Electronic Banking

By Bordewyk, David C. | Independent Banker, January 1995 | Go to article overview

Electronic Banking


Bordewyk, David C., Independent Banker


A decade ago, the industry was abuzz about home banking. Large institutions poured millions of dollars into developing new technology that would revolutionize the way customers banked. Hype about the virtues of banking by telephone, computer and other devices reached high levels.

But then, nothing happened.

Or, more precisely, home banking flopped. Banks and vendors wrote off their $100 million investment in the failed technology and quickly turned their attention elsewhere.

What happened? Why didn't home banking succeed 10 years ago? Well, the reasons are varied, but the common denominator, industry people say, was that the marketplace just wasn't ready. Banks were moving too far ahead of their customers, some of whom were still getting used to automated teller machines.

But wait. It's 10 years later and some of the same headlines and hype that accompanied the first go-around of home banking are reappearing. Everyone is getting excited again and talking about the coming of the interactive, electronic banking age.

Is this a bad joke or do bankers simply have short memories? Didn't we all learn our lesson back in the '80s? Home banking in the '90s? Pardon many of us if we sound a little skeptical, but we're still trying to shrug off the embarrassment of our failed forays into home banking a decade ago.

Not so fast, everyone. This time, it's different. This time, home banking, or remote banking, or electronic banking, or whatever you wish to call it, appears poised to make a real difference in the industry. This time, the marketplace seems ready for electronic banking.

And, more importantly, community banks have a large stake in electronic banking this time around. Electronic banking is not just for the big players in the industry. This time, electronic banking could become the "great equalizer" for community banks, leveling the playing field between them and their competitors.

The Electronic Connection

For the sake of discussion, let's call it electronic banking. The term home banking is limiting because much of what the industry is talking about today involves banking from not only the home but also the office, hotels, cars or virtually anywhere. The term remote banking doesn't seem definitive enough. Banking electronically is really what the story is about. Whether it's conducting a personal transaction over the telephone or providing a cash management service to a small business through a modem, an electronic connection is involved.

Getting back to the skepticism about electronic banking, the basic question must still be raised: Why should electronic banking succeed today when it failed before? Industry analysts say the most important factors are that consumers' preferences have changed and that technology has changed.

Before, the electronic banking push was driven by the advent of new technology. Banks saw the opportunity to implement new technology but failed to adequately question whether or not the public would use it. Today, analysts say, the banking industry is much more in tune with what the banking public wants and will accept. It's a hard lesson " that the industry learned from the failed electronic banking attempts of before.

Analysts point to consumers' ever-growing demand for convenience as a signal that electronic banking's time has come. Today's consumers are accustomed to ATMs and point-of-sale technology; other forms of electronic banking are the logical next step.

"Building a better path to the customer. This is exactly what electronic banking is about. Although many bankers missed the significance of it, this is what was happening when banks first issued credit and ATM cards," says Trent Fleming, president of Technology Advisory Services. "Since the customer could use these cards around the country, even the world, the value of their account at a particular bank was greatly increased. In a word, convenience. …

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