Running a bank in the two-college town of Oneonta in rural upstate New York seems to keep Wilber National Bank's people on the leading edge. The bank already offered dial-up PC banking and screenphones when its management decided that financial services would all be moving onto the Internet. The plan was to make the changeover in phases, starting with basic banking and bill paying. First, says Steve Milavec, senior vice-president for an Open Financial Exchange (OFX) standard for messages flowing between PFM packages and banks' mainframes. About the same time, Integrion, a consortium of IBM and 17 big banks, announced that it would create the Gold standard to serve basically the same purpose as OFX does, but for all financial transactions, including those coming into banks from sources other than PCs. In April of this year, the sponsors of OFX and Gold announced, sooner than expected, that they were within a few months of merging the two standards into one.
With an infrastructure close to being in place, the art of developing Web-based banking services has now been opened up to the entrepreneurial energies and creative talents of hundreds of small service providers. The new industry no longer belongs only to the big players with the deep pockets; anyone can play. Of course, this benign situation doesn't mean that there won't be breakdowns, losses, or a thinning out of suppliers. Executives of community banks will be traveling in uncharted territory for years to come.
By the end of this year, nearly half of all banks will offer home banking--PC or Web based. For the biggest banks-- those with more than $4 billion in deposits--the ratio is much higher: four out of five will offer home banking. Three of every five merely "big" banks ($1 billion to $4 billion in deposits) will offer it, along with two of every five smaller banks ($250 million to $1 billion). That's according to plans revealed to the Mentis Corporation, a Durham, NC., bank-technology research firm in its November 1997 survey of remote electronic banking (see chart at left).
Just as significant: almost all banks (90%) that are planning to offer home banking will include an Internet delivery channel. This compares with only 22% of the banks that presently offer some form of Internet banking.
The Mentis report is based on 274 telephone interviews with the senior-most persons involved in remote banking. The interview results were weighted to reflect the distribution of banks by size. The report is a snapshot of the banking industry as it crosses the threshold of a new era in financial services. Actually, it is more like one frame in an increasingly fast-paced movie. For one thing, the Mentis study does not include the 8,000+ community banks with less than $250 million in deposits. Several of these smaller banks are active, innovative Internet bankers; some are profiled in this article.
Why the rush to the Web?
The Mentis survey asked bankers to rate a set of ten possible reasons for doing so. Mentis compiled the percentage of respondents who marked each reason as a major one. The author of this article further consolidated that compilation into three strategic objectives: to create new opportunities for the bank, to defend the bank against competitors, and to reduce costs. While "Opportunities" and "Defense" came out nearly even as strategies, "Costs" was far behind. This suggests that the bankers who pioneered Internet banking think of it as either a justifiable investment or an unavoidable necessity. …