Back in 1989 the year the first George Bush was elected president, and the big autumn disaster story was a giant earthquake in San Francisco the banking industry was debating a radical new concept called home banking.
Various entrepreneurial bankers often dismissed as faddists were trying to sell the idea that people could do transactions at home or in the office without needing to visit a branch. A number of devices were presented as channels, including the standard telephone, a screen telephone with a small digital display, and that newish device that had started to crop up in the homes of the very well-heeled, the personal computer.
That year, Matthew P. Lawlor, a former consumer banking executive at Chemical Bank in New York, cofounded Online Resources Corp., which intended to sell a home banking system relying on screen phones. Mr. Lawlor had just earned his MBA from Harvard and completed a one-year appointment in the White House Office of Management and Budget. His company, based in McLean, Va., won a plum contract to supply screen phones to the former NationsBanks home banking program in the Washington-Maryland-Virginia area.
Though the screen phone concept died a slow death (even Citibank had difficulty giving them away to customers), Mr. Lawlors company swung with the punches, reinventing itself as a supplier of Internet banking services, primarily to small and midsize financial institutions. Most of his current competitors in this field including S1 Corp., Corillian Corp., and Digital Insight were born during the early days of the Internet boom and did not have to molt one technology before going on to the next.
Despite the unusual longevity of Mr. Lawlors career in home banking, he says that even today Online Resources is in first grade in terms of its education in Internet banking. A lot of the industry is in kindergarten, he adds.
At least half the nations banks have set up Internet banking services on their own or through a vendor company like his, and the rest are either so small or conservative that they may not do so anytime soon, Mr. Lawlor said in an interview Monday. The market for signing banks has really slowed, he said. Its nothing like the land grab that existed before.
Before they graduate from elementary school, banks and their vendors are going to have to figure out how to get a bigger percentage of banks customer bases to rely on Internet banking and to adopt online bill payment, which is usually a pay-per-month service. Mr. Lawlor said that once a financial institution gets 10% to 15% of its customers hooked on Internet banking, you start seeing critical mass, and you can get these economies working for you. This is the turning point, he said, at which an Internet banking service turns from a cost center into a profit center.
If you have a 2% or 3% or 4% or 5% adoption rate, theres not enough of a base to let profitability start working for you, Mr. Lawlor said. Its just slow death if you just keep it down there at the low level.
Among Online Resources 520 financial institution clients, some are at 10% or above, but its banking clients average only 7% of customers using online banking regularly and only 3% to 3.5% using online bill payment.
Though many bankers think of the Internet as an entrenched way of doing business at this point, some question its value: Among the eight clients Online Resources lost in the last quarter, six dropped out after mergers, and two decided to scrap e-banking altogether.
But the latter were very tiny banks, Mr. Lawlor said. The vast, vast majority are saying, OK, now I get it.
Needless to say, since Mr. Lawlors firm gets paid based on the number of bank customers who use online banking or bill payment, it has a big incentive to get people signed up.
The more a financial institutions customers enroll in these services and keep using them, the more likely the institution is to make a profit, and the better it is for Online Resources, which is still trying to explain to Wall Street why it does not expect to be profitable until mid-2002.
Mr. Lawlor said that one move has proven enormously helpful: outbound sales calls to people who signed up for an online banking service but never activated it, or who stopped using it after a while. For financial institutions that request it, Online Resources will call customers who have not touched their online banking program in 15 days, ask whether there is a problem, try to do some troubleshooting, and perhaps even cross-sell something such as bill payment, a loan, or a new order of paper checks.
He himself was surprised at how effective the outbound call center has been, Mr. Lawlor said, and his clients have been, too. We backed into it, he said, but increasingly, its becoming a sales channel for us. The outbound call is expensive, but if youve got someone cross-selling to bill payment, its worth it.
It is another lesson, he said, that high-tech doesnt need to take the place of high-touch. By comparison, when I was at the branches at Chemical and the ATM card was introduced, we literally had someone showing the customers how to put it in the machine, Mr. Lawlor said.
In Internet banking, many customers cant get into the system for very simple reasons they forgot their password, for instance, he said People need to be coaxed. That human voice on the other end coaxing them to do it is important.
With Internet banking and bill payment, as with ATMs or fax machines, people didnt realize the utility of it until they used it, he said.
Mr. Lawlor said he perceives that banks and their vendors are moving into the third phase of Internet banking sophistication. In the first phase, banks said, I gotta get this because Wells has it and Citibank has it, he said. The second phase was ambivalence. Now, in the third phase, were sensing a Lets get this stuff profitable attitude."
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