February 25, 1996

Home Banking Surges as More Customers Jump on Line


Randy Ryan flies DC-10s for United Airlines, but his wife, Pam, has put their money on autopilot. When they take a six-week vacation in Australia this spring, a computer banking service will make sure their bill payments depart and arrive on time.

"We will be able to schedule the rent and utilities to be paid," said Mrs. Ryan, a philosophy graduate student who signed up for the service at a Citibank branch near her home in Chicago. "And since we will take my laptop with us, we'll be able to check on the accounts while we are away."

Ever since personal computers first became available, banks have tried to sell home banking services, but the product became the industry's Spruce Goose, an expensive experiment that barely got off the ground.

The few who signed up often became devoted fans. Pam Ryan, for example, got hooked on Bank of America's computer service in 1985. But computers and modems were still rare in the home and the complicated software was offputting to many. Even 10 years later, there were hardly more than 100,000 home banking users nationwide.

Suddenly, though, home banking is back, and this time it may fly. Now more than one-third of American families own computers, with adults searching for something useful to do with them besides playing games.

A new generation of home banking software is both easier to use and a bigger timesaver. In some cases, it comes built into popular personal finance programs like Quicken, from the Intuit Corp. And banks, recognizing the public's growing fascination with the Internet, are starting to open virtual branches in cyberspace.

The banks dream that if they can get enough customers to do business over computers, they will be able to close more of their real branches, pruning more employees in the process. So they have cut fees sharply for home banking services -- to an average of $5 a month, from $15 -- with some big banks like Citibank and Corestates waiving all fees.

Since Citibank dropped its fee last summer, its number of home banking customers jumped more than threefold, to 175,000, or 11 percent of its New York account base. And when 22 financial institutions started offering electronic banking through Quicken last fall, nearly 100,000 customers signed up in the first month.

To be sure, on-line banking has a long way to go before it replaces the neighborhood branch. Even with all the new interest, well under 1 percent of the 100 million or so households in the country have signed up.

The Quicken program, which accounts for most of the recent growth, has been marred by slow customer service, technical glitches and bill payments that have been lost or delayed for weeks. And much of the business world simply isn't ready for on-line banking.

Because many companies cannot receive payments electronically, bills are often paid the slower old-fashioned way, with paper checks prepared and mailed by the bank. Errors and delays in that process can cause problems for the unsuspecting consumer.

More fundamentally, home computers cannot handle the two most common chores that send people to the bank: making deposits and getting cash.

Nonetheless, many who have taken the plunge into cyberbanking say they will never go back.

"The novelty of it got my attention, but the convenience sold me on it," said Brian C. Kohn, a quality auditor who lives in White Plains. "For me, it is just simpler to press buttons than put pen to paper and write a check."

Frequent travelers find on-line banking especially useful.

"It has been a lifesaver for me," said David Black, who lives in Tokyo and uses a computer to keep track of his checking account at Citibank, to pay credit card bills and occasionally to trade stocks. "If the bank statement gets lost, I'm still up on my financial position."

Home banking now comes in two basic varieties.

One type is meant to serve only as a remote-control panel -- like an ATM screen -- that lets customers see account information, make transfers and pay bills. Some software programs are developed by the banks themselves, like Citibank's Direct Access, while others are offered through on-line services like Prodigy and, soon, on the Internet.

A second approach attaches banking functions to broader personal finance software like Quicken and Microsoft Money.

The programs in the first group are, in theory, easier to use. But some of them lack the attractive graphics and other features of newer software. Direct Access, the aging DC-3 of home banking, is a series of text menus without so much as a splash of color.

Citibank promises an update this year, and other new programs are available or soon will be. Bank Street, by Servantis Systems, for example, uses the more streamlined controls of Windows.

Bank Street is offered by USAA Federal Savings Bank, which does business nationwide by mail, and has just been endorsed by Mastercard for use by its bank members.

An advantage of some basic programs, as unappetizing as the older ones look, is the wide variety of functions they offer. Citibank's program, for example, lets people obtain stock quotes, buy and sell stocks and mutual funds and see CD rates.

Also, the regular bank account information is often more up to date than on the service offered through Quicken; if a user takes cash out of a machine, the balance will be updated instantly in the on-line account.

The banking functions of Quicken and Money are more limited, and account information is at least a day late. Right now, these programs can connect to checking, savings and credit card accounts. But loan and investment accounts are not available electronically, although they may be in later releases. (On-line banking software is coming out this year for another personal finance program, Meca's Managing Your Money.)

Currently, these programs only update balances overnight -- when they are working. Many users of Quicken's home banking program have found that its system has been frequently unavailable, especially its link with American Express. Users of Money, which employs the same processing system as Quicken, have also had some access problems.

Even when the initial bugs in these systems are worked out, using a complex package like Quicken may be overkill for someone who just wants to check a balance and pay a few bills.

But for the estimated eight million people already keeping track of their money with Quicken, and the few who use similar programs, the addition of the banking features is an important timesaver.

Instead of having to type the details of every check and deposit in Quicken's on-screen checkbook, users can now have this information electronically transferred from the bank's computer to their PCs.

Most of the simple banking programs offer a way to download a list of transactions that can then be imported into a program like Quicken, but that is hardly as easy as pushing the "statement update" button in Quicken itself.

Thomas C. Di Santi, a chemical pump salesman in Sparta, N.J., has been using Quicken for several years, but he never took the time to enter each of his American Express charges into his computer. The latest version of Quicken allows him to download this information automatically, too.

"I have a better idea of where my money goes and an idea of what my Amex bill looks like before it gets to my mailbox," he said. This information, he added, is helping him manage his money better. "We just purchased a home and would not have a real good idea of what we could afford if it had not been for the easily accessible data stored in Quicken."

Because Quicken's loyal users are the first to jump into on-line banking, the program has attracted more banks than any other software package. By this summer, 14 of the country's 20 biggest banks, including Citibank, Chase Manhattan and Chemical in New York, will offer links to Quicken.

So will Fidelity Investments, Charles Schwab and Smith Barney, although the services will be for their banklike asset management accounts, not stock trading or mutual fund investments.

Many companies linked to Quicken offer nearly identical services through Microsoft Money Citibank and American Express, however, link only to Quicken.

Microsoft now uses Intuit's central computer to connect to banks and pay bills. But by this fall, banks will be able to use other processors, like the credit card giant Visa International.

The prices for these services vary widely. U.S. Bank of Portland, Ore., charges $15 a month for a full package of banking and bill-paying services. Citibank, by contrast, charges nothing for its on-line service, either through its Direct Access software, Quicken or Prodigy, but imposes a $9.50 monthly fee for a checking account unless the customer maintains a $2,000 minimum balance.

Chemical Bank, which has checking fees and minimums comparable to Citibank's, charges $2.95 a month for banking with Quicken or Money and 50 cents for each bill paid. Union Bank in Los Angeles is offering free checking with no ATM fees until 2001, and free computer banking for a year.

The variety of offerings leaves consumers with a tricky choice: What's more important, your bank or your computer program?

When United Airlines moved the Ryans to Chicago last year, they first chose First National Bank of Chicago, which offers home banking through Quicken or Money, for $15 a month. But when Citibank offered its service free, they switched.

But free doesn't always come cheap -- banks may slip in fees in other areas, so it pays to ask questions. Wells Fargo, for example, offers free banking on Quicken or Money along with a no-fee, no-minimum checking account. But its customers must pay to use a teller or an ATM machine at another bank.

For those who want to avoid all fees and are willing to swear off bank branches forever, there is Security First Network Bank, which operates entirely on the Internet. (Actually, for legal reasons, there is (italics)one(end italics) branch: in Pineville, Ky.)

Security First offers a checking account with a Visa debit card and a savings account, all without cost. Anyone with an Internet connection and a Netscape browser -- a program used to see "pages" of information on the Internet -- can check a balance, pay bills and perform the other typical electronic banking functions.

The bank's Internet pages try to offer some of the functions of Quicken, keeping track of your spending by categories, but using the service is somewhat complex. And like everything with the Internet, response time is often slow.

A couple of thousand Internet fans are now using Security First. But the company's business plan is to sell its software to other banks. So far, Huntington Bank in Columbus, Ohio, is the only committed buyer.

Still, many other banks are betting that the Internet will be the main medium for electronic banking in the future. Customers now using on-line banking connect their PCs directly to bank computers over telephone lines, a process that requires special software. But on the Internet, the same browser software can be used to shop, chat or do banking chores, all during the same phone call.

"Financial management software won't be for the mass market," said Richard Comandich, who runs electronic banking at U.S. Bank in Portland. "It's for control freaks who want to keep track of their money. The Internet will be the mass market."

Wells Fargo is the first big bank to let customers see their balances and recent transactions over the Internet, and it promises to allow transfers and bill paying soon.

"We have a customer in the Foreign Service who gets his balances over the Internet from Zimbabwe," said Dudley Nigg, an executive vice president at Wells Fargo. "He used to have his mother mail him the statement. Now he can get his up-to-date balance for the cost of a local call."

An example of the offerings that will soon be available on the Internet is Expressnet, a service that American Express now provides through America Online. The service, which has no fee, allows American Express card holders to review current charges, ask questions or report billing problems.

American Express, as is its style, is also using the service to sell travel reservations and high-priced merchandise. The most popular item: a $300 vacuum cleaner. The company will not give specific numbers, but says that well over 1 percent of its 14 million customers now use Expressnet, far more than it expected.

Microsoft, which has recently transformed its corporate strategy to revolve around the Internet, offers a combined vision. Future versions of its Money software will assume that customers perform banking transactions over the Internet. The Money program will simply be an electronic file cabinet in which these transactions can be stored and analyzed.

Of course, the anarchic nature of the Internet has raised more than a few security concerns, although bankers say these are mostly overblown. Internet software can largely scramble private data so that the information is difficult to intercept. There have been almost no criminal attacks on home banking systems.

"The key thing is confidence," said Les Riedl, head of electronic banking at Corestates. "We will give customers the ability to do transactions, based on how much they believe in the security of the system."

In general, consumers shouldn't worry too much about banking security on the Internet or any of these other systems. As long as you aren't negligent, say by telling a stranger your password, federal law makes unauthorized use of your account the bank's liability, not yours. (Of course, a breach in security could tie a customer's account in knots, requiring much effort to undo.)

What can be a problem, however, is having bills paid promptly and accurately, the most sought-after feature in home banking products. All of the programs allow you to send money from your checking account to pay the phone company, say, or your landlord. You can schedule each payment to coincide with its due date. And you can set up recurring payments, like a cable television bill, to be made automatically each month.

But the process sometimes involves far less technology than it appears. After you boot up your $2,500 Pentium computer, connect to the bank over your modem and click your mouse to enter the due date and amount of your cable bill, your payment is often suddenly forced off the information superhighway and squeezed into that perennial detour: the post office.

Because few companies are set up for electronic money transfers, banks typically have to print out a paper check and mail it for you. This gets the job done, and saves you the postage.

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