E Banking

By Newkirk, Kristine M. | Independent Banker, February 2000 | Go to article overview

E Banking


Newkirk, Kristine M., Independent Banker


Like younger companies across the nation, Bank of the Southwest is on the forefront of Internet banking. Opened in mid-1999 the $18 million-asset bank in Tempe, Ariz., invites its commercial customers to bank over the Internet.

Tom Gryp, president of Bank of the Southwest, says Internet banking is an integral component of the startup's plan to give businesses state-of-the-art tools to manage their money. While all customers can check account balances, verify deposits and transfer funds among accounts online, it's the corporate set that performs a number of additional functions online.

At the speed of electrons, companies request wire transfers, manage sweep accounts, initiate ACH originations, access bank statements and view imaged checks, both front and back. But at Bank of the Southwest, there's more to it. Business clients going online also get those services free.

"The incremental cost associated with taking care of a customer is actually negative with Internet banking," Gryp explains. "If commercial customers weren't doing these transactions online, they would be dealing with an employee to a much greater extent, and for the bank, a much greater cost."

Plus charging for these services would create an unnecessary barrier that could dissuade small businesses from moving online, Gryp adds. "We want small businesses to get comfortable with Internet banking."

Web-based services aimed at bringing small businesses online are rapidly coming of age. About a dozen banking software vendors are marketing applications tailored to the small business marketplace. Much of the online business banking software is bank-branded. And better yet, it is often priced to allow banks either to break even or profit from these electronic bells and whistles.

The basic concept of online business banking is to provide small to mid-size businesses with convenient, anytime access to bank accounts, cash flow information and business transactions that aren't available in online banking products for the retail market.

Strategies for online commercial services range from offering individual businessbased products to a complete, end-to-end financial services portal that puts community banks at the hub of an international purchasing community. Commercial modules typically start with cash management capabilities, like wire transfers, stop payments, sweep capabilities and ACH origination. Bill payment, account reconciliation, reporting, tax filing and investment management functionality and are often constructed as add-on modules to cash management systems. Both Internet and direct-dial connections are available.

Untapped Potential

Consultants say the small business market, which has a high penetration of PCs with Internet access, is ready for online banking. But bankers, and even vendors, caution that only the most sophisticated small businesses are likely to give online banking a try today.

The number of commercial companies currently banking online is small and generally excludes the mom and pop stores down the street. According to a study by Financial Institutions Consulting Inc. in New York, only 3 percent of businesses with less than $500 million in revenue make use of online banking today. And corporate online banking use rises the more a company's revenues grow, the survey shows.

Nevertheless, online commercial banking will only grow in the months and years ahead; 14 percent of businesses in the $500 million-revenue range plan to use online banking next year, according to the Financial Institutions Consulting survey.

The Financial Institutions Consulting study also found that most business users conduct only simple transactions over the Internet, the types of transactions available in most retail banking software models, like obtaining account balances and making account transfers. Roughly one-fourth of online companies make payroll deposits and business purchases. …

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