Something New -- Usually Something Old

The nine-year history of Web-based online banking in the U.S. has witnessed a number of innovations, from Web-based check imaging to inter-FI transfers and beyond. But a number of these innovations first arrived in Web banking earlier than most realize. A gap persists between the introduction of Web banking features at one bank and the widespread awareness and adoption among all banks. This gap points to the broader market and consumer trends.

Inter-FI transfers -- the ability for a customer to transfer money to an account that the customer holds at another institution -- has been a hot topic at large banks for over a year. But inter-FI transfers have been a staple of many community banking offerings for more than eight years. The underlying technology is used routinely in offline transactions, so it is not surprising that inter-FI transfers appeared so early in the development of Web banking. But most community and regional banks still don-t offer the feature. Moreover, there is a gap of at least seven years between its first appearance and the August 2003 launch of inter-FI transfers at Citibank Online -- its first appearance in a top 10 retail bank-s consumer offering. What explains this slow rollout?

One hindrance was the argument offered by a number of traditional banks that by launching inter-FI transfers, the bank will lose funds, as customers will move money to other institutions that pay higher interest. This argument, dubious at first, has over time become essentially moot. Over the last several years, online brokers and Internet-centric banks such as E*Trade Bank launched inter-FI transfers. These are institutions whose customers faced the greatest challenges in depositing money and institutions that are offering seductive returns on deposits and investments. The customer who wants to transfer money to an account at one of these institutions has, by construction, access to inter-FI transfers at these institutions. The bank isn-t stopping the flow of funds by not offering the service itself.

Another gap persisted between the launch of Web-based check imaging for consumers at some Internet-centric and community banks and the wider adoption of this service, especially among large banks. Web-based check imaging for retail customers first arrived in 1995. But, when the legacy Wachovia bank, once the 15th largest retail bank, launched check imaging in 2000, it was the largest retail bank at that point to launch check imaging. Now, check imaging is the rule rather than the exception. All medium-size and large banks that are currently the exception now are launching check imaging themselves.

A number of forces combined to take check imaging from a feature confined for years to Internet-centric banks and select community banks to a necessity for large banks. First, digital check image capture is required for Web-based check imaging to be feasible, but many banks did not capture digital images when Web banking first rolled out. Second, the proportion of customers using Web banking was small enough at a number of banks that the benefits were not worth the cost of systems re-engineering needed to bring images to the Web.

With the natural progression of systems and the growth in the number of online bankers, check imaging became a popular initiative. The advent of Check 21 legislation encouraged these developments, but before the law was even enacted, let alone in effect, more than half of the top 10 banks offered consumers online check imaging.

The rise in 2000 of account aggregation and its fall in later years, and the failure of wireless banking to catch on, confirmed a truth of Web banking: There is little to no first mover advantage in online banking, even for the largest banks. Instead, it is often useful to wait for another bank to prove out a speculative idea, such as the notion that customers will adopt wireless banking when they have yet to adopt other wireless services.

But the debunking of the first-mover myth would be the wrong lesson to learn from the slow rollout of inter-FI transfers and check imaging. Banks that offered check imaging early on received uniformly strong, positive feedback from customers on the feature. With inter-FI transfers, the benefits to Internet-centric banks such as E*Trade Bank is clear, but even community banks that rolled out inter-FI transfers tended to stick with it in the early years, unlike wireless, aggregation, news tickers and third-party brokerage partnerships. Yet, other banks were very slow to adopt either service.

Rather, the lesson is that the different technologies, customer bases and business goals of two banks can result in an innovation that makes sense for one bank long before it makes sense for another bank. As your bank-s systems, customers and goals change, old ideas make new sense. The next enhancement you should consider for your Web banking offering may not be the one that all the other banks are considering right now, but an earlier innovation that you should now reconsider.