Brave New Piggy Bank

By Philip Elmer-DeWitt

From his home in Mill Valley, Calif., anytime between 6 a.m. and midnight, Attorney Gregory Dyer can use his personal computer to check his balance at BankAmerica and transfer money between accounts. With his lap computer, Larry Lape, a business executive, does much of his personal banking from hotel rooms ; hundreds of miles away from his hometown Huntington National Bank in Columbus. Without leaving his home, Page Stodder, a Cleveland investment banker, can use his PC to pay bills from 82 different companies. Says Stodder: "It's faster than writing checks, putting stamps on envelopes and taking them to the mailbox."

For these and some 60,000 other computer owners, electronic home banking, a long-promised technology, has finally come of age. About 50 banks, including many of the largest, are competing vigorously to lure computer users into home banking, often by such inducements as free software, bargain-priced modems and reduced fees for access to the news wires. Betting on the trend, Chemical Bank and BankAmerica, two pioneers, last month entered into a joint venture with AT&T and Time Inc. to market banking and discount stock-brokerage services to computer-equipped households across the U.S.

For fees that range from $5 to $15 a month, customers who apply for home banking receive floppy disks that enable them to link their personal computers via modem and telephone line to their bank's computer. After punching in a secret password, the home banker can display his current balances, confirm that deposits have been properly credited or call for an up-to-date listing of all the checks that have cleared. Ask a question about banking services, and the answer will be on the screen the next day. Bills from merchants who join an ever expanding roster provided by the bank can be paid electronically. "It's the next logical step after the automated teller machine," says Richard Kennedy, Citibank vice president of electronic banking. "With ATMs on nearly every corner and PCs in nearly every house, you almost never have to go to the bank again."

For depositors weary of long lines or inconvenienced by traditional bankers' hours, home banking should have an irresistible appeal. But even those Americans who already own home computers and modems have been holding back. Two years and $20 million after New York's Chemical Bank launched its Pronto service, for example, only 21,000 of its 1.15 million customers are using it. And even as new banks come on-line, a handful (including San Francisco's Crocker National, Los Angeles' First Interstate and Miami's Dadeland Bank) have quietly discontinued their electronic services. "It's slow going," admits Paul Ayres, a vice president at Columbus' Huntington National. "It's one of those products customers aren't beating down our doors and demanding."

* Why? Banks put part of the blame on consumers' widespread resistance to new technology, especially when it involves changing the way their money is handled. Banks point out, for example, that two-thirds of their customers still shun the practical and convenient automatic teller machines. Then, too, many potential home bankers are apprehensive about computer crime, fearing that some ingenious 14-year-old will electronically make off with their life savings. Janet Pruitt, vice president for electronic banking products at Shawmut Corp. of Boston, cites another drawback: "A PC sitting at your home won't be able to withdraw cash or make deposits." For these transactions, a customer must still trek to the local bank branch or automatic teller machine. Moreover, many home-banking systems are still plagued by shutdowns and glitches. Complaints range from confusing instructions to payments that end up not with creditors but in electronic limbo.

Perhaps the biggest problem is the bottom line. Most customers' bill-paying needs simply do not justify the monthly fees. The average U.S. consumer writes a dozen checks a month. For his $8 monthly fee, BankAmerica Customer Peter Hillen has been making an average of five computer payments. "Eight dollars is clearly too much," says Hillen. "If I stop and think about it, it makes me mad."

The cost to the banks has been even greater, but they hope to recoup the millions of dollars spent setting up the systems by signing up more and more home-banking customers. According to the American Bankers Association, it costs banks only from 35 cents to 50 cents to process each electronic payment, compared with from 50 cents to $1 for every paper check. Also, as the number of home bankers (and ATM users) increases, banks will require fewer tellers behind windows, enabling them to pare their payrolls. And greater efficiency can be designed into electronic banking systems. Today when a home banker tells his computer to pay his $50 medical bill, someone at the bank must fill out a paper check and mail it to the doctor. Says Lisa Andrews of San Francisco's Wells Fargo Bank: "The cost is still very high because you are manually processing those checks."

What augurs well for banking a la modem is the hearty endorsement of most of its pioneer users, who tend to overlook the minor deficiencies in the systems. Robert McDermott, who runs a construction service company, keeps five different accounts at Chemical Bank, including his money-market and retirement funds. "It makes juggling accounts more manageable," he says. "You can be more daring." Kathryn Dallam, a secretary at IBM, rationalizes the $12 monthly cost of her Pronto service, claiming that home banking saves her $20 a month in stamps, envelopes and transportation costs. And Investment Banker Stodder blames himself, not the system, for electronically sending his cleaner $580 instead of the $55 for which he was billed. Says he: "I'm just letting it ride by sending clothes over there to be cleaned until the credit is used up."

With reporting by Thomas McCarroll/New York and Dick Thomp son/San Francisco