Technology Credit Union, known as Tech CU, is one of the nation's fastest growing with 850 sponsor companies. "All technology-based," adds Ted Thames, vice president of marketing and director of strategic planning. The San Jose-based credit union launched its Web site three years ago, initially with little more than posted descriptions of products and services available through non-computerized channels. The following year, customers could call up transaction history, transfer funds, reorder checks, stop payments and pay loans from their checking or savings accounts -- all at the Web-Branch. In the third year, 4,000 customers signed up for electronic bill payment.

A Defensive Offering
Today, according to Thames, one-third of the bank's 53,000 customers bank via personal computer. "If you want to provide retail banking in a market that is heavily technology oriented," says Thames, "you simply have no choice but to provide as much access online to as much information and as many tools as you can. If we don't do it, someone else will."

Grant Thornton LLP, whose survey of community banking executives is the oldest of its kind in the industry, declares that the Internet is now the delivery channel of choice for customers opting for home banking. A study, published in November of 1999, reported that more than three-quarters of all community banks either had or expected to have a Web site by the end of the year, and most of the rest would go online before 2000 was over.

CheckFree Corporation provides online banking services directly to 350 financial institutions and to smaller community banks, thrifts and credit unions through 10 third-party partners such as Equifax, Digital Insight and Fiserve. Jeff Weikert, vice president of CheckFree, manages what the company calls its "value-added reseller group." The company's standard contract -- which calls for a substantial implementation fee and a pricing scheme based on a hefty minimum -- put CheckFree beyond the reach of all but major banks and financial service providers. About a year ago, CheckFree decided to move smaller financial institutions to its resellers.

CheckFree now wholesales a full menu of e-banking services to third-party vendors, who in turn outsource these services to clients who could otherwise not afford the cost of launching, maintaining and servicing their own sites. Since last summer, literally hundreds of small banks have begun serving customers over the Internet, some in as few as 30 days.

"It's a win-win-win situation," Weikert explains. "Our proprietary research shows that 80 percent of the public believes anywhere-anytime access is a prerequisite in their choice of a bank.  One that doesn't offer online services is fast becoming non-competitive. [Internet banking] is a defensive offering. Banks have to have it because customers demand it."

He then sounds a cautionary note. "One channel doesn't replace another," he warns. "It just provides more access points. Customers are mixed-channel users. They want branches for some things, ATMs, drive-throughs and computers for others. The more access points you give a customer, the more they will use."

Weikert points out that online customers are often a bank's best. They maintain higher balances and multiple accounts. Electronic bill payment, currently one of the most popular current offerings, is what’s known as a sticky product -- one that tends to encourage customers to stick around. Once they've set up their payees, customers appear reluctant to start over again somewhere else.

Screen-scraping and Other Ploys
M&I Data Services, a subsidiary of Marshall & Ilsley Corporation, earned $583 million in revenue last year by providing financial data processing, consulting and software services to banks and other financial institutions. Its e-Pathway division lets financial service providers offer their customers a wide selection of products and services -- from standard account access, to investment services, to electronic bill payment, to "screen-scraping," a one-stop consolidation of a consumer's total financial holdings.

"Customers provide an aggregator with the necessary identification and passwords to mine the different Web sites they now use for data they want to see on a single site," explains Vicki O'Connor, M&I's vice president of marketing.  The aggregator then consolidates the information on a daily, weekly or monthly basis, so the customer can view all their financial information in one place without having to consult multiple Web sites or financial statements.

O'Connor believes that the Internet offers traditionally conservative banks a chance to reinvent themselves. To that end, M&I recently introduced Customers Forever, in partnership with Mortgage Guarantee Insurance. Customers Forever lets a bank identify its best customers and, based on predictive modeling, contacts them with services likely to be relevant to their stage of life.

The model recognizes when a particular customer is most likely to consider a home equity loan, a refinance or a college loan, and sends them an e-mail with a personalized offering and a chance to respond on the spot.

"How would you like to save $X per month?" an e-mail might ask a mortgage client three years into the payment period -- the time frame most customers refinance. The recipient can then click yes to initiate an automated refinance option based on the information contained in the original mortgage application.

O'Connor contrasts this approach to most traditional mortgage applications, which she describes as, "the most information you ever provide about yourself, usually thrown into a file and never looked at again."

Depending on the extent and complexity of the product mix a bank chooses to offer, Internet conversions can take anywhere from eight weeks to three months. "It's not the technology that accounts for the time," O'Connor notes. "It's getting the bank knowledgeable about the Internet and making sure all the important components are handled."

She advises that, before a bank embarks on its Internet program, the signup process must be easy, intuitive and smooth; the options for collateral well understood; and the value proposition plainly evident.

No Longer an Obvious Advantage
As credit unions go, Tech CU was early to the virtual party.  And it paid off. With $675 million in assets, the credit union is growing twice as fast as the rest of the industry. Much of its online services are outsourced -- invisibly to the customer -- to Corillian Corporation of Seattle, Wash. Besides online access of a full menu of financial services, Tech CU customers can also specify the features they want in a new or used car, which credit union auto consultants will then locate and finance at a participating dealer. They can purchase insurance and trade securities online on an E*Trade platform at E*Trade prices. And, with the addition of asset allocation modeling, members will soon be able to test various what-if scenarios and invest accordingly.

As of May 15, members could apply online for a loan (home equity, auto or mortgage) or a credit card and receive an answer in under two hours. "About a third of our applicants got their approvals in two minutes," says Thames. And he insists that within 60 days, Tech CU will have cut processing time to several seconds.

How can a bank that’s not e-enabled hope to compete with that?

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