A small bank in Pennsylvania has won the first regulatory approval to sell Internet access to the public, which could attract customers to on-line banking and other electronic services.
The decision, released Tuesday by the Office of the Comptroller of the Currency, could help national banks compete with nonbank providers of on-line financial services, experts said.
"The OCC is aggressively pushing the envelope with this decision, because it's allowing a service not directly related to banking," said Charles M. Horn, a partner at Mayer, Brown & Platt, a Washington law firm. "It is part of a natural progression toward letting banks expand the way they provide financial services."
"The comptroller has recognized the critical importance of technology to the future of the banking industry," agreed Robert G. Ballen, a partner at the Washington law firm Schwartz & Ballen. "This is consistent with the comptroller's concern that banks be able to effectively compete with nonbanks."
In an Aug. 19 letter to Apollo Trust Co. in Apollo, Pa., the OCC told the $105 million-asset bank it could sell general Internet access to anyone in its western Pennsylvania service area. The bank also was given permission to give free Internet access to schools, government offices, libraries, churches, and various nonprofit organizations.
"We have a long-standing precedent of allowing banks to use the excess capacity of their physical facilities, and this ruling translates those old precedents into the technology world," Comptroller Eugene A. Ludwig said in an interview Wednesday. "Making sure that banks use things as efficiently as possible is a win-win for everybody - the bank, its customers, and the community.
"This is very symbolic of how the use of the electronic media can help banks of all sizes provide products and services to customers."
Viveca Ware, director of payment systems at the Independent Bankers Association of America, said, "Not only does this open the door for banks to compete with nonbank Internet service providers, it opens up a whole new realm for banks to offer new services to their communities."
Separately, the OCC approved a request by Huntington National Bank in Columbus, Ohio, to enter into a joint smart card venture with the Student Loan Marketing Association and Battelle Memorial Institute, a Columbus, Ohio-based technology research organization.
Huntington has said the venture, to be based in Columbus and named Cybermark, will develop, market, and maintain stored-value card systems for self-contained communities such as universities, hospitals, theme parks, and military installations.
Apollo already allows its customers to transfer funds, apply for loans, and view account balances via the Internet. Apollo purchased powerful computer equipment to provide these services and has the excess capacity to provide a gateway to the Internet.
Ray Muth, the bank's executive vice president, said Apollo plans to entice new customers to its computer banking products by offering Internet access.
"This is an absolutely golden opportunity for us," Mr. Muth said in an interview. "We'll increase our profitability by developing new customer relationships."
The OCC concluded that offering Internet access to the public is part of the business of banking because it satisfies three criteria. First, it allows banks to provide more convenient service to customers. Second, the OCC argued that full Internet access is needed to let banks market their electronic banking services. Third, the OCC said that because the computer hardware Apollo purchased had extra capacity, the bank ought to be able to use it profitably.
In the interview, however, Mr. Ludwig said banks cannot purchase computer equipment solely to offer customers Internet access.
