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BANKING VIA ONLINE SERVICES

BANKING VIA ONLINE SERVICES

Banking via Online Services

Although personal finance software allows people to manage their money, it only represents half of the information management equation. No matter which software package is used to manage accounts, information gets man-aged twice-once by the consumer and once by the bank. If the consumer uses personal finance software, then both the consumer and the bank are re-sponsible for maintaining systems; unfortunately,
these systems do not communicate with one another, thus giving new meaning to double-entry bookkeeping. For example, a consumer enters data once into his system and
transfers this information to paper in the form of a check, only to have the bank then transfer it from paper back into electronic form.

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Unfortunately, off-the-shelf personal finance software cannot bridge the communications gap or reduce the duplication of effort described above. But a few “home banking” systems that can help are beginning to take hold. In combination with a PC and modem, these home banking services let the bank become an electronic gateway, reducing the monthly paper chase of bills and checks

Citibank and Prodigy



To understand the more contemporary online banking services, we look at CitiBank and Prodigy. Prodigy has been pro-viding home banking to consumers since 1988, and has relationships with more banks than any commercial online service.

To expand the attractiveness of its online banking services, in 1996 Citibank began offering Prodigy subscribers a free and direct link to its elec-tronic home banking service. Access to Citibank is available to Prodigy sub-scribers at no extra fee throughout the New York metropolitan area. The agreement represents the first time that CitiBank has expanded access to its proprietary PC Banking service through a commercial online
service. To en-courage Citi Bank customers to try online banking through Prodigy, free Prodigy software will be made available at local Citi Bank branches. CitiBanking on Prodigy offers a full range of banking services. Customers can check their account balances, transfer money between accounts, pay bills electronically, review their Citi Bank credit card account, and buy and sell stock trough Citi Corp Investment Services. Citi Bank and Prodigy al-low customers to explore the wide array of services using an interactive, hands-on demonstration.

Intuit and America Online

On November 13, 1995, Intuit announced an agreement with America Online (AOL) in which AOL will offer Intuit’s home banking services to its 4 million-member customer base. AOL users will not need to use off-the-shelf Quicken software to access the banking services. Rather, Intuit will build a Quicken-like application into America Online that will have the basic banking functionality of transferring funds, paying bills, downloading bank statements, and checking account balances.

The banking service is provided through Intuit’s bankingsubsidiary, Intuit Services Corporation, the same entity that links Quicken to Intuit’s twenty- one banking partners. In order to use this service, AOL customers will have to have an account with one of Intuit’s partner banks. The service was launched in the middle of 1996.

Customers of this service do not have to pay AOL any additional fees, and the payment to Intuit is structured the same as when the customer chooses to use Quicken without
AOL. The financial institutions charge the customer a fee for the banking services (though some banks have opted to not charge customers); money is then paid back to Intuit. One can think of the AOL relationship as another access point to Intuit Services Corporation. A customer can walk into a bank and the bank can offer the customer three home banking choices: Quicken, Microsoft Money, or AOL. All three use the Intuit back-end payment service (Intuit Services Corporation).

In sum, this offering gives customers more choices for home banking. Clearly, Intuit wants to get the banking service into as many hands as possi-ble as quickly as possible. AOL customers are a pre selected group of potential early adopters; they already have moderns and are users of online services. The more customers that sign up for AOL, the more financial institutions will enter the home banking arena, bringing with them more
potential customers.

Banking via the Web: Security First Network Bank

With the explosive growth in Internet use, banking via the World Wide Web will undoubtedly catch on quickly. The goal of this approach to banking is to provide superior customer service and convenience in a secure electronic environment. The competitors in this segment are banks that are setting up Web sites, and firms like Intuit that can easily transport their product to the Internet.

How is Internet banking different from online banking?
This is an im-portant question and the answer is often misunderstood. Banking on the Internet is not the same as banking via online services. Internet banking means that:

Consumers do not have to purchase any additional software (the Web browser is sufficient), store any data on their computer, back up any information, or wait months for new versions and upgrades, since all transactions occur on a secure server over the Internet.

Consumers can conduct banking anywhere as long as they have a com-puter (not necessarily their own computer) and a modem-whether at home, at the office, or in a place outside the
United States. Banking via online services is restrictive in that the consumer has to install a soft-ware package onto her computer. This limits the customer to banking only from that computer, making a call to access a separate network, working with a separate software company, and banking during limited hours of operation.

Consumers can download account information into their own choice of programs rather than following the dictates of the service provider.

Internet banking allows banks to break out of the hegemony of software developers. If bank customers (end users) install personal financial management software on their PCs, these customers become direct cus-tomers of software firms. By controlling the software interface, software firms such as Intuit can control the kinds of transactions end users make and with whom these transactions occur. By maintaining a direct relationship with end users via the Web, banks can offer additional services and provide a personal feel to the interface, without seeking the cooper-ation of a software company.

If banks choose to offer home banking via personal financial man-agement software, they lose control over the end user interface and the relationship they have with customers. This loss of control has tremen-dous long-term implications. The software industry history offers com-pelling proof of the importance of organizations having a direct relationship with consumers. In the early 1980s, IBM decided that oper-ating systems were not central to IBM business strategy. As a result, IBM licensed DOS from a small software company called Microsoft. IBM called this operating system PC-DOS and allowed Microsoft to market this same operating system to competing computer manufactur-ers under the name of MSDOS.
IBM’s seal of approval made DOS an industry standard.
However, IBM was unable to move the industry to a new operating system called OS/2 in the late 1980s because Microsoft controlled the customer relationship and was able to
convert most end -users to Windows. For banks, too, losing control over the interface could have dire consequences.

Open Versus Closed Models

While it is clear that electronic commerce and electronic banking are in-evitable, the technology models for providing these services may not yet be fully understood by the banking industry at large. Two technology models of online banking are open and closed systems. Briefly, in an open system, content changes can occur easily because of the use of standard technology and components. For instance, a banking interface developed around the Web is an open system that is easy to customize to a bank’s changing needs. On the other hand, a closed system is one in which the changes are difficult since everything is proprietary. For example, a banking interface developed around a package such as Intuit’s Quicken cannot be modified unless the vendor distributes a new version of its software.

Banks need to be familiar with both these models when offering prod-ucts and services online. With the high level of customer interest in PC banking and the emergence of the
Internet as a vehicle for doing business, many banks have announced plans to offer Internet banking services. A handful of banks have already set up home pages on the Internet to provide existing and potential customers with information about upcoming ser-vices. However, with the exception of SFNB, few banks are offering any ac-tual banking transaction services, as they do not yet have the necessary technology or expertise.

Internet banking differs from traditional PC banking in several ways. Typically, the bank provides the customer with an application software pro-gram that operates on the customer’s Pc. The customer then dials into the bank via modem, downloads data, and operates the programs that are resident on his Pc. The customer is able to send the bank a batch of requests,

such as transfers between accounts. Any software upgrade has to be incor-porated into new releases and redistributed to the customer, and as more functionality is added to the software, more and more space and speed are required from the customer’s computer.

With Internet banking, on the other hand, there are potential customers who already have all the software they need. All that is required is a web browser since the actual banking software resides on the bank’s server in the form of the bank’s home page. The banking software can be updated at any moment with new information, such as new prices or products, with-out having to send anything to the customer; it can also continue to expand and become more sophisticated without becoming difficult for the customer to operate.

With traditional PC banking interactions, if the customer has more than one account or other financial products, the data is downloaded from multi-ple sources and then plugged into the appropriate places in the software. A bank server on the Internet, however, can perform this function for the cus-tomer and provide an integrated snapshot of the customer’s financial portfo-lio. In the case of Internet banking, it becomes much easier for the bank to outsource a product such as a brokerage account and have that information appear on a customer’s bank statement as if it were an internal bank product.

Another difference between the two models is that in the PC banking model, although the customer can work on his or her finances off-line and then make a quick call to download new data, this call would involve a long-distance or 1-800 call for customers outside a metro calling area. Banking with a browser, on the other hand, involves a continuous, interac-tive session, initiated by a local telephone call to a local access provider or online service.

An open system such as the Web offers two additional key benefits:

con-trol of the user interface and intermediation. With an open system, such as the application designed for SFNB, the bank designs the user interface and is therefore able to incorporate its own “look and feel.” This authority allows the bank to enhance its brand awareness and maintain direct access to its cus-tomers. The open system also allows banks to offer an expanded array of fi-nancial services and to choose their business partners when offering addi-tional services such as brokerage accounts and mutual funds-all of which lead to stronger customer relationships and increased revenue.

In a closed system using proprietary financial management

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software such as Quicken, the software firm acts as intermediary between the bank and its customers. In managing the customer relationship, the software provider controls the interface design, thus diminishing and even eliminat-ing any reference to the bank itself. The software provider also controls the selection of financial providers and determines the choice of services and the availability of those services.

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