Racing Against The Clock

Community banks must establish an online presence if they are to avoid going the way of the corner drug store and the local hardware outlet-enterprises that are slowly dying as their client bases age and younger consumers head to more convenient alternatives, observers say.

"Community banks are crazy if they think that today's 16-to-25-year-old is going to stand in line with a passbook on a Saturday morning," said Paul Pustorino, national depository institutions practice leader at Grant Thornton, a professional services firm.

In Grant Thornton's seventh annual survey of community bank executives, the percentage of community banks with no plans to establish a Web site dropped from 17% in 1999 to 8% in 2000. By the end of this year, 78% of community banks will have a Web site, and the remaining 14% plan to establish a Web site.

However, only 17% of community banks in the survey actually offer any type of banking services online, although 47% said they were planning to do so by 2001.

Community banks need to offer a broad range of services if they are to survive in the online world, analysts agree. "They have to become portals," Pustorino said. "That's where they're having a tough time."

Community banks don't need to provide experts in every financial category, but only access to experts via their sites. "The money's going out the door anyway," Pustorino added. "The banks should grab a piece of it on the way by."

Some banks are attempting to do just that. Security National Bank of Omaha (Neb.), which joined the online fray in February, is ahead of the pack. "Having an online presence is very important to our long-term strategy," said Debbie R. Newkirk, senior vice president at the $303 million institution. "It is important for customers to see that even though we are a smaller bank, we are offering products comparable to or even better than the products offered by the regional and national banks, while still providing a higher level of personalized service."

Security National (www.snbconnect.com) is using technology from Emeryville, Calif.-based Home Account to power its Internet banking product. Banks that adopt a more offensive strategy are more likely to succeed online, according to Mark Nelson, vice president of the community bank division at Home Account. "Having all the services a customer would expect on a banking Web site and more is the key-discount brokerage, insurance, a financial advisor product, etc."

With 80 community banks as customers, Home Account provides a full-service Internet banking product, from customizing the design through implementation. The company hosts and maintains a bank's site, putting up to 10 different banners on a site each month.

Another small bank leading the charge into the Internet is Salem Five Cents Savings Bank, in Salem, Mass. The bank invested heavily early on in technology, but agrees that the personal touch is still what will help community banks compete. "Technology will bring customers in, but people and service will bring them back," said Janis Dodge, senior vice president of retail banking for directbanking.com, Salem Five Cents' virtual arm.

The name directbanking.com grew out of the popularity of Salem Five's purely virtual bank branch, introduced in 1996. That product was so successful that the bank rebranded it directbanking.com. In October, it opened a bricks-and-mortar "store" in support of directbanking.com in downtown Boston.

According to Dodge, there will be no reference to Salem Five Cents in the directbanking store, just as there are no ads or brochures for directbanking.com in Salem Five Cents branches, aside from an MPEG video that shows on ATM machines. "We have two separate product lines looking to serve different markets," Dodge said. "Directbanking is really looking at new markets to penetrate."

Despite the successes of Security National-which has achieved almost 10% penetration in only nine months, with 70% of its online customers using the service at least once a month- and Salem Five Cents, most community banks are still at the Internet starting gate.

According to Cyber Dialogue, a customer relationship management services firm, 85% of online bill-pay users that are customers of a national bank pay their bills via their primary bank's Web site. Yet only 58% of online bill-pay users that are community bank customers pay their bills via their primary bank's Web site.

That's due in part to the relatively small number of community banks offering bill-pay, experts said. Nelson and Pustorino also cited an inability or unwillingness to reengineer basic systems to fit the fast-paced online consumer, and a lack of marketing after the systems are in place, as reasons for the lower online user rate among community banks.