Over the last decade financial services executives have viewed Web banking as everything from a heaven-sent cost-saver to a necessary evil.
Today one school of thought claims that the Web will prove its mettle as a way to help banks acquire deposit account customers. Though this is not a new idea - banks have long maintained that they could use the Internet to cross-sell existing customers or attract new ones - it has started to take center stage at some banks, most notably Citigroup Inc.
Citi has been steadily adding features to its Citibank Online, some of the latest ones aimed squarely at encouraging customer sign-ups. Last month it introduced an "e-signature" function that lets checking account applicants signal their acceptance of an account's terms and conditions by fax and Internet, instead of by mail.
Next year Citi will begin verifying applicants' identities online by asking them a series of questions - such as, "Who holds your mortgage?" or "Which of the following addresses looks familiar to you?" - and checking the answers against information from several databases.
Citi also will begin facilitating instant funding, which will allow applicants to transfer money from existing accounts into a new one at Citi with little or no lag time.
Historically it has been relatively easy for banks to get people to apply for an account online; getting them to actually put money into it is a different story.
Catherine D. Palmieri, the managing director of Citibank.com, said she expects the new services to dramatically cut the number of checking accounts that are opened but never funded. She estimates that around 50% to 60% of online customers will be able to verify their identities online and thus open an account instantly.
"The Internet has been brushed off for the past few years" by bankers who were disappointed by the results, Ms. Palmieri said in an interview last month at the Bank Administration Institute's Retail Delivery Conference & Expo 2003 in New Orleans. "I felt compelled to tell people about its usefulness."
The three new features - the one introduced last month and the two to be introduced early next year - replace a system in which an applicant had to wait for forms describing the terms and conditions to arrive by mail, and then return the signed forms and a signature card to the bank, all adding several days to the process.
Under the current system, customers can read and acknowledge their acceptance of the terms online, print a signature card from the Web site, sign it manually, and fax it to the bank, avoiding the mail altogether and eliminating some of the constraints that drained the account-opening momentum from some applicants.
When Citi begins authenticating customers online, it will be asking them what Ms. Palmieri called "out-of-wallet questions," or things that an imposter could not learn just by stealing somebody's wallet or mail.
"It was a leap for compliance to accept instant online account openings," and Citi's compliance personnel are happy with the system, she said.
The next step will be the instant-funding feature, which will have new customers authorizing a money transfer from another institution to Citi. That piece of the puzzle, which will let Citi "enable it all in real time," should help sustain customers' interest in carrying the process all the way through, Ms. Palmieri said.
Citibank is not the only bank offering or preparing to offer these features, but it does happen to be one of the more successful online bankers. Ms. Palmieri said that more than 25% of its checking account customers are using online bill payment as well as viewing their accounts through the Internet.
In a parallel effort, Citi has been trying to get more of its depositors to sign up for online banking and to use electronic bill payment, fund transfers, and alerts. In a two-week promotion that ended Nov. 24, it gave away high-end technology prizes to customers who signed up for online banking and played a game that made them find prize pieces hidden in different areas of the Citibank Online Web site. The idea was to get people to explore different features they might not ordinarily notice.
The prizes included the Apple iPod and Sony Clie handhelds, a free visit with a Citibank financial adviser, and $75 toward online bill payments. The grand prize was a 42-inch Sony plasma television.
"It's not that people aren't interested" in online banking, Ms. Palmieri said. "It's that we have so much on the site, unless we do something to market it, [customers] don't always stumble upon it."
One of the new features, an account-to-account transfer service introduced in September, has attracted "thousands" of customers, she said. "The rate of adoption is very strong," with most new customers "stumbling upon" it. "We just started marketing it on our log-on pages."
So far around 70% of such transfers involve money coming into Citi from another institution. Those transfers are free. Sending money from a Citi account to, say, a brokerage or savings account at another institution costs $10 for next-day service or $3 for standard service, which takes a few days.
Gwenn Bezard, an analyst with Celent Communications LLC in New York, said that even though ING Group NV's ING Direct and E-Trade Financial Group offer some types of account-to-account transfers, Citi's larger size will probably attract attention.
"The industry will watch how effective the product is and how much success Citi has with it," said Mr. Bezard. "I wouldn't be surprised if a few large banks announced some equivalent services over next few months."
Ms. Palmieri and her staff spent months developing the technology to permit customers to move money among various accounts. Without such a feature, account aggregation was not very useful, she said. "You could bring in accounts from other financial institutions and could look at the balance, but couldn't do anything with it."
Though Citi discontinued its c2it person-to-person money transfer service on Nov. 9, an analagous service is on the agenda, she said. "Consultants are saying there is a lot more functionality around demand deposit accounts, in enabling them to do more than in the past. We used to look a lot at bill pay, but now we are looking beyond."
