Screen-based telephones are showing signs of life.

That's good news for the devices' sellers. But for financial institutions trying to figure out the best delivery channel for home banking services, the technology's growing legitimacy may raise more questions than it answers.

Several market research firms have predicted robust growth for screen- based phones. The Yankee Group, for example, says that over the next three years the installed base of screen-based phones could exceed eight million. Today, however, no more than 500,000 have been sold, according to Payment Systems Inc.

One question being raised about screen-based phones is whether banks should invest in a technology that some industry observers believe is doomed to obsolescence.

Edward Neumann, a senior consultant at Furash & Co., for example, says screen-based phones will most likely have a window of opportunity of no more than 10 years, primarily because the devices do not deliver enough information - such as electronic remittance information from billers.

Such capabilities will eventually be available to consumers on their PCs and then on interactive television, according to Mr. Neumann. Banks must be prepared to offer screen phones if customers ask for them, he added, however.

Other analysts are not so sure of consumers' willingness to do their banking on a television set, even if it is interactive. The lack of privacy may bother parents who don't want to do their banking in front of their children.

And simple logistical problems could arise: Families could wind up fighting - even more than they do today - over control of the TV. Another logistical issue is that most TV watchers prefer to sit about 12 feet from the television screen, a distance that may not feel comfortable for banking transactions.

And some analysts point out that banking and TVs just don't mix for many people.

"People don't want to be so challenged by their TVs," said Phoebe Simpson, an on-line analyst for Jupiter Communications. "They might buy a cubic zirconium ring through TV, but they probably won't want to bank."

When it comes to PC banking, observers point out that a large portion of the population, such as senior citizens, has not embraced the technology. And some screen-based phone makers say the segment that uses PCs is mostly male, while most bill payers in U.S. households are women.

These are among the factors cited by screen-based phone makers when they assert that their products have a long life expectancy.

"These devices are absolutely not a transitional technology," said Gerrit Schipper, president and CEO of Philips Home Services Inc., Burlington, Mass.

In the not too distant future, the United States will be a nation of three-screen homes, according to Mr. Schipper.

Interactive TV will function primarily as an entertainment and home shopping medium, and PCs will be used for more complex functions, such as financial analyses. Easy-to-use screen-based phones will be the device of choice for functions such as account inquiries, bill payments, and funds transfer.

And while banking will be the anchor service, consumers will use screen phones to gain access to various nonbank information sources and services. "Banks originally made the mistake of giving consumers a proprietary device that could be used only for accessing their services," said Mr. Schipper. "Consumers will not spend a lot of money for a screen phone just to do their banking."

Banks are beginning to wake up to that fact. By forming alliances with regional Bell operating companies, banks are packaging their services with enhancements provided by the phone companies, such as caller ID, call forwarding, and three-way calling.

In addition, new companies are stepping forward to offer even more utility for screen phones. Stamford, Conn.-based SmartPhone Communications, for example, can deliver services such as gift order entry and wagering information, along with a full menu of home banking services.

The company is now talking to a few banks, according to CEO Sam Cassetta. Since banks can private-label the services, they can fend off threats to their customer base from players like Microsoft, he said.

Other companies, such as Online Resources and Communications Corp., also offer private-labeled financial interactive services on screen-based phones. And now banks have another choice - Visa Interactive, which will offer home banking on screen-based phones from U.S. Order.

MasterCard hasn't decided whether to offer a screen-based phone option for its MasterBanking product. The card association's research indicates that consumers don't find the current generation of phones user-friendly, said Chris Fredrick, senior vice president of remote banking.

"The fact that you're having to shoehorn these devices out of the banks and into consumers' hands does not indicate to me much demand," Mr. Fredrick said. "Shouldn't we really be focused on devices that the consumer has readily adopted, such as touch-tone phones and PCs?"

Mr. Fredrick's comment alludes to the burdens of assuming responsibility for marketing the new phones. Bruce Luecke, vice president, alternative delivery systems for Banc One Corp., voices the feeling of many bankers.

"We don't want to be in the phone business and have to worry about taking inventory or handling hardware problems," he said. The regional Bell companies have stepped in again and are beginning to team up with phone makers and banks to assume marketing duties.

Mr. Luecke, who said Banc One is considering offering screen-phone banking, thinks consumers eventually will be able to walk into the local electronics store and buy a screen-based phone. But many observers assert that this scenario won't be played out until prices come down.

A key strategy at U.S. Order is to develop a phone that can be comfortably sold for less than $200, said John Backus, president and chief operating officer.

Online Resources sells its ScreenPhone for $99. "The idea is not to build another portable PC," said Matt Lawlor, president. The ScreenPhone can be built inexpensively on a relatively simple template, such as a four- line display screen.

Other companies, however, tout high-end features that include pull-out keyboards, eight-line display screens, printer ports, touch screens, and smart card readers.

Such offerings carry a heftier price tag. The average price for Northern Telecom's units is about $300, while phones from Philips cost about $600.

Mr. Schipper said it's not feasible for Philips' products to sell for less than $250.

But referring to Citibank's program, he added, "Consumers aren't aware they have a $600 Philips phone since the bank and its (regional Bell) partner subsidize the cost of the phones and make their money charging for the services they deliver."

In the Washington, D.C., area, Citibank Direct Access Banking delivered through screen phones ranges from no charge for customers with balances of more $50,000 to $10 per month, plus a $50 start-up fee, for smaller balances.

With the introduction of another device - smart phones - banks confront yet another choice.

A true smart phone features local computing power, according to David A. Barnes, product manager at Verifone. Screen-based phones, on the other hand, are basically dumb terminals that rely on a host/server for processing.

Comparing smart phones to electronic draft capture devices used for card authorizations, Mr. Barnes said that smart phones offload processing to a lower-end device, which frees up the high-cost host. By permitting batch processing, the smart phone eliminates the need for banks to upgrade host or network capacity. Verifone's smart phone was introduced last year.

Currently, fewer than 20 financial institutions offer banking on screen- based telephones. In addition to Citicorp's Citibank, they include NationsBank, Bank South, Chase Manhattan, State Bank of Fenton, Mo., and First Tennessee.

Many observers, however, predict that this cohort will be joined soon by a significant number of financial institutions ready to take the plunge.

A new standard - analog display services interface, or ADSI - promises to spur growth by expanding the utility of screen-based phones. The ADSI communications protocol allows for the near-simultaneous transmitting of voice and data to the devices.

In addition to giving consumers more interactivity when using phone services, ADSI will give end-users access to a wider variety of network- based services from one device.

Eventually, consumers will also be able to download funds onto a smart card using the phones' smart card readers. Home shopping applications, say industry proponents, will follow.

What won't happen, according to some industry players, is the melding of various devices into a single home appliance.

"The one-box theory is centralized-mainframe-computer-type thinking," said Mr. Lawlor of Online Resources. Instead of this centralized approach, he added, interactivity will be injected into various household appliances that will be able to "talk" to each other.

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