It's extremely difficult to win the transaction accounts of small businesses. By the time you know of their existence, they already have their bank accounts in place. And most small businesses are too busy to bother switching accounts to save a few bucks a month, or even to get better products or services.  

One way to grab market share is to find businesses when they are in the pre-startup phase, before they've set up banking accounts. In pre-startup, the prospective business owner is in pure research mode, spending little or no cash. To find these businesses, you need to offer online information that startups value and can find at your site, such as new-business planning advice. Then entice the owner to establish bank accounts with a package of services that appeal to a new business owner.

Bank of America is on the right track with its sponsorship of Microsoft's new Startup Center <startupcenter.com>. It's more like a product placement than a "banner ad" sponsorship. The BofA logo is never even seen in the main content area.

However, the bank's content is tightly integrated throughout, especially in the Finances area. For instance, if a business owner wants to "set up a checking account," the links to detailed information such as "compare now," "get a recommendation," and "get a business check card" all link directly to content housed on Bank of America's website (see screenshot below).

MasterCard is also a primary sponsor, but its content is less integrated. The third core sponsor is Startup Nation.

Analysis
It makes sense for Bank of America to be involved in Microsoft's Startup Center, a  beautifully designed tool all decked out in "Web 2.0" colors and graphics. The content seems appropriate and useful for a startup. However, it will be a challenge for the area to gain traction with actual startups, who are unlikely to be looking to Microsoft for assistance, unless they are software developers.

But you don't have to be a mega-bank or mega-software company to provide valuable services to startups. Financial institutions can partner with local professional service firms such as accountants, consultants, and attorneys, to create content for startups such as Webinars, and in-person seminars. A well-priced package of banking services, positioned and priced for startups, will help you grab new business in the startup sector.

Examples of startup products and services at financial institutions:

• CIBC startup area
• Lloyds TSB Business Extra package for startups
• Bank of Montreal business startup package
• Simply Startup Business Checking from First Light Federal Credit Union

For more information, see our Online Banking Report on Small and Microbusiness Online Banking (here). Thanks to Payments News for the link.

The May 24 New York Times contains a generally favorable review of Citibank's new mobile phone service (article here). Writer John R. Quain also touches briefly on Bank of America's WAP service and gives Firethorn's application a spin via BancorpSouth's mobile service.

For followers of the space, there's not much new information here. But a 1,200-word article in the NY Times is significant for the mere fact that the editor's found the subject newsworthy. 

The only downside cited, and it's a HUGE one, is the cost from the carrier. In the author's test, it cost him $2.59 in data charges for what sounded like a single Citi Mobile banking session (he did not have a data plan). Ouch. 

Here's the exact passage near the end of the article:

For example, checking my balances, making a transfer and confirming a few payments totaled 244 kilobytes, plus one text message, on Citi Mobile. Total charges from AT&T: $2.59. 

Update: Drew Sievers, CEO of mFoundry, the vendor powering Citi Mobile, emailed to say that the data charges cited in the NY Times article included the initial download. Subsequent sessions, would cost just pennies each, even without a data plan. He also said that the typical user attracted to mobile banking will already have a data plan, making mobile banking essentially free, at least from the carrier.

Microsoft HomeAdvisor

www.homeadvisor.com

Who needs frequent flyer miles
when you can get a free PC from Microsoft?

If this were a poker game, Microsoft competitors would be folding. Microsoft’s HomeAdvisor just raised the stakes in the huge online mortgage game by giving away a personal computer system with any mortgage loan of more than $125,000. Intuit, in comparison is giving away a copy of Quicken Deluxe worth about $50.

The million-dollar giveaway, which began Mar. 23, is limited to the first 1,000 customers, but you can bet it would be extended if they really get that kind of volume. The free Concentric Systems PC packs enough punch to be acceptable in most homes with a Cyrix 300 mhz processor, 32 MB RAM, 3.2 G hard disk, 56k modem, 40x CD-ROM, 14” monitor, and two-year warranty. The retail value is listed at $900. Loans of less than $125,000 (first 300) earn a free Casio PV-200 PDA with a retail value of $132.

First Federal Savings Bank in LaGrange

www.banklagrange.com

Microsoft Money free trial banner runs right below the login screen at First Federal Savings https://www.banklagrange.com/online/default.asp .

First Federal Savings Bank (LaGrange, GA; $238 million) is pitching Microsoft Money 98 free trials on its login screen. Internet banking users can choose to download statement detail into Money using Microsoft’s ActiveStatement feature. More than 122 banks and CUs now support downloading into Money.

Service provider for First Federal is nFront.
Contact: Alan Powell is Product Manager at nFront, (706) 369-3779 x235, apowell@banking.com .

MSFDC

www.msfdc.com

The Microsoft, First Data joint venture, MSFDC,
has posted sample bills from four industries: telecom, utilities, mortgage and credit card.

Most online banking programs feature the same features and benefits. Add some pizzazz to your offerings and distance yourself from the encroaching herds.

Last month we looked at fee-based revenue opportunities for online banking, an important medium-to long-term aspect (3-5 years out). But in 1998, it’s not about fee income but differentiating your financial institution (below); serving your wired customers online; and getting noticed.

First, we’ll assume that you’ve already implemented or are working on the five basic Web banking functions. If not, these are first priority:

Where do you go from here? We think the best ways to make a name for yourself online in 1998 and 1999 are in three areas:

• Push services, also know as alerts, e-mail, Webcasting, Netcasting, or outbound messaging.
• Bill presentment and automated payment processing services.
• Privacy-protection and fraud-prevention services.

We’ve written about this so much during the past four months our word processor practically refuses to type these buzzwords any longer. But there is a reason we are harping on this subject. Not since the invention of the ATM has there been such a promising new way to differentiate banking services. Following are five push tactics designed to bring you fame, fortune and new customers next year:

1. Send “event” reminders by e-mail, fax, or voice message a few days in advance of any due-date such as CD renewal, IRA funding, loan payment due, etc.

2. Offer free rate watch services sending a message when loan or investment rates hit user-preset values. Can be used on mortgages, CDs, bonds, and other loans. Alternatively, users could signify a target loan amount/payment.

3. Send balance alerts when checking, savings, money market, or overdraft protection accounts reach prespecified high and low limits. Since not everyone checks e-mail every day, consider fax and/or voice message options.

4. Offer “deposit assurance” with confirmation messages whenever certain types of transactions occur such as checking account deposits, out-of-state POS purchases, telephone transfers, etc.

5. Provide activity-based messaging services that give account holders a heads-up whenever account activity surpasses the preset trigger points. Citibank highlighted this tactic in a recent credit card direct mail piece calling it Fraud Early Warning (Brochure copy reads: “If we notice any unusual spending on your account we may alert you to confirm that is was you who incurred those charges.”)

Digital Bill Payments

We have long advocated a go-slow approach to offering so-called electronic bill payment. The customer service headaches have made electronic bill payment less than optimal both for consumers and financial institutions.

It’s time to end that cautionary thinking. Web-based bill presentment is just around the corner and with it will come the critical mass of billers ready and able to receive payments and accounts receivable information completely electronically. You can start now to position your company as a player in this area. When the Microsoft/First Data venture gets off the ground in 1998, there will be a flurry of consumer interest. Take advantage of the hype by being the first bank on your block to put bill presentment on its Web. You could end up being the local expert source on the subject for years to come.

There are several ways to go about positioning yourself as a digital payments pioneer:

6. Develop your own in-house bill presentment program with just one or two local billers. You get a head start on the field, while differentiating yourself and the biller as highly innovative.

7. Enthusiastically embrace the Microsoft/First Data joint venture, MSFDC. Get in the press now as the first financial institution to publicly commit to offering the service. Work with MSFDC to put a customized version of the bill presentment demo onto your Web this fall.

8. Become the first bank to offer “100% Pure Electronic Bill Payment,” by limiting bill pay merchants to just those that offer end-to-end electronic payment.

9. Become the first bank to offer “100% Guaranteed Bill Payment.” Back up your marketing claims with a bullet-proof guarantee that takes full responsibility that all payments are made on time.

10. Help users put their payments on autopilot by automating repetitive payments, setting up preauthorized debits, having bills automatically charged to credit cards, establishing automatic average payments, and consolidating redundant accounts (e.g. roll those three $50 credit card payments into one home equity account/payment).

Privacy and Fraud Prevention

In August’s FutureBanker (published by American Banker), cyberpundit John Perry Barlow, founder of the Electronic Frontier Foundation, advocates an unusual role for banks. Become the “Swiss Banks” of the Internet, providing total confidentiality for buyers. Banks would issue Internet aliases that consumers would use to conduct transactions on the Internet. Merchants would know only that the bank guaranteed good funds. The consumer’s identity would be confidential, only divulged under court order. An infrastructure would be needed to handle delivery of physical goods. Shippers such as Federal Express could contract with the bank to divert shipments to the proper party.

This is probably more privacy protection than the average law-abiding citizen needs, but it’s worth pondering. There might be a happy medium that banks could fulfill. The whole area of financial privacy and fraud protection has been a source of discomfort for consumers for several years. And the Internet has only exacerbated the situation. Financial institutions, which rate high in consumer trust, could step in and take on the role of privacy fiduciary.

This month MasterCard and Visa have done their part to boost consumer confidence in card products. First, MasterCard formally extended the $50 maximum liability to debit cards. Visa one-upped them by declaring a new “zero liability” policy on all its card products (if the stolen card is reported within two days, $50 otherwise).

Here are some of the things you can do in 1998 to become a financial privacy advocate:

11. Offer branded e-wallets, such as that from CyberCash. The wallet allows consumers to pay by credit card without revealing their number to the merchant. This will boost consumer confidence in purchasing goods and services from unknown Web merchants. It will also prevent the kind of screw-ups experienced by ESPN SportsZone which had an unauthorized user access an order processing file that contained credit card numbers. (The security breach was not malicious…no accounts were compromised.)

12. Provide credit report information, either through a relationship with the major marketers of merged credit reports, Credco’s Confidential Credit, or CUC’s Privacy Guard. For an easy solution, simply provide a link to the online credit reports at QSpace or Experian when its service goes back online (see opposite page for details).

13. Develop a fraud protection icon such as “100% Fraud Free” or “protected by yourbank.” The intent of the label would be to ensure users that whenever they use your checking/ATM/credit card, they needn’t worry about being on the hook for fraudulent activity. You already absorb these costs anyway, why not get some credit for it.

Sometime during the next 18 to 24 months, the Internet will cease to be a novelty and will instead be part and parcel of everything you do as a financial institution. A case in point, Rockland Bank, a start-up in Colorado, plans to open its virtual branch simultaneously with its two brick-and-mortar branches.

We don’t blame you if you are skeptical of these pie-in-the-sky claims. It’s widely believed that home PC penetration is plateauing at about 40% of U.S. households. That may be true, but the percentage of households using the Internet is still ramping up rapidly, and by year 2000 will be higher than the penetration level of PCs. How’s that?

• Web-Enabled TVs: Microsoft’s purchase of WebTV is further validation that the Internet is coming to a TV set near you. Today you can buy a set-top box for $300-400 to add Net connectivity to your TV through conventional phone lines. Within a few years, higher end televisions and VCRs will have this capability built in.
• E-mail Phones: Experts disagree whether consumers will take to scaled-down e-mail via phones. We think they will if the price is right. InteliData began selling e-mail phones for $99 (after $100 rebate) if users sign on for a year’s worth of interactive services for $99.95. The company is betting that the cell phone model of subsidizing hardware to sell services will pay off.
• Out-of-Home Users: You don’t have to own a PC to use the Internet. Starbucks is experimenting with Internet terminals. Several airports including Seattle’s now have public Internet access kiosks. And many companies are making limited Web access available to employees.

What should you do in the next 18 months to prepare yourself to compete in cyberspace for large numbers of online-savvy households?

1. Differentiate your online offerings

2. Provide top-notch online customer service

3. Get noticed

MSFDC’s Web site does a good job explaining their approach, so take a trip to www.msfdc.com as soon as you can spare 15 minutes. The Web includes four electronic bill presentment mock-ups: a mortgage statement, an electric utility bill, a cell phone bill, and the credit card statement shown below.

Summary Page: MSFDC divides the screen into three areas using “invisible” frames (no borders):

1. Biller’s logo and advertising message runs across the top of the screen.
2. Navigational menu is on the left.
3. Statement detail is in the middle frame.

Itemized Purchases: This screen contains the statement detail. Since the Web provides far more statement “real estate” than a paper form, billers will be able to present information in a much more readable format using colors and other graphical clues. Statements may also contain promotional messages and offers from the biller or its marketing partners. This could be an attractive advertising medium for the merchants whose charges are itemized on the current statement.

Finance Charges: On this screen the issuer details APR and finance charge calculations. Again, with more real estate to work with, issuers can do a better job explaining the detailed calculations, and provide links for more information. Issuers can also make promotional rate offers from this screen.

Terms and Conditions: This screen provides the “back of the statement” legal and regulatory fine print. Links can be imbedded into the text to send users to the issuer’s Web site for clarification on any term.

Contact: Bryce Hausmann is Business Development Manager at Microsoft, 206.936.4091, bryceha@microsoft.com.

MSFDC’s Web site was well-prepared for launch date.

Microsoft, with more than 150 million users of its software products, and First Data Corp. processor of 150 million credit card accounts, announced a joint venture, MSFDC, that will compete with CheckFree and others in the growing field of digital bill payment. But MSFDC’s approach is radically different, focusing on Web-based bill presentment with a business model based on the biller paying the tab rather than the consumer (or consumer’s bank).

This approach promises to speed consumer adoption, which in turn will finally get billers interested in making the necessary electronic connections. Finally, a solution to the age-old “chicken and egg” conundrum. Which comes first, billers able to accept payments electronically, or consumers wanting to make electronic payments? It no longer matters. The combined Microsoft/First Data entity has the credibility, resources, and customer base to bring both chickens and eggs to the table by the time the service launches in 1998.

While the focus is bill presentment, the service also includes “pay anyone” bill payment so that users know they can get all their bills paid online, not just the ones presented online. Pay anyone bill payment will function in the same manner as competitive services from CheckFree, Travelers Express, and others. Users initiate payment requests online and MSFDC remits the payment to the merchant in the fastest way possible, either electronically or by mailing a paper check. Banks offering the service will be charged fees competitive with other bill pay processors, $0.40 per payment plus or minus a couple cents which banks can pass on to users or absorb.

Bill presentment is more complicated, but far more appealing to everyone involved: end-user, biller, bank, and MSFDC. Billers use Microsoft software to send statements to the MSFDC data center in Denver. Bills are posted to customer mailboxes on the MSFDC server. Users accessing the service through a bank would first log-in to their bank’s Web, then select pay bills to be transported to the MSFDC Web. The transition would be seamless with all screens retaining bank branding and navigation. After authorizing payment, users would be returned to their bank’s Web.

In the background, MSFDC would debit the user’s bank account that evening and send a message to the biller alerting them that payment had been authorized and a debit item had been submitted. At that point, the biller could elect to update the user’s account to show payment was on the way, or they could wait another 24 hours until “good funds” were assured. Either way, it will provide needed relief to bill pay users, and their bank providers, tired of the tedious tracking of “electronic” payments languishing on a postal truck or in the biller’s exception-item bin.

Whether MSFDC pulls it off is yet to be seen, but given the track records of its parents, we think they will. Here’s why:

• It’s Bank Branded: MSFDC could have gone directly to the end-user in the same manner as Microsoft Expedia and Investor. But this would have required a significant investment in time and money building consumer trust. Instead, it appears MSFDC will remain largely behind the scenes, acting as a secure electronic messenger (not unlike the postal service delivering letters and payments). Instead of facing competition from 20,000 U.S. financial institutions, MSFDC has 20,000 potential partners serving 100% of the banking market. The crucial selling point in getting billers off the dime.
• It’s Free: More precisely, billers are picking up the tab instead of consumers. It’s the only proven model for Web success, and it will speed adoption like no amount of advertising and promotion could. Assuming MSFDC can deliver the user base, billers will save considerably more than the $0.30 they are anteing up to MSFDC.
• It Saves Banks Money: Bill payment has been a customer service headache since it was invented. Now banks can offer a state-of-the-art Web service for no cost and minimal customer service expense. With true next day payment, customer service should be a breeze. In fact, once the bugs are worked out, we think your overall expense on an MSFDC bill presentment payment will be negligible. Maybe even less than the support costs of traditional hand-written checks.

Microsoft’s Carpoint <www.carpoint.com> features an advanced applet-based financial calculator that really smokes. Performance is dramatically improved compared to server-based calculators. Values are recalculated in “real-time” by simply “pulling” the diamonds to the left or right to change price, rate, term, and payment assumptions (see below). I’ll never calculate a loan payment any other way!

When Microsoft first briefed me on its new Active Statement feature, I was both impressed and surprised. I hadn’t expected this level of integration between the Web and personal finance software for at least another year. But when you think about it, it’s an obvious application of Microsoft’s strategy to build Internet linkages into all application software.

As a user of Money since the version 3.0 (the first version with an online banking link) beta-testing days of 1993, I was happy with the software, but not particularly enamored at having to establish a direct-dial connection to servers at Intuit Services Corp. in order to pull down my transaction data. It would be far easier to click over to my bank and get the data right from the Web, probably saving five minutes per access. But not willing to give up a database filled with 3.5 years of transaction history, nor interesting in mastering the convoluted process of importing QIF formatted files, I was left wondering when I personally would be able to use Web-based banking services. In November, Microsoft provided the answer with the introduction of Active Statements.

Definition:
Active Statement: A feature offered on Web sites that allows statement data to be seamlessly downloaded into Microsoft Money directly from the browser. Coding embedded in the data file prevents duplicate transactions from being downloaded into the Money register. More than 50 financial institutions, including Wells Fargo, Wilber National Bank and 29 of Digital Insight’s credit union clients, have agreed to offer Microsoft’s Active Statements. Already, more than 30, mostly Digital Insight clients, are offering it on their Webs.

And why not? If you already support statement downloading in QIF format, offering the Microsoft version is a routine programming chore, and there is no charge from Microsoft. According to Matt Cone, Business Development Manager at Microsoft, adding Active Statement downloading to an existing QIF function is “just a couple of days of development time.” Cone says that bank Web programmers can learn all they need to know to implement Active Statements at Microsoft’s OFC web page.

One of the most important reasons to offer Active Statements, according to Cone, is that it can substantially reduce the customer service time necessary to support data downloading. Walking users through the error-prone process of importing data into a Quicken file using a QIF formatted file can be a customer service nightmare.

There is one small catch though. To use the downloading capability, users must have a copy of Microsoft Money 97 which only runs on Windows 95. But Microsoft is doing its best to minimize that barrier to adoption. Financial institutions can display a link to Microsoft’s website (see Community CU screenshot to the right) where 90-day free trial versions of Money 97 are available for downloading. Users must pay about $35 to continue using the program after the initial 90-day free trial. Once Money 97 is installed users can demo Active Statements at Microsoft’s MoneyZone.

Open Financial Exchange
Intuit will be offering a similar feature later this year. And since Microsoft, Intuit, and Checkfree have agreed to agree on a standard format for online banking record layouts called Open Financial Exchange (OFX), banks will be soon be able to offer downloading to either Quicken or Money 97 using identical code (OFX specs).

Financial institutions react positively
We surveyed many of the thirty banks and credit unions that have adopted Active Statements since its November debut. While it’s too soon to call the feature a hit, most financial institutions reported positive feedback.

Members using Active Statements “feel as if they have more control over their money,” said Jim Craig at New Mexico Educators Federal Credit Union (Albuquerque, NM; $350 million; 45,000 members). “This is the type of feature that we needed to give our online banking product an interactive aspect.” NMEFCU first offered online banking in August 1996 and currently has about 1,000 members using it.

Craig is sold on Active Statements, “Microsoft has come out with a wonderful tool. Now, smaller financial institutions can offer interactive account information without the huge expense of becoming a partner with Microsoft or Intuit, and without the hassle of developing their own proprietary software.” But he is disappointed that NMEFCU receives no recognition in Money 97 itself or on the MoneyZone Web. “If a member looks us up in Money 97’s directory of online institutions, they are told that we don’t have online services. We’ve had a couple members get a little upset when they think they’ve bought Money 97 for nothing.”

Texas Bay Area Credit Union (Pasadena, TX; $90 million; 20,000 members) hopes to have 500 members enrolled in its Internet Account Access program and using Active Statements by summer, said Thomas R. Green, Data Processing Manager. Among the 300 members already online, initial feedback to Active Statements has been good. While Wilber National Bank (Oneonta, NY; $495 million) thinks the Internet will play a large role in the future of banking, they’re finding customers are cautious in moving to the service.

Although Wilber has offered Internet banking since July, most customers continue to use the bank’s proprietary PC software (from Online Resources). CEO Bob Moyer said, “I think that’s just a matter of evolution. The Internet is still used more as a search engine than for active things, though I think that will change.” Moyer sees Active Statements as “one more step into the future” where software gets smarter and handles much of the information retrieval burden.

Carol Szaroleta, Director of Marketing for APL Federal Credit Union ($100 million; 8,000 members), the smallest financial institution with Web-based account access, said the only drawback to offering Active Statements is that some members think the credit union is advertising for Microsoft. Szaroleta estimates that half of APL’s 1,500 online banking members use some sort of money management program. “Demand among our membership for interacting with money management software is high,” she said. “We have had the ability to export information in (QIF) format for several months. In November, there were more than 3,000 hits on the export button.”

Community Credit Union (Plano, TX; $430 million; 115,000 members), the sixth financial institution in the world to offer Web-based account access, will highlight Active Statements in its newsletter, but coordinator Kathi Cavanagh believes most members will discover the new feature by noticing the Microsoft logo on CCU’s Web site (see screenshot above).