At a time when some banks are noisily announcing the resurrection of home banking services, Fifth Third Bancorp is quietly entering its second decade selling those services to other banks.
Most banks' home banking and bill payment programs, introduced with much fanfare in the 1970s, died in the 1980s because consumers weren't interested.
Now a few companies - among them Citicorp, Bank of Boston, Huntington Banc-shares, Barnett Banks Inc., and MasterCard International - say they believe consumers are now interested in doing a wide array of financial and other transactions from their homes, even if they must buy a special telephone or computer to do so.
Low-Tech, Low-Cost Service
Some organizations, like Huntington and MasterCard, say they can make money processing those transactions for other institutions.
Unlike all those recent initiatives, Fifth Third's service doesn't rely on fancy screen telephones or computers but on the ordinary telephones that most consumers already have.
Customers of any of the 200 financial institutions that have signed up for Fifth Third's service can obtain their balances, pay bills, see what checks have cleared, and move funds from their bank or credit union to mutual fund accounts at Fidelity Investments, using a touch-tone telephone.
An Integrated Service
That's the kind of low-tech, low-cost service that many banks have started to offer over the past few years to their own customers. But the banks that want to get into the service bureau business are approaching it with flashy, high-tech devices - Huntington with a screen telephone; MasterCard with computer access to the Prodigy information service.
Fifth Third, a bank known as penny-pinching, conservative, and highly profitable, has taken a lower-key approach.
"We think, as a general rule, banks have not done a good job of understanding what customers want, they have not done a good job of marketing what they have, and they have tried to take the technology to levels where it won't go," said Timothy Ballinger, executive vice president of Fifth Third's Midwest Payment Systems unit, the bank's rapidly growing data processing and electronic services unit.
Midwest Payment "is doing a pretty admirable job," said Thomas McCandless, a bank analyst at Paine Webber. "The primary reason for their success in all areas in their low cost, and their ease of use."
Midwest Payment has been able to make the home banking service - called Jeanie Audio System - pay, when other banks couldn't, because it is integrated with many other electronic services.
Single Processor
Midwest Payment Systems, which runs its businesses on two second-hand mainframes from International Business Machines Corp., drives all its businesses from one transaction processing system, called Jeanie. The bank also processes automated teller machine and debit point of sale transactions for regional networks - Ohio's Money Station, Kentucky's Quest, and Chicago's Cash Station.
Its system handles credit card authorizations for Bloomingdale's and Caldor, among others. That's in addition to the home banking and bill payment services it sells to banks.
A |Delivery System'
But while the processing is done centrally, the system's telecommunications are decentralized. When a customer call his bank to find out his balance, he makes a local telephone call that is routed to the Jeanie data base in Cincinnati.
Since the processing for home banking is performed on the same system as all other electronic transfers, Midwest Payment is able to charge institutions pennies per transaction, and no other fees.
"You can't look at Jeanie as only an ATM network," said Mr. Ballinger. "It's a delivery system - if you want to reach customers at home by telephone, Jeanie can deliver it."
However, home banking still contributes only about 5% of Midwest Payment's processing revenues, according to analysts' estimates. Analysts project Fifth Third's 1993 income at $ 684 million, with income from data processing, of which Midwest Payment contributes the majority, projected at $53.3 million.
That means Midwest Payment contributes a quarter of the bank's fee income of about $224 million. The unit is growing at 15% annually.
Marketing to Drive Growth
If Midwest Payment were spun off, its market capitalization would be $520 million, according to analysts' estimates.
Midwest Payment has relatively deep pockets. Observers say that a large share of the unit's investment in technology - which Mr. Ballinger calls "a significant, double-digit" percentage of revenues - goes to Jeanie Audio banking.
Some observers also say the service is one with the greatest potential, and could grow much faster than it does today. Its growth is dependent on the marketing efforts of the institutions using the service.
The service appeals to many smaller banks, because it accommodates the least sophisticated customers, accepting either ATM access codes or social security numbers to identify customers.
This year, Midwest Payment signed up 42 banks for Jeanine Audio System. The new customers range in asset size from $40 million to $4 billion, a bank official said.
Midwest Payment now processes about 1.2 million home banking transactions per month for itself and other institutions, making it the most successful service bureau provider in the country.
|Never Say Never'
Banks such as Huntington face a tougher task: They must build an institutional client base from scratch.
"We don't understand the cost structure of people who are putting together home banking systems," said Mr. Ballinger.
"Our systems are down to a marginal cost. You need substantial transaction fees to keep the thing solvent," he added.
Midwest Payment may add other electronic services soon, but it is not considering adding a screen telephone, at least not in the near future.
"Our incremental strategy still makes a heck of a lot of sense," says Mr. Ballinger. "But we never say never."
