When embarking on a shopping trip, you make sure you have a checkbook, credit card, or cash in your pocket. Thus equipped, you venture downtown or to the mall.
When shopping over the Internet, the order is often reversed, more resembling the notorious "fire, ready, aim" sequence.
The typical on-line shopper first logs on to one of the popular portals such as Yahoo, Microsoft Network, or America Online; picks a merchant such as Amazon.com; and selects the latest best-seller. Only then will the shopper begin to think about how to make payment.
When prompted to enter personal information-name, address, phone and card numbers-many people seem to have second thoughts. They worry about security on the Web or may fear that they will exceed their credit card limits.
An astounding two-thirds of all Internet shoppers abandon their virtual shopping spree at this critical juncture, having wasted the merchant's computer resources and their own precious time. They are left feeling frustrated or defeated, and this occasions an enormous amount of lost business and profit opportunities.
To address this problem, Internet portals are now making serious attempts to build their own electronic wallets. Cybercash, eWallet, and other companies are developing solutions as well. If successful, they will become new competitors to the traditional banking and credit card industries.
Put bluntly, banks stand to lose customers. Eventually, the new electronic wallet providers may compete with banks for "share of wallet." Forward-looking banks are awakening to this threat, sensing the need to become portals, or at least financial portals, to the Internet.
The ability to use their own banks as portals would make the shopping experience highly efficient for consumers.
Once on-line, the shopper could log on to the bank's Web site to establish his identity and enable the payment function. He instantly ascertains the funds available through his checking account or credit card in the customary, secure environment, using the same level of data encryption now used for on-line banking and securities transactions. The consumer could be issued a digital certificate further verifying his identity.
Thus enabled, the on-line shopper could venture forth to his favorite shopping site. At checkout time, he simply clicks on an icon labeled "Pay" and thereby activates his guaranteed electronic check or credit card.
In this scenario, the customer can use his financial resources to the fullest extent possible and choose from a variety of payment options. He can execute his transactions in a secure, trusted environment. There is no need to establish yet another segregated account or electronic wallet that needs to be frequently replenished with funds and that accumulates still more idle balances.
And he will have avoided going through an entire on-line shopping trip just to find that the merchant does not take American Express.
For the on-line merchant, having the bank's authorization and endorsement means that he deals with a fully prequalified shopper with established financial resources. More prequalified customers means fewer incomplete or abandoned transactions.
The bank preserves its central role in the payment system and further strengthens its customer relationships. The "bank as portal" plays a central, rather than peripheral, role on the Internet.
All participants benefit from the stringent security required by banks. Fraud losses would decrease drastically as fraud through stolen or fabricated credit card numbers is reduced. Many on-line merchants now report fraud levels in the 15% to 25% range, which is ample incentive for finding a more secure and trusted system.
Banks can tap the technology, data, network access, and decision-making software they need to reinvent themselves as portals. Rather than abdicating market share, they can use technology to deepen customer relationships.
The result would be more convenience, greater security, less waste, and decreased fraud, benefiting both financial services organizations and consumers. Mr. Heller, a former Federal Reserve governor and Visa U.S.A. president, is executive vice president of Fair, Isaac and Co., San Rafael, Calif.
