Bankers, watch out. The advent and mass market use of Open Financial Exchange, Sun Microsystems' Java programming language, and other technologies could ultimately undermine many of the benefits bankers are beginning to reap from Internet initiatives.

These same technologies could prove invaluable in retaining customers and realizing positive returns on Internet banking investments.

But even as WebTV and its competitor services promise to double or triple the number of households using Internet banking, misguided bank Internet distribution strategies-coupled with a flurry of new products from high-technology companies-could rapidly lead bankers to question Internet banking investments. What started out looking like a sound distribution strategy may be the Trojan Horse-like opening that third parties need to turn Internet-related investments against banks.

An ominous challenge looms from a new breed of shoppers who continually surf the Web in search of the lowest-cost bank products; cash managers who make sophisticated, corporate-level money management tools available to consumers; and financial operating systems that let customers manage accounts at multiple financial institutions seamlessly with a common front- end interface.

These and many other products in development at software companies, communication providers, and Web specialists-companies that focus exclusively on proprietary Web sites-leverage bank Internet technology investments for their own profit while diluting the all-important bank- customer relationship.

By and large their strategies are to work in concert with banks by acting as channels or highways through which customers may find banks. Unfortunately, once customers become accustomed to taking a particular route to the bank, the owner of the route is positioned to dictate terms, exact tolls, and ultimately create products that either compete with, or make money from, the banks.

And that is exactly what many of these companies are planning.

Bankers continue to take for granted that Internet banking will operate according to the rules of more traditional banking-that customers will visit the bank site for transactions and inquiries, that customers will work only with brand names they know and trust, that competition will be just among banks, or at least with nonbank financial institutions, as opposed to aggressive companies that, despite lacking revenues or any track record, have market capitalizations that exceed $5 billion.

Emerging standards such as the newly merged Gold-OFX in-home banking and XML, the extensible markup language, are of undeniable benefit to the banking industry. But at the same time they enable and speed the development of products and services from the likes of portal sites.

A portal is a consumer's home base. These sites include search engines such as Yahoo, Excite, and Infoseek, as well as America Online and other on-line services, major Internet service providers such as Netcom and AT&T, and software companies such as Netscape.

Banks have had a fairly symbiotic relationship with portals and other popular Web addresses. For example, Bank of America and Wells Fargo Bank pay AOL for a permanent link in its on-line Banking Center. Citigroup has an agreement to be part of Netscape's Netcenter. Bank One made an exclusive deal on Excite.

But there are problems with these and other linking arrangements. Because customers are getting into the habit of visiting the portal or other third-party site, it becomes far less difficult and painful to switch to another bank that has a linking arrangement.

Because the portals and other third-party sites control-or at least influence-the look and feel of the initial interface, they are free to up the ante for prime positions and to sell directed advertising banners to competitors.

Users of America Online's Personal Finance Channel are frequently barraged with banks' and discount brokers' advertising banners before they click on their own bank's link. This in some ways is analogous to a bank plastering its branch lobbies with posters of nearby competitors. Perhaps most important, cross-selling is hampered as customers habitually visit the portal or other third-party site rather than a bank's Web site.

Once consumers grow accustomed to visiting the portal first to do banking, they become susceptible to products and services that mimic, or add value to, bank products and services. And because portals leverage bank-built and -operated infrastructures, they are able to offer these products at a fraction of the cost incurred by a traditional or even an Internet bank.

But the proverbial Trojan Horse can be kept outside the gate, and Internet investments can be recouped.

Doing so will require building and maintaining state-of-the-art sites that customers visit directly and habitually and that banks encourage them to use as portals. Meca Software is doing something in this direction with its MoneyScape software, and other vendors, including Edify, Security First Technologies, and Home Financial Network, are said to be developing tools that will let banks achieve this result.

At the very least, rather than encouraging people to transfer to banks via a third-party portal, banks should be encouraging them to bookmark the bank's Internet address and surf directly there. Adding features such as dynamic portfolio tracking, insurance quotes, and mortgage calculators is a good start. But why stop there? Any cost-effective feature that stimulates frequent visits serves not only to fend off new entrants but also to enhance cross-selling potential.

Offers by third parties to list bank product and service prices should be viewed with extreme suspicion. If banks do not take quick and decisive action, current Internet strategies and initiatives may ultimately serve to shrink margins and undermine customer retention.

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