Though the largest cash-management banks have made Internet-based business banking a standard service, smaller players are just beginning to catch up - by converting customers used to software installed on their PCs.
Since small and midsize business customers are accustomed to relationship managers, it stands to reason that business banking would lag consumer banking online. But for several reasons, the next wave of services seems to be arriving now.
Bankers say they are seeing more robust and cost-effective products from e-banking vendors, as well as more demand from business customers. In addition, they have found business customers more willing than consumers to pay fees for electronic bill payment and other more business-oriented services.
Indeed, experts say the business case for Internet-based cash management is so strong that the fees seem minor. Such services enable users to collect accounts receivable quickly, remit accounts payable at the last minute, and invest money that is not immediately needed.
"We're in the process of 'Web-izing' all of our cash-management functions," said Lew Taub at Union Bank of California, a unit of $36.2 billion-asset UnionBanCal Corp., which is mostly owned by Mitsubishi Tokyo Financial Group Inc.
The San Francisco bank announced in early October that it had begun to offer corporate clients business statements on the Internet as well as features including check-image retrieval and data export and analysis. It already offers them such online services as wire transfers, information reporting, stop-payment orders, and account transfers.
The enhancements will enable these customers to summon individual images from Union's seven-year archive of two billion digital check images instead of asking for photocopies of old checks.
Mr. Taub, the bank's senior vice president of commercial product management and development, said there is more to come. One service is being pilot tested that would enable companies to originate automated clearing house payments on the Web; another, to be introduced next month, will enable companies to open and close accounts online. By yearend the bank plans to introduce CD-ROMs with check images for corporate clients. Soon after that it will move administrative functions for commercial loans to the Web.
Businesses large and small will have access to these tools. "We don't differentiate products according to market segment," said Mr. Taub, whose bank uses a variety of vendor offerings and homegrown applications. "We differentiate our products by the requirements of the user."
Next year Union plans to move its remaining PC-based customers to the Web service; most have already made the transition, Mr. Taub said. Union ranks 15th nationally among cash-management banks, he said.
The recent introductions from Union are standard fare at the largest treasury service banks, such as J.P. Morgan Chase & Co. and Mellon Financial Corp., but many businesses - particularly smaller ones - are still using fairly old-fashioned systems. Sixty percent of corporate treasurers still connect with their banks using Windows-based communications software that resides on the corporate computer, said Christine Barry, the wholesale banking analyst at the consulting firm Celent Communications of Boston.
"I couldn't believe anybody was still using a Windows-based solution," said Ms. Barry, whose background is on the consumer side of bank-technology research. "The corporate bank really tends to lag the retail side."
But indifference to Web cash management is giving way to enthusiasm, said Stephen Rogers, a senior vice president at Silicon Valley Bank and the head of its cash-management division. "It's not a 'nice-to-have,' it's a business expectation," he said.
Silicon Valley, which is headquartered in Santa Clara, Calif., and has $3.8 billion of assets, moved its 1,000 PC banking customers to the Web this year, Mr. Rogers said.
"Having to manage and maintain and support a Windows platform is much more complex," because the bank must support software installed at customer sites, he said. The Internet service is more straightforward because the applications are housed on the server side; all the customer needs is a Web browser.
Late last year Silicon Valley introduced new online ACH options, and this year it brought out online foreign exchange trading. By yearend: online bill payment and tax payments. Later on will come an imaging services for lockbox clients, Mr. Rogers said.
The bank, which targets small growth companies in the information technology, biotech, and medical equipment markets, has more than 9,500 customers nationwide, and more than 70% use online banking, Mr. Rogers said.
"People used to think it was only for the large corporates," said Mr. Rogers, whose cash-management software vendor is Magnet Communications Inc. of Atlanta. "The technology has made it more cost-effective to drive it down-market."
Though corporate finance officers tend to check their cash positions first thing in the morning and start investing or moving money around after lunch, entrepreneurs are more like retail customers, many of them banking at night or on weekends, Mr. Rogers said.
"They want to be able to do it when they want to do it," he said. "Full service to us means allowing our customer to do business anyway they want to."
He added that online business banking serves them better than Windows software, which is typically installed on an office PC.
Small and midtier banks say that the surge of new Internet offerings helps them compete against larger banks, though perhaps a bigger issue is convincing traditionalist corporate treasurers to change their ways.
Commerce Bancshares Inc. of Kansas City, Mo., says that smaller businesses pose the biggest challenges because they require just as much Web customization as bigger companies but typically can afford far less. Andrew Kaplan, a senior vice president at $13 billion-asset Commerce Bank, said that corporate treasurers increasingly want to make their transactions over the Internet without touching the branch network.
Commerce has begun segmenting business customers by company size, location, and industry so that it can bundle bank services in ways that make sense for the corporate clients while also turning profits for the bank, Mr. Kaplan said. "We can slice it 100 ways, but once you slice it, how do you act on it?" he said. "You've got to make sure what you offer is deliverable through that channel."
The consulting firm TowerGroup warned this year that banks face new risks online, both in authentication - assuring that users are who they claim to be - and in maintaining the confidentiality of transactions over the Internet.
"As with most security issues, the biggest hurdle is the human one: the end user," wrote senior analyst Ray Graber in the March research note.
The Needham, Mass., consulting firm recommended using technology such as digital certificates, digital signatures, and encryption, but it concluded that some risk was unavoidable. "Banks along with their customers need to continuously weigh the risk they are willing to endure against the timeliness and efficiency of the service," the note said.
Still, even the smallest banks, serving the smallest business customers, say they are seeing some advantages to Internet cash management. At 1st Mariner Bank of Baltimore, which has $800 million of assets, a software upgrade that facilitated online wire transfers helped attract a wave of new customers.
"We had customers on a waiting list, waiting till we had wire capability," said Cathy Rutherford, the vice president of cash management at 1st Mariner. "When we got it, they signed right up. That was a big one for us."
The bank outsources its online cash-management program to the BankLink division of Fiserv Inc. With the wire feature and a new file-export capability "we can offer what the bigger guys are offering now," Ms. Rutherford said.
