Business Banking Taking to the Net

The number of financial institutions using online business banking is expected to more than double within one year and more than triple by 2003, according to Magnet Communications, Inc. And within the next four years, the use of online business banking is expected to more than quadruple.

Magnet surveyed 25 leading banks that gathered its Second Annual User Conference in June and found that the businesses currently using online banking include middle-market and large corporations, as well as small, high-growth businesses.

“The demand and expected increase in the use of Internet banking have prompted more banks to offer online banking services,” said Ray Graber, a senior analyst with TowerGroup. “Ninety percent of the banking industry believes that Internet banking is essential to retaining and acquiring customers.”

The Magnet survey also found that the Internet banking products most used by businesses are Automated Clearing House (ACH), balance reporting and stop payment. Internet banking products most requested by banking customers are bill payment, loans and lockbox.

But banks are not using the Internet to reach out to small business customers. A survey by Speer & Associates, Inc. (S&A) found most banks lack a compelling online small business banking offering that has a clear focus on targeted marketing and commitment to execution. As a result, the ability to form deeper partnerships with small business customers on a value-added basis is not being optimized.

“While some of the largest banks in North and Latin America demonstrate a commitment to the small business banking segment, on balance there is a wide range of opportunities that have yet to be leveraged,” said Richard Speer, Jr., S&A’s CEO.

S&A’s survey focused on six categories most critical to small businesses based on their heavy adoption and use of personal computing and telecommunications technologies. The survey measured the percentage of banks within the sample that delivered on core banking needs of the small business segment. The percentage of banks in the sample offering online services based on S&A’s six key evaluation categories were Cash/Investment Management (33 percent); Access to Credit (32 percent); Advisory Services (19 percent); Revenue Enhancing Services (14 percent); Bill Payment & Expense Reduction Services (36 percent); Administration & Operational Assistance (21 percent).

Many of the institutions in the survey used the Internet was used to display “brochure-ware,” relying on traditional channels such as the branch, telephone or calling officer for fulfillment.

“Given the increasing adoption of the Internet by the small business segment, many mid- size and some large banks are leaving themselves threatened by larger and non-bank competitors,” Speer said.

S&A’s survey found that the major diversified segment of banks, those with asset size over $100 million, had the most compelling sites, with a full array of financial and value-added services and are well ahead of the U.S. and Canadian banks in delivering to the small business segment. Fleet Bank, Wells Fargo, Citigroup and Bank One are examples of leading sites that position the banks as integrated partners to the small business segment.

Large U.S. regional banks feature small business online offerings with transactional functionality that is well behind the overall sample banking segment. Their offerings are centered on marketing financial services, rather than broader value-added features and functionality. Only 25 percent of the banks in this group offered key credit products on a transactional basis.

Although the mid-size institutions, ($9 to $40 billion in assets) claim a more traditional banking approach toward small businesses, this segment is delivering online services to the segments less frequently than the North American sample in all six areas reviewed. Canadian banks, however, demonstrated an overall strong commitment to small business Web offerings. They provide either online loan applications or online loan transactional capabilities for small business customers in greater frequency than observed in the overall North American sample.

The 20 major Latin American bank sites reviewed offered transactional functionality similar to their North American counterparts with a less brochure-ware orientation. Many banks focused on the value-added services by offering access to vertical procurement portals, account aggregation and access to business exchanges and portals.

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