BANKING - Vault of the earth

Barclays' fledgling online banking scheme is just the start of a revolution in the way businesses and individuals will handle their accounts.

Access to home banking is frequently quoted as a prime motivator forolution in the way businesses and individuals will handle their accounts. consumers to hook up to the internet. Although home online banking in the UK is still virtually non-existent, forecasts that one in four UK households will have internet access by 2000 have led software giant Microsoft to predict that this will translate into 2.5 million potential home users for online banking by the turn of the century.

Barclays' Bank, which many acknowledge to be the UK market leader in this sector, has a mere 43,500 customers signed up to its PC banking service.

There's clearly still a lot of ground work to be done, providing plenty of opportunity for resellers.

Suppliers are to blame for much of the confusion that has arisen. There is a tendency among those promoting home banking to regard the terms online and internet as interchangeable - which they are not. Many home banking services are still bespoke systems in which the customer must dial a specific UK telephone number by modem. Such services are not accessible via the internet.

The software involved in providing home banking access raises another significant point. Barclays'' online customers fall into two categories: one using the bank's PC banking software and the other opting for Microsoft's Money 97/Money 98 package. Even the US Citibank still uses proprietary Direct Access software for its online service, although like most of its competitors, it claims an internet-based service accessible via Netscape Navigator is due for launch imminently.

Another area of confusion is the scope of the available electronic service.

Telephone-accessible services provided by some banks connect the user to an interactive voice response (IVR) system that reads out an account balance to the caller and requires no hardware other than a touchtone telephone. Others can vary greatly according to which software package has been chosen.

At its simplest, online banking can be defined as merely a service able to check your account balance and instruct the system to pay a bill. Even then there are some cases where the system is only able to pay a previously defined bill - where details of the recipient, the amount and the relevant account are already stored. But the options can be more wide-ranging.

One organisation that believes online banking has been neglected is UK internet service provider Prestel Online, which carried out a survey of 100 of its dial-up customers in March. Prestel found the vast majority - 86 per cent - do not use online banking services.

These are the kind of consumers who are likely to have heard of such online banking services. So why is there such a reluctance among internet-enabled consumers to use them? Michael Holland, managing director of Prestel Online, says: 'Security is still an area of concern for many users. For others, it is simply a case of breaking long-standing habits.'

Holland says the report reflects the conservative stance of many UK managers.

'The survey results demonstrate the typical British resistance to cultural change,' he says. 'Although the majority of internet users are keen to move over to online services, they still have a number of misgivings that need to be addressed. The UK is lagging behind other parts of Europe in internet banking.'

These sentiments are echoed by Phil Brown, managing director of Brokat, a UK software house specialising in providing packages to financial institutions all over the world. 'We have helped more than 1,400 banks go online in Germany, Austria and Switzerland - all countries otherwise known for being pragmatic, cautious and risk adverse,' he says.

It was Barclays' that first sprung full-scale online banking - rather than just account balance checking - on an unsuspecting British public back in October 1996 through its alliance with Microsoft's Money 97. So you might reasonably expect this high-street institution to be ahead of its rivals in the internet banking stakes. But Barclays has recently been pipped to the post by Nationwide.

'Nationwide was the first UK financial organisation to offer an online banking service via the internet,' claims Stuart Bernau, Nationwide's retail operations director. 'We are teaming up with Microsoft to offer our customers an extremely useful way to access and manage their finances.

Over the coming months, we will be working with Unisys to develop a customer-friendly system.'

Nationwide announced its support for Money 98 back in August 1997 and had a system installed in time for Christmas.

Yet, despite the advantage derived from being the first UK-based organisation to be able to offer the tie-up with Microsoft's Money 98, Nationwide can still boast no more than 40,000 customers using its PC and online banking services.

Barclays missed the boat by failing to upgrade its system to work with Money 98 in time for the software launch. The bank was forced to send out letters to its customers warning them that due to incompatibilities between the 97 and 98 packages, their data files would be corrupted if they used Money 98. It has since resolved the problem, but has yet to inform customers that they can now use the 98 version.

Poor marketing, then, must take some of the blame for the low take-up of online banking. Another example is provided by Barclaycard. The credit card organisation - which is separate from the bank - has formed an alliance with French GSM handset manufacturer Alcatel and UK mobile network operator Cellnet to market an online banking service.

Using a specially modified version of Alcatel's One Touch Pro mobile phone handset, customers can check their account balance via the GSM network.

The problem is fitting the exact profile required to become a Barclaycard online customer. Barclaycard, for example, offers probably the UK's highest lending rate (more than 20 per cent APR) - hardly an incentive for any consumer to switch credit cards. Why switch to Cellnet when it has almost certainly the smallest share of the UK's GSM network market? And customers have yet to be offered incentives to swap handsets. Unless you're already a Barclaycard holder, this is a tortuous route to online banking.

None of these situations is exactly ideal for the consumer. Barclays' can offer credit card payments over the internet through its Barclaycard/Alcatel/Cellnet route, but there is no internet access for its customer mix of bespoke and Money 97/98 software users. Nationwide can offer banking via the internet and Money 98, but the majority of its customers still appear to be using bespoke Windows software.

The Royal Bank of Scotland is in a similar position to that of Nationwide.

It has a Windows 3.x offering, Royline Account Master, which provides personal customers with access to their bank account within specific hours.

The bank also claims it can offer an internet-based service for personal customers, direct banking by PC, as well as a service for corporate customers in the form of Royline for Windows. The Royal Bank says it will eventually migrate its customers over to Money 98 from its bespoke software.

Citibank is still using proprietary software but, like its rivals, it claims an internet service is ready to come out of beta testing. Meanwhile, the Co-operative Bank maintains that its own internet banking service went live on 25 March this year and First Direct claims it is close to offering an internet service.

The future, according to Brown, does not lie with bespoke software such as Money 98. He believes that internet-based banking using such Web browser software as Net-scape Navigator or Microsoft Explorer will provide the spur for the growth of online banking.

Brokat has concentrated its efforts on supplying banks with its Brokat Twister software. The package provides customers with internet-based banking software that uses a simple browser as the front end. 'In the German market, we have captured something like an 80 per cent market share with our software and in Switzerland we have about 50 per cent market share,' Brown says.

Brokat maintains it is already making serious inroads into the UK's banking sector, having won over its first big-name customer in the shape of the Co-operative Bank. Brown argues that the take-up of browser-based services to date has been phenomenal compared with proprietary offerings.

'Until now, UK banks have restricted their use of the internet to promoting services and making account information more accessible,' Brown says.

'This represents no advance on telephone (IVR) banking and wastes the huge potential of the internet.' Brown claims that First Direct, is already hot on the Co-operative Bank's heels and expects many other of the UK high-street banks to follow suit.

The one area where Brokat claims it has a technical advantage concerns authentication. In the past, in order to provide secure transactions over the internet, banks have been looking at encryption technology such as Pretty Good Privacy (PGP).

In contrast, Brokat's Twister relies on the inherent authentication of a GSM mobile telephone handset to provide the necessary authorisation for internet-based banking transactions.

A GSM phone offers a high degree of security because it is difficult to duplicate a valid GSM SIM (subscriber identity module) card.

Coupled with this, as soon as a customer reports a GSM phone as stolen, it can be disconnected from the mobile telephone network within seconds.

Brokat has been able to persuade the banks that GSM provides the digital signature necessary to provide a non-revokable online banking transaction.

Twister makes use of an inherent part of GSM - its short message (SMS) capability - to enable users to confirm online transactions made via their PCs and modems.

Brown admits there is no live UK network using the Twister software at the moment. 'But that doesn't mean its vapourware,' he insists. Prestel believes that despite the low take-up of home banking services in the UK, a boom is inevitable as the internet becomes an accepted way to bank and shop.

'Ninety-four per cent of our respondents said they expect to be banking on the internet by the year 2000,' Holland says. 'We are confident that by the next millennium, the British public will follow the rest of Europe and that the internet banking boom will be well under way,' says Brown.

Barclays' points to a survey carried out by NOP Consumer Market Research in November 1997, which showed 82 per cent of respondents believed PC-based banking will be popular in the future. Even if Barclays'' rate of 5,000 new customers a month stays the same, the bank will at least double its installed base within a year.

Those with their ears close to the ground agree that once a marketing push is in place, and once the technical and security hurdles have been overcome, it's a question of when, and not if, internet banking takes off.

A CUSTOMER'S EYE VIEW

One long-standing user of Nationwide's PC Home Banking service, is a retired City executive. He upgraded to the Windows 3.x based proprietary system from Nationwide's telephone banking, which used a bleeper to send tones over a standard telephone line.

He says he is happy with the ability to check his current account balance and does not have a problem with the online payment service that requires him to post a form and wait three or four days before it becomes accessible via the online system.

He agrees it would be useful if Nationwide's customers could check their bank balance over the internet from a hotel bedroom, or pay that bill they forgot while still on holiday. However, he says he has received no literature about any such service.

The disadvantage of a browser-based service is that he would have to consider upgrading to Windows 95. 'I'd also have to pay #10 per month for an internet subscription while my existing system works and is free,' he says.