Who's Using Whom, Part 2

• Online Banking Vendors chart

Even in the foothills of Arkansas’ Ozark mountains, Internet banking can find a home. Arneita and Tyrell Patton depend on it to make their lives simpler.

The Pattons live in Mountainburg, a town of 488 people. It’s not Silicon Valley, but some mountain folk are pretty savvy when it comes to on-line banking. In fact, the Pattons chose Bank of the Ozarks primarily because it offered them banking via the Internet.

"My husband does a lot of travelling in-state, and our sons had jobs at a camp up North in Jasper," says Ms. Patton. "We were spread out across the state and we needed something to make managing money easier."

And that is why banks big and small are finding it vital to provide on-line banking services. The issue is how to do it, and the amount to be spent.

A U.S. Banker survey of 100 banking companies with assets between $1.9 billion and $739 million indicates that most of them offer Internet banking simply to keep up with the times. But some said they see the Internet as a necessity for their business.

The banks surveyed rely on a handful of software companies to run their Internet banking operations. The banks with online banking use a total of 15 different software providers.

S1 Corp. in Atlanta, and Jack Henry & Associates of Monett, MO, are the leading providers. (See table below.) S1 provides 18 banking companies with its Internet banking products, while Jack Henry & Associates has engagements with 13.

While the great majority offer on-line banking, two do it internally. Only four contacted did not offer the service to their customers.

"In some of the towns we service, customers don’t have cable television or a daily newspaper," says Randy Oates, director of communications for Little Rock-based Bank of the Ozarks. "You might think people in rural areas aren’t interested in online banking, but they’re already on the Internet getting things like news and weather reports. The Internet for these people is their window to the world," he adds. "Enabling these customers to do their banking from home makes a lot of sense."

Many community banks said getting into the Internet banking game quickly was a top priority. Outsourcing provides a quick fix for small banks looking to compete with larger players, and is less expensive than developing a homegrown banking platform.

In metropolitan regions, as in rural ones, most small banks said offering Internet banking was a must.

"Our customers tend to be technology savvy and demand Internet banking," says George Schwartz, treasurer and senior vice president of Boston Private Financial Holdings. "And we, also, wanted to have competitive services."Boston Private launched its Internet banking operations in September 1999. After looking at several Internet banking vendors, Boston Private selected Qup because the bank found it easy to use and fairly priced. Qup was acquired by Atlanta-based S1 Corp. in April 2000.

Schwartz says bank customers have been pleased with the product and that it is used by 27% of its customers. According to the Needham, MA-based TowerGroup, between 17% and 19% of most bank customers bank on-line.

Other small banking companies in heavily populated regions, such as Bancorp Rhode Island, which owns Bank Rhode Island, offer Internet banking to compete with larger regional banks. Jim DeRentis, senior vice president of retail banking and marketing, says Internet banking helps the bank overcome regional "distribution issues," such as a limited branch network.

FleetBoston Financial Corp. and Providence-based Citizens Bank are Bank Rhode Island’s primary competitors, says DeRentis. Fleet has almost $180 billion in assets, and Citizens has $8.3 billion in assets.

Both organizations are offering their customers a number of online services, including Internet banking. Bank Rhode Island, with $814 million in assets, and 13 branches in the Providence area, says it needed to "broaden its product mix" to remain competitive with Fleet and Citizens.

Since deploying its Internet banking in March of 2000, the Bank of Rhode Island says it has seen the number of online banking customers grow consistently, but declined to give out numbers.