This tenth annual special report on the financial services industry cites the failure of customers to embrace the online experience as the main cause of target shortfalls.

Expectations of cost reductions from electronic commerce initiatives have halved since last year, with 40% of respondents in the UK banking sector citing the main reason for this being 'a failure to migrate clients' and 40% saying that 'customer usage was lower than expected.'

Not only do banks appear to have over estimated customer use of the Internet, but also bad experiences online have made customers unwilling to use this mode of transaction.

Jonathan Charley vice president of Cap Gemini Ernst & Young, says financial services organisations have reached a crucial turning point and must broaden their offerings and raise standards of customer service or risk customers becoming disillusioned. "While, in the past, e-commerce may have been seen as the answer in terms of cost saving, if the customer is not satisfied with the online channel, it will not be used," he says.

The report predicts that the failure to drive customers online, coupled with poor online customer experiences, may be the renaissance of the bank branch. The vast majority of sales (80%) are still made through branch outlets, and this trend is set to continue, with banks stating that 60% of sales will still be made over the counter in 2004.

This has led to the cancellation of branch closure programmes and many financial institutions are borrowing retail concepts to create a comfortable environment where customers are more likely to drop in and spend money. This has included putting coffee shops in branches, and even opening up branches in petrol stations.

The study reports consumers are increasingly wary of the one-stop bank shop, and do not believe that one supplier can provide superior financial services products across the whole range on the market. Instead, consumers are driving forward the demand for 'open finance' models, where the customer is offered best of breed products and services from a range of different providers, in one place.

In the UK, only 15% of the survey's respondents either offer or intend to offer competing products, while 70% offer complementary products, which can be from alternative suppliers, but do not compete with the own brand range. However, 83% of all UK institutions see independent aggregators that offer the consumer access to all their online accounts from one screen, as their main new competitors.

Jonathan Charley concludes: "A mere eighteen months ago any initiative that had the 'e' word in the title was waved through by the boards of many companies. There has been a definite change in attitude over the last year as companies realise that making money from e-commerce is not easy."