Midday Update: Vendors Band as ‘Enablers’ of e-Banking

For as long as banking has relied on computers, bankers have set up committees and roundtables where they set aside their competitive differences, collaborate on standards and policy, and kibbitz about matters of collective interest. Usually these meetings are bankers-only — no vendors allowed.

Now a group of prominent technology companies has turned the tables and started a vendors-only group. Populated exclusively by top executives from suppliers of Internet banking technology, the committee came together in January 2000, out of a shared frustration with Wall Street, which had been looking at online banking adoption rates and saying, “Show me the customers.”

Most of the members — vendors of electronic bill payment, online banking, wireless services, and transaction processing — are seeking capital in order to grow, and are exasperated that financiers do not seem to understand their business models.

According to the vendors, the online finance infrastructure is built, the banks are on board, and the technology companies — which get paid a fee for each end user — are eagerly expecting that customers will come. As more people adopt remote banking, profits will rise, they say.

The executive who brought the group together, Matthew P. Lawlor, draws a horizontal line to represent the fixed costs of the 20 or so companies that belong to the eFinancial Enablers Council. Then he draws an ascending vertical line to represent the number of people using Internet banking and bill payment. After the ascending line intersects the line of fixed costs, the vendors’ profits start to flourish — and Mr. Lawlor says many companies in the consortium have just passed that point.

“What we all have in common is that we’re supporting Internet delivery” and serving financial institutions, said Mr. Lawlor, chairman and chief executive officer of Online Resources and Communications Corp. of McLean, Va. “It’s an opportunity to ally and network, but it’s also about best practices.”

The group, which assembled under the auspices of the Electronic Funds Transfer Association, meets four times a year — not just to grumble about shortsighted Wall Street types, but to discuss regulatory and government policy, privacy, data mining, and technology standards, he said. “Our interests aren’t always the same as the financial institutions’.”

Members include some big names in bank technology circles: Ron Braco, president and chief operating officer of Spectrum, the bill payment consortium; Anil Arora, CEO of Yodlee Inc., the account aggregation company; Greg Wolfond, CEO of 724 Solutions Inc., the wireless technology company; and James “Chip” Mahan, CEO of S1 Corp., the Internet banking technology vendor.

Mr. Lawlor said 8,000 U.S. financial institutions have adopted transactional Internet banking, while 12,000 have not. Adoption of online bill payment lags that of online banking, but banks need to be in both places, he said. “Banks are starting to pick up that bill payment is at the center of being the primary financial institution.”

The hot-button issues at the eFinancial Enablers Council are screen-scraping, privacy, and data mining. Mr. Lawlor said his company, which provides online banking and bill payment to 500 institutions with an aggregate of 16 million customers, can always tell when data are being grabbed. “You can see the screen-scrapers come in,” he said. “It causes operating problems, slow response times.”

Though some banks consider the screen-scraping debate over — with victory on the pro-scraping side — Mr. Lawlor said the matter is still open among his peers.

“Some people don’t want to mine data, and some people do,” he said. “It raises all sorts of problematic issues. Who’s using the data, and for what reason? Who bears the cost? Is there really a market for this? Am I really going to give the password to my Schwab account to Citi? I really don’t know where all that is going to go.”

Even among vendors that sell screen-scraping to banks, there is acrimony. “There’s uniform feeling that if we could develop a standard to do this stuff, it would be good, but that’s easier said than done,” Mr. Lawlor said.

After Wall Street, the vendors’ next headache is regulators, who “are on a warpath now with respect to privacy, and making sure that vendors are stable,” he said. “At the very same time when the Internet suppliers are moving to profitability, there’s this heightened scrutiny. It should have come two to three years ago."