A look back in time: prospects for home banking

You’ll love this. I was going through past issues of the ABA Journal recently, and came across the October 1981 issue. It had an article entitled “Home banking prospects: A status report on explosive growth” (you can only get it now through various pay wall databases, I believe). Bare in mind the time scales. Web based online banking didn’t really emerge until 1995 when Presidential Savings Bank was the first in the world to launch it. Videotex based systems had never really caught on, though they were available from 1979. And phone banking had been in limited pilots since then too, with broader adoption not occurring until 1982.

Given that, its surprising just how accurate some of these predictions are. Take this for example:

“Banking services are only part of a cluster of home information offerings that will set the pace for growth (of self service). Theoretically, an unlimited number of information providers could offer data bases of various kinds. Banks will be one class of information provider.”

The article goes on to talk of a “communications switch” which makes the necessary connections between the user and database vendor. A single vendor switch was not what happened of course, as the internet evolved into a universal switch not owned by anyone in particular. But the concept, then, was clearly sound.

The slow follower syndrome is something we’ve been aware of in banking for ages now. Institutions don’t like to be the first to try the new stuff. Neither do we always understand up front why the new stuff is important. At this moment, we’re struggling with personal finance sites and peer to peer lending, but in 1981, bankers were having trouble getting the importance of self-service as a delivery channel:

“Many bankers not involved in any of the current tests (of home banking) may find it hard to get excited about providing new banking services that seem to have marginal value for customers just getting used to automated teller machines.”

The biggest problems were technical in 1981. And the question was whether households would prefer telephone based terminals (i.e., a dedicated device embedded in the telephone) or screen based home banking using interactive cable. Screen based self-service were seen as preferable, but already institutions were leaning towards the phone, because of a projection that only 9% of households would have interactive cable by 1990. Of course, Internet was in its early stages for commerce then, and was about to zoom upwards in adoption. Nonetheless, everyone was pretty much set on the idea of terminal based access in the long term. Bank One, the first institution to pioneer phone based self service, stated that it expected that 60% of its customers would have a stand alone videotex terminal costing about $250, 20% would use decoders attached to their TV sets, and the remainder would use home computers.

But one of the most interesting things about this historical backtrack is that most of the nine institutions listed expected to be able to charge for their home banking services. Prices were based on a subscription model, and were up to $30 a month. It is obvious in retrospect, I suppose, that convenience doesn’t pay. But you can see the evidence of dollar signs in the eyes of everyone talking about the offering then. Chase, for example, wanted to offer its correspondent banks a franchise opportunity. They would buy devices for about $200 each, and then sell them on to customers, with Chase getting about $6 per month from the deal for each.

And the article is insightful in one more respect: in 1981 it correctly foretells the features arms race that we’ve all been engaging in since self service became the business:

“any (home banking) convenience, such as home shopping or a sophisticated cash management service, could be the one that pulls an account away from your bank, if you don’t offer it, to mine if I do”

So here is my key takeaway from this brief look back. We – banks – aren’t as bad as it might seem at predicting the future. From a market and environment perspective, most of this was spot on. Admittedly the technology selections were going down a dead end, but they were overtaken by developments that weren’t on the radar then.

It gives me a level of comfort that the course we are presently charting is likely to work out well in the end.

3 Responses to“A look back in time: prospects for home banking”

  1. May 8, 2008 at 1:42 am #

    History is always fascinating, and this is a particularly good one.
    What I find interesting though is the linear thinking of the day focussed on new services costing more. We probably have to go back to that darn consultant circa 1995 whose name escapes me now, who said internet transactions cost only 1c (1/2 p).
    We know now, that those (darn) customers adopted the 1c channel wholheartedly, but refused to give up the branch and ATM. Oops … internet became a new incremental cost to Banks, and at the same time as customer expectation was that Banks were saving money.
    In truth Banks have saved some money given fewer tellers today than 10 years ago, but the basic mismatch in expectations between Banks and customers remains.

  2. May 8, 2008 at 8:17 am #

    New service = new cost. That is indeed dated thinking, Colin. We’re already working through how the new price: free – is going to play out in the medium term.

  3. May 10, 2008 at 4:49 am #

    I believe Both you James and Colin (and along with the ancient article) are missing one bullet point of the new remote banking advantages. You are reaching customers who would have in the past been outside of your localities. I live in Washington DC. yet my bank is based in California, and sure they have a branch near me, but not many. I use their online service 90% of the time.

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