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Paradigm Lost

Banks ponder whether the PC-based model is headed for oblivion

A wave of new consumer electronic devices-the vanguard of revolutionary changes wrought by broadband and mobile e-commerce-is hitting banks andother commercial enterprises.

Ranging from low-cost Internet appliances to wireless handheld devices to more far-out products like wearable computers, the gadgets are challenging the desktop PC's place at the head of the information delivery table, producing fundamental changes in the way people interact with their environment and each other.

Internet appliances-streamlined PCs intended for home use, without the software and hardware burdens associated with full-blown PCs-are being touted as a way to wire young people, seniors and other "disenfranchised" members of the population. For people who don't own PCs, Internet appliances offer all the benefits of Web TV and none of the drawbacks, proponents say. Screen resolution is crystal clear, and there's no quarreling with family members who want to use the living room TV for watching football or Nickelodeon, not making bill payments.

According to International Data Corp., the information appliance market will grow from 11 million units in 1999 to 89 million units in 2004.

To further Internet appliance appeal, the devices are being offered dirt cheap. Compaq is peddling its iPaq line of Internet appliances for $199 or less in a tie-in deal with Microsoft Network. Netpliance is pitching its iOpener line at seniors and others who have never owned a PC. And NadaPC, a Los Angeles-based ISP, is giving away iCEBOX-a Samsung-built combination Internet appliance and home entertainment system, complete with TV, audio CD and DVD player-free to consumers who sign up for three years of its ISP service and an online checking account with Compubank.

In an updated version of the toaster giveaways of the 1970s, Qubit Technology is talking to banks about giving away its new tablet-size, wireless Web devices at low or no cost to high-value customers. "It's a brand extension and top-of-mind presence," said Donna Crafton, a spokeswoman for Golden, Colo.-based Qubit. "It obviously is great for them for customer acquisition and retention."

Gateway, the nation's biggest seller of consumer PCs, is set to launch a line of Internet appliances in conjunction with America Online. Consumers are looking for new ways to incorporate the Internet into their lives, said Brad Williams, a spokesman for San Diego-based Gateway, adding that broadband and "networkability" are paramount. "If you've got an Internet appliance that doesn't talk to the PC and other devices in your home, that's only half a solution."

ViewSonic is offering a line of appliances in conjunction with AT&T's WorldNet service, ranging from standalone i-boxes to Web phones and wireless Web tablets. Featuring both dial-up and broadband Internet access, the appliances are being sold initially into the corporate market, but some lower-priced models will be aimed at consumers. "You could have a wireless tablet that sits in a cradle. Then you can go over to the couch and watch TV and check your stocks at the same time," said Gene Ornstead, business manager at Walnut, Calif.-based ViewSonic.


Yet questions abound about the degree to which consumers will embrace devices other than PCs for online banking. "I am relatively skeptical about this kind of proposition. It's Internet for people who seem to be intimidated by PCs," said Richard Bell, an analyst with TowerGroup, adding that appliances don't offer the same degrees of convenience, control and reliability as regular PCs.

"Appliances are going to be the wave of the future. I'm not sure they're the wave of today," said Bob Rickert, executive vice president and chief information officer at Cleveland-based KeyCorp, which has a wireless pilot underway with 724 Solutions, a Toronto-based ASP. "I'm not sure that customers are going to be interested in spending that kind of money for a wireless Internet play. If it does more than that, I think you're in the game."

For banks, appliances would add to the already formidable problem of tying together information in various silos and moving it seamlessly across any of the retail channels. "It's all about real-time channel management. Whether that's a physical branch, wireless or one of these Internet devices," said Bill Randle, executive vice president of Columbus, Ohio-based Huntington National Bank and founder of e-Bank, a Huntington venture that offers technology for banks to synchronize their branch, ATM, telephone and Web channels. It costs a bank $40 million to $50 million on average to create the technology itself, he said.

Indeed, if history is any guide, Internet appliances face a tough hurdle in financial services. The track record for delivering financial information electronically via devices other than ATMs and PCs-including data phones and, more recently, interactive TV-is dismal.

In March 1998, Bank of America, Intuit, Tele-Communications Inc. (TCI) and @Home Network formed a venture to deliver financial services via digital set-top devices to cable customers of TCI. "Cable television delivery promises to revolutionize the way consumers access their financial services," said David Coulter, chairman of Bank of America at the time. Two weeks later, Bank of America merged with NationsBank. TCI and @Home (now Excite@Home) were both subsequently acquired by AT&T. The venture folded.

Hopes for delivering banking services via interactive TV got a similar boost in 1997 when Microsoft acquired Web TV, but trials to date have been disappointing. "When Web TV came out, I congratulated Web TV founder Steve Perlman on how good the display was," said Dr. Andrew Lippman, associate director of the MIT Media Lab. "Its main benefit was e-mail for everybody. It didn't catch on."

Republic Bank, a St. Petersburg, Fla.-based community bank, has been offering home banking via Web TV for three-and-a-half years. One of the first banks in the state to offer online banking, Republic saw Web TV as a way to reach the population centers of the Gulf Coast and central Florida. However, only 1% of its customers are using the service. "When we first came out with Internet banking, I thought Web TV would take off with the consumer. It hasn't," said Dave Beach, vice president and e-banking manager at Republic "The bottom line is consumers didn't find Web TV to be the way they want to surf the Web."

Beach added that the bank has been successful with its overall online banking program, which it offers through S1, with a 17% customer penetration rate.

Even in the 50% of U.S. households that aren't online, the appeal of using the TV to access the Web is mitigated by low screen resolution and quarrels over the use of the TV set. "My argument against Web TV is the big TV is for entertainment, versus logging on with a PC or one of these inexpensive devices," said Huntington's Randle.


But Internet appliances are just part of the story. Broadband-the delivery of digital content to homes at high speeds via cable modems and DSL-promises to accelerate the convergence of digital media at a geometric rate.

DSL, which provides high-speed Internet access over regular phone lines for $40 a month, is projected to grow from 330,000 subscribers at the end of 1999 to 9 million in 2003, according to eMarketer. Cable modems-offered through services like Excite@Home and Time-Warner's Road Runner, and also priced at $40 a month-are projected to be used in 10 million homes by 2004, up from 1.85 million at the end of 1999, according to Yankee Group. Another broadband service is Geocast, which aggregates digital content from cable and network TV broadcasters and delivers it via a "personal server," a small box attached to a desktop PC.

For content providers, broadband is comparable to the meteor that supposedly hit the earth 65 million years ago and wiped out the dinosaurs, said Nobuyuki Idei, chairman and CEO of Sony, in a published interview. "The Internet is like that meteor for the music industry. The broadband Internet is a second meteor, for the global motion-picture industry."

The analogy is equally valid for financial services. "I would add that the third meteor is m-commerce. M-commerce will place a threat on virtually everyone in commerce, certainly the financial services industry," said Huntington's Randle.

Noting that the chip in Sony's new PlayStation 2 video game is to a Pentium III what a "racing car is to a sedan," Randle said that a broadband network capable of utilizing such devices is still in its infancy. Apart from cities like Columbus, Ohio-a regional high-tech center where Time-Warner has been offering Road Runner for a year-and-a-half-the United States lacks adequate broadband capacity. "People are just getting PCs and devices and content that can take advantage of broadband delivery," Randle said.

Still, the m-commerce boom is already underway in financial services and will soon envelop banks. Noting Charles Schwab & Co.'s PocketBroker service, through which customers may access brokerage services via Palm handheld devices, Randle said, "What's the difference between that and a PocketBanker?"

Aiding the m-commerce revolution are third-generation, or 3G, mobile devices-cell phones and personal digital assistants that are being developed for Universal Mobile Telecommunications System (UMTS), the successor to GSM, the current standard for mobile telecommunications. Equipped with miniature disk drives, chip card readers and high-speed data access, 3G devices will support video streaming, enabling users to exchange video e-mail as well as download news, sports and other Web content.


Behind them lay even more exotic devices. Some, like camera-equipped headset devices-one of which appeared in a commercial aired by IBM during the World Series-are intended for specific uses in medicine or industry. Others are designed to be embedded unobtrusively in objects worn or carried on the body-wristwatches, keys, wallets and shoes-as well as in home appliances, walls, doors, cars, etc. By communicating with each other through Bluetooth-an emerging standard for short-range radio frequency transmissions-or some other protocol, such devices would form a "personal area network," or PAN. A PAN enables individuals to regulate the climate in their homes, buy gas or gain access to a secure facility without using or interacting with a keyboard or card reader-in effect reducing the man-machine interface to a voice command, a change in body temperature or pulse, or the touch of a fingertip.

To those who study the impact of technology on society, PANs serve to create symmetry between and among individuals and organizations, as the PC did 20 years ago and the Internet is doing today. For example, the relationship today between a bank and its customers is asymmetric, said MIT Media Lab's Lippman. "There's a bank and you're a customer. The key thing is whether everything you carry on your person is going to become a branch bank and effectively part of the full range of whatever the banking system becomes."

To some observers, PANs raise serious privacy issues and bring up darker questions about the possibility of machines turning malevolently against their masters. But Lippman offers a different scenario, based not on the imaginings of sci-fi writers but on demographics. The generation now entering school, he says, is the first that's never known a world without the Web. "They're used to dealing in a different communicative and technological environment from the one we grew up with."

The banking industry has already awoken to this-introducing products like Visa's Buxx, a stored value card aimed at teenagers. "Suddenly kids are using plastic," said Lippman. "That's a fantastic bellwether for what kind of changes you can expect in the banking world. For if those kids start to adopt this kind of thing, then your predictions about the future of Palms and Internet appliances as it relates to banking are completely different."

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