Should We Offer Internet Banking?

That’s the question, all right. If you’re on the board of a community bank, you’ll be getting a pitch, if you haven’t already, on Internet banking.

If you don’t already have an Internet banking product up and running, your CEO is almost certainly considering a product being offered by a gaggle of companies, none of which were around three years ago, which help banks offer Internet banking to their customers. Or you may be getting the Internet banking hype not from one of the new, “pure” Internet start-ups, but from your core processoru00e2u20ac”Jack Henry, Fiserv, whomever.

You probably will see no alternative to approving the Internet banking proposal. After all, every time you turn on CNN or pick up the New York Times you see an ad for Wingspan Bank, Bank One’s vehicle for expanding Internet banking beyond its geographic limits.

But face it: Your bank isn’t a Wingspan Bank, unless, of course, you have handy the $100 million-plus Bank One is putting into advertising for the new venture. So maybe it makes sense to look at this one with steely eyes. The facts are…

1. You probably do need to be in the business. You had to offer NOW accounts, maybe you had to go to Saturday hoursu00e2u20ac”you’ll have to offer your customers Internet banking, too.
2. You won’t make money on this account any time soon, and you probably won’t add customers. In fact, since everybody in your market will have this product before you know it, you’ll be lucky to have the number of customers tomorrow that you have today, even if you’re first to offer Internet banking.

Now if you buy that logic, why all the hype? Well, it all goes back to the stock market. The market has spoken, and it’s saying, “We think Internet companies will sell a lot of banks, and those companies will make a ton of money from banks and bank customers, so we’re going to value these new companies at, say, $1 million a bank sold.”

So my tiny, spanking new, money-losing Internet companyu00e2u20ac”simply by getting 200 or so community banks to say yes to my sales pitchu00e2u20ac”can achieve a $200 million market valuation. Do you think that has anything to do with all those companies sending battalions of well-turned-out salesmen to your door? Do you see why it’s important for them to get your name on their contract?

It really doesn’t have much to do at all with you finding a slick little ol’ high-tech product that can earn your bank reams of money and send your profits zooming into the millennium. It has a lot more to do with a la-la land stock market that has put building brand and capturing eyeballs on the Web way ahead of proving the rationality of a profit model.
Still, you can benefit from all this craziness: The proliferation of Internet banking companies will almost inevitably lead to lower-priced service providers. Already, the model is moving from a $30,000 to a $75,000 license fee to a “no up-front” fee. It’s a hot market, and you’ve never been in a better negotiating position or had a better selection of products from which to choose.