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Banks opening Web windows

The move to online banking gains additional endorsements with two new online banking tools due out early next year.

    The move to online banking gained additional endorsements today with the announcement of two new online banking tools that are due out early next year and are expected to offer bankers more flexibility and lower costs.

    Microsoft (MSFT) and CheckFree (CKFR) today announced plans to expand an existing alliance to the Web with a new product to help commercial banks offer Web banking services for consumers.

    In an unrelated announcement today, Digital Insight and a subsidiary of Stratus Computer (SRA) said they have struck a deal to offer Internet home banking to some 300 financial institutions worldwide.

    Karen Epper, an analyst with Forrester Research, said today's deals demonstrate growing banking industry interest in setting up online transaction services.

    "We have seen a sea change in the last 12 months in how the banking industry views and uses the Internet," Epper said.

    In a Forrester survey conducted in August, 64 percent of America's leading commercial banks said they plan to offer online banking by August of next year. Another 20 percent said they will go online by August of 1998. The figures mark a dramatic shift from 1995, when all but 11 percent of bankers surveyed said they would "never" offer online banking, according to Epper.

    After industry leaders like Wells Fargo, Huntington Bank Shares, and First Security "have led the way" online, Epper said, "other banks have stood up and taken notice that the benefits outweigh the risks."

    Yet, the survey included the opinions of executives at America's 50 leading commercial banks, which represent a tiny fraction of the country's 11,000 banks. While a few community banks have already gotten wired, smaller banks are likely to proceed with caution, she said.

    The early entrants have mostly set up private dial-up networks to let customers check account balances and even conduct transfers and other transactions. But new Web software and services such as the two announced today are starting to hit the market and will likely entice many more banks onto the Internet, Epper added.

    Microsoft and CheckFree, two companies that have already established leadership in online banking, will unveil BankStreet Web with ActiveX in the first quarter of next year. It is a new CheckFree product for Web banking that they are jointly developing to offer many of the personal finance features in Microsoft's Money 97 and port them to the Web.

    "ActiveX takes pieces of personal financial programs and makes them appear within the user's Web browser," explained Ted Spooner, CheckFree's vice president for Web development.

    Analysts and industry representatives said online banking will soon become the cheapest and most flexible way for banks and other financial institutions to offer services like checking balances, transferring funds, and paying bills.

    BankStreet pricing is not yet set and will likely vary from bank to bank depending on the services provided and number of customers served, according to a representative of CheckFree. The company's current online banking services, which it offers to 168 banks that use private dial-up phone networks, carry a wholesale price of about $4 per bank account each month. Some banks pass the fee on to consumers, while others consider it part of operating expenses, he said.

    In today's other deal, Stratus's electronic commerce subsidiary S2 Systems said it will combine its electronic banking software with Digital Insight hosting capabilities.

    Digital Insight will create bank Web sites and use the S2 software to host them for the institutions. Services include real-time account access, stock quotes, and financial wizards that can interface with leading personal finance software--Intuit's Quicken and Microsoft's Money 97. Electronic bill payment will come later, the companies said.

    Costs, even for the dial-up network services, have fallen dramatically since last year as the technology is used more widely, according to Epper. Web-based banking offers additional opportunities. By turning processing over to the banks, the Web-based services lower transaction costs. Tapping into the Web allows companies to cut out the costs of private dial-up telephone networks. Consumers conduct transactions "on their own dime" using a browser while connected to third-party Internet service providers.

    The Web-based approach turns over not just processing to the banks. They also gain control of maintaining and updating the sites, thus gaining valuable flexibility in designing and marketing products online, Epper said.

    "The Web and the Internet provide a channel where banks have complete control over what consumers see and how they update and add services," she said. Such control issues will move to the fore as more banks look to use their online sites as engines for promoting brand names, highlighting and even selling financial products.

    "If they want to highlight a specific product over a short period of time, they can do that," Epper added.