Ten events in 1999 with the highest probability of being significant
in the years ahead.

A sample screen from VerticalOne as presented on AmeriTrade’s OnMoney service.

One

Financial Statement Aggregation Debuts

a.) VerticalOne proves that banks don’t necessarily have a lock on their customer data.

b.) S1 buys VerticalOne for $200 million giving entrepreneurs around the world even more incentive to create VerticalOne-like programs.

Two

Internet Person-to-Person Payments Invented

a.) First mover Confinity launches PayPal in November, doing for Internet payments, what ATMs did for cash withdrawals.

b.) Fast followers, X.com and dotBank, launched similar services in December; Checkfree announced it will get in the game in Q2 2000.

Three

A New Breed of Net-Only Bank Debuts

a.) Bank One’s WingspanBank launches in June with a $150 million budget and state-of-the-art Web site, confirming that the big banks are serious about opportunities on the Web. Although, financial troubles at the parent have overshadowed this particular Net initiative, we continue to believe it was the right thing for Bank One to do

b.) X.com launches on Nov. 30, hires ex-Intuit chief Bill Harris on Dec. 5, becomes the first banking entity with a P2P payments program on Dec. 15, becomes the first publicized target of a Web-based payment fraud reported in the New York Times on Jan. 27, and becomes the largest Internet bank measured by number of accounts in mid-February Just a “normal” couple of months in the life of Silicon Valley start-up. Retail banking may never be the same.

c.) Ameritrade launches its OnMoney financial portal, the most prominent example of the “open finance” business model. Not only does the portal accept advertising, it prominently displays banner ads from its online brokerage competitors

Four

Scan-and-Pay Bill Presentment Invented

In the span of four months beginning in March, three bill payment providers launched very similar, and quite innovative bill payment services: CyberBills was first out of the gate in March, followed by PayTrust in June, then PayMyBills.com in July. The triumvirate proved two things:

• The Web could be used to create work-around solutions to large infrastructure problems (getting billers to release bills electronically).
• Even the smallest niche product, such as scanning and paying bills, can be quickly copied and pursued by others.

Five

Market Caps Sore

Although many high flying financial dot-coms have come back to earth, the “April spike” will have a lasting effect far into the future. Just one year ago, in the period from Mar. 2, 1999 to April 13, 1999, Net.B@nk sprinted from 15 to 78 (prices adjusted for subsequent 3-for-1 split). This run-up helped attract enormous capital to the sector. Many of the well-funded entrants will launch in 2000 boosting innovation, pressuring margins, and in general changing the competitive landscape online.

The Internet Roller Coaster
split-adjusted closing prices

Source: Yahoo, 2/00 *3/2/00 price indexed to 10/1/98 = 100

Six

Bill Payment Evolves into a Bank-less Service

Even though Checkfree and other non-banks have long controlled the lion’s share of electronic bill payment processing banks have generally hosted the front-end. But that began to change in 1999, first with the launch of three scan-and-pay providers (see number 4), then Checkfree’s co-branded service on Yahoo! Intuit’s billing service on Quicken.com, and Transpoint’s long-awaited offering on Microsoft’s MoneyCentral (in Feb., Transpoint and Checkfree announced their merger).

Seven

Start-ups Target Small Businesses

It’s a cliché, “the needs of small businesses are not met by existing banks.” We’ve been hearing that for more than a decade, if it were true you’d think someone would have solved it by now. But perhaps the Web is the great enabler, allowing providers to cost-effectively tailor banking services to the varying needs of individual businesses. We believe that is the case and 1999 marked the year when Web-based small business got its start.

Two high profile start-up banks entered the market eBank.com and OneCore.com. OneCore uses an interesting business model, bundling business services together to compete with traditional banks, while maintaining the flexibility of a non-bank.

More business bank start-ups are on the horizon. For example, CompuBank, with a $38 million infusion from Softbank, Goldman Sachs, and others, has been reengineered into a small business play.

Eight

Credit Cards Morph into Shopping Portals

Credit cards continue to dominate ecommerce payments, with a market share approaching 90%. The card companies, especially NextCard, are leveraging this market share to become “shopping helpers” or portals, with ewallets, instant credit to use online, merchant links, shopping guarantees, and in the case of NextCard, the ability to receive email alerts when transactions post from certain merchants.

Nine

Online Brokerage/Bank Combinations Emerge

It’s been discussed for years, but 1999 brought the first large-scale integration of discount brokerage and banking with the E*Trade/Telebank merger. Recently, Merrill Lynch announced they are building a “next generation” Internet bank as part of their online initiatives, and Schwab announced the purchase of U.S. Trust.

Ten

Click-and-Mortar Business
Model Takes Center Stage

Since the commercial Web came on the scene in 1995, banks have known that customers prefer a blend of online and brick-and-mortar delivery. But that notion was totally out of style until 1999, when the big dot-com pioneers and their VC backers began to promote click-and-mortar strategies. Now many of the newest banking startups such as Virtual Bank and eBank are planning physical “banking centers” to complement their Web brands.