Banks have eagerly adopted the Internet as a tool to get customers to pay bills, move money between accounts, trade stocks, and even apply for loans.
Until recently only consumers who already had a relationship with a particular bank could enjoy this digital interaction, because banks had stopped short of fully automating the process of opening an account. One reason is the Federal Deposit Insurance Corp.'s requirement that banks have customers' signatures on file. But now some banks are reinterpreting that rule to include electronic signatures, which allows them to offer an all-electronic account-opening process.
Catherine Palmieri, the executive in charge of Citibank's Web site, said it recently began offering would-be customers the ability to open, fund, and begin using a checking account over the Internet, without signing a piece of paper or mailing in a form.
This follows in the steps of NetBank Inc. of Atlanta, which introduced a similar service in December. Since then 41,000 customers have used the instant application to open checking accounts.
Consumers have been able to apply for a checking account online through the Citigroup Inc. unit since late last year. But in order to begin using the account, customers had to print and sign forms that acknowledged their acceptance of bank terms, then fax or mail the forms to the bank.
A few other banks use this two-stage process, which cuts out some of the forms that would be filled out at a branch. But the non-Internet step lost some customers and added time and expense to the account-opening process, said Ms. Palmieri, the managing director of Citibank.com.
"Applications for bank accounts can be frustrating," she said. "We try to make it as easy and clean as possible. Once you make it easy, more people will do it."
Under the new program, Citibank customers can complete all of the forms online and start using the account as soon as the debit card arrives in the mail. In fact, unless these customers want paper checks, they never need to send in signature cards.
Ms. Palmieri said a lot of customers were more concerned about getting the debit card immediately than about getting checks.
The process will eventually become even easier, she said. This year Citibank will move to the next phase of its online strategy by allowing customers to start using their accounts online instantly, without getting the debit card first.
Christopher Musto, the vice president of research at Watchfire Corp.'s GomezPro in Waltham, Mass., said only a handful of banks have tried similar programs. "Adoption has been pretty sparse. There are a lot of caveats."
For starters, there is that FDIC signature requirement. But Mr. Musto said that even though the agency demands a signature, it does not define what will suffice.
Since the E-Sign Act took effect in 2000, some banks have begun allowing customers to use electronic signatures, which can be delivered by clicking on a box to indicate that the customer has accepted the terms of the agreement. However, Mr. Musto said there is no industry consensus that an e-signature is an adequate method of authorization, and even Citibank is refusing to honor paper checks until the customer has submitted an original signature card. "Banks may disagree with each other on this," he said.
Allowing e-signatures provides near-instant gratification to customers who want to begin banking as soon as possible, and will probably be a draw for more people, he said. "Banks are increasingly trying to come up with more dynamic methods to attract new customers, and they are employing the online channel in that effort."
Other banks have developed Internet-only application procedures, but with some restrictions.
David Lewis, the chief marketing and IT officer at ING Direct, a $3.5 billion-asset Internet-only unit of ING Group NV of the Netherlands, said it has been offering the instant account-opening service since 2001, but only on savings accounts.
Customers crave the service, but few bankers want to provide it, he said. "Bankers think customers like to visit the branch, but the reality is they do not." Most customers find "the old model of forcing customers to fill out papers and go to the branch inconvenient."
Ms. Palmieri said Citi's new online capability saves the bank money. "We no longer need to send out any paperwork, no signature cards, and we don't need to remind the customer to send in a check," so customers are happier.
With this offering, Citi is hoping to reach customers who want to open their accounts quickly and online, she said. "I would say online-savvy customers, but that is hardly distinguishing anymore."
About 10% of all new checking accounts at Citi are now opened online, even though the cumbersome paperwork rules were in effect until recently, Ms. Palmieri said, and she expects that percentage to rise now that customers can do more of the task online.
Eventually, the service will be extended to brokerage and money market accounts, she said.
Being the first to offer a completely online application process for checking accounts will give Citi an advantage, but only for a while, Ms. Palmieri said. She estimated that within nine months to a year online account sign-ups would became widely available at other banks.
CashEdge Inc. of New York, which provided the infrastructure for Citi's account-opening process, said it uses a "triangulated information verification system" to instantly check an applicant's identity. This includes asking for standard identifiers such as a name, Social Security number, and address, and then asking for what Ms. Palmieri called "out-of-wallet information," which would not be available to someone who had stolen a wallet.
For example, the bank may list the applicant's former address, along several random ones, and ask the applicant to identify the correct one.
Sanjeev Dheer, CashEdge's chief executive and co-founder, said most other big banks allow customers to enter some information online, but still require them to fill out and mail an application. Paperwork is probably the reason less than half of all accounts that are started online are actually funded, he said.
CashEdge is in discussions with several top 10 banks to provide the instant account-opening service, Mr. Dheer said. Six regional or smaller banks, including an Internet one, will begin offering instant account openings this year.
The service will become a must-have, he said. "The online channel has potential to be the most powerful delivery channel. It will significantly increase the close rate" on checking account sales.
Ms. Palmieri said she did not worry that a proliferation of instant account openings would make checking accounts any less important in keeping customers loyal to their banks.
"What still drives customer relationships with institutions is the convenience and proximity of branches and ATMs," she said. "This makes it easy to open an account."
