PCs! Screen phones!

If bankers' debates over how to deliver a home banking service are beginning to sound like an old beer commercial, they can only be accused of responding well to their public.

Just as Miller Lite wanted both to "taste great" and be "less filling," consumers in the 1994 American Banker/Gallup survey feel strongly both ways about home, banking devices.

Already accustomed to doing routine banking business over conventional telephones, many people would prefer having a small screen to help them visualize transactions. They might even be willing to pay extra for it.

Meanwhile, more than 40% of the survey respondents reported they have a personal computer at home, and a majority of those -- including a contingent with desirable "upscale" demoraphics -- are interested in a PC-based banking service.

Bankers thus have good reasons to go in multiple directions.

"The telephone is the direction the consumer is moving in .. it is the key to our retail delivery strategy," P. Sue Perrotty, group executive vice president of Meridian Bancorp, Reading, Pa., said at a recent Bank Administration Institute conference. "But PC developments are explosive, unlike anything we've seen in the past."

The speed and complexity of the technological changes "preclude simple choices," Ms. Perrotty said. So Meridian, like Barnett Banks Inc., NationsBank Corp., and others puzzling over the remote-banking alternatives, has been keeping its options open.

Bank strategists say they cannot know how the PC-phone competition will play out, nor the potential influence of interactive television and wireless technologies.

So they test various alternatives, even though they may be emphasizing the telephone call center, as in Meridian's case, or a screen-phone product aimed at the mass market, as NationsBank is offering in the Washington area.

Similarly, Visa International tilted in favor of screen phones with its 1993 acquisition of a portion of U.S. Order, a Herndon, Va., company that markets a device called PhonePlus.

But Visa is also helping to usher banks into PC services through an alliance with Block Financial Corp. and its Managing Your Money personal finance software.

In competition with Nations-Bank in and around Washington, Citibank in September began advertising "Banking Without Boundaries"' a "virtual banking" package that addresses consumers' leanings two ways -- it lets customers choose between screen phones and PCs.

Citibank's phone is from Philips Home Services, a unit of the Dutch electronics giant, and retails for $500 to $600, or five times the cost of the simpler Online Resources and Communications Corp. device NationsBank is marketing.

The Citibank-NationsBank face-off could have a nationwide impact on the way home banking is marketed, through what devices, and at what price.

Some observers ask, Why bother with screen phones, even the powerful models like Philips'? PCs are spreading so quickly, with added functionality and ever-lower prices -- wouldn't it make sense to skip the interim step and go straight to computer banking?

"Looking at the entire market, the PC is still relatively negligible." answered William M. Randle, senior vice president of Huntington Bancshares, Columbus, Ohio.

"It does get at an attractive end of the market, a lot of which is tied to small business as opposed to consumer banking needs.

"The real future is in the smart phone," said Mr. Randle.

One of the bankers who is farthest along the information superhighway, Mr. Randle says he is prepared to support any number of delivery systems and devices.

Huntington also has created a "direct bank," delivering services mainly via telephone; and a "virtual branch" that is almost entirely automated, with two-way video hookups available for talking to bank personnel.

Mr. Randle has grown partial to the screen phone because it is compact, easily understandable as an enhancement to the traditional telephone, and just as powerfully fun as PCs, thanks to the technology they share,

An information sheet for the Smartel Smart Phone 3000, which Mr. Randle and Huntington are developing with some former AT&T Corp. engineers, is headlined "PC Technology Makes It Smarter."

Indeed, technology experts talk increasingly of "convergence," a merging of computers and communications to the point where they may become indistinguishable.

That ultimately might make it hard to tell the difference between a telephone, a computer, and a screen phone; or between a computer and a television set.

Some bankers fear their institutions will have a hard time establishing their identities and selling products in the explosion of multimedia.

"The convergence of devices can cause customer confusion," Cynthia Montgomery, a Nations-Bank vice president, said at the American Bankers Association's national bank card conference in September.

Emphasizing the need to understand the various delivery channels and how banking products can fit into the mix, Ms. Montgomery also noted, "Many consumers don't even know what screen phones are."

The American Banker/Gallup results suggest that consumers do know telephones and how they fit into their banking needs. also have an intuitive understanding of the screen-enhanced telephone: Nearly halt expressed a preference for it.

The American Banker/Gallup finding reinforces others: Allen R. DeCotiis, president of Payment Systems Inc., said screen phones have gotten more favorable market-test results than any other such consumer innovation.

The Tampa, Fla., research firm has said the potential market penetration of screen-phone banking is greater than that of PCs or basic phones,

Half of the household heads surveyed by Gallup in September and October 1994 said their principal institutions offered a 24-hour banking service in which touch-tone telephone commands interacted with a computerized voice response unit.

A larger number -- 62% -- said they had used such an automated phone banking service at some time.

Of the total survey sample of 1,024 adults, 54% had checked account balances by phone, 33% moved money between accounts, 23% requested information about services, 19% ordered checks, 17% initiated a stop-payment, 14% paid bills, 9% applied for a loan, and 7% opened an account.

When consumers were asked if the basic telephone is adequate to these tasks, or if they would prefer a screen phone, the screen phone won out, 47% to 37%. Another 16% didn't know or had no preference.

Age was a factor in the choice of screen phone: it appealed to a majority of people aged 18 to 44, and a near majority -- 48% -- of people 45 to 54.

Of those who liked the screen phone, 42% said they would not pay a monthly fee of either $5 or $10. But 43% were willing to pay $10, and 15% settled on $5.

NationsBank's monthly maintenance fee falls in the middle, at $6.95, which is roughly one-half to one-third the cost of a PC-based service.

In keeping with Mr. Randle's and others' assumptions about the screen phone's broad market potential, income had little to do with the level of preference.

Responses ranged from 43% at households below $20,000 in annual income, to 50% of those between $40,000 and $75,000.

For PCs, income was very much the story. PCs were reported in only 27% of households up to $40,000 in income, but in 56% of the $40,000-$75,000 group and 67% of those above $75,000.

The overall home PC penetration was 43%.

The two higher-income segments also contrasted with the others in that a majority of their home computers had modems -- by a three-to two margin in the $40,000-$75,000 range and by almost four-to-one above $75,000.

Counting the entire survey sample, 26% of households had a modem and 16% did not.

About half the PC owners said they had used their machines to keep track of checking accounts, credit cards, or other financial matters -- a tribute to the wide availability of software like Intuit Inc.'s Quicken and Block's Managing Your Money.

Only 4% said they had ever done banking transactions on-line, and half of those were in the over-$75,000 income category.

Of all the PC owners, 59% were somewhat or very interested in banking by computer.

That number went as high as 66% at households with incomes over $75,000.

Editor's Note

This is the concluding article in a series based on the 1994 American Banker consumer survey.

The other articles appeared in the Dec. 12 and Dec. 15 editions. They will be reprinted in a book with additional data compiled by the Gallup Organization.

For information call 800-367-3989 or 212-803-8368.

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