With its dramatic cost advantages over traditional forms of branch and telephone banking, many analysts expect Internet banking to be the way of the future.
"Internet banking is going to develop much faster than most people imagine. In cost terms alone it is an irresistible force," said Claus Nehmzow, principal at Booz Allen & Hamilton, a consultancy firm which conducted a recent study on Internet banking.
TSB has offered home banking since last year, and Barclays is working towards the launch of a similar service shortly. Access to both services, however, is restricted and will not be available on the Internet.
RBS does not expect a mad dash to take up the service. Initially the service will be offered only to its 500,000 telephone banking customers.
Provided they have the necessary equipment customers will be able to conduct a variety of banking services through the Internet, such as printing out bank details, displaying balances and statements, viewing standing orders and direct debits and paying bills to over 750 companies.
Customers will also be able to transfer money between accounts held at RBS, and transfer financial data to accounting packages such as Microsoft Money 97 and spreadsheets.
To begin with RBS is proposing to levy a charge of pounds 1.50 a month for its Internet service. This will be on top of existing bank charges.
This surprised Booz Allen, which pointed out that the benefit for banks of offering services on the Internet is that it is cheap.
Mr Nehmzow has calculated that Internet and other virtual banking channels have a significantly lower cost structure than traditional methods, so that banks on the Internet can operate at expense ratios of between15 to 20 per cent, compared with 60 per cent for traditional banking services.
RBS defended its decision to charge for the system. "We put a lot of investment into it and we hope we're providing a system that customers want, that's value-added," said Bill Bougourd, head of electronic services with RBS's retail banking services.
"It is a modest charge," he added. "We're absolutely committed to maintaining a competitive package."
He declined to reveal the amount of investment put into the system but such services are generally estimated to cost between pounds 1m and pounds 2m to set up.
RBS said it had overcome one of the main barriers to providing Internet banking - security for users. Mr Bougourd said this had been of paramount importance to RBS and its security system was "extremely robust". It had been checked by external experts who work for the Ministry of Defence.
All customer data is scrambled to ensure privacy and cannot be added to, deleted, replayed or tampered with. The central computer server is also "fire-walled" from inside and out providing a protective barrier between the internal network and the Internet. Customers will also need a password to use the system and their PCs will need to be registered.
RBS said it was so confident about security that if customers had taken care to keep their security details secret they would not be liable for any transaction on the account which they had not authorised.
At the moment around 11 per cent of adults in the UK use the Internet but this proportion is expected to escalate to such an extent that Mr Nehmzow at Booz Allen estimates 80 per cent of European banks will provide a full banking service over the Internet within three years.
He said that 15 per cent of American customers will be conducting at least some of the banking activities via the Internet by 2000. While Europeans, and Britain particularly, are slower to catch on, Mr Nehmzow said banks on this side of the Atlantic believed that 10 to 20 per cent was not an unrealistic target for this period.
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