Royal of Canada to Separate PC Banking Wheat from Chaff

Royal Bank of Canada will be making some tough decisions about on-line banking in the next 12 to 18 months, said Martin J. Lippert, executive vice president and chief information officer.

Having participated in a number of interactive banking consortiums and with several internal development efforts under way, Canada's biggest bank has reached "a pivotal point" in deciding which projects to promote and which to pull, Mr. Lippert said in an interview during American Banker's OnLine '98 conference last week.

Royal is one of 15 banks with an equity stake, along with International Business Machines Corp. and Visa International, in the Integrion home banking consortium. It and five other institutions own Meca Software, producer of the Managing Your Money personal financial management software. And it has a 21% stake in Mondex Canada, a franchise of the MasterCard- controlled Mondex smart card venture.

Last month the $172 billion-asset bank bought Security First Network Bank, gaining a 5% stake in Security First Technologies, the software development arm of that pioneering Internet bank. Since April 1997, Royal also has run its own Internet banking program.

More than 500,000 customers use electronic channels to bank with Royal. (The bank does not track the number of Internet versus dial-up-software users.)

Among this assortment of on-line efforts, Mr. Lippert said, "clear winners and losers" will emerge. He refused to be more specific.

Royal Bank is among "a lot of banks going through the process of streamlining" on-line strategies, said Octavio Marenzi, research director of Meridien Research, Newton, Mass. "It is becoming clear that the Internet is the most important channel to support, and the question is how to do that."

He said Royal Bank may be atypical in the sheer number of initiatives it is supporting. "The strategy gets somewhat diluted, and the message to the market gets diluted as well," he said.

An early task Royal Bank faces is the integration of its and Security First's Internet programs. Royal's $20 million purchase of the Internet bank was aimed at extending its presence in the United States.

Mr. Marenzi said he is "not convinced" Royal will be able to make Security First, with its 20,000 customers and $55 million of deposits, profitable.

Initially, Royal will concentrate on marketing Security First to the roughly two million Canadians who spend four to six months a year in the United States. Pitches to U.S. customers will come later.

One quandary is whether eventually to move Royal Bank's current Internet banking customers to the Security First software. There is no "big hurry" to do so, Mr. Lippert said.

Royal's current Internet software is highly functional, including the ability to fund brokerage trades from a savings account, he said.

Mr. Lippert, who came to Royal Bank 15 months ago from Mellon Bank of Pittsburgh, is exploring other ways to attract customers electronically.

The bank recently struck a deal with British Airways to offer Internet- based services in airport lounges. The kiosks are aimed at high-net-worth professionals who fly frequently. Once low-orbital satellite technology becomes available, Mr. Lippert said, he expects to bring banking directly to the planes.

"This is another way of extending our platform," Mr. Lippert said.

Two weeks ago Royal joined in an electronic bill presentment service with Canada Trust, Canadian Imperial Bank of Commerce, National Bank of Canada, and Toronto-Dominion Bank. They are surveying available bill presentment technology and plan to begin offering a service in 2000.

Absent from that group is Bank of Montreal, Royal Bank's prospective merger partner. Bank of Montreal's participation is "one of a lot of issues we've got to work through," said Mr. Lippert.

If its merger with the $149 billion-asset bank is approved by Canadian regulators, Royal will also face branding and integration issues related to Bank of Montreal's mbanx, a branchless bank created in October 1996.

The 150,000 mbanx customers - who gain access to services only through telephones, personal computer software, or the Internet - enjoy the benefits of an extensive loyalty program.

Mr. Lippert said he sees the potential integration as "more of a branding than a technology issue. We'll have to assess whether mbanx is the most effective strategy to move this product forward."

Royal Bank is second only to McDonald's in Canadian brand recognition, Mr. Lippert said. With mbanx and Security First Network Bank in its portfolio of on-line strategies, Royal at the very least faces "a lot of branding issues."

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