Getting on-line has become a top priority for banks - and a virtual conundrum.

To deliver banking services to personal computers, banks are wrestling with whether to latch onto a proprietary network such as America Online, or to establish a beachhead on the burgeoning World Wide Web of the Internet.

It comes down to a choice between known quantities with proven systems and strong followings among computer hobbyists, and the less-defined but potentially vast possibilities of the global Web.

"A battle is shaping up between private networks and more open networks, like the Internet," said Laurie Yoler, a marketing manager for Sun Microsystems in Mountain View, Calif. "But the Internet will never lose out to on-line services. Once you get locked up, you have no choice."

The leading on-line networks - America Online, Compuserve, and Prodigy Services - are seen as more secure and come with a ready-made platform and customer base. The Internet is essentially an open field, encompassing countless information sources and services, within which many bankers believe they can build a strong, distinct, and cost-effective presence.

BankAmerica Corp. and Chase Manhattan Corp. are among those hedging their bets by establishing themselves on both on-line networks and the World Wide Web. Others are more hesitant to make a choice.

Sun Microsystems, one of the more influential Internet technology vendors, sees financial service firms as prime candidates for its new Web- oriented products and services. These include programming tools to build Internet sites and data-servers powerful enough to handle these heavy-duty applications.

Sun is also reaching banks indirectly through its work with Intuit Inc., maker of the popular Quicken personal finance software, through which more than 20 banks are offering on-line services. Intuit is using Sun equipment to process banking transactions and provide Internet access to Quicken customers.

Intuit had considered using the Microsoft Network - which would have been logical if Intuit and Microsoft Corp. had gone ahead with their proposed merger - and later America Online, the most popular of the big interactive networks. Then the Menlo Park, Calif.-based software maker seemed to be plotting a steady course toward the Internet - offering Internet access through the new version of Quicken, and agreeing to acquire pioneering Internet fund data provider Galt Technologies Inc.

In the end, Intuit embraced both options, cutting a deal last month to provide banking access through Quicken over America Online. But many still see the Internet as having a decided edge on the proprietary networks.

"On-line networks are in a tough position - they are forerunners to the Web," said David Weisman, a senior analyst at Forrester Research in Cambridge, Mass.

In the long run, he believes, banks and other companies can achieve the necessary economies of scale only through the Internet, especially for bill payments.

The Internet, still typically used as little more than a computerized billboard, will be generating a noticeable volume of transactions by the middle of 1996, Mr. Weisman predicted.

And from there, Forrester predicts a fairly quick and dramatic shift. Recently it projected that by the year 2000, $46.2 billion of assets will be managed on-line - $29.9 billion of mutual funds and $16.3 billion of deposits. The study also sees $6.9 billion in on-line retail sales.

"The Internet is where banks can really build something of their own," Mr. Weisman said.

Well along in that process is First Union Corp., which is building what it believes will be a unique Internet pipeline with the help of MCI Communications Corp. Fred Winkler, senior vice president at the Charlotte, N.C.-based superregional, sees the major on-line networks as "closed channels" that can turn financial services into undifferentiated commodities.

While the private on-line services are struggling to open up to the Internet, Mr. Winkler said, "the channel growing exponentially is the open Internet channel."

"To us, it's the VHS-Betamax scenario all over again," Mr. Winkler said, referring to the battle over videocassette standards that was won by the more open and widely compatible VHS approach.

In consumer focus-group interviews this fall, Find/SVP discovered that, contrary to popular belief, consumers were more willing to do basic banking on-line than to shop - whether on the Internet or on-line networks.

The research also indicated that consumers' trust in their banks carries over into cyberspace. By and large, consumers indicated that "if a bank says it's okay to do banking over the Internet, they'll trust it," said Thomas Miller, vice president in the Ithaca, N.Y., firm's emerging technology research group.

Yet people felt more secure about the on-line networks, their level of policing, participant screening, and "neighborhood feeling." Mr. Miller thus questioned the conventional wisdom that the Internet will displace on- line services.

Gary Arlen, president of Bethesda, Md.-based Arlen Communications Inc., agreed that it is "too early to dismiss the on-line services ... The Web has already taken some hits."

Whether or not the Internet is any less secure than the on-line services seems to make little difference. Consumer perception is what counts, especially in the market's formative stages.

"If the public loses confidence in the technology, everything we're doing to bring convenience to the customer is jeopardized," said Stephen Hirsch, a senior vice president for emerging delivery systems at Chase Manhattan Corp.

The banks have a long - though less than stellar - history with the on- line service companies. More than a dozen banks have worked with Prodigy since the 1980s to provide banking access to their customers.

"Prodigy was there at the beginning," said David Frankel, Prodigy's business manager for banking services. "It stayed with the banks during the slow times."

But only recently have all the major on-line companies begun to place emphasis on financial services and other forms of commercial content. Mr. Frankel, for example, was recruited to Prodigy late this summer after more than a dozen years at Chemical Banking Corp. and Citicorp.

Last year, America Online made less than $20 million in revenue from on- line transactions - most of it from the sale of in-house items like sweatshirts and guidebooks. "Virtually none" came from financial transactions, according to Katherine Borsecnik, a network vice president in Herndon, Va.

John Lewis, a senior associate for research and regulatory studies at the Bank Administration Institute, said the on-line services "want to get banks on their networks because they have a high rate of turnover. Having a financial relationship links you to them."

Conversely, the on-line services may offer access to a new pool of consumers interested in on-line banking.

Consider a recent study by the New York research firm Jupiter Communications Inc. and Yahoo, a company that provides Web-surfing aids. Skewed toward an audience that prefers direct Internet access, the survey found 16% used personal finance services in some form, and only 1% said it was their primary activity on-line.

In Find/SVP's more mainstream survey, more than half said they would do banking on-line but only 7% said they do it now.

The American Banker/Gallup 1995 Consumer Survey showed that 35% of PC owners have used the Internet, 12% used it for commercial purposes, and 7% had done on-line banking.

"In the long run, the public network will reach more people across the United States more cost effectively than any dial-up or commercial on-line service," said a Forrester Research paper, "PC Banking Revival." "This reach will become critical as banking evolves from a local business into a national market.

"Bankers' conventional wisdom that the insecure Internet will not be used reeks of the old idea that people would not invest in mutual funds because the FDIC does not insure them."

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