American Banker: Friday, October 18, 1996 Internet Tops Bankers' List Of Leading-Edge Technologies By DREW CLARK A year ago, when the first U.S. bank was launched giving customers account access through the Internet, nearly half of all banks in a survey said they had no plans to follow its lead. They have since changed their minds. The Internet is high on bankers' emerging-technology priority lists, according to the 1996 American Banker technology survey. "The Internet is a medium that no banker can ignore," said Mary Donadoni, an analyst with Payment Systems Inc., the Tampa-based research firm that conducted the survey. To ignore it "is like saying you are not going to put a branch on Main Street." Over the past year, the number of U.S. banks, thrifts, and credit unions on the Internet's World Wide Web has grown from 132 to more than 1,000, according to James Bruene, editor of the Online Banking Report newsletter. "Banks are making decisions now," said William A. Soward, director of application marketing for Edify Corp. in Santa Clara, Calif. "Twelve months ago, they were kicking tires and trying to understand what the issues were." The American Banker/PSI survey showed one-third of the top 300 banks view Internet-related issues as the most critical they face - second only to the 35% who cited nonbank competition. Though only 10% of the top 300 U.S. banks offer Internet access to customers, 92% plan to by 1998. Community banks are expressing slightly more reluctance about the medium. Some 8% now offer Internet access, and half said they plan to do so within two years. They placed the Internet second on their list of concerns, behind general technology and software issues. "We're seeing more and more banks jumping on the bandwagon and saying, 'I need to do this,'" Mr. Soward said. "There is an emerging perception that a lot of the security issues have been addressed, but I'm not sure that's gotten out to the consumers." The bankers' thoughts about interactive services are being translated into action, with much of the emphasis on home banking via personal computer. Many of the higher-profile moves by big banks -- such as Citibank's slashing of fees for on-line customers, which caused subscribership to soar -- were complemented by community banking initiatives. In its first five months American Banker: Friday, October 18, 1996 Declining Costs Lead to an Explosion In On-Line Corporate Banking Services By STEVEN MARJANOVIC The increasingly competitive nature of business banking puts a premium on technology to improve customer satisfaction, boost revenues, and keep costs down. And that has brought an explosion in personal computers for connecting banks with their business clients. The American Banker technology survey indicated that 63% of the top 300 banks offer businesses access to their banking information via personal computers. Well over 90% plan to offer the information services by 1998, typically including account balances, statements, and electronic funds transfers. What's more, on-line corporate banking -- the equivalent of home banking for wholesale customers -- is getting easier and cheaper for more small banks and businesses. George Hart, president of Harbinger Corp., an Atlanta-based supplier of cash management software packages, said he has seen a marked increase in his business this year. About 25 banks are resellers of Harbinger's systems, including BankAmerica Corp., Barnett Banks Inc., and smaller customers, such as United American Bank of Memphis and Stillwater Bank and Trust Co., Stillwater, Okla. "These types of services . . . are not expensive any more" Mr. Hart said. "It's not a big deal to offer them." Also hot in the corporate realm, according to the survey, is financial electronic data interchange, or the exchange of payments and related documentation in standard computer formats. More than 40% of the top 300 banks plan to offer financial electronic data interchange by 1998. "We expect a lot of growth among companies in financial electronic data interchange in the next three years," said Maria Erickson, director of corporate services at Payment Systems Inc., which conducted the survey. The economics become especially favorable, she added, if "you consider the development of Internet-based financial EDI services." Among a new breed of cash management services, integrated payable and receivable services have garnered a lot of corporate attention lately, especially among larger and middle-market companies. Integrated payables are quickly growing in popularity from major banking companies like Chase Manhattan Corp. and Wachovia Corp. The service American Banker: Friday, October 18, 1996 A Second Bank Is Launched into Cyberspace By JENNIFER KINGSON BLOOM Almost a year to the day after the first Internet-based bank opened its virtual doors, the second such entity -- Atlanta Internet Bank -- has begun taking deposits. The new bank, a part of Carolina First Corp., is hoping to skim customers off the Internet by offering an eye-catching 7% interest rate on money market accounts. The founders say they are trying to prove the viability of the Internet as a banking channel and to show that the low overhead associated with doing business electronically can be passed on to customers. In the last year and a half, several well-established banks have opened "branches" on the Internet, enabling customers to pay bills, apply for loans, and manipulate accounts on-line. The services have proven popular, and both BankAmerica Corp. and Wells Fargo & Co. say the number of customers migrating to the remote channel has "exceeded expectations," although neither will divulge precise figures. And last Oct. 18, a Kentucky banker named James S. "Chip" Mahan took the idea to an extreme, establishing with great fanfare the Security First Network Bank, in which customers transact business exclusively on-line and over the telephone. The bank has since been spun off from its community bank parent, Cardinal Bancshares, moved its physical operation to Atlanta, attracted more than 4,000 customers, and amassed $15 million in assets. Across town from Mr. Mahan, an Atlanta entrepreneur named T. Stephen Johnson decided to put together a rival institution. Beginning early this year, he hired a skeleton executive staff and secured an investment from Carolina First, a $1.5 billion-asset bank based in Greenville, S.C. Then he forged a partnership with AT&T and, this Tuesday, the bank went live on the telecommunications giant's on-line service. Plans call for a full product line by yearend. "The reason we're so late in getting open is that we started watching to see how this thing was unfolding," Mr. Johnson said. "It seemed you had to start with Internet users and try to make bank customers out of them." Today, the Atlanta Internet Bank exists as a "product" of Carolina First, said Mack Whittle, the South Carolina bank's chief executive. But the term is mostly semantic. "Our plans are to roll it out as a separate, stand-alone financial institution sometime in the next 12 months," he said. Mr. Johnson said he has formed a corporate shell that is prepared to buy all the new bank's accounts from Carolina First. "We wanted to go ahead and get in business so we're doing it as a subsidiary, but we have a company that has a right to buy all the accounts for a dollar," he said. Mr. Whittle anticipates the Internet bank will raise private equity capital or issue an initial public offering next year. Carolina First will own 40% of the new entity, he said. Mr. Whittle predicted the drift of customers to cyberspace would happen "faster than most of us want it to," and said banks needed to learn quickly how to deliver banking services electronically. "It's about 70% cheaper to deliver it through the Internet than through traditional means," he said. "Plus, the next generation of consumers is going to demand it." If Silicon Valley was the first to put Internet banking on the national map, then Atlanta seems to have become the second pushpin. Atlanta has "more PCs per capita and more Internet users per capita than anywhere else in the South," Mr. Whittle said. Even so, Mr. Whittle said, the Internet bank is reaching for a national customer base, competing "very definitely" with Security First. "We're trying to market this not to our customers as much as to Internet users," he said. "It's a much easier sell for us to market to people who are already accustomed to using the Internet." Mr. Johnson takes a slightly different view. "I hope they don't think we're competitors, because we don't think they're competitors," Mr. Johnson said of Security First. "I think we both have a lot of hard work ahead of us to get the public to use this as a means by which they conduct financial business. "We won't compete with Wells Fargo or any of the other people involved" in the Internet banking arena, he said. "We all have a job to do, which is ultimately to help all the banks get their overhead structure in line with other businesses." Michael McChesney, an officer of both Security First and a subsidiary, Five Paces Inc., said the officers across town at the competing bank were "friends of mine," and wished them luck. "I'd like to see anyone who gets on the Internet doing banking succeed," Mr. McChesney said. "Our belief is that every bank will be on the Internet in five years." That said, Mr. McChesney also predicted the two banks would "compete head-to-head for some Atlanta Internet customers" and that it would be a "gentlemanly competition." Despite the mutual kind words, some hard feelings may linger: the Atlanta Internet Bank had originally agreed to use software supplied by Five Paces, then changed its mind and chose a system from Edify Corp. instead. The Atlanta Internet Bank tested its site with 60 to 70 people - mostly Carolina First and AT&T employees - and drew 150 newcomers in its first few days, said Donald Shapleigh, whose title is president of the Atlanta Internet Bank. The bank's Web site -- at www.atlantabank.com -- is spare, with far simpler graphics than those of Security First and other banks in the virtual world. "This is not Disney -- it's a bank," Mr. Shapleigh explained. "We want convenience, speed, and access. We want people to feel like we're a bank, to know that it's FDIC insured, but also to know that it's different because we're a virtual bank. "We don't have any branches and we're not interested in running a fleet of branches. We want people who are savvy with computers." For the first six weeks, the new service will be accessible only through AT&T's WorldNet. WorldNet, which charges a flat rate for unlimited Internet access, has 425,000 subscribers. The on-line service is giving the Atlanta Internet Bank a free advertising "banner" on its home page, placing subscribers a mouse-click away from the bank. The banner will remain in place at least until the bank receives two million "hits," or visits. Mr. Johnson said his goal is to have 20,000 accounts after a year - or one for each 100 hits. "Even credit card solicitations run about one percent," said Mr. Johnson, who will be? the new bank's chairman. Such a success rate would run counter to the experience of Security First Network Bank, which has run banners on America Online and elsewhere. The advertisements generated heavy traffic but relatively few accounts. Beginning Dec.1, the Atlanta Internet Bank's products will be available to anyone on the World Wide Web of the Internet. The whopping 7% interest rate -- which applies only to a short-term money market account -- will end at that time. Future rates will be "very aggressive," said Ched Hoover, director of marketing for the Atlanta Internet Bank. He said the highest money market rate he had seen other banks offer was 5.5%, which his bank would beat. Other initial offerings include interest-bearing checking accounts, direct deposit, electronic bill payment, account transfer capability, and ATM cards. Loan products and brokerage will be added by yearend, Mr. Johnson said. The nascent bank has four officers and eight customer service representatives. Mr. Shapleigh, the president, is a 20-year veteran of retail and corporate banking who has worked at SunTrust Banks Inc. of Atlanta. The tie-in with Atlanta Internet Bank is just the latest of several quasi-experimental technology initiatives that Carolina First has begun recently. The bank has installed 17 loan kiosks in shopping malls, and is preparing to place others in automobile dealerships. It is also investing in supermarket branches. "Like most banks, we see the delivery system changing," Mr. Whittle said. "We have tried to be as innovative as we can in seeking lesser expensive ways of delivering the product, in ways that the customer of the future is going to expect." News Release (IBM): Tuesday, October 15, 1996 Smart Card Pilot To Be Initiated By American Express And IBM Smart card to be used for "ticketless travel" on American Airlines American Express Co. and IBM today announced plans to pilot a system which will enable business travelers to move more quickly through airports by using the world's first multi-purpose corporate "smart card." By early December, the two companies will begin testing an American Express(R) Corporate Card using IBM smart card technology for use with airlines' electronic ticketing capability, often referred to as "ticketless travel." Initially, these smart cards will be tested with American Airlines' enhanced gate readers, which are now installed in 21 U.S. airports. For travelers, this process eliminates the hassle of carrying a paper boarding pass, enabling them to proceed directly to the gate after showing identification at the airport. At the gate, the traveler inserts the smart card into the gate reader, receives confirmation of seat assignment, and is ready to board the plane. In the pilot, American Express will issue fully-functional Corporate Cards, featuring IBM's multi-function smart card (MFC) technology, to a select group of employees at both companies. The companies made the announcement at the International Air Transport Association (IATA) Passenger Services Conference in Los Angeles. At the conference, IATA delegates are expected to vote on a proposed resolution establishing airline industry specifications for the use of smart cards. Travel Industry Milestones This product represents the first multi-purpose corporate card with a computer chip, the first commercial smart card application by American Express, and the first travel industry implementation of IBM's MFC technology. In this initial application, the smart card will verify the electronic reservation and confirm traveler identification in greater detail and with more reliability than existing cards. "This is an important first step in developing smart cards that allow business travelers to 'do more,'" said Ed Gilligan, president of American Express Corporate Services. "Smart cards will also allow travel suppliers to streamline the check-in process and to enhance customer reward programs. At American Express, our plan is to lead the way in developing smart cards that provide customers with additional value, convenience and security as part of an increasingly automated process from on-line booking to electronic expense reporting." "The travel industry is well-poised to take advantage of smart card and other innovative technologies," said Jerry Cole, general manager of IBM's Worldwide Travel and Transportation Industry Solutions Unit. "This application is another prime example of IBM working with its customers to apply powerful technologies in integrated solutions that translate into significant business benefits." American Airlines' AAccess system, which was launched in September, offers passengers the option of automated check-in at the top 21 domestic airports, which account for about 70 percent of the airlines' passenger boardings. The enhanced gate readers, in addition to reading normal magnetic-stripe boarding passes, will read charge cards and smart cards to issue boarding and seat confirmations. Smart Card Innovators American Express, which along with IBM and American Airlines, is a member of the Smart Card Forum, is developing a number of smart card applications to provide customers with enhanced convenience and value. In travel, American Express will pursue multi-function applications that will speed travelers past check-in points at airports, hotels and car rental agencies. "Our vision for smart card product development is to provide customers with an array of innovative products that can store and capture monetary value and information, extend payment options and perform a variety of non-financial tasks," said David Boyles, senior vice president and head of the Smart Card Center of Excellence at American Express. "This pilot with IBM demonstrates American Express' commitment to assume a leadership role in shaping global standards for smart cards to ensure a level playing field and to speed development of new applications in a variety of industries." At the IATA conference, IBM will demonstrate to the association's airline members how the next generation of smart cards can enhance the entire ticketless travel process -- from reservation to boarding. The steps in the process include: -- the passenger makes a reservation on-line through the Internet or other on-line service, or through a travel agency; -- the passenger then downloads the ticket confirmation number to a smart card via personal computer with smart card capabilities or at an airport self-service kiosk; -- the passenger then checks in, using the smart card at the airline desk or kiosk, and then proceeds to board, using an enhanced gate reader. IBM has provided technology solutions, products and services to the travel industry for more than 30 years. Many industries, including travel -- airlines, lodging, car rentals and travel agencies -- are quickly adopting technologies into their business operations. The IBM Worldwide Travel and Transportation Industry Solutions Unit collaborated with IBM's Smart Consumer Services group on this effort and will continue to do so on future smart card solutions projects targeted to the travel industry. And this one is especially for Timmy May: FIRST "GAY-FRIENDLY" MUTUAL FUND In what appears to be the first of its kind, a new mutual fund has been launched that is being marketed directly at homosexual men and women. "We won't invest in companies unless they have a progressive policy towards gays and lesbians," said Shelly Meyers, portfolio manager of the Meyers, Sheppard Pride Fund. The 37-year-old Meyers, an MBA who describes herself as gay, said she has found that the technology, financial services and consumer services sectors have a higher proportion of companies that are "gay friendly," with utilities and energy among the least friendly. The fund's investment philosophy is value-oriented, seeking equities that are undervalued, she said. The fund has about 40 issues in its portfolio, and ranges between 35 and 55 stocks. Its top five holdings are: Arrow Electronics Inc., McKesson Corp., Time Warner Inc., Glendale Federal Bank and American Express Co. -- Reuter, 10/18/96 MAJOR LONDON BANKS SKIP SIGNATURE VERIFICATION The big four High Street banks have stopped checking whether customers have put the correct signatures on personal checks for amounts below 1,000 pounds. Lloyds Bank, Barclays, NatWest and Midland have all decided that it is less expensive to reimburse defrauded customers than to instruct staff to scrutinise all checks. The banks last week refused to confirm the existence of the limits, which start at 1,000 pounds and can be as high as 5,000 pounds at some branches. -- The (London) Telegraph, 10/15/96 --- Dr.Dimitri Vulis KOTM Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps