Banks are wondering whether to invest in wireless delivery channels and, if so, how much money to throw in that direction.

There is so much talk about how the technology behind wireless communication is in flux that banks are justifiably confused, and the issues are worth sorting out. The consensus among experts in the technology seems to be that, yes, U.S. banks should begin investing in wireless delivery but should not bet the store yet.

The experts say that there is no question that transactions on wireless devices will take off - the ability to talk, buy, and transact while walking around is just too irresistible - but that banks should wait until consumers embrace wireless Internet phones on their own rather than trying to spur adoption by giving the phones away, as European banks are doing.

Part of the problem is that the Wireless Application Protocol, now the leading protocol for wireless devices, is slow, cumbersome, and weak on graphics. Devices that can accommodate it - including "smart" phones, personal digital assistants, and alphanumeric pagers - have small browsers, usually with four to 11 lines of text and 20 or so characters to a line.

In order to carry out simple transactions, people must punch options from drop-down menus, which move the user from screen to screen. It is a bit like doing business on a low-tech automated teller machine.

The good news is that the protocol - known by the unattractive acronym WAP - will probably be supplanted as better and faster carrier technologies with more bandwidth come to market.

WAP is an overlay protocol that works with a digital technology standard widely known as 2G, or second generation. The 2G standard comes in varying flavors - AT&T uses one called TDMA; other U.S. carriers use CDMA; Europeans use GSM - but it is widely expected to be superseded within a year or two by a richer standard called 2.5G, which would also come with a host of acronyms and, more importantly, with more data capability.

And in maybe five years, a far superior standard called 3G is likely to make its commercial debut.

Experts say the current generation of WAP devices will work with these higher-octane standards, but the devices will seem primitive - as if a user were connecting to the Internet with a 28.8 baud modem in the age of superfast T1 lines.

"3G throws everything out and starts from the ground up, building a network with lots and lots of data," said Richard Luhr, director of technology strategy at Herschel Shostick Associates Ltd., a consulting firm dedicated to wireless topics. "3G is way out there. It's like pie in the sky right now, and it won't be until 2005 or 2007 that people will start using it. What we're doing today with the current technology is learning how the world works, with the hopes we can apply those lessons when 3G arises."

Though WAP is a hot topic among banks and other companies that yearn to serve the unplugged populace, it is "an interim standard in the sense that it's extremely limited in what it can do and everyone can see it is not enough," said Mr. Luhr, whose firm is in Wheaton, Md., but who works from his home in Ferrisburg, Vt.

"We expect other things will supplant it in a few years when the networks get better, but we don't think WAP is going to go away," he said. "It's going to be built into every phone, but people aren't going to pay attention to it."

What's a bank to do? "It's certainly worth the relatively small investment for major banks to play around with this, if only to learn what people will find useful with this interface," Mr. Luhr said. " has a WAP site out there, but probably people aren't going to buy a lot of books that way."

Mr. Luhr predicted that the advent of 2.5G and 3G would make everyone want to own a phone or Palm Pilot-type device with a wireless browser. Banks will have the same experiences they had when deciding how to price Internet banking, he said: They will have to give it away.

"We've got all these technology platforms that are available, but what we haven't got is a proven case for making any money off of this," Mr. Luhr said. "It's just a way to extend our brand to a new channel. It's not like the ATM - it's going to be a total loss leader. If banks can deal with this concept, then absolutely, they should take $100,000 and put it into development."

In a survey last year by Jupiter Communications, 1,236 people who used wireless devices at least once a week - call them early adopters - were asked to name the three things they like or would like to do most with the gizmos. Not surprisingly, half of them put e-mail on the list. Personal banking got votes from 14% of respondents, putting it a little ahead of stock quotes-market information (12%).

The seemingly low number for the stock category reflected that "only a small portion of Internet users follow the financial markets to begin with," Jupiter said, but the feature was very popular among those who do.

Some British and Scandinavian banks are trying to create a market by giving away WAP phones to customers for them to use to do their banking. Though these banks boast of high use rates and flourishing customer interest, experts universally warn U.S. banks against this strategy.

Many industry experts remember when banks tried to give away screen phones for home banking a decade or so ago. Citibank was in the forefront of this effort, but people did not want the devices, which gradually vanished from the marketplace.

One former screen phone cheerleader was Matthew P. Lawlor, chairman and chief executive officer of Online Resources and Communications Corp. of McLean, Va., a vendor of Internet banking systems for small and midsize banks. "Unfortunately, our lead banks couldn't give them away, so that was the death knell of the screen phone," he recalled. "People don't buy phones from banks."

Screen phones were meant to be "bridge" devices that got people used to banking at home and encouraged them to start doing it by computer and eventually by Internet. But the banks went at it backward, Mr. Lawlor said, thinking the phones would get people interested in the remote services that banks were really trying to sell.

In the late 1980s "there were PCs in the home, but people weren't using them for things other than games," Mr. Lawlor said. "Then along came the Internet. The killer app was e-mail, and now banking has come along with it, and you're seeing huge increases in adoption rates" of Internet banking.

When it comes to wireless technology, "the question isn't which device is going to lead the crowd, it's which application," Mr. Lawlor said. "The key to all this stuff is consumer adoption, getting a lead driver, and following it with many different applications that make it more valuable."

Next Wednesday: More factors to consider in developing a wireless strategy.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.