Bank of Ameria Wastes Site-Search Opportunity

Bank of America is the virtual poster child for online banking with some 11 million users and an award-winning website. However, after two years of intense advertising of its free bill-payment service along with more than $100 million in foregone fees,* you’d think a search on their site for “bill payment” would take you to a pitch for its online payment service.
Well you’d be wrong. The first page of search results includes very helpful information on how to pay your credit card bill, but no mention of pay-anyone electronic bill payment or presentment. You have to click on See next 6 answers and go to the subsequent page to learn about online bill payment.
Let this be a lesson to add one more task to your marketing project plans:

Optimize site-search results

*Assume 1 million users times $5/mo x 24 months.

Stockbroker Rankings from SmartMoney

SmartMoney just published its annual stock broker rankings (Note: currently the 2003 survey is posted, the 2004 should be there shortly).
There are now two categories of discount brokers: Premium and Basic. THere was little movement in the premium category year over year other than Vanguard droping from second to sixth and E*Trade making its inagural entry at number 2. Last year it was ninth in the basic category.
The best premium discount brokers:
1. Fidelity……….Fidelity
2. E*Trade………Vanguard
3. Schwab……….Schwab
4. USAA………….Quick & Reilly
5. T. Rowe Price..USAA
6. Vanguard…….T. Rowe Price
The basic category was more interesting with OptionsXpress coming out of nowhere to take the number one spot. SmartMoney’s comment, “nearly flawless.”
1. OptionsXpress…….TD Waterhouse
2. Muriel Siebert……..Muriel Siebert
3. TD Waterhouse……Bidwell
4. Ameritrade…………ScottTrade
5. HarrisDirect………..HarrisDirect
6. FirstTrade…………..BrownCo
7. ScottTrade………….FirstTrade
8. Wall Street Access…Ameritrade
9. BrownCo…………….E*Trade (moved to premium)
10. WallStreet*E………Wells Fargo (moved to premium)

Widespread Misuse of Gartner Online Banking Fraud Estimates

By now you’ve probably seen the MSNBC report by Bob Sullivan entitled, Survey: 2 million bank accounts robbed, followed by the subhead, Criminals taking advantage of online banking, Gartner says. The MSNBC article seems to say that 2 million U.S. consumers lost money from their checking accounts due to online banking.
In fact, here is what Gartner actually says in its report:

“Illegal access to checking accounts is the fastest-growing type of consumer fraud, and may
be proliferating through online channels.” (italics are mine)

The report goes on to say that most consumers do not know how they theft occured, only 17% believed that their info was stolen off the Internet, another 10% reported their wallet was stolen, and only 5% recall giving up personal info to phishers.
Gartner also says that 70% of the online consumers reporting losses also report that they banked or paid bills online, “which exposes their (codes) to the Internet.” However, what they don’t say is that close to 70% of ALL online consumers are banking or paying bills online, so it doesn’t look like there is strong correlation between the two.
Finally, let’s not neglect the sample size. It looks staggering in the headlines to say that 2 million people were robbed. But my back-of-the-envelope calculations show that the multi-million number was extrapolated from fewer than 75 respondents reporting a recent unauthorized checking account withdrawal (from Gartner’s survey of 5000 online adults). I’ll let the market research experts debate the exact reliability of Gartner’s extrapolation, but one should be wary.
As bad as the MSNBC article looks for the online banking industry, the NBC Nightly News with Tom Brokaw got even more carried away. They took an even bigger number, 4.5 million, which Gartner said is the number of people who have ever had an unauthorized checking account withdrawal, and mistakenly said that all those people were robbed via online banking. Here is the exact synopsis of the TV feature from the MSNBC website:

“An estimated 4.5 million Americans have had money stolen from their Internet bank accounts.
NBC’s Bob Hager reports.”

This is a great example of a respectable piece of research taken out of context which then begins to have a life of its own as other news media echo the original piece. Hopefully, someone will dig a little deeper and set the record straight. Since I was quoted in the original Sullivan story, before I had seen the actual Gartner research, I will be contacting him to urge a followup.
Just to show that not everyone takes the 2 million number at face value, a story posted today at NBC affiliate WEEK-TV quotes Peoples Bank (Bloomington/Normal, IL) CEO, Ed Vogelsinger as saying that despite having 20% of their base using online banking, so far no one has reported any Internet banking fraud. Way to go Ed.
We urge our readers to take appropriate steps through their PR channels to set the record straight. At a minimum be prepared to rebut the MSNBC numbers if approached by the media. Feel free to send any reporter our way.
Contact: Jim Bruene, Editor, Online Banking Report, at 206-517-5021 or email
Reference: “Banks Must Act Urgently to Stop Account Hijackers,” by Avivah Litan, Gartner

Phishers Target the Royal Bank

Phishers struck another blow to the banking system when they demonstrated that they no longer need rely on random blanket emailing blasts. Case in point: within 24 hours of a real systems glitch at Royal Bank, the email thieves sent a massive fraudulent email playing off the legitimate systems outage.
One can only hope that this particular theft didn’t enrich the thieves. Otherwise you have a situation where there is an incentive for a thief to create havoc with a bank’s systems and then cash in through a well-timed phishing fraud.
Read more on the prevention of phishing at Online Banking Report (subscription required).

Washington Mutual Small Business Resource Center

Although not as robust as Barclays, Washington Mutual is
the only top-10 U.S. bank with prominently targeting startups. Through its
partnership with StartupNation, the bank has posted several articles on
its website, and also sends users to a cobranded

 website to sign on for more tools and resources including webinars, resources,
and coaching. We don’t know the terms of the relationship, so we can’t judge the
cost effectiveness. However, we definitely like how WAMU is positioning itself
as a supporter of
small business. 

Top 10 Financial Services Providers by Small Business Market Penetration


In the 2002 study of small business, TNS (formerly NFO Global Financial
Services) looked at which banks had the largest share of small businesses
relationships and which were ranked highest by small business clients.
ranked highest in customer loyalty, followed by Wachovia
and Washington Mutual.

1. Bank of America



·         Three levels of business online banking: online banking with
bill pay, Business Connect for multi-users with varied levels of
access, and Bank of America Direct to manage all business finances

·         Good comparison chart of the three choices

·         Resource center with informative articles on starting a
business and other topics

·         Protect against online fraud link


·         Must scroll down to see all choices

·         Hard-to-read small blue font for most links

·         No separate URL or bookmark helper


2. Wells Fargo



·         Small business tab

·         Excellent navigation and design, all viewable on a single
screen without needing to scroll.

·         Clients can view personal and business accounts from a single

·         Single page, informative Small Business Newsletter

·         Customers and non-customers can enter email address to signup
for newsletter

·         Relevant and useful tips on product pages

·         Product comparison pages as well as best product for your

·         Push a button to switch from English to Spanish and back again

·         Link to Make this your first page at



·         No link to Security on the main page

·         Not using liquid layout, so homepage appears small and
off-center at higher resolutions


3. Wachovia



·         Small business is one of the four main navigation
choices on the top

·         Copy and headlines are solutions-oriented, e.g., Meeting
Your Needs, Resource Center

·         Excellent navigation and layout on a single page

·         Separate small business FAQs

·         Relevant products and services packaged into “centers”:
Banking Center, Lending Center, Investing Center, Online Services Center,
Insurance Center,
and HR Solutions Center


·         Must scroll to see information on bottom of screen

·         No link to Security


4. U. S. Bank




·         All major links are contained on a single page without

·         The no-frills style is easy to read

·         Two solutions-oriented sections: Achieve Your Goals and

Small Business Center

·         Separate Small Business login

·         Link to Newsletter subscription


·         Layout and design could be improved

·         No link to Security


5. Bank One




·         Product-oriented layout makes it easy to find specific products

·         Small link to Security on bottom (not visible on


·         There is no small business section, in fact the term is
not used in any header, although it is mentioned in the opening paragraph;
choices are Business Banking and Commercial, that defies
industry conventions and could cause lost business

·         No solutions-oriented areas or resources section

·         Copy is cliché-ridden and not benefits oriented;
for example under Insurance:
     “You’ve invested your heart in your small business.
      We can help you find ways to protect it.”


6. Chase





·         Small business is one of the four primary navigation
choices on the top

·         Excellent design and layout that fits on one page without

·         Solutions-oriented sections: Plan and Learn,
, and Business Stages

·         Link on left to Have Chase Small Business contact you

·         Privacy & Security link on top

·         Prominent Open an Account and Online Banking: Enroll
boxes in upper right

·         Liquid layout


·         No quick navigation or separate URL for the small business
page, you have to click on the Small Business section on the home
page, then move your cursor down the cascading menu to the Small Business
it only takes a few seconds but it’s still unnecessary extra


7. Fleet




·         Separate URL

·         Tabs across the top help users find important subjects

·         Link to Small Business Value Package (Note: Fleet also
offers a Small Business Platinum Program with a dedicated
relationship manager, faster funds availability, and priority phone service

·         Solutions-oriented areas: Ideas and Information,
Business Tools & Resources


·         Layout and design is a bit overwhelming


8. Citibank






·         Using the drop-down menu you can navigate directly to relevant
business unit pages; the AAdvantage Business Card main page for
example is very well done


·         Poor navigation off the home page: The only way to navigate to
the small business section is to use the drop-down menu on the right;
and because it doesn’t have a Go button, it took us 30 seconds before
we figured out you have to cursor down to Small Business at-a-glance
(screenshot above) in order to move to the small business section

·         Poor navigation within the small business section: The four
main choices at the top of the page (Products, Planning, Investing,
and Special Offers) are NOT related to small business, they take you
back to consumer
 pages, and if you don’t use your back
button, you have to go through the full navigation routine to get back to
small business

·         Must scroll down to see all the choices

·         Main banking link (Checking, Savings, & Financial Services)
as well as the Online banking link cause a pop-up screen to load
which is dominated by an outdated self-promotion for online personal banking
with 2001 testimonial from Forbes magazine


9. SunTrust





·         Small Business Resource Center is a good area, although
it’s buried under the Online Services tab in the Business

·         View only option for online banking, no money movement

·         Ask SunTrust search box in upper right is handy, but it
doesn’t distinguish whether user in searching from business or personal



·         The top navigation bar is a mine field of cascading menus that
launch when the mouse travels over them, an out-of-date and annoying method
for primary navigation

·         No dedicated Small Business homepage, other than the
Small Business Resource Center
mentioned above and a mid-page link to
Your Small Business Solution
which leads to a curious page entitled
that talks about Total Business Banking, but it’s not
clear if it’s geared to small businesses or not.

·         Unclear and vastly different navigation/organization in the
various areas devoted to small business (e.g., Small Business Resource


10. Washington Mutual






·      Link to content from StartupNation in upper-left corner; the
only bank in top 10 with headline targeting startups (see back page for more

·      Good online banking demo with audio highlights

·      All the information shows on a single page without scrolling

·      Liquid layout


·         No link to Security

·         Copy and headlines could be more solutions-oriented

·        Layout is a bit sparse for a bank


Innovators in Small Business Online Delivery

Innovators in small business online delivery


Table 55

Watchfire/Gomez Small Business Scorecard



Dec ‘03

Number Sm. Biz Clients

1 (tie) Bank of America


2.5 mil1

1 (tie) National City



3 (tie) Key



3 (tie) Wells Fargo


1.3 mil2

5 (tie) Chase



5 (tie) Fleet



5 (tie) Wachovia



8 Bank One



9 (tie) HSBC America



9 (tie) U.S. Bank



Source: Watchfire, 6/04 <>
Other banks evaluated, but not making the top 10: Bank of New
York, BB&T, Citibank, Citizens Bank, Comerica, Fifth Third Bank
(150,000 clients), LaSalle, PNC Bank (200,000 clients),
SunTrust, UBOC, Washington Mutual (250,000 clients)
1American Banker, May 18, 2004, BofA total includes
2American Banker, Oct. 1, 2003

Our first report on small business banking was produced in the fall of 1997
(OBR 29).
At that time, few banks were specifically targeting small businesses. Then,
a Yahoo search for “small business” and “banking” yielded only 19
results compared to 2.5 million today. In the late 1990s, most banks were
still busy building out their consumer interfaces. Even as recently as 2001
(OBR 70/71), we found few major innovations to report on. Our
favorite small business banking service was OneCore
 which was
shuttered shortly thereafter, at least as a direct provider.  

Today much has changed. Everywhere you look, banks are innovating to
serve the small business market more effectively. According to
GomezPro unit the best small business banking sites
are Bank of America and National City, tied for first place in
its year-end 2003 scorecard (see Table 55, right). 

Other online innovators in the small business market:

  •          Barclays Bank (London; $800 billion) uses its
    website to target startup businesses with a broad array of support
    services that many startups would find essential, including a free
    business checking account for the first year. It’s so impressive, we’ve
    given it our second Best of the Web award this year
    (see next page).
  •          PNC Bank (Pittsburgh, PA; $70 billion) and
    have both announced plans to offer remote check deposits,
    something most U.S. banks will support within a few years. One of the
    last reasons to visit the branch will be eliminated when clients can
    feed paper checks into a scanner instantly depositing the cash into
    their account and storing the image into their online banking archive

    This service is a shoo-in for an OBR Best of the Web once it goes
  •          NetBank (Alpharetta, GA; $4.1 billion) which
    launched a new small business initiative a year ago, has attracted 1,600
    businesses with $38 million in deposits ($24,000 average deposit). If it
    keeps to the announced third-quarter launch, NetBank may be the first
    bank to offer remote paper check scanning



Barclays provides valuable services for startups

Why do the U.K. banks do a better job serving small businesses online
compared to their U.S. counterparts?1 Perhaps U.S. banks are
underestimating the value of services targeted directly to small business
owners. Or maybe they’ve found it too difficult because business owners
won’t bother switching bank accounts to save a few bucks a month. That’s why
it makes so much sense for Barclays Bank to focus on startups
at its business website <>. After all, if you
succeed in being a startup’s first bank, you have the inside track to retain
its business over time.

Barclays business homepage (see below) is dominated by a shaded
area asking the important question, Starting a business? Even though
the vast majority of visitors already have a business and a banking
relationship with Barclays, those most likely shopping for services are
startups. The bank also offers Pain relief in a box, a proprietary
business management and accounting program targeted for tiny businesses or
startups that haven’t settled on an accounting software system.

1Two out of three of our Best of Web winners for small
businesses are headquartered in the U.K.


Barclays’ small business Starter Accounts consist of the following
features and benefits:

  •          Current account (checking) with an overdraft facility; free
    for the first 12 months, 18 if you also maintain personal accounts at
  •          Savings account
  •          Loans, subject to credit approval of course
  •          Insurance
  •          45-minute free consultation with a business/marketing
  •          45-minute free consultation with an accountant
  •          30-minute free consultation with an attorney



NetBank and PNC to offer remote deposits

According to recent press reports, both NetBank (American Banker,
May 20) with 1,600 small business clients and PNC Bank (Wall Street
, June 8) with 200,000, will launch remote deposit service for their
business customers. Although details of the yet-to-be-launched services are
sketchy, it is expected that business customers will be able to scan paper
checks into a remote device that transmits images to the bank for immediate
deposit. PNC estimates the scanners will rent for $15 to $25 per month. No word
on pricing from NetBank. The NetBank service is expected in late third quarter
and PNC expects to roll-out by yearend. Alogent
 is the
technology provider for NetBank.

Benefits for small business owners:

1.   Saves time/money: Frees business owners from the daily/weekly
trek to the branch, something 80% of online self-employed households reported
doing during the past 30 days according to Javelin Strategy

2.   Improves cash flow: Checks can be deposited immediately rather
than collecting dust waiting for the owner’s next trip to the branch

3.   Streamlines record keeping:

i.    the original check can be filed as a paper receipt if desired

ii.   a back-up electronic image is stored at the bank if questions arrive

4.   Improves customer service: Check images can be quickly retrieved
and emailed if
a dispute arises

5.   Saves storage space/cost: Paper checks can be destroyed much
sooner, eliminating storage and security issues

6.   Improves management control: Owners can spot-check deposit
activity by looking at actual check images, rather than staff-entered accounting

Speaking as both as a small business owner and an industry analyst, this is a
great service and a strong candidate for a Best of the Web award once it
becomes operational.


Small Business Case Studies: Putting it all Together

Case Study: Financial product usage at one small business

Microbusinesses typically purchase a hodgepodge of
services culled from both retail and commercial banking product lines. For
example, at our own small business, we purchase 16 financial products evenly
split between consumer and business products (see Table 52, below).
Nine are sourced from banks, six are from non-banks, and one is a combined
effort. Overall, we spend $6,700 annually in fees, interest paid, and
interest foregone (for checking). But the internal costs for managing our
billings, payments, and banking, are more than three times as much, an
estimated $24,000 per year. We would gladly outsource these to a
high-quality and VERY trustworthy third party, preferably someone with a
regulatory and fiduciary responsibility to safeguard our information and
assets, like a bank.

Table 52

Financial Products & Services Used by One Small Business


Source: Online Banking Report, 6/04         1Fees and net
interest foregone (deposits) or paid (loans) assuming 2% cost of funds
2Purchased through US Bank, but processed by CheckFree and user
interface by Microsoft Money

Package accounts targeted to business segments

Most banks offer small business bundles that include checking and
other basic transaction services. However, we believe the online platform
can be used to assemble more valuable offerings targeted to small businesses
with various financial management needs. Table 53 (below) shows ways
that the small business market could be segmented. Table 54 (p 53)
outlines major feature that could be included in package accounts targeted
to the financial management needs of the small business.

Table 53

Potential Business Segments to Target


Virtual financial management packages

Most banks offer small business account bundles that include checking
and other basic transaction. We believe that there is a significant
opportunity to expand into hosted financial and customer management systems
with monthly fees of $100 or more. Following are the pros and cons of moving
into the financial management arena:


  •          Profitable, incremental fee income
  •          Publicity and image enhancement from being the first in
    your market to integrate banking functionality into an overall Web-based
    small business management suite
  •           Product differentiation and an impressive unique
    selling proposition
  •           Positive word-of-mouth within the local business
  •           Powerful retention tool
  •           Potential for licensing to other financial



  •           Weak/uncertain demandd: Until recently, small
    businesses have been slow to adopt new banking technology. It may take
    several years of marketing, sales, and training before you begin to see
    a payback.
  •           Development costss: Building a robust, highly secure
    new system will be pricey; you will probably want to partner with an
    accounting software developer that already has code for the basic
  •           Uncertain ongoing servicing costss: Being on the
    bleeding edge has its risks; it will be difficult to predict ongoing
    costs for system maintenance, software development, and customer
  •           Lack of employee confidence: Financial institution
    front-line personnel have been known to steer clear of discussing small
    business and/or online banking subjects due to uncertainty with their
    operation, cost, and overall value.


Table 54

Features of Virtual Accounting Package Accounts

*Approximate monthly subscription price; additional transaction fees
would apply for certain services.



Package Account Descriptions

Virtual Business Manager

Description: A secure place for small businesses to set up an
online home base, similar to corporate intranets. Possible names: virtual
office, virtual desk, virtual briefcase, or personal intranet. It could also
be marketed to the estimated 39 million U.S. households with a home office.

Functionality: For a financial institution, the key to making it
work is tight integration with banking and financial matters. A further
emphasis on local content/links could keep you ahead of the competition.
Banking and financial management feature are listed in Table 54 (previous
), including:

  •           Financial calendar/datebook/reminder service
    integrated with bill payment
  •           Virtual safe deposit service that automatically
    stores financial and other files in secure, encrypted, off-site back-up
    files not accessible by anyone but the owner (not even bank personnel);
    can be retrieved on CD for disaster recovery
  •           Virtual receptionist that tells visitors how to get
    in touch with someone at your business
  •           Company message boards for internal users
  •           Company blogs for external users
  •           Ability to post documents to the Web, which can be
    shared with everyone or just authorized employees and/or customers

Virtual CPAA

Description: As its name implies, the Virtual CPA provides
extensive accounts-receivable and accounts-payable services from a Web

Functionality: In addition to the Virtual Business Manager
features listed above and the banking/financial management features listed
in Table 54, the VirtualCPA could also provide the following features
(for more ideas, see the features built into Intuit’s QuickBooks

  •           Billing statements and invoicing via email, fax, or
    snail mail; includes reminders, and confirmations
  •           Online, cash-based accounting functions including
    data entry, categorizing, and basic report generation
  •           Bill-payment/accounts-payable monitoring functions,
    such as email notification when payment transactions are awaiting
    authorization by business owner; email flags when payment transactions
    don’t clear in a reasonable time
  •           Autopay function that pays certain bills
    automatically each month when preauthorized by the client
  •           Virtual credit card terminal with integrated email
    and accounting
  •           Lock-box service for paper check processing with full
    integration to client’s accounting system
  •           Option to share selected information with outside
    advisors, such as a CPA


Virtual CFOO

Description: This top-of-the-line service has it all. Just as in
the real world, the Virtual CFO takes the raw data and puts it into a
broader perspective that allows a business to be more profitable.

Functionality: The following features could be added to those
already offered in the Virtual CPA and Virtual Business Manager

  •           Online payroll with paper or direct-deposit paychecks
    and electronic tax payments
  •           Online federal and state tax return preparation and
  •           Full-fledged, double-entry online accounting
  •           Complete disaster-recovery services including a
    redundant data center – an area in which banks’ inherent in-house
    expertise could be turned into a profit center
  •           Complete Web-based customer file management and
    communications including:
    – invoicing/billing with Web integration, e.g., bill presentmentt
    – payment services/inquiry via the Web
    – email/fax/voice messages automatically confirming payment
  •           Access to a CPA-on-calll for accounting and tax
    questions; advice could be delivered publicly on your Web, privately
    through confidential conversations, or both.
  •           Automatic excess funds allocation to minimize
    interest expense and/or maximize interest income. For added value, the
    funds “sweep” could go to investment and loan accounts at any financial
    institution (not just yours).
  •           E-commerce services for hosting secure transactions
  •           Accounts-receivable management that automatically
    notifies the business owner and/or customers when accounts are past due;
    includes linkages to a virtual payment window
  •           Bank-branded virtual payment windoww, which clients
    can display on their website to increase end-user confidence in paying
    by credit card or electronic check (ACH); includes integrated messaging
    confirming orders.
  •           Extensive management reporting easily customizable
    using drop-down menus; for example, revenue reports by customer,
    accounts receivable aging, quarterly P&L; and so on.
  •           Mail-merge capabilities that work across any medium,
    email, fax, page, voice message, or snail mail; option to outsource
    snail mail services to a mail house; includes label-printing utility.
  •           Retirement plan administration including Web views
    for participants
  •           Project tracking module integrated with reminders and
    other Virtual Officee services
  •           Employee-expense reporting, cash advances and
    reimbursement services
  •            The ability to issue/reload prepaid credit
    cards for customer rebates, expense account cash advances, and so on..


Recommended Online Products and Services for Micro Businesses

Small business attitudes are changing as online banking services become
easier to navigate and more useful. While it currently seems impossible to
eliminate the dependence on the branch for physical deposits, with the
widespread adoption of check imaging and electronic payments, most
non-cash-oriented businesses will be able to bank remotely. Both PNC Bank
and NetBank have announced plans to equip their business customers
with paper check scanners that will allow the remote deposit of paper

But even the best website and product offering cannot substitute entirely
for the human touch. Every business should have a contact available by
phone, email, or instant message. Small business owners should be treated
like private banking clients.

Recommended online products and services

In theory, small and micro businesses represent one of the most
lucrative, and relatively untapped, sources of incremental business. The
reality is that businesses are difficult to reach unless you are competing
for their loan business. A product offering optimized for business will
differ somewhat from one built for consumers. The following sections detail
potential online features for various microbusiness products.


A. Transaction accounts: checking & cards

While the overall banking relationship may revolve around the
commercial loan, online banking is all about the transaction account(s),
e.g., checking and credit card accounts. Smaller businesses often track
their financial progress through their bank accounts, using them as a proxy
for sales, cash flow, and profits. Business users are also more likely than
consumers to value advanced features such as downloads, reporting, alerts,
and multiple authorization levels. Some of the more promising features:

  •          Custom data delivery: Periodic summaries of account
    activity whenever (daily, weekly, monthly) and wherever (text email, HTML
    email, or fax) the client chooses
  •          Long-term archives: If
    Google can provide 1GB of
    storage for users of its FREE email service, banks should be able to provide
    unlimited archives for a fee

Table 27

Checking & Savings Account Deposit Options



Table 28

Online Features for Transaction Accounts: Data Display, Storage, and
Value Adds



Table 29

Event Triggered Alerts & Authorization Messages to Support
Transaction Accounts



Table 30

Balance, Activity, & Account Management Messages for Transaction



B. Payment and billing services

Next to statement information, epayment services are the second most
important drivers to the adoption of online banking by small businesses. And
unlike data access, epayments have the potential to become profit centers
and/or a significant source of online differentiation. Most businesses make
far more payments than consumers, so the importance of electronic
alternatives is magnified. On the other hand, existing businesses already
have a system for payment and billing, so it may be difficult to convert
them to a new one that requires changes in internal procedures or software.

Your best opportunities may be in less systematic services (i.e.
one-offs) such as electronic transfers between a business’s accounts at
other financial institution (account-to-account transfers) and the
occasional rush payment.

Table 31

Online Features for Billing, Payment Processing, & Funds Transfer



Table 32

Online Features for Payment and Accounts Payable Services



Table 33

E-messaging to Support Epayments and Ebilling



C. Credit and loan accounts

Every small business relationship should include a credit component. It’s
the lifeblood of business, and a profitable product for financial
institutions. However, many banks have been reluctant to make commercial
loans to the microbusiness market. Average loan sizes, which are dwarfed by
typical commercial loans, make the effort seem fruitless. Yet profit margins
on the small business segment can be higher. Microbusinesses often use
personal credit, primarily credit cards and home equity secured loans, to
finance their businesses.

We believe every creditworthy microbusiness customer should
have a package of three or four credit lines with your financial
institution: an overdraft line of credit (connected to checking), a home
equity line of credit secured by their personal real estate (if applicable),
a business line of credit, and a business credit card. Even if the total
commitment is no more than $10,000 initially, it will make the business
owner feel like a valued customer; and each line can grow larger over time.

Table 34 contains a number of ways to use the online channel to
strengthen credit relationships with small businesses. Some of the more
important tactics:

  •          Loan/line Hybrid: A flexible financing vehicle that
    includes an integrated line of credit and the ability to take out fixed
    loans from the overall credit line.
  •          Startup Center: Information, tools, and resources geared
    towards startup businesses.

Table 34

Online Features for Lending and Credit




Table 35

Triggered Alerts for Credit and Loans



Table 36

Account Management Messages for Credit and Loans



Table 37

Example: Potential Annual Credit Product Revenue from a Microbusiness1


Source: Online Banking Report, 6/04

1Example for illustration purposes only, not based on actual
research results

Table 38

Example: Potential Annual Credit Product Revenue from a Larger Small


Source: Online Banking Report, 6/04

1Example for illustration purposes only, not based on actual
research result



D. Deposit and investment accounts

The online component of deposit and investment accounts is far less
important than for transaction and payment services. However, a robust
online offering can boost deposit-gathering initiatives and improve
retention. Key online components are listed below: Refer to the
section for more ideas.

Table 39

Online Features for Investment and Deposit Products




Table 40

E-messaging for Deposits and Investments



E. Financial management & accounting

Although automated accounting and financial management services offer the
biggest potential payback to small business owners, they are challenging to
deliver. However, working through third parties, financial institutions of
all sizes can help cement banking relationships with financial management
services such as:

  •          Visible and easy-to-use data downloading services
  •          Tools to make annual financial updates and tax prep simpler
  •          Online wrap accounts that handle all financial and accounting
    needs for an annual fee, see the section on the Virtual CFO, CPA, and
    Business Manager

Eventually, it won’t be enough to simply offer robust cash management and
online balance reporting to your business clients. Using the Web as a
platform to build industry- and customer-specific service offerings, we
expect a proliferation of specialized small business services during the
next few years. For example, several years ago QuickBooks opened its
code to developers
 spawning numerous niche services
built on the small business accounting program. Check out the QuickBooks
Solutions Marketplace


As the economy continues to improve, big banks will aggressively court
small and mid-size businesses with creative financial management via
Web-based services. These innovations will help counteract the perception
that community banks provide better service. In turn, community banks will
fight back with online offerings that enhance personal service
delivered to local businesses. Luckily, vendor offerings will make even the
most complicated Web-based service affordable to the smaller financial

Intuit has already built impressive software-to-bank linkages for
QuickBooks and Quicken customers. To some extent, the shrink-wrapped
software is a Trojan horse, positioning Intuit-controlled links to its
partner banks right on the desktops of your best clients. You can fight back
by incorporating billing, accounting, and financial management functions on
your website using account aggregation, instant messaging, and “push”
publishing technologies. Although, it will take time, we think smaller
businesses will be very receptive to financial and management services
running on encrypted, secure, and trusted servers controlled by the bank..



Table 41

Online Features for Financial Management



F. Service & client relations

Online services and other automation tools can be used to help
relationship managers service and cross-sell to small business clients. Used
judiciously, these tools can improve the perception of personalized service,
even while they improve the productivity of the relationship managers by
allowing him or her to handle a larger portfolio. Key components include (see
Table 42 below for more

  •          Library of recommended preformatted emails that relationship
    managers can easily customize and send to clients
  •          Private-banking-like service that treats small business owners
    like VIPs
  •          Instant messaging for more private/secure connection between
    the client and their business banking officer

Table 42

Online Features for Self-Service


Table 43

Online Features for Client Relations


Table 44

General E-messaging to Support Client Relationship Management


G. Security and privacy

Although business users may understand the tradeoff between convenience
and risk, the stakes are much higher. A breached small business bank account
could cause thousands of dollars of lost productivity and sales, in addition
to any funds that disappear. In addition, larger small businesses are always
up against the threat of insider theft and fraud. So business owners need,
expect, and will pay for more sophisticated security controls. For example:

  •          Additional authentication and/or authorization for outbound
    funds transfers or payments
  •          Token- or SMS-based authorization to access the account’s
    master level where new payees can be added, permissions can be granted, and
    so on
  •          Frequent email messages tracking online account access and
    alerting the business owner to any suspicious or out-of-character usage,
    e.g., login from an IP address in Liberia
  •          Comprehensive assurances and guarantees that accounts will not
    be compromised

Table 45

Online Features for Security & Privacy


Table 46

E-messaging to Support Security & Privacy





H. General website content/features

As branches are gradually replaced by websites as the place where most
banking business is conducted, your online presence will become a critical
part of your overall brand image. Branches will still have a role, but it
will be limited to account openings, cash deposits, and the occasional visit
to the safe deposit box. Websites catering to small businesses will become
far more sophisticated, yet highly customizable and easier to use. Important
features include:

  •          Resources and discounted banking packages for start-up
  •          Separate URL that business clients can enter to skip the
    consumer section

Table 47

General Website Features to Support Small Business



I. Insurance

Compared to consumers, small businesses buy a lot of insurance compared
to consumers. While banks may not be “top of mind” when it comes to
supplying insurance, financial institutions can use their online presence to
change that perception.

Table 48

Online Features for Insurance


Table 49

E-messaging to Support Insurance




J. Online sales and marketing

Even though microbusinesses are difficult to reach through traditional
direct marketing, we believe they will readily seek you out if you provide
credit and payment solutions targeted specifically to them, especially when
in startup mode.

It’s important to make sure everyone, especially the line staff,
understands that microbusinesses are to be actively courted, not avoided.
Typically, bankers roll their eyes and trot out horror stories about past
“nightmares” with flaky microbusinesses. Staff must be educated to the
facts: Microbusinesses can be risky, but with proper pricing and risk
management, the segment provides an excellent source of incremental profits.

In sales efforts, leverage the cachet of the branch manager. A single
telephone call or visit with the local branch manager could be enough to
land an entire microbusiness account. This all-important relationship with a
human must be nurtured after the initial sale. Email, instant messaging, and
other electronic tools can be effective in keeping the communication
channels open.

Some other effective ways to increase your share of the microbusiness

  •          Uncover microbusinesses within your own retail customer base by
    looking for random and fluctuating deposit activity.
  •          Develop Web content
    that caters directly to the small business segments you are targeting, such

    •         – Part-time businesses
    •         – Self-employed (including full-time sales) or 1-person business
    •          – Micro employers with fewer than 5 employees
  •          Use professional copywriters familiar with small business
    terminology to create website copy, including FAQs.
  •          Give business bankers “ownership” of the business part of your
    Web site to make sure it is up-to-date and speaks to the target markets.
  •          Enlist business owners to evaluate your website and other
    marketing material

Table 50

Online Marketing & Sales Tactics for Small Business Acquisition and



Table 51

E-messaging to Support Small Business Sales & Marketing



Small Business Online Banking Usage

Online banking usage

Up until a few years ago, small business usage of online banking trailed
consumer adoption. In late 2000, 13% of small and microbusinesses used
online banking compared to 16% of consumers . Three years later, online banking penetration is similar to that of
consumers, an estimated 30% overall. At the largest small businesses, those
with sales between $5 and $10 million, usage is now more than 40%, double
the rate three years earlier.

It’s likely we’ll see continued rapid growth for a few more years. Almost
all (99%) small businesses are computerized, either at the business or at
the owner’s home, or both (see Table 18, above) and more than 75% are
using their personal computers for financial activity (see Table 21, next
). It’s only a matter of time before the majority of small
businesses bank online. Looking at the 7.3 million small and microbusinesses
universe, we predict that we’ll pass the 50% penetration point within four
years. However, we may reach that point much sooner. One researcher,
Synergistics Research, is already saying that online banking usage
has passed the 50% mark in the $100,000- to $10-million segment, with the
largest small businesses
($5 to $10 million) topping out at 75% penetration.

Table 21

Small business online and PC financial services usage,


Source: NFO Financial Services Group SOHO/Small Business Owner 2002
Online and Channel Use

Reasons for not banking online are typical, with security and
inconvenience (compared to current methods) the most-cited reasons (see
Table 22, below).
Only 8% mentioned it was too expensive and only 5%
said they didn’t have the necessary equipment (presumably convenient online

Table 22

Reasons for not conducting either business banking or
investing online


Source: NFO Financial Services Group SOHO/Small Business Owner 2002
Online and Channel Use



Table 23

Online banking, billing, payment and other online activities

Q. Does your company use the Internet …?   


Source: NFO Financial Services Group SOHO/Small Business Owner 2002
Online and Channel Use, April 2003



Table 24

Cash Management Usage

Q. Please indicate if the service is


Source: NFO Financial Services Group SOHO/Small Business Owner 2002
Online and Channel Use, April 2003

Advisor usage

While small businesses still turn to their banker for loan
advice, only 17% use a banker for cash management advice, and just 4% for
retirement planning (see Table 25, below). Because small businesses are
skeptical of bankers’ expertise in non-traditional areas, banking organizations
must first explain why they are selling the product, and why the bank’s solution
is superior to more traditional sources. It may be advantageous to partner with
brand names that are more closely associated with the non-traditional product,
e.g., Safeco for business insurance.

Regardless of the channel the customer chooses to get
information and make transactions, a human is usually needed to close the sale.
In a recent Synergistics Research survey of 600 small businesses, only 7% had
opened bank accounts remotely (see Table 26, below). The sales process
can be assisted by email and phone with a branch manager, business banking
officer, or a special small business liaison.