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Automated lenders Featured

10:08am EDT July 22, 2002
A personal relationship. Understanding your business. Local commitment. These are common mantras used by banks of every size, and you can find many more in any financial institution's advertising campaign.

The focus is almost always on the relationship between the banker and the business person. Then Automated Teller Machines appeared, and now online banking via the Internet. How important is personal banking?

"There are several factors that are driving online banking," says George Kivel, managing director of Mainspring, a financial business advisory service that specializes in Internet business. "The first is just customer convenience. Some organizations are able to self serve for ordering some services or checking the status of accounts. It's more convenient and a better use of their time to do it online rather than traveling to the local branch."

Banks benefit through long-term cost reductions. The short-term costs of installing the system are eventually paid for by increased volume of electronic transactions without the need for additional personnel.

"The Internet gives banks the ability to take what were high value but high-expense services and scale them to a larger market," says Kivel. "Their hope is to take sophisticated cash management products that used to take a workstation and special software, and provide them in a more cost-effective manner over the Internet."

Banks will be able to handle business accounts in a more integrated fashion, because some services may be linked electronically to the business, whether it be the broadening of Electronic Data Interchange to smaller companies or even handling credit card processing for Internet orders from a company's Website.


A machine's world?

Despite the consolidation of local branches and more and more banking transactions occurring through the beeps, buzzes and static of a modem, most entrepreneurs won't see their banker disappear. In fact, they might see more of him or her.

"Online banking will allow for more face-to-face time on critical business issues," notes Kivel. "The relationship manager at a bank used to do a lot of paperwork, and it was a burden on their time. With many routine services being provided through the Internet, they should be able to spend more time relationship building.

"The Internet can take the person in or out of the loop. It's a business decision for the bank, not a technology decision."

Many banks have yet to realize the potential of-or haven't quite decided how to utilize-the Internet as a vehicle to deliver services. A lot of sites are still fundamentally nothing more than brochures, or offer little more than account balances or other statement information. Those offering services often limit them to self-service type transactions, such as address changes or stop payment orders.

"To establish a relationship, it still requires a fair amount of time doing something with people," says Kivel. "Auto loans and mortgages are more accessible online, while products for small businesses and corporations are not. Banks that are selling a commoditized service have a better chance to open online accounts. Those that are not can still try to establish face-to-face contact using online services as a channel of communication, not a primary point of entry."

The initial wave of banking sites that actually offer more than basic contact information have primarily targeted consumers, not businesses. Some have established integrated accounts with larger corporations where the banks actively work on issues such as cash flow, but the small business market is a niche that relatively few banks have targeted.


Is it time to sign on?

"Online banking is sort of in an 'early adopters' phase," says Kivel. "For those small businesses that are actively pursuing an electronic commerce strategy in sales and are looking for a merchant relationship, then online banking could be advantageous. But it certainly isn't something that is imperative for businesses at this time."

The services are typically the same or less than what would be received from doing banking in person or other means, and there is no difference in price.

"From the business side, there is no huge gain," notes Kivel. "It might work better for some businesses from a convenience standpoint, but it's not important to be using it."