AUGUST 12, 2005
DALLAS BUSINESS JOURNAL

The best of both worlds: While they haven't led to the predicted demise of bricks-and-mortar branches, online services are driving business for Metroplex banks.

Lisa Taner, Staff Writer

Just a few years ago, many people thought it inevitable that banks would move away From bricks-and-mortar locations and instead use the power of the Internet to serve their customers.

That view mirrored an initial concern voiced by the industry 20 years ago that automated teller machines would replace human tellers as customers found a faster way to get their cash.

Neither came to pass.

And nowhere is it more obvious that online banking won't push in-person transactions aside than in the Dallas-Fort Worth area, where bank branches are springing up on many corners, especially in growing, affluent areas.

Existing banks are flourishing, new start-up banks are being established (see story this page) and large, out-of-state banks are entering the market, drawn by steady economic growth, an increasing population and a business-friendly environment.

Bankers say the reason the predicted demise of branch banking hasn't come about is that customers still expect traditional in-person bank services as well as online services. And the current vigorous competition between banks means customers now have more branch locations to choose from rather than less.

That's a plus, because a convenient branch location is still one of the main reasons customers choose a particular bank in the first place.

But the proliferation of banks and branches doesn't mean online banking is in decline. About 53 million people in the United States -- or 25% of adult Internet users -- say they use online banking, according to a survey carried out in November 2004 by the Pew Internet & American Life Project.

That is an increase of 47% over the number of people using online banking in late 2002, according to the research concern. Those most likely to bank online are Internet users with high-speed connections who have used the medium for more than six years and are between the ages of 28 and 39, the study found.

Online convenience
Online banking offers incredible convenience to customers and is often free, which explains why more than 36 million U.S. households used the services in 2004, according to the American Bankers Association and Dove Consulting Online Banking Report.
More than 6,000 financial institutions offered interactive transactional Web-based services in 2004, compared with only six banks in 1996.

Online bill payment is one of the fastest-growing payment trends, according to the study.
It showed that consumers paid recurring bills with checks 72% of the time in 2001, but that had slipped to 60% by 2003 as bank customers switched to online bill payment.
But consumers using online services are not abandoning other banking services, said John Hall, an American Banking Association spokesman.

"People rarely use just one delivery system in banking. They'll go to a branch or use an ATM and use online and telephone banking services," he said.

"That helps create a strong relationship between the customer and the banking institution," which, in turn, encourages a long-term connection.

Now banks of all sizes are using online services like bill payment in conjunction with traditional offerings to help recruit and retain customers.

Online banking services are now a "must have" said Glenn Rust, executive vice president-chief operations officer for Houston-based Sterling Bancshares Inc. (Nasdaq: SBIB) which, by year-end, will double its Metroplex presence with the acquisition of five banks that made up The Oaks Bank & Trust Co.

Commercial customers and individuals all are clamoring for the services, he said. Both want real-time balance information, the ability to view account transactions online, issue stop-payment orders, pay bills online and move money between accounts. About 79% of the bank's online transactions are customers looking to see a checking balance and what items have cleared, Rust said.

Unique needs
Business customers have unique needs that are met with Sterling's online services.
Those include a positive pay system that allows a business to OK items to pay as they are presented, a tool that helps prevent fraud.

Business customers, too, are able to view the front and back images of checks and e-mail those images to a vendor to show when an item cleared.

"They're also able to check not only to see what items have cleared in a real-time setting but also at the end of a business day, which speeds their reconciliation and record-keeping," said Beth Gilliard, Sterling's treasury management director.

Within three years, there likely won't be any transaction that an established bank customer won't be able to do over the Internet, Rust said.

But no matter how advanced online services become, they won't completely rule out the need for a physical presence, any more than the explosion of ATMs replaced lobby bank tellers or drive-in bank operations, he said.

And to satisfy regulatory concerns about identity, customers will still have to come into the bank branch to establish an initial account, however committed they are to online banking.

"You can't force technology on consumers or businesses," Rust said. But more and more are now embracing it, he added.

For banks, it's a case of reallocating their financial resources to fund multiple service channels, including online banking.

Additional services
Charlotte, N.C.-based Wachovia Corp. first offered online banking in October 1997. In the past 90 days, more than 3 million customers used its online banking services.
About one-third of all the bank's customers actively use online services, having their choice of more than 100 online applications, said Stephen Schroth, senior vice president-strategic planning and analysis.

"That's grown significantly over time," he said. "But online will not replace other channels."

Instead, people use online banking in addition to traditional branch services, he said.
Even those who embrace technology continue to visit their bank branch locations.
Customers do use more online services over time, as their comfort level increases and they become more aware of the bank's online capabilities, Schroth said.

And those online capabilities will increase. The bank is continually upgrading its home page and navigation system in response to feedback from customers and will unveil an upgraded bill payment system this fall.

"Online services are a critical part of our brand and service. Online is part of what we do to provide the best services for customers," Schroth said.

And because customers can use the company's Web site for simple transactions such as balance inquiries, it leaves more time for bank branch employees to spend with customers on more complex transactions.

The company now operates nine financial centers in the Metroplex under the Wachovia banner and owns 25 SouthTrust branches that have not been re-branded following their recent acquisition by Wachovia.

With new branch openings, the company plans to have more than 40 financial centers in the Metroplex and more than 100 statewide by the end of 2005.

Small banks committed
Smaller banking operations also are committed to providing online services.
Professional Bank N.A., which opened in 2004 in Dallas' Lakewood area, has just one location, although it plans several more. Its initial commitment was to offer rich online services.

The bank's youth means it can offer the latest wave of technology, said CEO James Miller.

"Our niche is small- and medium-size businesses and, being a small community bank, we have to take advantage of our strengths," Miller said.

One weakness of a small bank is that it doesn't have branches on every corner, he added.
So offering a suite of online banking services allows it to offer convenient access to its customers.

Most are happy with basic access that allows them to look up balances, make transfers, send wire payments and initiate automatic deposits of payroll, he said. And since small businesses expect a small staff to take care of many responsibilities, online banking helps them save time and more efficiently use their resources, he said.

Still, it's amazing how many customers still like to come by the bank and visit with employees and other customers they know in the lobby, he said. "We've been a success because of the personalized attention and service."

ltanner@bizjournals.com