The Cutting Edge: COMPUTING / TECHNOLOGY / INNOVATION : Banks Seek to Branch Into Homes : Technology: But making the concept a reality has proven more difficult than expected.
The concept sounds so appealing: Pay your bills electronically and have your checking account updated automatically. Transfer money from your savings account to your mutual fund with a few clicks of the keyboard. Withdraw “cash” from your bank account by adding value to your “smart card,” a widely accepted piece of plastic that works like paper money in everything from vending machines to gas stations to supermarkets.
But translating the concept of home banking into a reality has proven far more difficult than either bankers or software writers had expected. Even though many banking services--including balance inquiries, account transfers and bill paying--are already available using touch-tone phones or personal computers, thus far only 1% of all bank customers have embraced these technologies as an alternative to visiting a branch or an automated teller machine, according to a report by Ernst & Young.
However, within the next few years this disappointing trickle of activity is expected to turn into a flood. Microsoft’s multibillion-dollar bid to buy Intuit Inc., maker of the popular Quicken personal finance software, came apart because of antitrust problems, but the aborted transaction nonetheless lit a fire under many financial institutions: They now realize that if they don’t accompany their customers to the electronic frontier, somebody else--such as Microsoft--will do so in their stead.
Thus there has been a flurry of activity recently. Last month, San Francisco-based BankAmerica and NationsBank of Charlotte, N.C., agreed to buy Meca Software, the company that created a personal finance program called Managing Your Money. Earlier this month, Citibank eliminated most fees for electronic transactions in an effort to get its customers to use its services.
And Microsoft and Intuit are both shopping for new deals. Intuit has been cutting deals with banks as fast as it can find them, with about a dozen agreeing to license Quicken for its home banking interface. Microsoft has lined up four banks to use its rival product, Money. “The long-term focus here is going to be to essentially move the branch into the home and empower the customer to do things themselves that you now have to go to the banks to execute,” said Bruce Burchfield, chairman and chief executive of Intuit Services Corp., the electronic banking division of Menlo Park-based Intuit Inc.
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Currently, about a quarter of the nation’s 10,000 banks allow their customers to tap into their accounts from home with the help of a touch-tone phone, but only one in 10 is equipped to handle transactions over on-line computer networks, according to the American Bankers Assn. However, the pool of people who would be interested in using a simple, inexpensive on-line option is growing fast.
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Last month, Wells Fargo Bank of San Francisco debuted the first Internet site--expected to be duplicated by other banks--where customers can check their account balances and transaction history. Gailyn Johnson, senior vice president and manager of on-line financial services for Wells Fargo, said 36% of the visitors to that bank’s information-only home page on the World Wide Web said they would like to access their accounts on the Internet.
“Even people who were not our customers said, ‘If you put balances on here, we will come,’ ” she said.
William Koole did. And the Fresno pharmacist is now awaiting the day when he can log into the Internet site to transfer money between accounts, pay bills and import account information directly into his Quicken work sheet.
“Wells Fargo, Bank of America and the others have had computer services where you can dial in, but usually it comes at a very significant premium,” he said. “The ability to call in for free I think is going to make people take the bait and try it.”
For customers, home banking promises the flexibility and convenience of banking without trips to the branch office or waiting in long lines. For banks, persuading customers to bank from home could reduce the cost of transactions by 75%, said Liam Carmody, president of Carmody & Bloom, a retail banking consulting firm in Ridgewood, N.J.
But quite a few things still need to change. For one, home bankers report, it can take up to 20 hours to get their personal computers set up for their banks’ on-line service, especially if they are integrating it with personal finance software such as Quicken or Money. The monthly charges for home banking services, which currently range from $7 to $15, will have to drop as well.
To ease their customers’ transition to the world of PC banking, banks are pairing with familiar software makers such as Intuit. San Francisco-based Union Bank is one of those that will allow its customers to bank from home using Quicken. To accommodate customers, banks are eventually expected to integrate their home banking operations with a number of the most popular personal finance titles, so changing banks will not mean starting from scratch for customers at home.
Bill paying is one of the most popular home banking features, banks report. To set it up, customers must create identification numbers for their electronic payees, which can include credit card companies, mortgage lenders and utilities. To “write a check,” customers type in the ID number and the dollar amount to be paid, and the money is transferred straight from account to account, like a direct deposit.
“It’s so slick you just can’t believe it,” said Richard Hartnack, Union Bank’s vice chairman in charge of the community banking group and one of the few devoted home bankers. “You go to the pay on-line window, you press ‘Pay Online,’ you enter your secret code--and you’re in the bank!”
In the coming months, home banking will enable customers to apply for loans and lines of credit and shop for certificates of deposit by typing in features such as desired size of investment and rate of return. Banks will use home banking channels to sell mutual funds and other investment products.
But one big obstacle remains: It just isn’t possible to get cash out of your computer. The solution? “Smart cards,” which contain tiny computer memory chips with a cash value and could be used to pay for merchandise at retail establishments. When the value of a smart card is spent, a special device attached to a home computer or telephone could transfer value to it directly from one’s checking account.
John Hall, a spokesman for the American Bankers Assn. in Washington, said that while smart cards will not take the place of credit cards, they could eventually replace cash. But the time frame suggests that home banking still has a very long row to hoe: Martha Campbell, senior vice president of BankAmerica’s interactive banking division, says regional implementation of smart cards will begin in 1998. In addition to recharging them at home, customers could also up their value at ATMs or other special machines, she said.
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Home Banking: Still Coming
So far, only 1% of banking customers are actually banking from home using their telephones and personal computers. But the country’s leading financial institutions are bullish on the prospects. Percentage of major banks offering or expected to offer services by the following devices:
1994 1997 1999 Telephone 70% 88% 88% LCD-screen telephone 14 66 70 Personal digital asst. 2 34 46 Personal computer 38 82 84 Interactive TV 2 40 50
Percentage of major banks currently offering the following home banking services via telephone, personal computer or other means:
Account balance inquiry: 84%
Transactions history: 78%
Account transfers: 76%
Bill payment: 50%
Credit card account access: 46%
Loan application: 22%
Investment information: 20%
Investment purchase: 12%
Source: Bank Administration Institute
