecard provide interactive, online tutorials.

The recent Gomez scorecard included only one New England bank, FleetBoston Financial, in its top 10 list. However, the parameters for inclusion in this year’s scorecard differs from past years. Banks now must have a Bauer Financial rating of at least 3.5 stars. If the bank has a brick-and-mortar component, it must have at least $3.5 billion in retail deposit accounts under $100,000 and the Internet banking division must carry its own Federal Deposit Insurance Corp. insurance. The new guidelines for inclusion saw Salem Five Cents Savings Bank’s Directbanking.com, a local Internet banking pioneer that had scored well in the past, drop off the scorecard.

The Internet Banker Scorecard top 10 list includes Fleet at No. 9 and Citibank, First Internet Bank of Indiana, NetBank, Bank of America and Bank One Corp. in the top five positions.

‘Test for Satisfaction’
According to Chris Musto, who authored a Gomez consumer study of online banking usage, it’s not unusual that community banks offer many of the same services as large banks, but smaller banks have lost the lead they long held in this area. “At this point [community banks] do not lead in terms of functionality. This is actually, oddly enough, a change … There were about 100 community banks offering full [Internet banking] functionally when we started tracking in April of 1998 [services that] include bill payment, money transfers and the ability to look at balances,” said Musto. That number reflects only about 1 percent of banks but was a higher percentage than the number of larger banks, such as FleetBoston Financial, that were offering complete Internet services early in the game. “However, virtually all major banks offer Internet banking today,” he said.

Instead of competing service to service, however, smaller banks should focus on customer satisfaction, he said.

Unlike many in the industry, Maine-based Banknorth Group, parent to First Massachusetts Bank, initially did not jump into the Internet banking fray. It had an Internet presence but provided only information about the bank. In fact, in February 2001, the bank quietly launched its online banking service.

The bank’s market research showed that Banknorth customers interested in Internet banking didn’t really reach a “critical mass” until last year. Brian Wood, executive vice president of e-commerce and direct banking, explained that the bank wouldn’t initialize an Internet banking component unless they could justify the investment of people, resources and backup services they would want to provide.

Banknorth established a goal of having 75,000 Internet customers within 12 months. To date, they have 58,000. The biggest difference between their Internet offering and other banks – small and large – is the amount of customer service provided, said Wood. Banknorth provides high-tech, high-touch services by staffing an e-care unit in the bank’s call center to provide quick answers to customer questions, a strategy that has paid off, said Wood.

Musto said Bank of America has experienced 75 percent lower attrition, which is a very strong number. “Every time you hang onto the customer, that’s a customer you don’t have to recruit,” he said. But there’s much more to do than just retaining customers. The potential for cross-selling and increasing customer share is huge. “So the potential … you won’t miss it if you never knew it existed in the first place,” he said. “We found the vast majority of online bank customers are comfortable with receiving statements via the Internet rather than through the mail. They’re also interested in receiving cleared check images online instead of through the mail … Here’s a chance of satisfying your customers while lowering your cost,” said Musto.

Banknorth’s major goal in the upcoming year is to capitalize on customer interests by incorporating better cross-selling techniques for Banknorth’s other business areas, which include insurance and investment.

Cross-selling is an area that needs improvement across the board, according to Campbell-Holt. Creating a Web site that’s easy to navigate and maintaining consistency in navigation styles is important. Campbell-Holt has found that sometimes there are different navigation styles between the mortgage side of a bank and its business areas, which is confusing to customers.

Wood said the future of online banking is a bricks-and-clicks approach, meaning those banks that have a presence in the physical world will combine with Internet services to offer customers the best of both worlds. In the past year, Internet-only banks have been dropping by the wayside, including Wingspan and, most recently, Lighthousebank, an Internet banking spin-off that has been folded back into Brookline Savings Bank.

Executives at Salem Five said they constructed a physical branch for their virtual Directbanking.com component last fall to help anchor their Internet customers.

“It’s interesting because the physical presence of the bank has done a lot to ground the Internet … While the vast majority of our Internet customers don’t use the branch, just the presence of it is reassuring,” said Marie O’Neill, senior vice president of marketing at Salem Five. Directbanking.com has 8,000 Internet clients.

Real time transactions are available at most banks that offer Internet banking, including Directbanking.com, Capital Crossing and Banknorth.

According to Gomez, 13.6 million Internet banking customers do more than just view their statements online; they actually transact business at least once a month.

Now that customers seem to be trusting the Internet for banking transactions, the next frontier is tailoring Internet banking to individuals and enhancing services such as bill payment.

Jay Spahr, senior vice president of e-commerce at Salem Five, said the future will include completely electronic bill payment, from utility companies billing customers online to online payment and receipts. Banks will also begin to put the staggering amount of data they can capture to good use, enabling them to present customized information to customers on the bank’s Web site, said Spahr.

Of course, there will be hurdles, the biggest being the race to be the first to offer services that will be popular in the future.

“Those of us in the business – biller, bank or aggregator – are all fighting for pieces of the business. We all need to work together to [establish] common standards,” Spahr said.