Banks Focus On Small Businesses -- Study finds increase in online usage, but service offerings lag
Jeffrey Schwartz
When it comes to Web-based banking, the first thing that comes to mind is consumers accessing their accounts online.
But the real heavy-duty online banking action lies with small businesses, according to a report released last week by Ernst & Young LLP. The number of banks letting small businesses access their accounts via the Web is expected to jump to 18 percent this year, from only 5 percent last year, the report said. And that number is expected to mushroom to 65 percent next year.
However, when it comes to the percentage of banks that are offering transaction-based or other value-added services via the Web, the number diminishes, according to the report.
Despite the findings, the author of the study said many banks might be overstating their expected progress in the next 12 months. "In reality, it will probably take 18 to 24 months," said Larry Forman, assistant director of Ernst & Young's national cash management consulting practice. "But it's pretty obvious banks see this as a major imperative."
Indeed, many banks tend to offer consumer-based Web banking first and then target services for small and midsize businesses afterward.
Such was the case at Banc One Corp., which launched its consumer-based Web banking service in the summer of 1997 and its business version this past January. Although the services available to both customer segments are the same, business users are able to access direct links to the bank to perform more cash management functions. Web access to extended business features is under development, said Lynn Jordan, vice president of product management at Banc One. "There is no question that small businesses are on the Internet," she said.
Indeed, although the number of consumers outweighs the number of small businesses a given bank can reach, the latter has more revenue-producing potential, said Bob Landry, a group director at the Tower Group, a research company that follows the brokerage and banking industries.
"It's an attractive marketplace for a lot of institutions in terms of its inherent profitability and the services they offer. Plus it builds relationships with high-asset individuals who are the owners of those small businesses," Landry said.
"Small businesses have the highest level of transactions and the greatest information needs of any banking customer," said Bill Burnham, electronic-commerce analyst at Credit Suisse First Boston. "Many of them are managing cash flow very tightly. It's not uncommon for a lot of them to spend a lot of time on the phone checking balances, making sure things have cleared through."
Small businesses also tend to engage in a higher volume of bank visits than do consumers, Burnham added. "They are very expensive customers to service, so anything you can do to cut down on the branches will help cut the costs of servicing them," he said.
Toward that end, Edify Corp., viewed as the largest supplier of software for enabling Web-based banking, this quarter will release a new version of its system with features targeted at business banking. The Electronic Banking System Release 3, in addition to including its first complete bill presentment and payment system, will offer such features as payment processing, links to automated clearinghouses, access to investment and loan information and support for work flow. The system also will let users assign specific access rights to different employees, said William Soward, vice president of product marketing at Edify.
"Small and medium-sized businesses have been totally overlooked by the Web," Soward said. What about large organizations? According to Burnham, they have the resources to maintain their dedicated leased line links.
Copyright ® 1998 CMP Media Inc. |
