What’s Wrong with Electronic Banking?

by Bill Gorog, chairman, InteliData Technologies

In recent months there has been a plethora of stories bemoaning the fact that e-banking is suffering from a low adoption rate, and the technology is years behind schedule in implementation. Speaking as an “artifact” in this business with more than four decades of experience introducing new computer concepts, I urge those writers to relax and recognize that this technology is actually being adopted faster than most.

My first start-up company developed the system now known as LexisNexis. We experienced 10 years and $30 million of red ink before lawyers and the media recognized the importance of online, real-time search engines. In the 1980s, I was involved in introducing retail point-of-sale credit card authorization systems. It took eight years for banks to realize their value and start actively promoting the systems. And we’ve all heard the ATM stories. In the early years, banks in New York employed clowns to stand in front of the machines to encourage their use.

The important thing to understand is that training the consumer to accept the technology is not the only hurdle. Part of the problem is that the systems in place have not yet reached a point where they are both consumer friendly and compelling.

The e-banking industry is proceeding through four evolutionary stages, and we have to complete the transformation before we’ll have enthusiastic consumer acceptance. Let’s examine the process:

Stage One: Internet banking’s beginnings—From 1993 to 1994, enthusiasts on the retail side of banking decided that they wanted to move forward with some form of Internet service, but they received little or no support from their MIS departments. Y2K issues were top priority. To compound the problem, mergers and acquisitions were occurring on an almost daily basis, requiring the same MIS people to combine banks with dissimilar branch automation, ATM, and core processing systems. The quick answer for the retail banker was to completely outsource the project; thus, Internet banking initially was offered by most banks via a third-party processor.

Stage Two: Banks start to take control—It wasn’t long before marketing professionals realized that consumers were using the Internet to connect to websites outside of the banks’ control, and they wanted to recapture those customers. Stage two brought the bank’s website in-house, permitting the bank to add its own identity and to offer other services to the consumer. Bill payment, however, generally remained outsourced to a third party.

Stage Three: Banks take the process in-house—Leading banks have already moved or are moving their systems in-house. Consumers, through widespread adoption of the Internet, ATMs, and cell phones, have come to expect real-time results. Customers are objecting to delays in electronic bill payment. After all, if it is possible to use an ATM and access your account in real time, taking money out in 20 seconds, then why do you have to schedule an electronic bill payment five days in advance to get it paid? If the system misses a payment, why does it take the bank’s customer service department three days to get answers?

Furthermore, banks are questioning why they have been paying third parties to send paper checks to billers who are their own customers. For these reasons, many banks are bringing their systems in-house to lower costs, increase the speed of payments, and provide faster access to funds for commercial billers.

Stage Four: Bill presentment and real-time payments—There are two big issues to tackle before banks can field a truly consumer-friendly system:

1) Technology is needed to provide customers the ability to view all of their presented bills at their bank’s website.

2) Banks need to be able to make real-time disbursement of payments to billers whose accounts are at other banks.

To deliver on these necessary next steps, a handful of visionary banks, including Chase Manhattan, First Union, and Wells Fargo committed to building a real-time payment and presentment system for exchanging online bills and payments under the name of Spectrum LLC. Fleet recently joined this group of owners, and the number of banks participating in the system has risen to 25.

Once Spectrum is implemented, the adoption rate will soar, banks will save money, and the consumer will be better satisfied. The Spectrum project will create the interface needed to provide real-time, bank-to-bank payments, with IFX messaging supplying all the data needed by the billers. The Spectrum presentment system will aggregate bills so banks can offer them to customers at their websites. To successfully utilize this switch, however, individual banks will need to be able to process real-time payments in-house and provide electronic payment information to their billers.

When will we see rapid adoption of e-banking systems? When the service provided is better, faster, and cheaper than it is today. When stage four is implemented, financial institutions will be able to offer the service free because of savings resulting from the elimination of handling paper checks and increased payment efficiencies—not to mention increased fee revenues from expanded electronic lockbox services for billers. The beauty of this plan is that everybody wins. The customer saves time, postage, and aggravation. The banks can better communicate directly with their customers, providing services and saving money in operations. The billers will get their payments days faster in addition to the savings resulting from electronic bill presentment.

We are now about seven years into the acceptance cycle for e-banking. I believe we will beat the 10 years it took for LexisNexis to be accepted, the 15 it took for ATMs, and the nearly 20 years it took for the Internet to bloom. We have the momentum, and roadblocks such as Y2K have been removed. When financial institutions make their service better, faster, and cheaper, customers will come.

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