After trunding along in fits and starts since the 1980s' home banking is finally beginning to be defined.
Fast becoming a misnomer, "home banking" is increasingly being referred to as "remote banking" and "interactive financial service" to reflect a broad array of information and applications that wil be delivered to consumers-in their homes offices or wherever else they may be.
A flurry of activity is taking place among banks and an array of potential partners, all jockeying for position. The consensus in the industry is that the service, by any name, is back, and this time it's here to stay.
Telephone banking, by far the most prevalent channel for delivery of services to the home, has been around since the 1970s.
Banking by personal computer came along a decade later, and has been ofered by large and small institutions. But the service failed miserably. Banks sank millions into projects and never got many subscribers.
Tower Group, a technology research and consulting firm based in Wellesley, Mass., reports that overall, from its start in 1980, there have never been more than 150,000 subscribers to banks' PC home banking services in the United States.
Today the financial industry feels the time is finally right, for a number of rasons.
"There's an ever-increasing consumer demand for convenience", said Neal Chambliss, vice president of Payment Systems Inc., a market research firms specializing in financial services, based in Tampa, Fla.
Technology-savvy consumers, accustomed to automated teller machines and point of sale terminals, are ready for the service, he said.
Many Modes of Delivery
What's more, the technology itself has advanced. Today, there are a variety of delivery methods, including touch-tone phones, PCs, screen phones, interactive television, and in the futur, personal digital assistants and other personal communications products.
Banks are now more willing to offer home banking services because there are plenty of other kinds of companies eager to enter the picture because of the major profit potntial they see in remote banking. Banks know that if they don't provide the service, someone else will. Many companies, however, are forming partnerships with banks to deliver home banking services.
These alliances represent a significant difference between the services of old and those being developed today, and are helping to drive the industry, say many experts,
"In the past, there were proprietary efforts by banks," said Glenn Santmire, senior vice president of remote banking for MasterCard International, U.S. region. "But banks couldn't afford to offer the service alone, because they couldn't generate economies of scale."
Today, banks partnering with third parties can enter the market without a significant investment in technology, and can share the cost of maintainin a network, he said.
All of these factors are beginning to cloalesce, say industry experts, so that the creation of remote banking services is becoming a 'cross-industry effort'" one that's very complex.
Banks are faced with a number of important decisions. For one thing, no one is sure which device or devices will ultimately succeed. Also, financial institutions are being courted by a number of companies and alliances of companies eager to become their partners. Choosing the right partner can make the difference between success and failure in any home banking venture.
Some of the companies that want to team up the banks to offer remote banking include the regional Bell operating companies, credit and debit card issuers, regional electronic funds transfer networks, data processors, bill payment service providers, equipment and software vendors, and on-line service providers.
The rational behind forming alliances is good from either perspective, said MasterCard's Mr. Santmire, By leveraging the strengths of third parties, banks are not burdened with developing their own home banking products, such as phones and PC packages, or with providin the connectivity ot the consumer. Third party acts as the service provider, taking on the risk of device development.
In this way, said Mr. Santmire, banks can focus on their core competencies, while third parties fill in the telecommunications, back-end processing, and even marketing requirments if necessary.
Other Realms to Conquer
The alliance relationships are beginning to sort themselves out. There is general agreement in the industry that while third parties will be the service providers, banks will act as content providers.
There's also some agreement that offering remote banking services alone will not be enough. To be successful in the long-term, the financial industry must go beyond home banking and bill payment to integrate home shopping, electronic directory services, and other information services, said J. Randall Peyser, president of Interactive Transaction Partners, a remote banking services company formed by EDS Corp., US West, and France Telecom.
To prevent disenfranchisement from its consumer base, banks must ensure that remote services are delivered in their name, not the third party's, said Mr. Peyser.
Major players agree that to ensure that home banking services are bank-branded, the bank's name must be on screens, logos, and marketing materials, so that customers perceive the service as coming from the bank.
this is the value of a "cardcentric strategy," said Neil Waldo, senior vice president of Visa International.
Visa last year joined forces with Intuit Inc., which makes the Quicken line of personal finances software, to provide home banking to consumers and businesses through Visa member institutions. Earlier this year, the company began a pilot with Crester Bank of Richmond, Va., using screen phones with card swipes, developed by U.S. Order. Customers use Crestar Bank cards to access services.
"Using screen phones with a card swipe reader is like extending the point of sale to the home," said Mr. Waldo. "The customer will identify the service with the bank by using a bank card to access functions."
Screen Phones Gaining
While no one s certain which delivery channel will ultimately succeed, interest around screen phones is growing. Many see the device as the next logical step up from regular touch-tone phones. Customers already know the benefits of telephone-based service, goes the argument. Screen phones simply add a visual interface, eliminating long vice menus for accessing functions.
Equipment manufacturers are designing screen phones with visual interfaces that look like ATMs' already familiar to customers. They're also beginning to equip their phones with the analog Display Services Interface standard, known as ADSI,
Developed by Bellcore, ADSI will enable screen phones to access remote banking, plus a variety of other information services, a capability that many feel is critical to the device's success in the marketplace.
A number of banks have teamed up with vendors to test screen phones. The partnerships include NationsBank and Online Resources and Communications Corp., Bank of Boston and Northern Telecom, and Banc One and U.S. Order.
While the screen phone may be advancing as the favorite for delivery of remote banking services, Microsoft Corp., Redmond, Wash., has decided to devote its development dollars to a device that already has an installed base: the PC.
In January, the comany released MS Money, a personal finance software package with home banking built in. The company, which is providing bill payment service through the National Payment Clearing-house, has rolled out home banking with three banks: First Chicago, Michigan National, and U.S. Bancorp.
Richard Bray, group product manager at Microsoft, beleives that PCs are the platform for today.
"Because of the rapid rise in the use of touch-tones to access bank information, the banking industry has become enamored of screen phones," he said. "But until the phones can access multiple devices at a low cost, the platform won't take off."
Mr. Bray added that MS Money, combined with home banking, "closes the loop" in terms of the data provided through touch-tone phones, ATMs, and proprietary home banking offerings. Whereas these services merely present data, MS Money gives users a way to analyze the data, he said.
"Consumers want to manage their day-to-day finances, track investments, and plan for the future," he said. "Money already offers this on an off-line basis. Through home banking, customers get the added benefit of downloading transactions and paying bills."
The use of PCs for home banking is no without its own pitfalls.
There are about 30 million PCs in U.S. households today. According to the Tower Group, only 10 million of those have modems, which limits the target market for home banking services since a modem is needed for access.
Cost is also a barrier, said Joseph s. Pendleton 3d, senior vice president of electronic banking at Meridian Bancorp, Reading, Pa. The $14.4 billionasset instiution is using Prodigy to support its home banking service. Customers pay $8.95 a month to the bank, plus a monthly fee to Prodigy.
Rather than put all their eggs in one basket, most organizations in or entering the market have taken a "device-independent" stance. Through alliance strategies, they're gearing up for all possibilities, including longer-term propositions such as interactive television and personal digital assistants.
An example is MasterCard's masterBanking home banking service, up and running since September 1993. MasterCard is working with 16 institutions, including Chemical Bank, Signet, and Wells Fargo. The service provides electronic bill payment through MasterCard's alliance with CheckFree.
MasterBanking can currently be accessed from a touch-tone phone or PC. Mr. Santmire reports that ADSI-compliant screen phones will be supported by yearend, and eventually, interactive TV and personal digital assistants.
Visa has taken a similar position. "Visa is making a very significant commitment in the arena," said Mr. Waldo. "We want to build a fully electronic, end-to-end environment that supports a variety of devices and consumer transactions, wherever those consumers may be."
MasterCard's Mr. Santmire said that consumers will likely use a mix of devices, and that each will lend itself well to a different task: screen phones will be used for simple transactions, like downloading cash onto a bank card; PCs will be for financial management and investment planning; interactive TV will emphasize entertainment and shopping, as well as banking; and personal digital assistants will handle messaging and quick transactions.
By 1995, said Mr. Santmire, remote banking will be a "competitive necessity," and by the year 2000, most banks will have a significant home banking offering. He added that banks will be restructured as minibranches that handle sales and services, with remote services used for the bulk of transaction.
While all the players are scrambling to figure out how to put the pieces together, Mr. Waldo feels there will be a good deal of cooperation among them.
"We've got to first create the pie in order to get a piece of it," he said.