Deposit This On the Internet, your bank is not your friend
Deposit This On the Internet, your bank is not your friend
Hal Plotkin, Special to SF Gate
Wednesday, February 23, 2000
When the notorious bank robber Willie Sutton was finally apprehended, a reporter asked him: “Mr. Sutton, can you tell us why you rob banks?”
Sutton’s famous reply: “Because that’s where they keep the money.”
The same undeniably simple logic is behind a huge fight now brewing between the already anachronistic banking industry and Internet entrepreneurs who are trying to put more power in the hands of consumers.
If the Internet entrepreneurs succeed, the balance of power will shift from the banks to consumers, giving us all more choices, lower prices, and greater convenience.
A win for the banks, however, would lead to the exact opposite, greatly eroding the Internet’s power to help consumers find comparative information about financial services and products.
The question at hand is whether consumers have the right to give their online banking password to a web-based third-party firm that might use the information in their account records to help them find better deals elsewhere.
To prevent that from happening, one leading member of the banking community is trying to gum up the Internet’s wheels. It’s a classic business strategy: if what you’re doing isn’t working, try tripping up the other guy. If the gambit works, it’s sure to be aped by other major banks.
The test case involves North Carolina-based First Union bank.
The battle began in late December when First Union announced the banking industry’s first set of restrictions on third-party companies that display customer account data on their websites. The restrictions apply even though the targeted websites have been given permission to store and display account data by the owners of those accounts.
The bank’s new rules are aimed, at least for the moment, at so-called “portable identity players,” companies such as Silicon Valley-based Yodlee, Inc., which allow consumers to store all their passwords, say for their online bank, insurance and brokerage accounts, at one online site.
There are expected to be many such sites in the future. That is, if the banks don’t kill them in their cribs. It’s part of an emerging online category called “financial portals,” places where users can easily conduct business on any of their linked accounts without having to visit each individual site.
If such sites survive, consumers will, for example, be able to cash in a certificate of deposit, make sure their paycheck cleared, buy and sell stocks and bonds, change their insurance coverage, or refinance their mortgage, all with just a few mouse clicks at a single comprehensive, user-friendly site.
It’s an idea that scares bank executives to death.
That’s because banks would lose their direct connections to consumers, which would instead be owned by whatever online financial portal they select.
As a result, banks would also slowly lose their lucrative position as retailers of financial services. Pitted against one another on the financial portal sites, they’d instead morph into financial service wholesalers, forced to compete more aggressively with one another on price, service, and product features.
Along with storing your checking and savings account records, for example, a financial service aggregator might also offer consumers comparative shopping services for loans, mortgages, certificates of deposit, and other financial services.
The aggregator’s software could even let you know whether another bank might pay you a higher interest rate on your particular checking account or money market fund, and advise you of other competitive offers, all of which would be based on your own financial needs and profile.
When your Certificate of Deposit is ready to roll over, for example, you’d automatically get a list of other CDs you might want to purchase instead.
Not everyone would be willing to give up their personal account data, even confidentially. But First Union’s leaders aren’t willing to let consumers make that decision. Instead, they want the power to veto any decisions their customers make about sharing their financial records.
Like most tyrants under siege, First Union’s leaders argue that the masses don’t really know what’s good for them.
They claim, for example, that third-party aggregators might not sufficiently protect the confidentiality of accounts, which could leave those accounts vulnerable to fraudulent transactions.
We’re trying to shut down these operations for your own protection, say bank officials.
It’s sort of like Safeway trying to make it illegal to enter Albertson’s under the guise that if you did you might fall down and hurt yourself.
That’s not to minimize the security concerns involved.
Clearly, it’s dangerous to give your online banking password to a company other than your bank. Without doubt, some of those passwords will eventually be stolen and used without permission of their owners, just as some checks are stolen and used without permission of their owners.
In either case though, we’re talking about criminal acts. Like any crime, those acts should be fully prosecuted if and when they occur. But you don’t shut down an entire marketplace, as First Union apparently hopes to do, just because someone somewhere might be able to shoplift something.
Likewise, if any one online financial portal fails to sufficiently protect the confidentiality of user account records, it won’t be long before fleeing customers put that operation out of business. People move pretty fast when someone starts messing with their money.
It’s very likely First Union’s real goal is to set a precedent that allows banks to use the threat of an account information embargo as a negotiating tactic in order to force the financial portals to cut them in on a piece of their action.
But if that happens, it means the banks would essentially be holding their customers hostage, preventing them from finding out about competitive offers unless the companies offering those products cut a deal with the bank first.
It remains to be seen whether such restrictions will be deemed illegal under “restraint of trade” laws. Those laws are designed to stop one business from unfairly harming another business. It’s illegal, for example, for Sears to build a moat around Wal-Mart.
A pro-Internet ruling on restraint of trade rules might force the banks to give third-party companies access to individual account data when directed to do so by their customers. The other legal questions involved, such as who really owns individual checking account records, banks or consumers, are also somewhat murky, leaving the door open for years of expensive legal squabbling. The banks win that battle just by keeping it going.
In the meantime, however, developments in the wireless arena are going to put additional pressure on the banks.
By 2003, there are expected to be more than one hundred million wireless devices with Internet access, such as cell phones and Palm Pilots. The small screens on those devices and the need for simple user interfaces will work in favor of companies that offer consumers access to all their financial account data in one format at a single easy-to-use site.
When it comes to technology, simplicity usually wins out, although it sometimes takes a painfully long time.
Wireless banking will also help undermine the one other thing old-fashioned banks have going for them besides their huge ranks of customers: their ATM networks.
Right now, banks use their ATMs as weapons, charging non-customers high fees to keep current customers loyal. Threatening to cut consumers off from free ATMs is another way the banks might try to hold off the challenge from full-service financial portals.
But that leverage may not last much longer.
ATM-crushing wireless cash is already common in Finland. Users there are able to point their wireless devices at the person or business they want to pay, key in the amount, and the cash is instantly beamed to the recipient’s wireless unit. Threats from banks that they’ll withhold ATM service, or charge even higher user fees, will lose some of their sting when people begin carrying their own little wireless ATMs around with them.
Just one bank, Chicago-based First USA, is taking the right steps to survive in the age of the Internet. First USA recently set up a wholly-owned subsidiary, Wingspanbank.com, which is designed more along the financial portal model. Wingspan resells First USA financial services and products.
But it also gives its customers access to products from competing financial institutions. It’s quite possible that First USA, which is the better-known brand today, will eventually become just another part of the plumbing that supplies its descendent web-based bank.
It won’t be easy for the rest of the banking community to stop the future from happening.
Those that try will first have to explain why their customers can’t have access to their own financial records whenever and wherever they want. If they get over that hurdle and still have some customers left, they’ll also need to figure out how to enforce their rules against third-party aggregators.
Although technically possible, it will be difficult and costly for the banks to deploy systems that determine when online records are being requested by an actual customer or by a third-party website that has access to the customer’s password.
Even so, my guess is many major banks will fight tooth and nail against the financial services content aggregators. It’s just human nature, certainly for bankers, to try to hold on to what they’ve got rather than let it go in hopes of becoming something else.
Given the power of the bankers, it won’t be at all surprising to see them even win some legal and/or legislative victories in the near future that grant them greater control over individual account records. These are, of course, the same institutions that successfully convinced Congress to legalize interest rates that were formerly charged only by the Mafia.
It won’t be hard for the banks to gin up similar legal victories as they work the legal and legislative systems to their advantage.
So be on the lookout for more of those fine-print legal disclosures that come tucked inside your monthly checking account statement. This one will say something about how your bank is protecting you by not allowing third party online access to your account records.
That will be your tip-off that it’s time to start looking for a new bank.