Barbed Wire
Determined not to lose a stake in what could be the Next Big Thing, U.S. banks have moved to cut the cords that tether their customers to their PCsand morph them into wireless.
The past eight months alone have brought wireless initiatives-some of them pilots-or expansions from KeyCorp, Bank of America, Wachovia, Chase Manhattan, First Union, NetBank and Claritybank.com, to name a few. More than 27 credit unions recently inaugurated wireless services, and community banks have also joined the act.
Bank of Montreal, which forged the way for wireless banking in North America two years ago with its Veev service, recently announced a deal with software developer 724 Solutions to license the bank's wireless technology to small and midtier banks (see story, page 12). The Canadian bank introduced Veev, a banking, weather and lifestyle portal, to $28 billion Harris Bank, its Chicago-based U.S. subsidiary, last year. "We're taking all the operational capabilities that we've developed for our own bank and Harris Bank and the other lines of business, and reselling those services to financial institutions," said Mark Dickelman, vice president of m-commerce and wireless at Bank of Montreal.
In perhaps the most ambitious U.S. wireless effort to date, Wells Fargo has launched Wells Wireless, a nationwide service granting consumers and small-business customers ready access to their finances through wireless Web-ready Sprint PCS phones and Palm VII devices.
"Anytime-anywhere access is a critical component of our strategy, and wireless fits very much into that approach," said Avid Modjtabai, senior vice president of consumer Internet services at San Francisco-based Wells Fargo. "It's the next stage."
Despite the flurry of activity in the wireless realm, it remains unclear whether banks can convince their customers to unchain themselves from their PCs or whether they can even make money from this latest delivery channel. "It's much more a matter of competitive concerns spurring supply than consumers clamoring for demand," said Edward Kountz, a senior analyst at TowerGroup. "I call it aggressive experimental hedging." The competition comes not only from other banks but from the telecommunications carriers, which control the delivery channels connecting financial institutions to their customers. The carriers show signs of wanting to move beyond billing to create additional financial links with customers, according to TowerGroup. "They don't want to forgo what could be a very lucrative revenue stream," said Kountz.
At least 30 brokerages have leaped from online trading to wireless trading, with Fidelity Investment signing 27,000 wireless customers to its instant broker service in barely two years. But most banking clients don't need as immediate a connection to their accounts and may not want to perform all banking transactions, such as filling out a mortgage application, from a cell phone. "Financial institutions can't add wireless fast enough," said Jamie Punishill, a senior analyst at Forrester Research. "But everyone is going out there blind. They missed the Internet, and they're determined not to miss wireless, and that's a dangerous reason."
The potential for growth no doubt exists, given the plethora of interactive pagers, cell phones and personal digital assistants that have become ever-more sophisticated in screen size and clarity, and the drive to merge phones and PDAs into one device. But the number of wireless banking users in this country remains small. About 200,000 bank over the airwaves in North America today, compared with 28 million in Europe and Asia, according to Celent Communications. For banks, "it might be more of a marketing issue, where you create an impression of dealing with a high-tech financial institution," said Octavio Marenzi, managing director at Celent. "That seems to be the thinking behind many wireless initiatives."
A SOLUTION IN SEARCH OF A PROBLEM
When Gomez Advisors surveyed more than 14,000 consumers last fall to measure interest in wireless account access, it found that three out of four active Web bankers-defined as those who conduct at least one online banking transaction a month-expressed no interest in wireless services. Five out of eight who said they planned to begin banking online within six months also claimed no interest. The latent adopters, defined in part by interest in emerging technologies, displayed the most enthusiasm, while 84.4% of non-Web bankers expressed no interest.
"We believe eventually consumers will readily adopt...the wireless connection; right now it's not something they're screaming for," said Paul Jamieson, director of financial services at Gomez. "It's not so much that banks and brokerages are looking at today's market as trying to gauge when consumer adoption will take place." Celent Communications predicts that by 2004 the number of users of wireless financial services will grow to 13.5 million in North America, and 140 million in Europe and Asia.
NetBank added wireless to its services last September. Customers can now track balances and transactions on their NetBank accounts through a Web-enabled phone or Palm VII. "We play to the time-starved customer," said Michael Fitzgerald, president at Alpharetta, Ga.-based NetBank. Partnering with Air2Web, an application service provider, NetBank plans to add funds transfer, the ability to find the closest deposit-taking ATM and, eventually, bill paying. "I don't for a moment think that wireless is ready for prime time in the United States," said Fitzgerald. "But it's easy to learn from the rest of the world that it's coming, and wireless is one of those things you can't turn around quickly. We want to be prepared." Right now, less than 10% of NetBank's customers take advantage of its wireless offering. "When this thing becomes far more functional, it's going to become a far more important part of how they do their banking."
Working with Toronto-based 724 Solutions, Bank of America has begun building on a wireless effort it began two years ago, which provides view-only account access through the Palm VII to 1,300 California customers. It initiated a second pilot last August for 150 private banking clients in Dallas, Baltimore and Washington. That effort allows participants to view account status and execute fund transfers. By year end, customers should be able to set up stock alerts and watch lists, pay bills and trade online. BofA has taken a cautious approach, and its immediate goals remain modest. "Our focus for this year is to bring the California users onto the same platform we're using for the East Coast private bank pilot," said Colin Wong, senior vice president of wireless strategy and development at Bank of America.
"We're still trying to understand the economics and the business case behind offering wireless," Wong continued. "We're trying to understand how this will work and how it will benefit not only our customers but our shareholders. Will it be just a customer retention type of thing and we have to offer it? Can we show that wireless users tend to increase the number of products or the types of products or balances? Is there some opportunity to generate revenue from offering wireless? Is it going to emerge as a lower-cost channel for us? And we also want to confirm who our target users are."
With up to 25% of its retail customers banking online, Wells Fargo believes it has answered many of these questions. It started looking into wireless last year after a number of customer surveys indicated high interest, "much higher for Wells Fargo online banking customers than for the industry on average," said Avid Modjtabai, senior vice president of consumer Internet services at Wells. When the bank surveyed 300 employees and customers who participated in a two-phase pilot in December and January, it found that 93% were satisfied with the service and 82% planned to recommend it to friends and family, said Pamela Reed, vice president of strategic alliances at Wells. It also learned that its customers owned cell phones at a rate of one and a half times above the national average, and personal digital assistants at four and a half times the national rate, said Reed.
Wells Fargo has teamed with 724 Solutions, working with a delivery system that manages transactions from WAP-enabled cell phones and PDAs, similar to the platform 724 built with the Bank of Montreal. Right now, Wells can provide account balance and transaction history, funds transfer, stock quotes and alerts as well as securities watch lists through wireless. Wells acted in response to its customer surveys in determining what to offer. "They told us the number one functionality they wanted was to check account balances and do the transfers," said Reed.
The bank plans to add more wireless applications, such as a Wells Fargo ATM and store locator, bill payment and brokerage services, and is looking at corporate and commercial applications."The economic benefit will come in the form of customer retention," said Modjtabai. Wells' customer surveys revealed that wireless would play strongly in their decision to stay with the bank or how they would evaluate another financial institution.
"We will probably acquire customers by having this functionality," said Reed.
It's often not a question of losing customers but more about losing a share of their business, said Bank of Montreal's Dickelman, whose bank became the first to offer securities trading over a wireless phone. "The pattern we've seen repeated over and over again is, as a bank, if I don't offer wireless, a customer may slowly move transactions to another provider."
As banks plot their courses in wireless, a number of snags persist in the North American market that hinder growth, and the United States lags Asia and Europe in wireless communications by at least one to two years.
The United States, which has the world's largest number of phone lines, hasn't embraced the cell phone to the same extent as other countries. According to the International Telecommunications Union, the percentage of the U.S. population carrying a cell is 32%. That puts it well back of Finland (65%), Sweden (59%), Italy (54%), the United Kingdom (46%) and Japan (45%).
The relatively high per-minute cost of wireless access, when compared with the flat-fee pricing of the Internet, also presents a barrier to it catching on with the general public, even if the banks don't charge extra for the service.
Further, the United States struggles with second generation, or 2G, analog technology, which transmits at slow speeds of 9600 bits per second across a circuit-switched network. By contrast, Japan has taken a half-step toward a 2.5G packet-switched network, and the country's NTT DoCoMo's i-mode service has gained more than 12 million subscribers in a year and a half.
Unlike the land-lined Web, the mobile Internet is a fragmented patchwork of diverse devices from multiple manufacturers that run on different standards and protocols. That's what keeps an AT&T wireless phone, for example, from working on a Sprint network. Europe and parts of Asia have adopted the Global System for Mobile Communications, or GSM, standard, while U.S. mobile carriers work on either GSM (although it's not pervasive here), Time Division Multiple Access (TDMA) or Code Division Multiple Access (CDMA), depending on locale. "You have multiple operating systems you have to write to, which means it's more expensive and far more challenging to create an application that needs a widespread consumer base out there," said Gomez' Jamieson.
On the route to the high-speed, interoperable, multimedia capability of third generation, or 3G, wireless networks, also known as Universal Mobile Telecommunications Systems (UMTS), GSM has added General Packet Radio Service, or GPRS, and TDMA has tacked on EDGE, both intended to boost the software to higher speeds. EDGE will help move transmissions into a packet arena.
Middleware companies like 724 Solutions-in which Bank of Montreal, Bank of America, Wells Fargo and Citigroup hold equity-Aether Systems and W-Technologies help stitch the multifarious pieces together. 724's December purchase of Austin, Texas-based Tantau Software-in which Chase Capital Partners took a stake-could greatly broaden its customer base and perhaps hasten the market. "To a financial institution, we present a way to get into the wireless game today and future-proof or minimize the risk as standards change, as network bandwidth gets faster and as new devices come on board," said Peter Klante, general manager of the platform at 724 Solutions. "Our platform insulates these applications from all these underlying things. On the front end of the platform, we have drivers, protocols, stacks and gateways to support the different communication standards of these devices."
For example, most mobile phones speak WAP, or Wireless Applications Protocol, an interim standard that compresses Web content and fits it onto the small screens of phones, pagers and PDAs, while the Palm devices and RIM pagers support proprietary network protocols, said Klante. Regardless of which device one uses, 724 platform's adapter layer formats the message so that it can be processed by a bank's systems. "We provide this layer to be kind of agnostic to the device. On the back end of our platform, we've built connectivity to existing information sources, a database, repositories of customer information. In the middle you have the actual engine," which scales the platform to the number of users or transactions and provides security.
IBM and Ericsson announced a deal in February to deliver such "next generation" mobile Internet services as wealth management, account aggregation, mobile trading, credit card and payment alerts. Deutsche Bank will be its first customer. "It's setting the stage for future development in that area," said Tower Group's Kountz.
Ericsson will contribute the wireless transmitting technology, including Safetrader, Mobile e-Pay and WAP Gateway, while IBM will provide its WebSphere products, including WebSphere Everyplace and IBM eServer. "Ericsson brings the whole support from some wireless device back down to some server," said Mark N. Greene, vice president of strategy and solutions in IBM's Global Financial Services division, and IBM furnishes the middleware that integrates the applications into a financial institution's legacy systems. "If you add up the pieces, we're trying to make it possible for a financial institution to extend their infrastructure to support wireless, rather than to have a completely separate set of wireless technologies," said Greene.
"In the future, you're going to have a multichannel delivery environment for data," said Kountz. "The goal is to standardize on one or a related suite of tools and applications and hardware and software that...enhances the ability to deliver to any device that's going to be out there. What the IBM-Ericsson deal does is make it easier to justify and rationalize a wireless investment with an eye toward keeping that delivery channel from being a totally separate or semi-integrated channel. And I think that is something that will help the industry."
A World Without Wires
Banks have started to explore Bluetooth, an emerging, short-range radio technology that allows digital devices to wirelessly transmit and receive messages at distances of up to 33 feet-without aiming. By circuit-linking computers, printers, cell phones and other gadgets, Bluetooth eliminates the tangle of cables that typically tie these electronics together. Devices can be set to automatically seek and contact other Bluetooth gizmos within radio range.
In Scandinavia, MeritaNordbanken is participating in a Bluetooth payments pilot with Visa and Nokia that will test person-to-person money transfers, point-of-sale and mobile network purchases. The Swedish supermarket ICA Ahold recently tested the use of Bluetooth in making payments on mobile phones at the point of sale. Customers were also able to check account balances and receive special sale offers on their Bluetooth-enabled phones.
Bluetooth could figure prominently in wireless payments, according to Mark Dickelman, vice president of m-commerce and wireless at the Bank of Montreal. "You don't need to key in anything. You hold up your PDA, which would be configured with a digital certificate. Your receipt gets wirelessly transmitted to the PDA, and you have a record. Bluetooth could allow these devices to access payment networks like ATMs and point-of-sale terminals."
But that's the future, and a few glitches need to be worked out. Designed more for portability than mobility, Bluetooth failed to let ICA Ahold's customers know when they were within range of the Bluetooth access points, which demonstrates "a potential weakness" of the technology, reported Meridien Research. And when more than one Bluetooth-chip customer approached the checkout counter, the transceiver couldn't target the correct device.
Named after a 10th-century Viking king who united Denmark and Norway, Bluetooth originated in a 1994 Ericsson project aimed at connecting diverse technologies, such as a phone with a wireless headset. In 1998, Ericsson joined with its competitors to form the Bluetooth Special Interest Group, or SIG, which continues to develop the Bluetooth technology. SIG's 2,000 members include IBM, Intel, Lucent, Microsoft, Motorola, Nokia and Toshiba.
Operating in the crowded, unlicensed 2.4 to 2.483 gigahertz Industrial, Scientific and Medical radio frequency band, Bluetooth is available everywhere, with some exceptions in Japan, France and Spain. As the cost of producing Bluetooth chips-now between $15 and $30, according to Meridien Research-falls, Bluetooth could become standard in mobile devices. Palm has included the chip in the carrying case of its new Palm V series, and will offer a tiny card with Bluetooth features in another model line by the end of the year.