Net deposits: entrepreneurs have been slow to adopt online banking—with good reason. But some banks are trying hard to win them over

Entrepreneur, Oct, 2005 by C.J. Prince

IN THEORY, the convenience and simplicity of online banking make it a godsend for busy entrepreneurs. Yet recent surveys show that small-company CEOs are slow to migrate their business banking online, lagging behind consumers and big companies.

A survey released in December 2004 by Forrester Research found that while small-business owners are active internet users, only 19 percent of those surveyed were actively using online banking, and just 13 percent were actively paying bills online. The "Small Business Research 2005 Study," performed by Edgar, Duma & Co., a global financial services and payments consultancy, and Collective Dynamics, a management and technology consulting firm, found that while 57 percent of responding entrepreneurs used online banking daily or weekly, only half paid their bills online; 28 percent had no interest at all in online banking. Why? The most commonly cited reason, reports John Bresnahan, director at Edgar, Dunn & Co., was concern about internet security.

"Businesses of this size are very conscious of security," echoes Anita Campbell, CEO of Small Business Trends, a website that monitors trends in the global small-business market. "Every time we have one of these scares about credit card numbers or banking records being compromised, that gives business owners pause."

Indeed, the recent security lapses at major financial institutions have done nothing to quell business owners' fears of putting their account information online. Avivah Litan, vice president and research director at Gartner Inc. and author of several studies on online security, says their wariness is understandable. "They're not nearly as well-protected in the banking world as consumers are," she says, "especially when it comes to online information theft."

Federal regulations require banks to reimburse consumers for unauthorized transfers from their accounts, says Litan. But there is no corresponding legislation that protects small businesses. "Small businesses are kind of left behind when it comes to banking," says Litan. Until new regulations appear, if banks want business owners to feel more at ease, they'll have to "make their own liability guarantees," she says.

Wells Fargo is one of the few banks to extend its theft protection beyond federal requirements. "The Wells Fargo online security guarantee covers our online business banking customers, whether for personal accounts or business accounts," says Richard Weeks, vice president of Wells Fargo's Business Internet Services. That may help explain why the company expects a 24 percent increase in their active online small-business customers in 2005.

It also helps that Wells Fargo, like a handful of other large banks, has found ways to tailor online banking products specifically to small business. One complaint registered by the Forrester survey respondents was that online offerings tend to be too cookie-cutter, modeled after consumer offerings that don't have the functionality small businesses need. Wells Fargo allows its small-business customers to provide varying levels of access to bookkeepers and other staffers, and it lets them pay federal taxes online. Its bill-pay service lets users label their payments based on accounts--personal or business-so they can get a better handle on cash flow. In addition, JPMorgan Chase's direct deposit payroll feature makes it simple for small employers to deposit salaries into employee bank accounts without having to outsource. At Bank of America, their Direct Service allows small-business owners to add on features or functions--such as foreign exchange payments--as they grow in size and their needs change.

Beyond ease of use and security, a major issue remaining for small-business adoption of online bill payment is having a variety of payment options, including credit cards. "Right now, it's mostly limited to payment by checking account," says Bresnahan. However, Wells Fargo allows customers to pay bills with a Wells Fargo credit card, and companies that receive payments through their own websites allow entrepreneurs to use whatever card they choose. That means that, for now, small-business owners--who often earn points, miles and discounts by paying with credit cards--may continue to pay their bills without help from their banks.

C.J. PRINCE is executive editor of CEO Magazine. She can be reached at cjprince@chiefexecutive.net.