Internet banking is an essential service for Boston Private Bank & Trust Co., which caters to high-net-worth clients, many of whom are frequent travelers and often away from physical branches.

Private and public banks are continuing to enhance their Internet banking options to provide better communication channels and better client service, but unlike results during the beginning of the dot-com era, investing in the Internet is providing banks a better return on investment.

Financial institutions agree that the main goal is an unwavering focus on client service. Client demand has paved the way for Internet expansion.

“I see the Internet as another distribution channel,” said Barbara Houlihan, executive vice president of Boston Private Bank & Trust Co. “It doesn’t replace anything but it augments, so busy people – all of them time-starved who want choices, convenience and want to transact with their bank – can do [banking] from anyplace. Those people have really led the expectations for financial institutions.”

Industry experts say the Internet does not do anything to change the relationship with the manager or replace any aspect of client relationship, but it enhances and expands the relationship by offering more flexibility.

“These days, our clients are very busy people and need convenience,” said John McCarthy, executive vice president and chief technology officer at Sovereign Bank. “We know our clients and for them to be able to transact on their account or have this information as part of a distribution channel … is an expansion of our product.”

Online banking and Internet investing provide an opportunity for the bank to transform the branch into an online service, better improving the needs of today’s technology-driven marketplace.

“The Internet represents an extension of channels and awful lot of customer convenience,” said McCarthy. “With the types of products and services available … this is not a stand-alone environment.”

With banks, both private and public, boasting customer care and client relationships, Houlihan said she believes the Internet is a necessary distribution channel for client services and without the ability of online banking and financial planning, banks do not have full-service offerings available to their customers.

“I love the idea of Internet banking and how it has empowered community banks to compete with the big guys,” said Tom Venables, spokesman for Benjamin Franklin Bank in Franklin. “Building branches is incredibly expensive and in community banking, people generally bank in the community in which they live. Internet banking is a totally different world – we turn everyone’s home into a potential branch by offering them the same branch services.”

Venables started Lighthouse Bank, the first Internet bank in Massachusetts. He said the primary reason customers close accounts is that the bank they are dealing with is no longer convenient in – or in close proximity to – their lives, but with Internet banking there is no reason to be in the branch anymore and even the most mobile or immobile customer can benefit from the Internet.

A recent report released by Meridien Research concluded that electronic channels are revolutionizing the way financial services are delivered to retail customers, and the rapid expansion of the Internet has been the driving force behind this transformation.

McCarthy said that, in this day and age, the customer has a “my time, my place, my money” attitude and how the industry seeks and obtains information to better provide services to the general public is a constant competition.

“Across the board … people have shown they are willing to pay more for choice,” said McCarthy. “Internet banking is a necessity, but how do we make it effective, cost-efficient and a learning initiative at the customers’ convenience. With the types of products and services available, the self-service aspect of Internet banking allows customers to explore, learn and acquire, and use products at their convenience on their time.”

According to McCarthy, this is the first year in history that the growth and use of paper checks has declined. However, the average use per ATM is declining – mainly because of the increased amounts of ATMs available. McCarthy also points out that the average growth of branch use has increased, and the average use of check and debit cards have increased dramatically.

Based on those statistics, said McCarthy, “virtually none of the customers are single-channel users because the [banking] industry has said you can call us on the phone, or on the Internet. Now we have the Internet – before it was newspaper, radio and then TV. We all compete with [market] share of mind.”

“The line between customer relationships at community bank and private internet banking has been pushed out further,” said Venables. “We started off with the predictable level of acceptance from the younger generation, but today it cuts across all lines. The elderly are actually buying computers to communicate with their grandchildren, and then they pop on the retail sites and are seeing the simplicity of [the Internet], and then they step into financial services.”

Cost Benefits

When Internet banking burst onto the scene in the mid-1990s, banks were convinced the technology would revolutionize financial services delivery. But increasingly, Internet banking is viewed as a commodity and merely having a better solution doesn’t ensure success, so banks are digging deeper into the financial side of the business and analyzing the possible potential return.

“More and more clients are using this and becoming more comfortable,” said Houlihan. “It’s just a comfort factor. People may not make deposits [at] ATMs, but as cash-dispensing vehicles they are incredibly convenient.”

According to industry analysts, online banking and bill payment customers are more profitable than others, since they tend to have higher balances and retention rates.

“The customer is generally a higher-spending client,” said McCarthy. “There is low deflection rate and therefore a higher retention rate, making a more profitable customer.”

“High-net-worth clients are very mobile and are all in all different time zones, and they need to know that their financial affairs are all set,” said Houlihan.

McCarthy said he believes the cost of having the Internet is decreasing dramatically because of the vendor market but says that the next big step in the online industry is enriching the delivery of more products and services beyond the information stage.

“We’ll start to see more on commercial credit than investment and also private banking and wealth management,” said McCarthy. “It is a challenge … and enhanced with the technology of the visual experience [of the Internet] can only lead to a higher degree of customer retention.”

In the private and public sectors, bankers said that the influence of Internet banking and investing is mainly driven to the customer’s wants and needs of self-reliance and convenience.

“For the customers, the cost benefit is a total win,” said Venables. “[Online] bill pay costs less than the cost of stamp. For the bank, it’s a service that is a new delivery channel and it costs us less money to service over the Internet than in our lobby. The cost is to provide a tool to Internet banking and the rest is self-service.”