The Internet is about to become a commercial reality. An electronic banking deal between IBM and 15 North American banks, to be rolled out next year, will offer interactive banking and the opportunity for bank customers to access a wide range of electronic commerce services.
And because of inter-bank ownership, New Zealand is likely to become intimately involved, through the BNZ.
The 15 banks represent more than half of the retail banking market--60 million-plus households--in North America. Though the rollout is in America, similar arrangements are close to fruition in Asia-Pacific and Europe. The service is known as the Integrion Financial Network. It will be owned and operated by the member banks and IBM--which at one time thought to take out a banking licence itself because the service looked so promising.
Integrion will provide both public Internet access and parallel private network access. The key is the IBM Global Network (IGN), which will offer a security level not available so far on the Internet. Browser access via the Internet will link through firewalls to IGN and on to the banks.
It’s an infrastructure that is totally open. Bank customers will be able to choose whatever personal financial management software or browser programs they want to use. That means front-end customer software such as Microsoft Money, Quicken and Managing Your Money, and browsers such as Netscape Navigator and Microsoft Explorer.
Access will be available via the Internet through online services such as Prodigy, American Online and Compuserve, via IGN as well as via the telephone.
Former IBM New Zealand managing director Graeme Murray, now IBM’s retail banking manager for Asia Pacific, has been a key player in setting up the deal. He says a similar arrangement will be rolled out in the Asia-Pacific in the second quarter next year.
Access will be through a variety of devices: PC, telephone, smart cards and--what IBM thinks will be a winner--interactive television. There’ll be a standard interface to all the devices.
The security offered by IGN is the key, along with the inherent trust people have in banks, which will open the service up to electronic commerce.
This is the way it will work. You’ll click on the logo of your bank and be able to go into your account to do banking and to pay bills. The bank, in turn, will be able to market to you, say, its latest interest rate deal and, importantly, be able to brand its services. But more than that, you’ll be able to go out from your bank to the wide world of electronic shopping, to purchase items and have the bank handle the transaction. No more worries about giving out credit card numbers.
It’s a pivotal deal for the banks. Research shows they’ve been losing ground at 2% a year. That’s because a customer will use the bank to cash a cheque, say from the sale of a house or car, then move the money to some other financial service that offers a higher interest rate. The bank can’t match those rates because of its historical investment in bricks and mortar.
Clearly, as the service takes off, banks are going to dramatically reduce the number of store fronts they have, probably to key sites in main streets. They’ll also be able to cut staff numbers to become even more competitive.
In its announcement in New York, IBM describes the deal as offering an unprecedented range of electronic commerce services made possible by the common network infrastructure that uses open Internet-based standards and computing technologies. It says the network infrastructure will provide a secure, high-performance, reliable transaction processing platform to enable electronic access betwen banks and their individual and small business customers.
The IBM Global Network will support the infrastructure, providing a safe, accurate and non-proprietary delivery channel. Though an Asia-Pacific partnership has yet to be announced, the service is likely to be delivered to Australia and New Zealand early. That’s because one of the 15 North American banks in the rollout is Michigan National Bank, which is owned by the National Bank of Australia, which also owns the Bank of New Zealand.