Just as non-banks are using the Web to encroach on your turf, you can build new Web-based businesses that wouldn’t have been feasible just a few years ago. One such business if automated financial management and bookkeeping services.

Eventually, it won’t be enough to simply offer robust cash management and online balance reporting to your business clients. With the Web as the ideal platform for building industry- and customer-specific service offerings, you’ll need to be more creative to make a name for yourself in the small business banking marketplace, circa 2001.

You can bet the big banks will be creating killer small business Web sites to make up for any perceived service disadvantages. In turn, community banks will need to fight back with online offerings that enhance their level of personal service delivered to local businesses. Luckily, vendor offerings will make even the most complicated Web-based service affordable to the smaller financial institution.

Whether you are small or large, we think you must pay attention to the accounting and billing needs of your business clients. Intuit has made tremendous strides in serving that need, and as they move into offering more and more financial products to their accounting software customers, banks will feel the pinch. Banks should consider teaming with Web developers to build small business financial and customer management systems that could be deployed in the next 18 to 24 months. By then, bill presentment will be picking up steam and can be incorporated into your Web-based solutions. Intuit will have it. Yahoo! will have it. You should too.

Looking at the big picture, we see strong synergies between banking and accounting. Prior to the Web, there wasn’t a cost-effective way to bridge the gap between financial data housed in your mainframes with that housed in the PCs of your small business clients. Today, the Web is the ideal medium for tightly integrating your banking services with your clients’ accounting activities.

Intuit has already built impressive software-to-bank linkages for QuickBooks and Quicken customers. To some extent, the shrink-wrapped software is a Trojan Horse, positioning Intuit-controlled links to its partner banks right on the desktops of your best clients. You can fight back by incorporating billing, accounting, and financial management functions on your Web.

We think businesses would be very receptive to Web-based financial management services running on encrypted, secure and trusted servers controlled by the bank. The services would encompass these areas:

*Approximate. Price would depend on a number of factors, including size of company, competitive offerings, quality of service, etc.

You may be thinking, “We’re a bank not a software company. How can we compete with Intuit or Netscape in creating a compelling virtual CFO?”

Answer: You may not have a choice. The big Web companies are moving into your turf in partnership with large financial institutions. Witness the sweeping alliance Netscape recently inked with Citibank. And that’s just the beginning according to Edward Horowitz, the head of the bank’s advanced technology group. We expect to see Citibank integrating payment and banking functions into the Netscape’s virtual office.

Deciding when to launch a novel small business service is more difficult. All the cliches are running through your head: stick to the knitting, walk before you run, stay away from the bleeding edge, and so on. Why rush into an unproven area such as Web-based accounting?

Answer:

•  You can be the first to integrate banking functionality into small business management software. The virtual offices we’ve previewed primarily deal with team collaboration and communications functions, e.g. virtual intranets to help employees work together. And we can’t find anyone offering virtual accounting or bookkeeping services, yet.
•  By focusing on back office banking and accounting issues you will be able to differentiate yourself and offer services highly complimentary with your core banking services.
•  If you can successfully pioneer a robust Virtual CFO product, you could license it to other banks, recouping your investment and then some.
•  You can head off further inroads into your revenue base from Intuit partner banks.

The electronic checkbook is the foundation of any small business banking Web offering. Like foundations in the real world, it’s fundamental to the stability of your Web services, but there isn’t much you can do to differentiate it from other banks. It’s what’s on top of the foundation that will attract buyers.

Nevertheless, a good virtual checkbook must include the following functions:

•  balance inquiry across all business and personal accounts maintained at your bank
•  transaction history including basic look-up/search capabilities to find all transactions by date range, by type, by check number range, and by transaction amount
•  bill payment
•  email to and from the bank

Other desirable features:

•  different authority/access levels for each account
•  templates for common reports such as transactions by quarter, transactions by check number, etc.
•  email integrated with bill pay including:
  • forms for creating payee communications quickly
  • filing system that stores all previous communications with the payee
  • search function for finding text strings in previous messages to payees
•  fax/email statement
•  balance notifications
•  transaction confirmations
•  wire transfer and ACH initiation
•  downloadable directly into personal finance, spreadsheet, and/or accounting software programs
•  email notification when bills are presented
•  email forms for communicating different matters to the bank quickly
•  permanent storage of all communications with the bank with search capabilities

An example of Netopia’s virtual office from Netscape nvo.netopia.com . This particular template is for a mortgage broker who could create a 10-page Web site complete with downloadable application in a few hours. Cost? Just $20/mo, or $200 for a year. Netscape also offers templates for 14 other business types.

Create a place within your Web for small businesses to set-up a home base for work and collaborating on the Web. These services are commonly called virtual offices or intranets. We also like the names virtual desk, briefcase, or banker. The Web services could also be marketed to the estimated 39 million U.S. households with a home office (source: IDC/Link, 1995). ð

There are a number of virtual office vendors on the Web. The most visible is Netopia, which provides private-branded offices for users at Netscape’s NetCenter, GeoCities, and others. Netopia’s product currently focuses primarily on communications, offering real-time chat, email, IP telephony, and so on (see screenshot on previous page).

The most full-featured offering is HotOffice www.hotoffice.com profiled in this issue . The program has many desirable features that bank customers could use, but some of the most useful are lost amidst all the fancy bells and whistles that wouldn’t be used by the average small business. For instance, HotOffice is cluttered with collaboration tools so geographically diverse teams can “meet” on the Net to discuss issues, post documents, communicate with each other via message boards or real-time chat.

We think banks could create their own simpler and easier to use virtual offices integrated with banking and financial matters. A further emphasis on local content/links could keep you ahead of the competition. Here are the features we recommend:

•  Calendar/datebook/reminder service integrated with bill payment (OBR 6/98).
•  Virtual safe deposit service that automatically stores financial and other files in secure, encrypted, off-site back-up files not accessible by anyone but the owner (not even bank personnel); can be retrieved on CD for disaster recovery (OBR 3/98).
•  Free email with emphasis on secure communications with bank (OBR 3/98).
•  Email notification services (OBR 8/98).
•  Virtual receptionist that tells visitors how to get in touch with someone at your business.
•  Company message boards.
•  Ability to post documents to the Web that can be shared with everyone or just authorized employees and/or customers.
•  Unified messaging service which provides a single Web page where users can send and retrieve email, faxes, and voice messages (for more information visit the Web site of JFax www.jfax.com and VirtualPlus www.messagepoint.com )

Side Note: You also might consider setting up virtual offices for your own loan officers and other customer-contact personnel.

Time Direct is a virtual time card for employees and contractors to track project hours, submit them for review, and receive payment (if applicable).

The Virtual Bookkeeper expands on the functions of the Virtual Checkbook and office.

•  Billing statements and invoicing via email, fax, or snail mail; includes reminders, and confirmations.
•  Online cash-based accounting functions including data entry, categorizing, and basic report generation.
•  Bill payment/accounts payable monitoring functions such as email notification when payment transactions are awaiting authorization by business owner; email flags when payment transactions don’t clear in a reasonable time.
•  Autopay function that pays certain bills automatically each month when presented or when preauthorized by client (now supported in software from Edify www.edify.com ).
•  Full interbank transfer capability to and from any financial institution supporting ACH payments.
•  Statement integration functions across bank and non-bank accounts (see MileageMaximizer
  OBR 8/98).
•  Virtual credit card terminal with integrated email and hooks to accounting systems.
•  Lock-box service for paper check processing with full integration to client’s accounting system (see Accounts Receivable: Other).

• ð

Just like the real world, the Virtual CFO takes the data entered by the bookkeeper and puts it into a broader perspective that allows a business to be more profitable. The following features could be added to those already offered in the Virtual Bookkeeper, Virtual Office, and Virtual Checkbook modules:

•  Online payroll with paper or direct deposit paychecks, and electronic payroll tax payments.
•  Online federal and state tax return preparation and filing.
•  Full-fledged double-entry online accounting services.
•  Complete disaster recovery services including a redundant data center. Here’s an area that banks have a great amount of in-house expertise that could be turned into a profit center.
•  Complete Web-based customer file management and communications services including integrated:
  •  invoicing/billing with Web integration
    (e.g., bill presentment)
  •  payment services/inquiry via the Web
  •  email/fax/voice messages automatically confirming payment
•  Access to a CPA-on-call to handle questions. The CPA could deliver advice publicly on your Web, privately through confidential conversations with your business clients, or both.
•  Automatic excess funds allocation to minimize interest expense and/or maximize interest income. For added value, the funds “sweep” could go to investment and loan accounts at any financial institution (not just yours).
•  ECommerce services for hosting secure transactions (more on that next month).
•  Accounts receivable management that automatically notifies the business owner and/or customers when accounts are past due; includes linkages to Web-based payment window (below).
•  Virtual payment window that clients can display on their Web site to accept credit card or check/ACH payments online; includes integrated messaging confirming orders.
•  Extensive management reporting easily customizable using drop-down menus; for example, revenue reports by customer, accounts receivable aging, quarterly P&L; etc.
•  Mail merge capabilities that works across any medium, email, fax, page, voice message, or snail mail; option to outsource snail mail services to a mail house; label printing utility.
•  Retirement plan administration including Web views for participants; includes email statements.
•  Project tracking module integrated with reminders and other Virtual Office services.
•  Employee expense reporting, approval routing and reimbursement services (see Expense Reporting below for more detail).