TCS Daily

Investing in Online Banking

By James K. Glassman - May 8, 2000 12:00 AM

Online banking should be one of the killer applications of the consumer Internet. Unfortunately, for a number of reasons, it hasn't worked out that way -- yet. Banks have been slow to seize the opportunity, most consumers haven't seen a huge benefit in moving their accounts online, and many start-ups in this field have not lived up to expectations. While consumers have been leaping into online stock trading with almost reckless abandon, only a hearty few have dipped their toes into online banking.

This may represent an opportunity for investors, because the water is fine, and I believe lots of consumers will start diving into Internet banking. The benefits are substantial, and are about to become even more compelling for consumers.

Strictly speaking, most banks have been offering online services for several years, in terms of basic offerings like balance information. Many have also ventured into online bill-paying, but consumers have been largely unimpressed. Now, new players are beginning to offer the kinds of services that I believe will convince tens of millions of consumers to bank online.

Two venture-funded companies, and, have won rave reviews for their outstanding customer service. They offer online bill-paying, as well as bill-presentment. In other words, a consumer has all of her monthly bills sent to one of these companies. The company opens the mail, scans all of the bills into a digital format, and then displays them in a user-friendly way, allowing her to click on the ones she wants to pay. No more writing out twenty checks each month and no more dealing with paper bills, so the consumer saves time.

The consumer can also save money online. Since an online bank doesn't have to invest as much money in bricks, mortar and paper, firms like Telebank and Netbank offer extremely competitive interest rates on money market accounts, CDs, etc. and very low or nonexistent fees on checking accounts.

And the value proposition for moving the mundane tasks of personal finance online is about to get even better. Start-ups like northern Virginia's Stone House EBA are taking the bill-presentment feature one big step further. The company has created a system to do "electronic bill analysis" - analyzing the charges and telling the consumer when, for example, there's a better plan available for long-distance telephone service.

So, if you believe as I do that lots of consumers will be moving their personal finances online, how do you benefit from this trend?

One intriguing company is E*Trade Group Inc. (EGRP). You may know E*Trade as a pioneer in online stock trading, but the company is also an investor in What's more, E*Trade recently acquired Telebank, which this week changes its name to E*Trade Bank. Is this a buying opportunity? From a high of $60 per share, EGRP traded at a recent $19.

If you're looking for a pure online bank, you might consider Netbank (NTBK), which is profitable and growing quickly. The stock has taken a beating - falling from a 52-week high of $66 to a recent $10.

Another player to watch is Intuit (INTU), which has millions of customers for its personal finance and tax-preparation software and is offering more and more related services through its popular website, From a high of $90 per share, Intuit closed at $34.63 last week.

If you believe that traditional banks will pick up the pace of their online efforts, then you might consider investing in CheckFree (CFKR). CheckFree offers online bill-presentment and bill-paying to consumers, but most of the company's revenue right now comes from banks. That's because traditional banks use the company's technology to offer online services to their customers. In fact, CheckFree just announced that it will provide the plumbing for Bank of America's new services. Like the other firms I mentioned, CheckFree has suffered a steep decline in its stock price, which makes it attractive for investors bullish on the future of online banking.

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