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Financial Times: Thursday, September 5, 1996

Banking on the Internet: Any Time, Anywhere

By George Cole

When Claus Nehmzow wants to check his bank statements or pay a bill, he
simply switches on a personal computer. He can also transfer money
between accounts and make electronic payments from almost anywhere in
the world because his bank is on the Internet, the worldwide network of
computers.

Nehmzow, a principal with the management and technology consultancy firm
Booz-Allen & Hamilton, says: "I live in England but my account is in the
US. If I can find a computer that's linked to the Internet, I can access
my account any time and anywhere."

About 50m people have access to the Internet but this number is expected
to reach 200m within two years. This huge audience, the ability to offer
a 24-hour service across borders and the potentially enormous savings in
operational costs, have prompted many banks and financial institutions
to consider hooking up to the Internet. But while the Internet offers
many advantages, one issue makes many banks nervous -- security.

The potential of millions of people gaining unauthorised access to
sensitive financial information on the Internet, and then using it to
commit fraud is so great that few banks are prepared to offer online
services.

A survey by Booz-Allen found that more than 600 banks had sites on the
Internet's World Wide Web. However, almost three-quarters of the banks
simply used their sites as "electronic brochures" to promote their
services. Only 2 per cent of European banks and 1 per cent of US banks
offered full banking services on the Internet.

"Security is holding back many banks, but the sheer economics of the
Internet will see many of them offering services on it," says Michael
McConnell, vice-president of Booz-Allen. "The cost of an Internet
banking transaction can be measured in cents, while the same transaction
at a bank branch costs dollars. You can't ignore these kind of savings."


Piero Verdiani, vice-president of Olivetti Systems and Services'
professional services division, says the Internet offers an average
saving of $1.20 per transaction when compared with using a traditional
bank branch. "For a customer who makes five transactions a week this
works out at $300 a year. A bank with 100,000 customers could
potentially save $30m a year," he says. Nehmzow believes that many of
the concerns about security are more an issue of perception than of real
obstacles: "People hear about hacking and get worried. Yet many people
will happily give their credit card numbers over the phone, knowing that
if anything should go wrong, their credit-card company will accept most
of the liability. The same could happen with electronic banking."

Some banks have opted for privately-owned online services rather than
the Internet. The UK-based TSB bank, for example, offers its customers
an electronic-banking facility called PC Banking, through the CompuServe
online service. "It's a step-up from the Internet in terms of security,
but in the long term, the Internet will be an important agent for
financial services," says Bill Goodland, product manager for
CompuServe's financial services division.

Barclays is piloting a similar PC-based banking service for personal
customers. The system, launched in February and developed with Visa
Interactive, runs from Barclays software on a Windows-compatible PC and
modem from customers' homes or offices.

The attraction of the Internet is that users do not need to access
proprietary PC banking software or special online services to carry out
banking transactions. Nehmzow's electronic bank is the Security First
Network Bank, based in Atlanta, Georgia. SFNB, which claims to be the
first Internet bank, opened for service in October 1995. It has more
than 2,000 customers, mostly professionals aged between 26 and 55.

The SFNB uses a number of security features, which include issuing each
customer with a personal identification number (Pin) and encrypting or
scrambling any data that is sent over the Internet. The bank's internal
computer network is protected by a "firewall" which filters all
electronic traffic.

This month, the US bank First City Bank and Trust plans to launch an
Internet banking service using similar security facilities. In the UK,
Midland Bank is working with Microsoft in order to offer Internet
banking.

Olivetti, and Sparekassernes Data Center, a consortium of 80 Danish
savings banks, have formed a joint venture called FIT (Financial
Internet Technology). FIT has developed E-Bank (Electronic Bank), a
system which uses the Internet for banking from home, and offers various
levels of security, including passwords, PIN codes and encryption.

Some believe that Internet banking will take off when there is
widespread use of a technology known as public-key cryptology. A key is
a complex mathematical number that may be many hundreds of digits in
length, creating hundreds of billions of potential combinations.

The key is divided into a public key and a private key. The public key
is available to anyone, and may be printed in a directory or even posted
on to the Internet. The private key is kept secret by the owner. A
message is sent to the owner by encrypting it with his or her public
key. Only the correct private key can decrypt it.

The public-key system also makes it possible to produce a "digital"
signature. "This is important, because a bank will need to be confident
that it is communicating with the genuine customer, and the customer
needs to be certain that he's dealing with his bank," says McConnell.
"It also provides proof that the customer authorised a particular
transaction."

A digital signature is created by the sender, who encrypts part of the
message with his or her private key. The recipient of the message uses
the sender's public key to decrypt the segment and thus confirm the
identity of the sender. The system will automatically operate whenever a
message is being sent or received over the Internet.

Public-key systems will also be used for credit-card transactions. Visa
International and Mastercard International have joined forces with a
number of companies including GTE, IBM, Microsoft and Netscape to
develop SET (Secure Electronic Transactions) which will allow users to
make secure credit-card payments over the Internet: "It will mean that
someone making a $ 10 transaction won't get billed for $10m," says
Bernard Ovink, senior manager of Visa's electronic commerce division.
SET is due to come into operation in late 1997.

There are many encryption systems available, including several developed
by RSA Data Security, based in Redwood California. RSA is providing the
encryption technology for SET. The power of a key is measured in bits -
an eight-bit key offers 256 possible combinations, while a 40-bit key
has more than 1,000bn combinations.

Some 40-bit keys have been cracked by cryptology enthusiasts, causing
some to question the security of public-key systems. But McConnell says
this fear is misplaced: "It took months to crack each key and a
tremendous amount of computing power. But the question is: was it worth
all the effort? It's like spending $100 to counterfeit a $ 20 bill."

McConnell foresees a time when many people will have their own public
and private keys: "I think you'll get an agency such as the Post Office
distributing the keys to the public, and then financial organisations
will use them to create online banking and other services. This is going
to happen sooner than some people think." .


American Banker: Thursday, September 5, 1996

OCC Allows Internet Access Plan, Eyeing Competitive Edge
for Banks

By OLAF de SENERPONT DOMIS

A small bank in Pennsylvania has won the first regulatory approval to
sell Internet access to the public, which could attract customers to
on-line banking and other electronic services.

The decision, released Tuesday by the Office of the Comptroller of the
Currency, could help national banks compete with nonbank providers of
on-line financial services, experts said.

"The OCC is aggressively pushing the envelope with this decision,
because it's allowing a service not directly related to banking," said
Charles M. Horn, a partner at Mayer, Brown & Platt, a Washington law
firm. "It is part of a natural progression toward letting banks expand
the way they provide financial services."

"The comptroller has recognized the critical importance of technology to
the future of the banking industry," agreed Robert G. Ballen, a partner
at the Washington law firm Schwartz & Ballen. "This is consistent with
the comptroller's concern that banks be able to effectively compete with
nonbanks."

In an Aug. 19 letter to Apollo Trust Co. in Apollo, Pa., the OCC told
the $105 million-asset bank it could sell general Internet access to
anyone in its western Pennsylvania service area. The bank also was given
permission to give free Internet access to schools, government offices,
libraries, churches, and various nonprofit organizations.

"We have a long-standing precedent of allowing banks to use the excess
capacity of their physical facilities, and this ruling translates those
old precedents into the technology world," Comptroller Eugene A. Ludwig
said in an interview Wednesday. "Making sure that banks use things as
efficiently as possible is a win-win for everybody - the bank, its
customers, and the community.

"This is very symbolic of how the use of the electronic media can help
banks of all sizes provide products and services to customers."

Viveca Ware, director of payment systems at the Independent Bankers
Association of America, said, "Not only does this open the door for
banks to compete with nonbank Internet service providers, it opens up a
whole new realm for banks to offer new services to their communities."

Separately, the OCC approved a request by Huntington National Bank in
Columbus, Ohio, to enter into a joint smart card venture with the
Student Loan Marketing Association and Battelle Memorial Institute, a
Columbus, Ohio-based technology research organization.

Huntington has said the venture, to be based in Columbus and named
Cybermark, will develop, market, and maintain stored-value card systems
for self-contained communities such as universities, hospitals, theme
parks, and military installations.

Apollo already allows its customers to transfer funds, apply for loans,
and view account balances via the Internet. Apollo purchased powerful
computer equipment to provide these services and has the excess capacity
to provide a gateway to the Internet.

Ray Muth, the bank's executive vice president, said Apollo plans to
entice new customers to its computer banking products by offering
Internet access.

"This is an absolutely golden opportunity for us," Mr. Muth said in an
interview. "We'll increase our profitability by developing new customer
relationships."

The OCC concluded that offering Internet access to the public is part of
the business of banking because it satisfies three criteria. First, it
allows banks to provide more convenient service to customers. Second,
the OCC argued that full Internet access is needed to let banks market
their electronic banking services. Third, the OCC said that because the
computer hardware Apollo purchased had extra capacity, the bank ought to
be able to use it profitably.

In the interview, however, Mr. Ludwig said banks cannot purchase
computer equipment solely to offer customers Internet access.



News Release(Online Resources): Wednesday, September 4, 1996

Online Resources to Provide Transaction Link to AOL

Online Resources & Communication Corporation, one of the leading
providers of interactive financial services, announced today that it has
entered into an agreement with America Online Inc., the world's largest
consumer online service, to provide financial transaction capabilities
to America Online's more than six million members.

This agreement coincides with the launch of the AOL Banking Center, a
focal point that gives AOL members access to financial institutions who
participate in the AOL Banking Center.

AOL members may visit their financial institution's virtual branch that
resides within the AOL Banking Center.

Online Resources will have a direct link to AOL, enabling clients who
participate in the AOL Banking Center to offer real-time banking, bill
payment and other transaction services to AOL members.

"The power of transaction processing cannot be understated," said Online
Resources CEO Matthew P. Lawlor. "The AOL members will return to their
virtual branch again and again if it is their site for moving money,
paying bills and getting current personal financial information. The
cross selling opportunities for participating financial institution are
enormous."

Ted Leonis, president of the AOL Service Company, said, "Online
Resources is one of the leading interactive financial services providers
in the industry.

Its focus on financial institutions and their transaction capabilities
nicely complement our focus on consumers and their desire for
value-added services."

Online Resources provides consumer access to its financial institution
customers through the PC via its PC Windows-based software or the World
Wide Web, and through its ScreenPhone and touch tone telephones. AOL
members requesting transactions or personal financial information from
their virtual branch will seamlessly link-up to their financial
institution through Online's Web site and return to the virtual branch
in the AOL Banking Center when they have finished.

America Online Inc., (NASDAQ Symbol: AMER), based in Dulles, Virginia,
is the largest consumer online service in the world, with more than 6.2
million members worldwide. Through its services, AOL offers its
subscribers a wide variety of services including electronic mail,
conferencing, software, computing support, interactive magazines and
newspapers, and online classes, as well as easy and affordable access to
services on the Internet. Founded in 1985, AOL today has a global work
force consisting of more than 5,000 people.

Personal computer owners can obtain America Online software at major
retailers and bookstores or by calling 800/827-6364.

McLean, Va.-based Online Resources & Communications Corp. is a privately
held company founded in 1989. It specializes in providing home banking,
bill paying, investment and other financial services to financial
institutions for resale under their own brand to consumers and small
businesses.

Online's clients include banks, brokerages, credit unions, ATM networks
and other financial service providers. Currently, Online has 40
institutional clients. Online provides financial institutions with
extensive support services, such as consumer marketing, call center bill
paying software or service, security and communications network
management. Users of Online's services may access their financial
institution through a variety of devices, including the PC, conventional
telephones or the company's low-cost ScreenPhone.

Easy, low-cost access to a variety of interactive financial services is
supported through either private commercial networks or through the
Internet. Online's Web site is www.orcc.com.


News Release (Sanwa Bank): Wednesday, September 4, 1996

Sanwa Among First In U.S. to Offer AOL Subscribers Intuit Software

Sanwa Bank California today became one of the first banks in the United
States to offer online banking and bill payment to the more than 6
million subscribers of America Online (AOL) through a new computer
program developed by the nation's leading maker of personal financial
software.

Developed by Intuit Inc., which also makes Quicken(R), the nation's most
popular personal finance software, the new service has been dubbed
BankNOW(TM) and is available to current Sanwa Bank customers who are
subscribers to America Online, as well as to new customers who sign-up
with America Online and Sanwa Bank.

In conjunction with the introduction of BankNOW, Sanwa Bank has
established a site on America Online to give current and prospective
customers product and service information, as well as a point-and-click
option for opening a new account. The BankNOW software can be downloaded
from Sanwa's site on AOL free of charge.

Sanwa helped pioneer PC banking a year ago when it teamed with both
Intuit and Microsoft Corp. to offer customers a PC home banking option.
At the same time, it launched its site on the World Wide
Web(http://www.sanwabank.com), one of the first to offer consumers the
option of applying for loans, credit cards and other services through
the Internet.

"BankNOW is online banking software created expressly for convenience-
oriented PC users who want a fast, simple and hassle-free way to conduct

online banking and payment transactions," said Kathleen Graham, vice
president for retail banking at Sanwa. "It is a natural outgrowth of our
already state-of-the-art electronic banking capability."

Sanwa customers who sign-up to use BankNOW will have the following
options available:

-- Access to accounts day or night.

-- Reconcilement of accounts automatically.

-- Review of account balances.

-- Online transfers between linked accounts.

-- Write checks and pay bills to anyone or any creditor in the U.S.

-- Send e-mail to communicate with Sanwa.

As an additional inducement to sign-up, and in conjunction with its One
Market Value account, Sanwa is offering a package of incentives,
including fee-free ATM withdrawals at all STAR(R) and CIRRUS(R)
locations, fee-free online banking and bill payment for 12 months, free
checking for a year, no-annual-fee credit cards and no-annual-fee
overdraft protection.

On the business side, Sanwa's small business customers also will benefit
if they sign-up for the BankNOW feature. Current and new customers, who
have standard small business accounts, will receive 12 months of free
online banking through BankNOW. Among other available options to small
business customers are a direct e-mail link to the Sanwa branch manager
assigned to their account and online banking at the special reduced rate
of $7.95 for the first 12 months. This special reduced price includes
eight online banking sessions and 20 bill payments per month.

"We believe this alliance will bring user-friendly electronic banking to
millions of consumers -- both personal and small business -- who might
not otherwise have ever considered it," said Doug Stewart, first
executive vice president. "It is another step toward reinforcing our
campaign to remain one of the leaders in electronic banking throughout
the U.S."


American Banker: Thursday, September 5, 1996

On-Line Banking: Comerica Worker Moonlights in
Cyberspace

By JENNIFER KINGSON BLOOM

By day, Frank De Armas is a foot soldier in Comerica Inc.'s information
systems department.

By night, he sheds his pinstripes, grabs his mouse, and becomes host and
editor-in-chief of The Internet Banker, an on-line magazine, bulletin
board, and resource center for people interested in what banks are doing
in cyberspace.

"It's like a clearing house for information on banking," Mr. De Armas
said. "It started out as a little, tiny, part-time thing, but it just
keeps growing."

So much so that Mr. De Armas, a senior applications engineer for
Detroit-based Comerica, now spends four hours a night at his home
computer maintaining the Internet Banker site.

He said it takes an hour to check all his links to other bank-related
sites and to make sure that all the banks clamoring to be connected are
added to the growing list.

The other three hours are spent compiling a daily on-line banking
newsletter, assembling a quarterly journal, and responding to questions
that readers tack onto the site's bulletin boards. "If I know the
answer, I post it," he said.

The site grew out of Mr. De Armas' development last year of Comerica's
Web site. He wanted to keep track of what other financial institutions
were doing on the Internet, adding bank- and financial-related sites as
he came across them.

Then other people discovered his site and started using it. What began
as a research tool "has taken on a life of its own."

Bankers use the bulletin boards for global shop talk. In a recent
posting, a Missouri banking regulator wrote to ask about the delivery of
electronic banking services to rural areas. An Israeli economics student
asked if people think the Internet will make "normal banks as we know
them today disappear."

A New Zealand banker named Lew solicited tips on boosting staff morale
during a merger. A banker from Connecticut named Tom responded that
"communication" and dress-down days had helped morale during his bank's
merger.

Then Mr. De Armas weighed in. "Tom has a good point," he wrote.
"Anything you can do to make the employees feel more at ease will help.
Stress is a natural byproduct of mergers." Trading insights has been the
hobby's greatest pleasure for Mr. De Armas, an affable 35-year-old who
taught himself to program computers in the Basic language while on
injury leave from the Army.

Mr. De Armas now knows several programming languages, and is an on-line
veteran. "I was probably one of the only ones who used to get on chat
lines on Prodigy at 1,200 baud," he recalled.

His Web site radiates enthusiasm for the medium. In a page of tips about
how to design a good site, he offers suggestions on how to link an
electronic-mail address to a Web page, deftly suggesting: "The HTML code
for this is easy." (HTML, or hypertext markup language, is the design
language for Web sites.)

For the less computer literate, Mr. De Armas' site offers a readable
electronic magazine -- which he writes and edits -- on Internet-related
banking issues. A recent issue included a question-and-answer session
with one of the designers of BankAmerica Corp.'s Web site and a review
of the site -- both presented in Mr. De Armas' effusive style.

"You can't help but be impressed with BofA's site," he wrote in his
review. "I tested the response time of the site at 9,600, 14,400,
28,800, and of course our leased line. ... My congratulations to the
staff of BofA for a fine site."

Stephen Hugley, senior vice president and manager of information
services at Comerica, calls Mr. De Armas "one of our more literate
client/server technicians.

"He was instrumental in putting together our Web site, and he is also
instrumental in helping other areas of the bank when they have Internet-
type questions or issues," Mr. Hugley said.

"It's a joy to work with somebody like Frank because he really has a
good vision of where the Internet is going and what it's value will be."

The Internet Banker site (www.ddsi.com/banking/), which now fields more
than 20,000 hits a week, has won two awards and garnered several
speaking invitations for its creator.

Mr. De Armas' wife, Janice, runs a companion Web site called Metro
Online, which contains information and listings about Detroit-area
happenings.

"You meet all kinds of people on the Web - it's amazing," Mr. De Armas
said. "Just think of it as a big neighborhood."

Among his electronic acquaintances is Tony Plath, director of the
University of North Carolina's Center for Banking Studies. Mr. Plath's
banking students use the Internet Banker site to collaborate on
projects.

"The real value in Frank's Web board is that a lot of bankers are point-
and-click type Web users - they don't know how to post their own home
page in HTML, and they don't have time for it," Mr. Plath said. "This
allows you to post messages that people can read and to maintain threads
of discussion."

Bradley Streeter, a community reinvestment and development specialist
with the Kansas City, Mo., outpost of the Office of the Comptroller of
the Currency, views the Internet Banker site as a "wonderful research
tool."

"I was interested in how banks are using the electronic forum to reach
low and moderate-income people," he said. "It helped inform me on what
other people are thinking about the issue."

Bill Burnham, a banking consultant at Booz-Allen & Hamilton, uses the
site regularly. "I check it because they catalogue the top 100 banks on
the Internet," he said. "I refer people to it as well."

Most of the site's content is free, but Mr. De Armas does charge for his
daily newsletter. Colleagues at Comerica receive complimentary
subscriptions.

And he has been attracting sponsors to his banking site. One advertiser,
the principal of a Detroit-based brokerage firm, said the response has
exceeded newspaper ads.

"I was amazed," said the principal, Michael H. DeLap. "I thought I would
put something out there in cyberspace and never hear anything about it
again."

Mr. De Armas is not the first person whose professional interests led
him to develop his own cottage industry. Comic strip fans can look to
Scott Adams, the creator of "Dilbert," as someone who created an
unlikely career out of a straitlaced corporate job - at Pacific Bell.

Mr. De Armas said he is content to stay in banking and enjoy the kudos
on his Web site. "They love it here at Comerica," he said. "My
management is really happy. It showed a little initiative."

---

<a href="mailto:dlv@bwalk.dm.com">Dr.Dimitri Vulis KOTM</a>
Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps