First Data Corp. has hired ex-banker Randy Kahn to lead a business unit that helps small financial institutions get on-line.
The new unit, Direct Banking, is another of the vehicles First Data hopes will help it build a significant Internet commerce business.
The big payment processor is co-owner with Microsoft Corp. of MSFDC, an electronic bill payment and presentment service, and offers brokerages on- line trading capabilities through a product called ImpressNet.
Mr. Kahn, 49, who spent 10 years in electronic banking at First Interstate Bancorp, said he will be selling transactional Web sites to community banks, thrifts, and credit unions. He said only 7% of financial institutions now let customers do business on the Internet.
"We believe over the next several years, the vast majority of smaller financial institutions will say, 'It isn't just for the big guys any more,'" Mr. Kahn said. "We think we're hitting the market at just the right time."
Mr. Kahn was a lead architect of First Interstate's electronic banking strategy. It was among the first in the industry to post a Web site.
Mr. Kahn left after Wells Fargo & Co. bought First Interstate in 1996, then joined H.F. Ahmanson & Co.'s Home Savings of America as director of electronic banking.
Mr. Kahn joined First Data in November. He is president of a 40-person unit and has opened an office in Los Angeles. Direct Banking is a division of First Data Electronic Commerce Payments Services, of Omaha.
The unit has two main software products: NetPrecision, which lets financial institutions offer on-line account access and bill payment services to customers; and a product with no name yet, which delivers credit card information.
Some observers viewed First Data's involvement in the software business as a departure from its core business, but Mr. Kahn said the progression is natural.
"The Internet is going to grow as a fundamental channel for delivery of banking services, and First Data decided there was an opportunity to make that channel affordable for midsize and smaller financial institutions," Mr. Kahn said.
"I have the charter and the funding to pull the resources of First Data together to enable credit unions, savings and loans, and small banks to get on the Internet with security."
An executive at another company that helps banks on the Internet, speaking on the condition of anonymity, said he thought transactional Web sites were too expensive and technology-intensive for small institutions to maintain. "I don't think interactive banking is at the point where it is ready for wide institutional use," he said.
Moreover, he said, First Data lacks software sales expertise. "Being a products company is very different from a service company."
Mr. Kahn disagreed, saying First Data can "leverage a lot of our strengths in transaction processing. I have believed in the Internet for a long time, and I don't believe we have even begun to realize its potential."
Bill Burnham, an analyst at Piper Jaffray in Minneapolis, said First Data could be "a contender" because of its "huge customer base."
First Data's software effort "has been under way for quite a while" but has been "low key," he said. "I think they want to turn up the heat a little bit."