Bankers are not just having a hard time deciding how to offer home banking. They are struggling to decide how much-if anything-to charge customers.

Dozens of institutions have introduced bill payment and other services by telephone and personal computer. A few offer them free, but the overall picture is a hodgepodge.

The wide array of monthly fees and surcharges reflects the industry's inner conflicts about how to market these alternative channels, bankers and analysts say. And no single pricing formula has produced definitive results.

Generally speaking, banks that view remote, interactive services as extensions of their branches-as new ways to distribute products and services-are giving away the services or offering them at low cost. Others regard telephone and PC banking as a "gourmet product" and charge more.

"A chunk of the industry views home banking as a means of displacing costs," said PaineWebber Inc. analyst Lawrence W. Cohn. "They're cheaper transactions to put through, and if you can get people to engage in home banking, you lower your incremental costs."

But others argue that the "economics of the transaction are irrelevant if the consumer is willing to pay for it," Mr. Cohn said.

In the end, this means that the type of computer-based bill payment service offered free by Citicorp costs $5 a month at Wells Fargo & Co., $6.50 at BankAmerica Corp., and $9.95 at First Chicago NBD Corp.

"The business-line managers are duking it out over cost and how much they should charge," said James R. Beams, a consulting analyst at the Tower Group in Newton, Mass., "and I don't think there are very many banks out there that have a really solid retail delivery strategy."

Some banks are experimenting and changing their minds-and are not always precise in communicating their decisions.

Huntington Bancshares of Columbus, Ohio, brought out Internet-based banking and bill payment last year. The Web site states that the service is free for a trial period and $5.95 a month thereafter.

But in reality, "the $5.95 has been eliminated, said senior vice president William M. Randle. "We never really implemented the charge."

The initial thought was that charging a fee would prevent a rush to the new medium and keep the system from crashing. "You talk about a charge that's not there yet, and you see how consumers react to it," Mr. Randle said.

But when Huntington deemed the traffic manageable, it quietly dropped the fee. The idea now is to charge customers "on a basis that encourages faster migration to the least-cost channel," Mr. Randle said.

Two others that reduced the price barrier were Bank of Mississippi and Volunteer Bank of Tennessee, subsidiaries of BancorpSouth, Tupelo, Miss. The banks introduced bill payment by computer last fall and in January reduced the monthly charge from $7.95 to 99 cents.

"We justified the decision based on an analysis of what it costs us to handle checks versus PC banking," said Harry Baxter, vice chairman of Bank of Mississippi and executive vice president of BancorpSouth.

"That 99-cent fee was just to require some sort of commitment from the people who signed up, so they wouldn't sign up and not use it," he said.

But customers of Mr. Baxter's bank should not expect a similar break on bill payment by telephone, which is still $3.95 a month. "We really want to emphasize PC banking right now," he explained.

No matter what they charge, banks are not making a windfall on the supposedly lower-cost channels.

"We make little or no margin," said Tim Kemp, manager of on-line services at First Chicago, which charges preferred customers-those with higher balances-$4.95 a month for bill payment. Others must pay $3.95 for on-line banking or $9.95 for bill payment.

"Customers pay their way if they're not profitable," the First Chicago banker said. "However, with relationship customers, we go ahead and give them the service and enhance that relationship."

For reasons few bankers can explain, many banks charge less for telephone bill payment than for the PC alternative-even when the telephone channel's overhead might be higher.

Wells Fargo's telephone bill payment price is $4 a month, a dollar less than the computerized service. NationsBank Corp. charges $5 a month for telephone bill payments to up to 50 payees, and $5.95 for PC-initiated payments to up to 20 vendors-unless the customer has a "Deluxe" account, which requires a $3,500 minimum balance.

Most banks give customers free access to the on-line service, charging only for the bill payment component. But some charge up-front fees for the convenience. Chase Manhattan Corp., for example, offers a one-month free trial of PC banking, then charges $2.95 a month for 12 connections to the service. Additional connections cost 50 cents each.

Adding to the confusion is the fact that banks often waive or reduce fees for customers with premium accounts and high balances. At Chase, though, it takes $25,000 to qualify.

"Everybody's trying to figure it out," said Lenny Mendonca, a partner in the San Francisco office of McKinsey & Co. "They don't know what works, so they're trying to experiment with how pricing influences consumer behavior.

"They're also figuring out what they're trying to accomplish-whether this is meant to be a customer acquisition vehicle or a service channel."

Mr. Mendonca doesn't view fees as a "barrier" to electronic bill payment, arguing that consumers see value in not having to use stamps and envelopes. But others disagree.

"What we're hearing is that consumers expect this to be free," said Paul D. Harrison, president of Meca Software Inc. "Banks have not done a good job of (telling) consumers, 'Wait a minute, you normally pay 32 cents for a stamp and you're not paying this any more, so we're actually giving you something of value.'"

Meca, a supplier of home banking software, is owned by a consortium of banks. Mr. Harrison said it has found that a bank typically spends $4 to $4.50 a month to serve a bill-payment customer.

Still, Mr. Harrison advises bankers to give away his software and regard remote banking "as a marketing channel, a way to cross-sell and up-sell." He said the approach pays off in successful rollouts.

While expectations are high for remote banking to reduce banks' overhead, that hasn't panned out. Quite the contrary, remote customers have been known to deluge call centers in search of on-line help and often must be referred to hardware or software companies' help desks.

"Your customers may elect to call you about problems that don't relate at all to the services you're delivering through the PC banking channel," said Edgar Brown, senior vice president of remote banking at First Union Corp. "They may elect to call you about modem problems, and those problems don't relate at all to the ability to pay your bills."

First Union offers its Cyberbanking service free on the Internet. Bill payment is to be introduced this quarter at $5.95 a month for nonpreferred customers. The Charlotte, N.C., banking company already offers bill payment through Intuit Inc.'s Quicken software for $9.95. Telephone bill payment costs only $4.95.

Mr. Brown said First Union believes in the "relationship pricing model." Because computer banking customers tend to be big revenue-generators, they should not be bothered by "nuisance fees."

But Mr. Brown said "a whole host of factors" go into setting prices, including how much the competition is charging.

Evidence of this can be found in the New York area, where Citibank, the standard-bearer for no-fee electronic banking and bill payment, is passing out pamphlets that point out Chase Manhattan charges $2.50 a month for telephone bill payment.

Citibank's message is: "This is a delivery system and ought to be free," said Matthew P. Lawlor, chief executive officer of Online Resources and Communications Corp., McLean, Va.

He predicted relationship pricing would become the norm and fees would ebb as the technology proves its value.

Embracing this philosophy, Fleet Financial Group is unveiling a computer banking and bill payment program this week that is free to people with more than $10,000 on deposit. Fleet will charge $4.50 a month to customers who lack a premium "Fleet One" account.

"Our pricing approach for PC banking was that we're not going to be the cheapest in the market, we're not going to be the most expensive in the market-we just want to make it accessible," said David Fingerman, a vice president at Fleet.

Consumer research convinced the bank that people would "prefer to see PC banking bundled into their relationship package," Mr. Fingerman said.

Fleet intends to dangle the carrot of free on-line bill payment to induce customers to fatten their accounts.

"We're really trying to broaden the appeal of the Fleet One account by making PC banking one of the chief benefits," Mr. Fingerman said.

A regional competitor, Bank of Boston Corp., also waives fees for its best customers. Others pay small fees: Customers of the BayBanks subsidiary pay $3.50 a month for on-line bill payment, while customers of the BankBoston unit pay $5 for bill payment through Microsoft's Money or Intuit's Quicken.

"The response of customers has indicated that we seem to have gotten it right," said Robert P. Shay, director of self-service banking at BankBoston.

The company has seen computer banking enrollees increase by a steady 3,000 to 4,000 a month, Mr. Shay said. The program was bolstered by a Christmas giveaway of an IBM computer.

"When people start using bill-paying, nine out of 10 stick with it because it really is a great service," Mr. Shay said.

Mr. Lawlor of Online Resources has also seen high retention rates among the 50 banks his company has equipped for electronic banking and bill payment. He recommends that banks offer the services free for a trial period, then perhaps charge $3.95 after consumers are hooked.

"I've felt that not only is this stuff good for your top 20% customers- it's a no-brainer to give it them free-but I think it can take a good portion of your marginal customers, or even those who produce a small loss, and turn them into profitable customers," Mr. Lawlor said.

A $255 million-asset community institution, North Valley Bank of Redding, Calif., began offering banking and bill payment through regular telephones, screen telephones, and computers last September. Customers were given three months' grace before a $7.95-a-month fee kicked in for bill payments.

Jim Cowee, executive vice president, said, "It's a dollar more than what Online Resources is charging us." But the bank will probably reduce it to compete with Wells Fargo and others.

"I'm going to be looking at different pricing strategies because I suspect that $7.95 is at the high end," Mr. Cowee said. "We're going to have to look at tying it into relationships."

No matter their pricing strategies, bankers agree the payback from on- line investments is out in the future.

"In the near term," said Mr. Brown of First Union, "all of us are investing wisely in building the infrastructure that's going to enable us to deliver our products and services without the need to rely solely on brick and mortar. Over time, it will have the effect of reducing our sales expense and our servicing costs."

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