Bridgeport-based People’s Bank has been in the forefront of online banking for several years.

Five years ago, Internet-only banks were popping up like weeds. Since then, most have fizzled after finding consumers remained attached to their brick-and-mortar counterparts.

But some of the online banks that opened earliest – like NetBank, which “opened its virtual doors in February 1996,” according to its Web site – have stayed successful and are still in business. And lately, online-only banks are becoming more numerous.

But the term “online-only” might not be suitable for many of the banks that have been getting into the game over the past few years, according to Richard Bell, research manager of retail delivery channels at the Framingham, Mass.-based research company Financial Insights, an IDC company.

For the past several years, many existing, well-established companies have been getting into the online banking game. Bell lists 32 Internet-only banks in a report he wrote for Financial Insights, entitled “Internet-Only ‘Banks’ 2004: Not Dot Gone.” But more than half of the banks listed are actually a part of an existing financial services or insurance company, according to the report.

The new online banks have sprung from financial services providers whose primary purpose is not banking or starting an Internet-only bank, Bell said. They are often successful, he said.

The biggest “online-only” banks Bell lists in his report are operated by Merrill Lynch, the New York City-based financial management and advisory company, which has about $66.7 million in assets; MBNA America, the Wilmington, Del.-based credit card and financial services company, which has about $57.6 million in assets; and Discover Card, which is based in Riverwoods, Ill., and has about $18.5 million in assets. Bell also mentions USAA Bank in his report; USAA identifies itself as a “worldwide insurance and diversified financial services association” on its Web site.

“The notion seems to be that since the firm already has a [presumably trusted] financial relationship, it is natural to build on that with banking,” Bell wrote in his report.

Although those new banks are doing well, Bell does not believe they are a significant threat to brick-and-mortar banks.

Scott Hurlbert, online manager at Bridgeport-based People’s Bank, agreed.

He doesn’t see online-only banks as significant competitors because, with the online banking offered by brick-and-mortar banks, there is no reason for customers to bank completely online.

“It’s a ‘bricks and clicks’ strategy most banks are offering,” he said.

Online-only banks seemed very popular immediately after the end of the 1990s, but that has changed, Hurlbert said.

“They were very popular … three, four, five years ago,” he said.

But now, because most customers can get the best of both worlds – online banking and neighborhood branches – they don’t want online-only institutions, Hurlbert said.

A ‘Viable’ Model

People’s has been in the forefront of online banking for several years. A real-time news company, Darien-based Jupitermedia, studied 11,000 providers of online banking and gave People’s an award for the most successful site, said Brent DiGiorgio, spokesman for People’s.

The bank provides bill paying, online transfers and other personal banking options online, as well as brokerage and small-business services, Hurlbert said. The Web site sees more than 2 million transactions on a monthly basis and the bank receives 30,000 e-mails from customers each month, Hurlbert said. About 50 percent of brokerage transactions also are done online.

The lack of a physical presence is often the hardest thing for online-only banks to overcome, said John Hall, spokesman for the American Bankers Association.

“That is one of their downfalls, that they don’t have bricks and mortar,” he said.

Online banks often offer higher rates on deposits and lower rates on loans because, due to their lack of bricks and mortar, they have little overhead, Hall said. But that cuts both ways: Some customers get stuck paying fees because their online bank has no ATMs. But online banks are finding ways to get around that, Hall said. Some offer their customers allowances to make up for the fees. Others, like E-Trade Financial, have their own ATM networks. E-Trade has 15,000 ATMs positioned around the country, mostly in convenience stores, according to its Web site. Still others form partnerships with ATM networks.

“This gives their customer base access to ATMs,” Hall said.

One online-only bank, NetBank, is a member of the SUM network, a surcharge-free ATM network that allows members of many smaller New England banks and credit unions access to each other’s ATMs.

Although the online banking industry has received a lot of negative media attention questioning whether such entities can be successful, it is still viable, Bell said, and the new services and innovations will help it.

“That [bad press] is overdrawn,” he said. “[Online banks] do work … It is, in fact, a viable business model.”

Before the Internet-only banking industry went downhill in the late 1990s, there were about 40 online-only banks nationwide, Hall said. Now, there are about 12, but those are doing well, Bell said.

Bell said he does not think that, even with new innovations and more big companies getting into the industry, online banks will pose significant competition to brick-and-mortar banks. He cites the early players like NetBank, who are still around but did not have much of an effect on traditional banks, as well as the fact that brick-and-mortar banks continue to be the dominant force in online banking. Internet-only banks do not work for everybody, he said. There are few people who do not want to be attached to a bank that has a physical presence.

“I don’t think [online banking will] have any effect on brick-and-mortar banks at all,” Bell said.