In the California home banking jungle, Union Bank of California sees lions to its left and tigers to its right.

But rather than hiding in fear, the $28 billion-asset bank is sharpening its teeth.

It has made a priority of building an Internet banking site that can compete with those from Wells Fargo & Co. and BankAmerica Corp., widely regarded as tops in the industry. The site should be operating by yearend.

"It's not something you can just say, 'I'll get to that down the way a bit,'" said Richard C. Hartnack, vice chairman and head of community banking for Union, which is owned by Bank of Tokyo-Mitsubishi Ltd. "If I were sitting in Cedar Rapids, Iowa, I probably wouldn't be in this position."

San Francisco-based Union was an early on-line banking entrant. In September 1995 it started offering remote banking through Microsoft Corp.'s Money and Intuit Inc.'s Quicken software.

A year later it began offering services through BankNow, an America Online service of Intuit. In January, it became one of the few banks to offer Intuit's QuickBooks accounting software for business customers.

Now that BankAmerica and Wells Fargo, among others, have shifted their on-line focus from proprietary software to Internet-based offerings, Union is making sure to keep pace.

"The next piece of the puzzle is the transactional Web site," said Frank Han, who until recently was the bank's vice president for interactive markets. He recently left the bank to pursue his own Internet venture. (See story below.)

"We have a suite of products and services that rivals everybody," Mr. Han said before leaving the bank. "Our strategy has been not to become software developers, but to partner with people in the industry and give our customers the best solutions," he said.

For two years, Mr. Han and his team have been devising the bank's response to the personal computer phenomenon.

They examined why previous interactive banking efforts failed, quickly ruled out introducing screen phones, and decided that the proliferation of modems and popularity of on-line services meant the time was right to go full force into PC banking.

"The investments we're making today are going to secure our competitive position," said Mr. Han. "This isn't niche-y, boutique-y stuff-it's just a question of waves of adoption."

Adoption rates for the existing service are already favorable-something Mr. Hartnack attributed to the bank's relatively affluent and computer- literate customer base.

Mr. Han predicted next year would be another watershed. He cited studies showing that more women are dipping into the Internet and said more people who have been iffy about the technology are deciding to take the plunge.

Competing in the California market "adds urgency to what we do," Mr. Han said. "I think a lot of banks in more benign parts of the country are waiting for this stuff to prove itself. We don't have that luxury."

Mr. Han's successor is Heather Robinson, a former assistant vice president at Sanwa Bank who started March 31 as vice president and manager of Union's interactive markets group.

She described the California on-line banking market as "cutthroat."

"I think the way to differentiate ourselves is to be more clever about the way we build channels and what we build into them," Ms. Robinson said. "We're painstakingly going through different ways to make the experience more positive for the customer, to make it as user-friendly as possible."

A fully transactional Web site with the unusual frills-like investment capabilities and other functions to be disclosed later-is expected in the fourth quarter.

Making the site as compelling as possible is important, Ms. Robinson said, because "we obviously aren't going to be able to afford to do the mass marketing that Wells or BofA can."

"To win in this game, you have to be seen as best of breed by the consumer," Mr. Hartnack said.

He said there were advantages to being a "fast follower" in Internet technology. For one thing, the costs of setting up and implementing systems have come down in the year or two that Union has been cogitating.

Through market research, bank officials scoured computer magazines and read reviews of hardware and software companies. What came through, Mr. Hartnack said, is that most computer products are fungible-one CD-ROM or Pentium chip or hard drive is much like another. The differentiating factors are reliability and customer support.

"We said, 'This is a business with fairly low differentiation except at the service level,'" Mr. Hartnack said. "So we've built our whole system on that basis from the very beginning, and that has really given us a competitive advantage."

For instance, Union has always maintained a separate call center to support on-line banking.

Ms. Robinson said one reason she moved to Union was the commitment "from the top of the bank" to building interactive markets.

"I have basically staked my career on this," she said. "I had other options in terms of going to another part of the bank, but I think alternative delivery is going to be a critical success factor going forward.

"Maybe not in 1997 or 1998, but I think people will start to make decisions on whom to bank with based on the alternative delivery options."

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