First Direct is planning to relaunch as the first Internet banking store.

The bank, which claims it will be 'simple, fast and efficient but warm, safe and friendly', aims to offer one of the largest choices of banking, money and related services via mobile phones with WAP technology and interactive TV and, of course, PCs.

You may be forgiven for thinking there are one or two perfectly adequate Internet banking services about already. After all, you cannot watch TV or open a magazine or newspaper without being bombarded by advertising for Internet banking. NatWest, for example, is currently promoting its online service via a high-profile TV campaign. All the big banks offer online current account services and several new banks, including Egg and First-E, operate purely on the Internet.

However, if you think this means you can do all your normal banking transactions quickly and efficiently in your home or office, you are sadly mistaken.

Although you can fill in an application to take out a credit card or personal loan and send it via the Internet, your bank will print the application and return it for a signature. Likewise, if you are opening a savings or current account, you will need to send a passport or driving licence and, usually, a utility bill along with the application. And, in some cases, there's no escaping a meeting with the bank manager if you are not an existing account holder.

Even Egg prints off the completed application and sends it back to the applicant to check and sign. The applicant must then return it to Egg with three items proving identity, and a cheque. The whole process takes a week to 10 days - hardly the instant service you expect from an Internet bank.

The switch to a seamless Internet-based financial service has been prevented by two pieces of legislation - the Consumer Credit Act and money laundering regulations. The former requires all lenders to obtain a signature on paper from applicants before extending credit, while the latter requires banks to see physical proof of an applicant's identity.

Smile, the Internet bank launched by the Co-op, has cut paperwork to a minimum by requiring applicants to sign just one form, which gives the bank permission to request direct debit details from the previous bank. The signature is retained for reference purposes. The applicant also fills in a form online which covers all the Smile accounts and credit services.

Richard Thackray, of First-e, the Dublin-based Internet bank, believes a certain amount of paperwork remains essential for his customers. 'Because we are a French-owned bank, operating out of Dublin, with customers in the UK, money is going across borders,' he says. 'And we therefore have an extra duty of care to make sure who people are.'

However, Citibank and First Direct believe legislative and technological developments make it possible to reinterpret the money laundering rules in a more electronically sympathetic way.

The e-commerce bill, expected to complete its journey through Parliament in April, will ensure that digital signatures (numbers and letters that have been encrypted so they are not recognisable to anyone other than the sender and intended recipient) are recognisable in court.

First Direct and Citibank also believe that instead of requiring customers to send in the traditional proofs of identification, they can access sufficient information from other electronic sources which will satisfy the money laundering requirements.

Citibank plans to be first on the market with a signature-free application later this month. Instead of requiring a signature before the account can be set up, the bank will ask new customers to click on an icon to indicate they agree to abide by the terms and conditions of the account. The bank will satisfy client identity requirements by checking the electoral roll, CAIS - a credit data system - and, in some cases, by phoning applicants to make sure they live and work where they say they do.

• Have you signed up with an Internet bank? What has your experience been with service and have you encountered any technical difficulties? Let us know by writing to The Personal Finance Editor, The Observer, 119 Farringdon Road, London EC1R 3ER.