Esther Dyson is a grand dame of high technology. In between her frequent trips abroad, primarily to Eastern Europe, she serves as president of EDventure Holdings, an emerging technology concern; publishes Release 1.0, a monthly trade bible for the software business; and chairs the Electronic Frontier Foundation. American Banker reporter Karen Epper recently visited Ms. Dyson's midtown New York office to hear her views on privacy, security, and how to bring traditional business strengths to bear on an unconventional market.

Many people say banking is boring, but financial services are a common thread in many companies' interactive service strategies. Could on-line banking become the "killer app" everyone is searching for?

It's hard to call it a killer app. Unless you're King Midas and you enjoy counting your coins, most people don't really want to spend a lot of their time banking. They want it to be more convenient.

It's sort of like vacuuming. It saves you a lot of time because you no longer have to go around with the mop and the broom, and it's a vital part of every home. But people try to reduce their vacuuming time. They don't try to make it fancy or more enriching. Like electronic banking, you really want it to vanish.

When you start talking about financial management as a whole - and this is where it's interesting to banks, where you're talking about a personal banker doing your money management - then the possibilities become a little bigger. But rather than have beautiful checks with pictures on them, I'd rather have no checks, and just pay my bills automatically.

Will customers take advantage of on-line convenience to shop around for different financial services?

It's not going to be one way. There will be different consumer profiles just as there are now. And on-line banking, in part, is a means of cost reduction. And so, in a sense, the bank has to figure out what to do in addition to on-line banking to get customers' loyalty. Again it's like the vacuuming. You need to have a value-added proposition because on-line banking really is a value-subtracted proposition.

Where can banks add value?

Mostly asset management, security. And of course, the banks are competing with the insurance companies and with Fidelity, and with the credit card companies, and with Intuit, and surely with Microsoft.

How do you think the average consumer will do banking over the next few years?

I think the credit card companies will be a big part of it still. They exist already ... and there's a lot excitement about digital cash. But the fact is - as bankers know - money isn't about the electronic capability of making a debit and credit. Money is about the full faith and credit of the United States on the one hand. And it's about reserve requirements and lending ratios on the part of the bank.

So I think probably the credit card companies will still be there as transaction processors. Most boring bills will be paid automatically. On the other hand, people like the security of getting the bill so they can see where their credit card is being used. The practice will sweep through the population, and a lot of people pretty soon - maybe a year or two - will be paying most of their checks on-line. It's clear Microsoft and Intuit are going to be promoting that with a bunch of banks fairly heavily.

How about 10 years, or 20 years?

By then most of this will be pretty universal. What's interesting is you're going to find this happening a lot faster in Eastern Europe, where I don't think they're ever going to have checks. They're going to leapfrog over to electronics. But you are going to have bifurcation - people who are part of that digital economy and people who aren't.

You mentioned digital cash. How do you see that developing?

Digital change, in small amounts, makes an awful lot of sense. I think governments and banks and large, honest organizations are very scared of the notion of digital cash and the large, anonymous amounts of money that might float around. There are a lot of people who want that freedom and anonymity, but I don't think most systems necessarily want to give it to them.

So who will control the system? Will there be limits on the amounts and who can issue them?

I think there will be. I think about Russia, and what it's like in a society where there's no one to enforce contracts. You end up enforcing them with guns.

If you have large amounts of digital cash and there's a dispute ... it's just unsettling. I consider myself more open-minded than most people, and if I find it unsettling, I know that governments are scared witless at the thought, and they'll do anything they can to stop it. I personally haven't figured out the implications, but I think the established system is going to be loath to allow this stuff to happen. If it is not accepted as legal tender, that's pretty much the end of it.

How confident are you that the security and privacy afforded by today's on-line systems will be adequate, and what still needs to be done?

I don't think there is much security and privacy today. Jim Barksdale, the president of Netscape, says it's like airline security, it's never going to be perfect. And it's not. You need to put it at some level you can live with, and you need something like the $50 (liability limit) that credit cards give. They just build the shrinkage into the system, they can live with it, and the consumer is protected and feels reasonably secure.

What else can banks and other businesses do to address consumers' security concerns?

The consumer concern, I think, is fairly easy. You just say, "Look, we give you this $50 maximum guarantee." Based on your customer service, you will gain a reputation for being a nice bank or a not-nice bank. It's not all about money.

The banks have to get to a point where they don't have to talk about security, where consumers take for granted that the bank is sound and stable and nobody needs to worry.

And then the banks need to do the proper things - keep their employees happy, worry about passwords, use encryption technology, etc., etc. And when something goes wrong they need to eat it and take care of the consumers.

What do you think is going to happen with the encryption controversies?

I think the government is going to realize that encryption is a defensive technology, and it exists already. We might as well give it to the good guys because the bad guys are going to get it anyway.

How can or will governments and regulatory bodies cope with the lack of boundaries on the Internet?

Very awkwardly. Part of it is there are so many different regimes. There are different tax laws, different rules about privacy, security. This notion that you control your own currency is an awkward one ... What you do about taxing people and taxing transactions is going to be very interesting discussion over the next few years.

What role do you see banks playing in electronic commerce, and how do you see them fitting in with software companies, on-line service providers, and others in that mix?

I see them scrambling to keep their customers. Partly, they don't understand the asset they have, which is that account relationship. They are very likely to lose it if they don't get a little more zippy.

If consumers trust you as a bank, they're more likely to trust you as an electronic bank. If they got a toaster four years ago and they use a cash machine once a month, they probably don't have a lot of loyalty to the particular bank. It comes down to value-added banking being about a relationship; the other kind is electronic transactions.

Do you see banks competing with nonbank software companies as much as with nonbank financial services companies?

This is something we in the software business are very familiar with. Every software company both competes with and depends on Microsoft. It's a fact of life. It's kind of the same as dealing with the government - you depend on it for trash removal and you fight it when they want to get your taxes and you have to deal with it on a regulatory level.

Banks will be doing joint marketing with Microsoft or Intuit. Then there'll be this fight for account control. Because what Intuit wants to do is get customers on-line and be the intermediary between them and a variety of financial institutions. And the bank is saying, "No no, deal with us, we'll take care of you. Use the Intuit software to do your checks, but let us be your financial service provider." At each point in the food chain, you have people extending their hand out to the consumer, saying deal with us, directly.

Should banks feel threatened, as they apparently do? Microsoft has been perceived both as the most valued partner and the worst enemy.

If you are good at being a bank, you have nothing to fear. But if you do a bad job, you're vulnerable to Microsoft or anybody else. A good bank with good account relationships is going to do fine.

Sounds like it boils down to a lot of the same basic customer service issues ...

Their model shouldn't be Microsoft. It should be Federal Express. Somebody who understands what customers want, gives them not just package delivery, but information about what's going on. When you give a package to the postal service, it's like dropping it into a black hole and it comes out the other end. And that's how people feel about their money. I write a check, a month and a half later I get a listing of the checks that I wrote, but I can't call up in the middle of the night and find out what's going on. That is now changing, but it's that transparency and visibility that banks should be aiming for. Giving the consumer the feeling that the consumer is in control, that the consumer can figure out what's going on.

Do you see any similarities between the way the market blossomed for PCs and the way the market is starting to burgeon with home banking services?

Similar, in that at first nobody takes it seriously, they think it's exotic, and then suddenly everybody is doing it. While it's not the killer app, it is the only business thing that people do at home, if you like. Or they work at home. It's such a natural. It's hard to find something that's more fundamental than home finance as a consumer application.

Companies like Microsoft grew out of the PC revolution. Do you see any such formidable forces growing out of electronic commerce?

Well I think Intuit is a pretty formidable force. And I think, in a sense, they were a football player with one leg in a cast. Doing financial management on a PC that wasn't connected to a financial institution was kind of stupid. It was sort of like playing music on your telephone. Having it connected makes so much more sense. Downloading the data from your bank, uploading the data from where you want to pay, that's sort of the natural way to do it. Doing it as a stand-alone app wasn't.

Any other companies?

There's certainly other guys in the market. But to me, the battle looks to be between Intuit and Microsoft.

How do you do your banking?

I have my secretary and my business partner do it. The only banking I do is I get cash out of machines. And I get cash out of machines all over the world.

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