Wired For Cash

Sydney Morning Herald

Monday April 21, 1997

Sue Lowe

The prospect of avoiding queues in banks or outside ATMs makes the cyberbanking revolution appealing. But there are still several missing pieces, reports SUE LOWE.

Last minute dashes to the nearest automatic teller machine (ATM) could soon be history. Instead we'll all have handheld ATMs attached to the kitchen phone, the home PC or eventually the TV. But instead of spitting out pristing polymer notes, all you'll get is a few extra bytes of data on your smartcard.

For those not up with the jargon, a smartcard looks just like a credit card but has an embedded computer chip that allows it to store "electronic cash" values.

Ideally, these home ATMs would also be linked to a personal finance package running on the PC - or maybe a TV-cum-Web device which, in turn, would be linked to all the household's bank and credit-card accounts via the Internet.

The PC and Internet connection would look after all bill payments and shuffling of funds between accounts. Theoretically, this chain of technologies could give us better control over our money than ever before. It could also mean much cheaper banking.

"Electronic services (ATM and EFTPOS) are one-third the cost of across-the-counter service and according to the US experience, Internet banking is one-third the cost of electronic services," says Haydn Park, group manager for National Australia Bank.

But also think about how lucrative that link directly into customers' homes could be to a bank. Not to mention the opportunity to be the "trusted" intermediary that handles all a household's bill payments. The bank may be able to use that link to cross-sell all sorts of other products, possibly from third parties. It may even start selling advertising. But it would need the customers' permission to do that, and getting that permission may require attractive "relationship" incentives - perhaps slightly higher interest rates on deposits, lower interest rates on loans and/or the waiving of all transaction fees.

For PC literates who feel they spend far too much time standing in bank queues or pay a fortune in transaction fees, this type of scenario may seem appealing.

The bad news is it's not quite as close as it sounds. There are still vital pieces missing, and those pieces that do exist don't fit together well. Not enough people - either banks or customers - have them, and security and privacy are still major concerns.

Taking the Internet links first, only three Australian banks offer Internet banking - the Advance Bank, the Commonwealth and Bank SA. The first two have been listed among the best 10 banking sites in Cyberspace (www.moneypage.com) but both still have significant "holes".

With the Commonwealth service you can download and print out an application form for Internet access but you still have to physically take that form into a branch - they need a non-digital signature. And neither service offers loan application and approval solely over the Internet, although Advance claims it's not far off.

ANZ is expected to become the third "cyberbank" some time in mid-year and NAB is also making cautious moves. In December last year, ANZ announced an agreement with Security First Asia Pacific to develop a PC and Internet banking product. Security First AP is a wholly owned subsidiary of Security First Network Bank, "the first Internet bank".

NAB's interest is via a system being developed by IBM and 15 American banks, one of which is a wholly owned subsidiary of NAB. But this "Integrion" on-line commerce and banking system is based on a proprietary network, rather than the Internet proper.

But all of these banks have a lot of catching up to do. In 18 months, the Advance Bank has established a base of 13,000 registered customers - although only about 4,000 of those are regular users - and claims to be handling 50,000 transactions a month. "If they like it, they like it a lot," said Rahn Wood, Advance's head of electronic banking.

Advance's David Brown said he is confident of keeping that lead through the merger with St George, although Advance can't say when St George customers will be offered Internet banking.

To be fair to the Commonwealth, though, its new NetBank service isn't the bank's only online service. If plain old modem services were included, Combank would be the veteran. It has operated its Quickline service since 1994. The service has just over 8,000 users and handles 90,000 payments a month.

Product manager Drew Unsworth claims one advantage of Quickline over NetBank is that it's available on a "13" number at a local-call rate from anywhere in Australia. For many rural customers who would otherwise have to pay an STD rate to reach their closest Internet service provider, that may work out much cheaper.

Unsworth claims 35 per cent of Quickline users live in rural Australia. Quickline also has a payroll facility, making it better suited to small businesses and farmers.

Meanwhile both the Commonwealth's NetBank and Advance's Internet banking service provide balances and lists of recent transactions; both will allow you to transfer funds between personal and business or credit card accounts; and both allow you to pay bills and transfer funds to specific accounts at other banks.

So far, both services have been offered free, to encourage people to use them, but Advance has said a fee of 20c for each transaction will be introduced.

Combank hasn't said what Netbank's future fee base will be, but if Quickline is anything to go by it won't be free. Quickline users pay $79 for the software and, on top of that, transaction fees are charged on a sliding scale - $5 a month for up to 40 transactions, rising to $20 a month for up to 160 transactions and so on.

Unsworth points out that while electronic transactions do cost the bank less, "the bank still has a big branch infrastructure to support. It would only become cheaper when we get a sufficient volume of transactions online," he said.

So while early users of Internet online banking can benefit from a service without transaction fees, it may not last long.

Another gap in both of these services is that neither links directly to popular home PC finance packages, such as Quicken or Microsoft Money. For security reasons, both banks have chosen to provide their own software. So, at the moment, customers have to export from the bank's software and import to their own PC software.

ANZ could be the first to bridge this gap. The Security First system is being developed closely with Microsoft at the back end. That means that at the front end, ANZ's Microsoft Money users could be the first in Australia to be able to access their bank accounts directly from their own PC finance software.

Microsoft's Money '97 includes a one-click button designed just for that purpose. Intuit, developer of Quicken, by far the more popular personal finance package in Australia, is working on similar agreements with banks worldwide, but so far has no similar deals in Australia.

It may not be Internet banking so much as electronic money that is the catalyst for the real revolution in banking.

According to Liam Lannon, of Mondex, one of the most dominant players in the smart card game, 75 per cent of the world's transactions are still based on cash and there's a worldwide float of between $A40 billion and $A42 billion in circulation. He claims banks and retailers spend billions every year in handling, counting, storing and transporting cash. That's a very strong incentive to support some form of electronic cash.

At the moment, there are two broad solutions on offer: PC-based electronic cash and smart cards.

Electronic cash is typically downloaded, or e-mailed, to a PC, from where it can be spent over the Internet. Typically it is designed for very small transactions of just a few cents - perhaps payment for a one-off, online database search or a single issue of a newspaper.

Smart cards, by comparison, store their electronic cash on a computer chip embedded on the card itself and could eventually allow electronic cash to be spent anywhere, even exchanged person-to-person via an "electronic wallet" device. Smart cards are designed to handle both small and larger transactions and are likely to be combined in the future with conventional credit card and debit card facilities, creating "combo cards".

The Advance Bank is again leading the pack with PC-based electronic cash. The bank announced a deal in October last year with DigiCash, the developer of the "e-cash" system - making it only the fifth bank in the world and the first in the Asia Pacific region to use e-cash. But since then, availability has been repeatedly put back. The bank is now looking to resolve the problem of the lack of products to buy with e-cash before it makes the system available. Wood said the bank is preparing to launch an Internet shopping mall as an extension of its Web site. The main currencies will be e-cash or credit card. "The internal pilot will start very shortly," he said, with a public release "in the next weeks".

At that point, Advance Bank customers will be to able to withdraw cash from their bank accounts to their PC, via a special program downloaded from Advance's Web site. The "cash" could be spent at any of the Advance Mall shops or other Internet sites that accept e-cash. While DigiCash is becoming one of the best supported electronic cash systems worldwide, even DigiCash admits it will always be a niche market product.

Most experts believe smart card technology will eventually dominate in terms of electronic cash and that there could be many competing brands of smart card.

Smart cards can come as pre-loaded, disposable cards, to be thrown away once the pre-loaded value is used up - a bit like a phone card. Or, the cards can be reloadable, using some type of ATM. It's the latter that will take time to develop as they are the ones that will link in to customer's bank accounts.

At the moment, the two main rival reloadable smart cards are Visa's VisaCash and Mondex - in which MasterCard gained a 51 per cent interest in February.

Mondex differs from VisaCash in that it is far closer to real-life cash. Mondex will allow person-to-person funds transfer via "electronic wallets" and will also support five different currencies simultaneously.

Last year, all four major Australian banks combined to purchase the local franchise rights to Mondex. The banks are still coy on specific plans, but are expected to conduct internal trials later this year.

NAB's Haydn Park predicts that smart card developments are now so advanced that they could fall into place in the electronic banking scenario well before Internet banking really takes off. But even that could take a few years.

ATMs were first introduced back in 1981, he said, but it took until 1985 for them to become broadly accepted. EFTPOS was introduced in 1986, but it wasn't until about 1991 that the technology became accepted. He predicts "smart cards could happen a little quicker, but it won't be tomorrow".

Lannon describes it as a chicken-and-egg situation. Australia's major banks have invested, which guarantees some activity. But he claims it's up to the banks to make it make sense for customers to use the cards.

DEVELOPMENTS IN MONDEX

JULY '95 - the start of the first trial of Mondex in Swindon, England. There are now 13,000 cardholders. Seventy per cent of all retailers are participating. The cards are supported by 19 ATMs, 300 payphones and 2,000 home phones that allow cash to be downloaded to the cards.

SEPTEMBER '95 - Wells Fargo internal trial started. More than 1,000 of the US bank's employees now use Mondex and it is supported by 23 merchants in and around the bank's HQ. By January 199, 35,000 transactions had been conducted.

EARLY '96 - Australia's four big banks invest $10 million to buy local franchise rights to Mondex.

OCTOBER '96 - Westpac local employee trial in Wellington and Christchurch, NZ.

OCTOBER '96 - Hong Kong Bank trial started. Has achieved the most rapid take-up yet, with 35,000 cardholders. A total of 125 ATMs have been upgraded to support Mondex facilities.

FEBRUARY '97 - Public trial in Guelph, Canada. The trial has already passed the target of 5,000 contributors.

MARCH '97 - AT&T announced the first trial of Mondex over the Internet.

WEB ADDRESSES
 Advance Bank                          http://www.advance.com.au
 Commonwealth Bank                http://www.commbank.com.au
 MoneyPage                               http://www.moneypage.com
 ANZ                                          http://www.ANZ.com.au
 Security First Network Bank    http://www.sfnb.com
 NAB                                          http://www.national.com.au
 Integrion Financial Network      http://www.integrion.net
 DigiCash                                   http//www.digicash.com
 Mondex                                    http://www.mondex.com
 Wells Fargo                              http://www.wellsfargo.com
 VisaCash                                 http://www.visa.com
 WHY DO WE TYPE IN THESE NIGHTMARISHURLs WHEN THEY'RE HOT-LINKED AT
WWW.SMH.COM.AU/COMPUTERS?

© 1997 Sydney Morning Herald

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