Not so long ago, most banks that were interested in home banking tried to develop the necessary software and operational capabilities in-house. Now, many of them are questioning whether this approach is the most effective use of resources--and they are turning to partnerships and alliances with an array of companies that have expertise in necessary support areas like bill paying and transaction processing.
"The way technology is changing, upgrading your own systems to keep up with the changes cannot be done cost-effectively in-house," explains Jeffrey Roesler, an assistant vice president at Comerica Bank-Texas in Dallas, which will be introducing a personal computer-based home banking service shortly.
Agrees Patty Schewendeman, vice president of management information systems at Tukwilla, WA-based Boeing Employees Credit Union, "Basically, we did not want to re-invent the wheel. Why spend all that time and money and effort to develop the software and systems yourself?"
Partners and potential partners play up this advantage, of course. "We are providing turnkey services that allow our members to take advantage of emerging opportunities in home banking to meet customer needs," explains Brent Robinson, a senior vice president at Visa Interactive, which provides processing for home banking services and is helping to establish standards through its EPay program.
Visa Interactive is looking to be a major player among home banking partners and reports it has signed up 40 banks for its service, including NationsBank Corp., Fourth Financial Corp. and First Tennessee National Corp. "We will put together portfolios of opportunities for members to choose among, to help our members be successful," says Robinson.
More specifically, outside firms see themselves as scouts of sorts when it comes to technology changes. "It's very difficult and expensive for banks to keep abreast of all the technology," says Helen "Rusty" Beckle, vice president for home banking products at CFI ProServices Inc.
CFI offers a home banking product accessed through a personal computer (PC) that links to the bank's host computer. "How does a bank keep track of it all?" she asks. "Here is where we can do some of the work." Or as A. Christian Fredrick, MasterCard International's senior vice president of strategic planning and remote banking, puts it: "Our role is to provide an outlet for the banks to stop worrying about technology."
Banks need to offer a service that is accessible by a variety of devices--including not only the more popular touchtone phones and PCs, but also screen phones, interactive TV and even upcoming personal digital assistants (PDAs). Organizations like Visa, masterCard, Interactive Transaction Partners and CFI have responded by providing such a service.
"Device independence is key," maintains David Lind, chief operating officer at Magic Line, a Michigan-based EFT network. "We need to be able to deliver a full set of services into the home, accessible by a variety of devices." Magic Line will be making a home banking service available to its member financial institutions shortly, starting with a bill-paying service that uses a touchtone phone, and will be operated in alliance with SmartPhone, a bill-paying service company.
The wide choice of devices reflects the reality of the consumer electronic marketplace. "Households have not made enough decisions in the technology to determine which (device) will be successful in home banking," CFI's Beckle points out. "Until we see enough of a trend, there will be variety in access devices, so we urge banks to adopt a technologically flexible system."
Another plus in turning to partners, many say, is that it shortens the time necessary to get a service up and running. "Even banks that could build a service themselves versus acquiring the service find that a key difference is time to market--the difference in the time it takes to introduce the service to the market if you build it in-house versus the time it takes when you use a partner," says Beckle.
"It would have taken a year to develop the service ourselves, and our members were asking for it," says Schewendeman at Boeing, which rolled out a home banking service last October. "Using a partner, it took half that time--six months. You really can't beat that difference."
Agrees Crestar's Woodward: "By going with Visa and Checkfree, I can roll out these services much faster and use the money (that the bank would have spent on in-house development) in other ways. We spend less time getting over the bumps on the road."
In spite of the advantages that strategic alliances may bring, the admission that going out-of-house may well be part of the solution for offering these services is, for some bankers, a big step. "We always said we'd prefer to do it all in-house," explains the home banking product manager for a major East Coast bank. "But with all the calls on our resources and the number of new services we are looking at these days, it's not feasible or even reasonable to think that we can."
Indeed, the increasing tendency of banks--and other financial institutions--to partner with outside organizations marks a change in the industry that many see as positive. "Banks are getting smarter as an industry," agrees Woodward. "We do not want to be crushed by all the changes that are taking place, so over time we have to rethink how we do things, to find an alternate way to offer traditional banking services. We want to be a bank, not a bill-paying expert."
Banks that are looking for outside help may be pleasantly surprised at the range and variety of service providers available. Want a bill-paying service? How about SmartPay, National Payment Clearinghouse or Checkfree? Want processing services? Turn to--among many others--MasterCard, Visa or Interactive Transaction Partners, the partnership between EDS and France Telecom. Interested in ready-made software? There's CFI for a start.
It's The Customer, Stupid
Forming these partnerships to take certain tasks and burdens off the shoulders of bank staff frees up bank resources for the one function that nearly everyone agrees should stay in the hands of bankers: Customer service. "Banks must do a superb job of customer service--they have to get good at it," cautions MasterCard's Fredrick. "Banks need to be there when the customer needs you for information, for error resolution and for attention to their needs."
Customer service for home banking may well have to go beyond what's often provided now. "Most bills are paid evenings or weekends," Magic Line's Lind points out. "You have to be available to answer questions and provide correct information at those times."
While forming partnerships and alliances certainly can help offer a wide, flexible, device-independent range of services, working in a partnership does not mean that the bank is free and clear of management responsibilities. Many issues must be considered when choosing a partner, just as there are other issues to consider once the partnership has been formed.
For example, banks should first decide what kind of service they want to offer before turning to potential partners. "Do an internal survey and make sure you know what you want to offer before you get blindsided by a software package or a back office service that doesn't have something you want," advises Boeing's Schewendeman. "Make sure the partner can deliver the basics--that they can do what you want them to do."
Also look at a firm's strategy for home banking. "This is a marriage, so make sure you understand the company's strategy and goals to avoid misunderstandings down the road," Crestar's Woodward emphasizes. Adds CFI's Beckle, "There is a similar functionality among home banking service providers, so consider strategy. We focus on helping the bank focus on electronic services for the future. We'll be able to offer flexibility and customization to help a bank meet its goals."
Consider, too, control and security of data. For most firms likely to be chosen as partners, security is no longer a major issue. They have installed systems that allow very limited access to data, thereby preventing unauthorized entry. And their systems send and receive messages in encrypted or otherwise guarded form.
But as the types of partners expands, the issue may resurface. "The online networks like the Internet are totally unprotected," MasterCard's Fredrick points out. "We want to process through them, so we are taking active steps to ensure that when we do use them, the transactions will be secure." Security obviously is of concern to consumers, who want to ensure that access to their personal financial data is greatly limited--limited, in fact, to the account holder.
Consumers want control of their account information as well. "Consumers also want to be in total control, and one of the ways they translate that is to have their data in-house," Burchfield says, referring to home banking services that allow the customer to download account files into home PCs. "Consumers think the bank has the data, but the bank does not own it."
Branding and co-branding issues need to be addressed as well. Whose brand does the customer associate with the home banking service? Or as CFI's Beckle puts it, "Whose name is up on the screen when the customer turns on the PC?" To many financial institutions, this is a critical issue.
Banks that use Microsoft's money management software package--called Money--typically are not identified to the customer once the software has been called up; the customer sees the Microsoft and Money names instead. Is this customer going to be confused by ads like those run by Chase Manhattan Corp. recently in major magazines such as The New Yorker? "Me and MY MOUSE" blares the ad's headline. "Introducing Chase PC Banking with Microsoft." Will customers think of the bank--Chase--when they think of home banking, or of Microsoft and Money?
Once it's using a partner's system, software or service, the bank must consider how and when future services and functions will be added. Will the partner be upgrading and enhancing at a rate compatible with the bank's goals? "We're in phase one of what we know will be many phases," says Schewendeman. "We know we'll be adding new services--some are scheduled for the end of this year and the beginning of 1996--and of course we need to have a partner who can provide the services for phase two or phase three."
And whether expanding services or moving into home banking for the first time, Schewendeman advises investigating service capability claims thoroughly. "There are a lot of big names out there who say they have these home banking services, but when you talk to them, you find out that the services are 'under development,'" she adds.
Her warning is echoed by many others. "When we were looking at home banking software, we saw some absolutely phenomenal vaporware," recalls Kenneth Bertrand, president of the Allied Pilots Association Federal Credit Union in Naperville, IL. "We wanted something that was actually available." Allied Pilots is a year-old, all-electronic credit union. "There are no reams of papers, optical records, electronic files--it's really different from the traditional bank," says Bertrand. "There's no cash here in the office, for example."
And once in place, the product must be consumer-friendly. "The service has to be easy and accessible and provide a quick response," says Magic Line's Lind. "Customers want what they want when they want it. They won't sit and wait for a response." Early techie-type users often put up with inconvenient, clumsy services, but today's wider PC-using audience will not.
The services also must be easy on the bank's processing capabilities. "Ask what kind of impact the service is going to have," Lind suggests. Will the bank need to upgrade software, add interfaces, handle new forms of data? The back room--whether an in-house shop or a data processor--must know what it needs to do and be able to do it. "Have the techies talk to the techies," Crestar's Woodward advises.
When a problem does occur, the bank should make sure it understands how the partner will resolve it. If two or more partners are involved, how is a problem resolved then? A good partner is one that will help solve a problem even if it wasn't at fault. As Beckle notes, "The last thing banks need to spend time working out is who to point fingers at. We can help them manage the partnership so they don't have to spend time on that."
For some banks, the ability of the partner to provide marketing suggestions and support is important. Home banking can be difficult to sell because so many services may be involved, start-up time can be considerable and the learning curve steep. Some partners can help. "We have a suggested marketing plan," says MasterCard's Fredrick. "We can see the best practices of the banks who use our services and then recommend those to other banks."
And with the number of potential partners growing, the question of survivability looms: Will the company stick around and continue to offer the services the bank needs? "We'll probably end up with 20% of the companies doing 80% of the business, but there will be companies serving real niche markets," says Fredrick. "One of our roles is to help provide reliable arrangements with partners, such as making deals with software companies and telecommunications companies."
But even with all these issues under scrutiny, the time for home banking partners appears to be here. "We offer home banking services because our customers were asking for it," says Schewendeman at Boeing. "We're very pleased with how it's worked out with our partner."