EC-Enabling Merchants

Caught off guard by non-financial players like Microsoft and CheckFree slipping in between banks and their customers, a stampede of financial institutions are making bold alliances with technology companies in an effort to entice merchant

customers into bank-centric electronic commerce.

Citibank, for example, has formed an alliance with Intel Corp.'s recently established Pandesic Co., which offers companies turnkey, end-to- end electronic commerce solutions that connect merchants with both customers and suppliers. "There's lots of pieces (to electronic commerce)," says Gail Hoffman, vp for advanced development at Citi. "We're not going to sit here and manufacture these pieces ourselves."

Wiring customers for e-commerce is crucial for banks to stave off the disintermediation of customers, says Gary Meshell, director of electronic financial services at Price Waterhouse. "Banks are realizing that, in their core products, there's not a lot of money to be made," Meshell says. "If they're going to be players in the year 2000, what they really have to become is the electronic financial intermediary. Basically they're going to be the focal point of bringing buyers and sellers together, using the Internet."

Imperial Bank of California is hedging its bets by working with CyberCash and offering its corporate customers full-service AT&T Web site hosting and payment services. "Banks need to offer as many solutions as they can. And over the next two years, it will become clear which one of those solutions...will actually outlast the other ones," says Joe Jorling, vp of Imperial's merchant card division.

So at Imperial, when customers turn to the bank for e-commerce solutions, the financial institution collects revenue in several ways: First, it gets a cut of the monthly fee that the customer pays to the solution provider. Second, it gets the total revenue from the credit card payment that its merchant is now able to accept on the Internet.

Another way for banks to stave off disintermediation is to play a key role in setting industry standards for electronic commerce, influencing the technology that's adopted and the devices customers use to access EC, says Mike Smith, vp of the interactive financial services group at Mercer Management Consulting. "Banks have to take an aggressive role. I really can't identify any one individual bank that's being as aggressive as they might," Smith says. And if they don't? "What they have to lose is control of the payment system."

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