Banking's Great Leveler Is the Internet

New Mexico Business Journal, May, 2001 by Susan Craig

Community banks can compete successfully with the big boys, so long as they respond promptly to customer demand--and maybe even some clever new services.

IF YOU AND YOUR COMPANY AREN'T plugged into the Internet, you may be missing at least part of the revolution in banking. That, it would appear, is where the real banking action is these days. You might reasonably assume that the megabanks--Wells Fargo, Bank of America, Citibank, etc.--because of their resources pioneered online banking, and you'd be right. But most of the community banks have discovered cyberspace, too. The Internet could very well be the banking industry's great leveler.

This, of course, shouldn't be surprising since computers have been handling bank transactions for many moons. The logical next step was to, in a sense, eliminate the middleman. Although the banks haven't quite figured out how to cash your check via the Internet, they probably will.

In a recently concluded study commissioned by Bank of America of small businesses (up to $10 million in revenues, broken into $500,000 segments, with nearly 90 percent of reported businesses under $1 million), some interesting trends are seen in how small business takes care of its finances. Deborah Cannon, B of A's small business executive for the 10-state central region which includes New Mexico, says that, unsurprisingly, companies are becoming much more sophisticated in the financial products they use and smaller companies are flocking to their PCs. "Seventy percent of companies under $500,000 in revenues are using PCs for financial management, 50 percent using the Internet," she says. "In companies grossing $500,000 to $1 million, 84 percent use PCs, 68 percent the Net. It's been an explosion over the past three years."

In an informal survey of representative New Mexico banks, we've discovered some new wrinkles in service as well as the near-ubiquity of Internet-related banking. Large businesses may require the depth of services offered by the behemoth banks, and small businesses may prefer the one-on-one attention by their next-door-neighbor banks, but the lines are blurring as banks compete for your business dollar.

Standard, plain-vanilla business offerings like checking and savings accounts, credit card merchant services and business loans form the basis of the business customer/bank relationship. Further services can be dressed up in a whole wardrobe of options by a bank whose customers have a wide range of needs.

The watchword of the 21st century for business banking is cash management. Thanks to today's technology, banks can manage a firm's money in a multitude of ways that increase cost efficiency for the business. Wells Fargo calls it "treasury management" and it's good for businesses small and large, according to Bob Jung, president of Wells Fargo Albuquerque and regional manager for central, northern and western New Mexico.

"Our Business Online is Internet banking for all," he says. "It allows the small business to go online for the full range of banking services. For the larger business, we have Commercial Electronic Office (CEO) which provides an amazing range of services. The whole concept of Business Online is to encourage all of the business of a firm into one bank, offering hooks for consolidation like the Portfolio Management Account (PMA), where one statement covers everything; letters of credit managed online; and our new Business Packs, packages of business services that can save $100 to $500 in fees."

At the same time, Jung continues, loans remain the lead product in selling business services, along with the standbys of checking and savings accounts and business credit cards. Although Internet banking is fast-growing, only 15 to 20 percent of the bank's customers use it at this time. Wells Fargo offers the same services throughout their regions, but some fluctuation is seen in the use of services in outlying market areas.

At Bank 1st, president and CEO Mike Albers sees an exponential growth in Internet banking. "We do demonstrations with our customers to reduce the intimidation factor," he says. "We're switching from a proprietary Internet banking system to an Internet-based one, which is a new trend. In the past we've charged for this service, but we have the sense that ultimately it will be more cost-efficient to offer this service free of charge." Banks, says Albers, will need to be available around the clock, seven days a week, or 24/7.

Bank 1st is doing what Albers calls "relationship pricing," or, the more business you do with us, the better the deal. "It's reflected in loan pricing or in how much or whether you pay service charges," he says. "We share the widely held banking view of tying the customer to us as closely as possible." Bank 1st business customers are taking advantage of cash management services such as tracking of payments, issuance of checks and the bank's courier service. "We bring the bank to the customer," Albers says. "We've seen a 300 percent growth in this service this year. We charge $5 to $7 per delivery depending upon the volume of business, which is charged against the collected balance using a system of credits. So far we're the only Albuquerque bank offering this service."