When Bank One launched WingspanBank.com last June, it hailed the on-line bank as the future of banking. Bank One drew wide praise as an example of a company that, despite its size, was able to innovate boldly.

Today, Wingspan is looking like an example of something else. It is a "blunder...a cautionary example of what not to do when launching a ‘dot-com’ subsidiary," says James Punishill, an analyst at Forrester Research.

Despite a $150 million national advertising launch and Bank One executives’ sincere belief that Wingspan was truly innovative, Wingspan now appears to be going nowhere.

The problems are manifold: Wingspan turns out not to be so groundbreaking after all. On-line banking is a tougher nut to crack than Wingspan expected. The relationship between Wingspan and Bank One seems to have been set up badly. The people put in charge of Wingspan may have included some bad choices—the top Wingspan executive left after taking the blame for problems at Bank One’s credit-card operations. To top it all off, Wingspan may now be entangled in the parent’s problems with credit-card debt.

A Bank One spokesman says it is "very pleased with Wingspan." But Kenneth Posner, a securities analyst at Morgan Stanley Dean Witter, says, "Ask yourself, ‘Is [Wingspan] really the killer app?’ The answer is no."

Bank One had a long history as a sleepy regional bank based in Columbus. The chief executive’s position was passed from father to son to grandson. But the third-generation leader, 56-year-old John B. McCoy, brushed away the cobwebs by putting the bank on an aggressive expansion program that had it buy more than 100 banks, in one of the biggest acquisition binges in history. The bank became the fourth-biggest in the country, with $264 billion in assets today.

Executives were unfamiliar enough with information technology on a personal level that none of the top executives even had personal computers on their desks until at least 1995, according to a retired executive. But, once the first PC showed up on the executive floor, McCoy tried to accelerate their use. He offered to buy two pieces of software for each executive and to have them taught how to use it—a pledge he fulfilled even though some picked game software such as Flight Simulator. McCoy decreed that, soon, all communication between the executive floor and the troops would be electronic. To make sure executives started using e-mail, he told them that their annual appraisals and information about raises would be sent to them electronically. He said raises would be withdrawn unless he received an e-mail acknowledgment within 48 hours. The retired executive says it wasn’t entirely clear whether McCoy was kidding.

Last May, McCoy seemed to be ready to take the bank to the next level with an even bolder gamble. In a widely quoted remark, he said, "There’s a good chance that we will never acquire another bank. A profound and fundamental change in the way customers buy and access accounts is being driven by the Internet." The risk of delaying seemed greater than the risk of going forward with an on-line bank.

As good as his word, he unveiled Wingspan the following month and seemed to be taking steps to make sure it had a chance to thrive, by avoiding the cultural conflicts that have smothered many dot-com ventures. Wingspan was to be allowed to establish its own brand name. Wingspan was independent enough that it could even go after Bank One customers, offering better rates on certificates of deposit than Bank One did. Wingspan was set up in Wilmington, Del., together with Bank One’s credit-card operations but away from corporate headquarters (which had moved to Chicago following the $19 billion purchase of First Chicago NBD in 1998). Wingspan’s staff largely was separate from Bank One’s.

For good measure, Wingspan set up its own advisory board, called the iBoard, that works with management to make sure the company meets the needs of the banking public. The group is headed by Frank Cappiello, an author and financial-management expert, and includes a Manhattan jewelry designer, a convenience-store manager, a student, and a television producer.

To make sure the world knew Wingspan was ready to take on all comers—even Bank One—it produced some slick TV ads and announced it would spend $150 million just on marketing.

"You’d never seen a marketing campaign for a branchless Internet bank like you did for Wingspan," marvels Christopher Musto, an on-line banking analyst for Gomez Advisors, a research firm that specializes in the Internet.

The early response was encouraging. Wingspan signed up 50,000 customers by October—that compares with the national total of just 140,000 who had signed up with on-line-only banks as of the June announcement. According to a survey published in August by Cyber Dialogue, an on-line market-research firm, 13% of the banking public intended to start banking on-line in the following 12 months. Big financial-services competitors, such as Citibank and American Express, seemed to ratify Wingspan’s plans by announcing their own Internet-only banks.

But on-line banks face an uphill climb, mainly because customers who go on-line to save time find the services confusing and don’t think service is good enough. Although the Cyber Dialogue survey found a doubling in the number of people who had used Internet-banking services in the prior 12 months, the survey also found that half of those users had given up on the on-line services by the end of the 12 months. In other words, there may be a lot of potential for growth, but there also are a lot of unhappy customers.

Last summer, unable to generate enough interest among customers, Bank of Montreal shut the virtual doors on its mbanx venture—one of the first Internet- only banks in North America. Its new venture, mbanx Direct, offers access to both electronic banking and physical locations. The bank said it learned most Canadian banking customers still prefer the option of going into a branch office.

Even when customers are interested in on-line services, the vast majority would rather use their own bank’s on-line service than sign on with an Internet-only bank. According to a recent survey by Gartner Group, the research firm, only 2% of the U.S. population that banks on-line does so through the handful of branchless banks, such as Wingspan.

Morgan Stanley’s Posner says on-line banking eventually will "pose a risk to traditional banking." But, he added, "that doesn’t mean you should spend $100 million to accelerate the process." So, instead of too little, too late, Wingspan may be spending too much, too soon.

Wingspan didn’t give itself much chance for breakout success. Besides the slightly higher rates on CDs, the bank offers electronic bill payment, some analysis of the loan and mortgage marketplaces, and a concierge service that can remind customers of anniversaries or holidays. But that’s about it for innovation. Wingspan mainly just put Bank One on-line.

The products Wingspan offers are all from Bank One—with the exception of a few insurance products that don’t compete with anything Bank One sells. The main page on the Web site offers the customer a series of things that may be important from the bank’s perspective—information on Y2K readiness, FDIC disclosures, etc.—but those offerings don’t do much to address the immediate needs of a customer.

In other words, Wingspan missed the chance to radically rethink banking from the customer perspective, taking advantage of the new capabilities provided by the Internet. The site doesn’t do anything to personalize itself based on which customer is visiting. There’s little help for customers who would like to use the site for sophisticated financial management, even though Intuit and others have begun offering such tools. There is nothing to help customers automate certain personal chores, such as applying for a loan when an account dips below a given level. The site doesn’t do any innovative pricing—such as auctioning off mortgages and loans, as even some small banks do. Wingspan doesn’t do anything to take advantage of Bank One’s huge network of branches.

In addition, while Wingspan was set up physically apart from the parent bank, the arrangement was complicated because many senior executives had responsibilities both for Wingspan and for Bank One’s First USA credit-card operations. The joint responsibilities meant the parent never let go of its tether to Wingspan’s operations. This is a concern for historical reasons: Almost all Internet ventures that remain tied to the corporate parent’s apron strings get smothered.

Having overlapping responsibilities also makes it hard to give a new venture the kind of full, entrepreneurial focus required to make a start-up succeed. The demands of an existing business make it difficult to devote enough time and energy to the newcomer.

Bank One spokesman Tom Kelly defended the bank’s decision to link the two units, arguing that First USA’s sizeable share of the on-line credit-card market made it a good fit with Wingspan. In 1998, First USA issued 300,000 credit cards over the Internet; this year, that number is expected to reach a million. "That’s where the expertise is," Kelly said.

In the view of Forrester’s Punishill, Bank One could have benefited from financing Wingspan as a venture-capital investment, then stepping away. The company with the right model for creating separate on-line entities, he says, is Procter & Gamble, which is attempting to create a uniquely on-line brand called Reflect.com. P&G’s venture has its own board of directors and eventually will have its own dedicated chief executive. To emphasize Reflect’s independence further, P&G requires that employees formally resign before being hired by the on-line unit. Perhaps most important of all, Punishill says, P&G started Reflect with venture capital that can’t be taken away. People at Wingspan, by contrast, have to wonder whether they will lose financing— speculation has been fueled by the cancellation of a shareholders meeting, at which analysts hoped to hear plans for fixing First USA and moving ahead.

Bank One’s Kelly says the commitment to Wingspan is unwavering. Citing Wingspan’s early success in enrolling customers, he says: "It’s ahead of plan."

Still, the structure of Wingspan clearly has caused problems as trouble has developed at Bank One.

Wingspan had been set up primarily by some executives from First USA who had made their reputation because they had been growing the credit-card business at a phenomenal pace. But financial-industry executives warn that it’s hard to grow such a business faster than 30% a year without taking on huge risks and setting the business up for massive bad debt. Bad debt began appearing last summer. Bank One stunned analysts in August by reporting that, because of troubles at First USA, it wouldn’t meet third-quarter earnings projections. In mid-October, Bank One reported net income dropped 12% from the year-earlier period. A month later, Bank One said fourth-quarter net would be off by as much as 15%.

Richard Vague, head of First USA and a leading force behind Wingspan, was suddenly out in November. A few days later, James W. Stewart III, president and chief executive of Wingspan who also retained responsibility for Bank One’s partnerships, announced his resignation.

McCoy now has assumed personal responsibility for turning around First USA, which he acquired for $7 billion in 1997. He’s also reportedly battling for his job with Verne Istock, the former chief executive of First Chicago. There are even rumors Bank One may itself be acquired, perhaps by giant Citigroup.

The story of Wingspan, launched with such promise, wasn’t supposed to end this way.

Flynn is a free-lance writer based in San Francisco.