The Money Channel

Financial institutions are adding wireless devices to their list of service channels. Representatives of three institutions discuss the services their companies offer today and services they envision.

Both wireless companies and financial institutions are caught in strong currents of competition. Both are trying to differentiate themselves by providing better customer service and by offering more product choices.

In recent years, leading wireless carriers have added data transmission to their service portfolios and choices to their wireless Internet menus. Meanwhile, financial institutions such as Wells Fargo (www.wellsfargo.com), First Union (www.firstunion.com) and Charles Schwab & Company (www.schwab.com) have added wireless services to their list of capabilities; nevertheless, wireless banking still is in its infancy.

Extending the Net

Wells Fargo & Company launched its 3-stage wireless pilot in 3Q00. It began by offering the services to its wireless team, then added other Wells Fargo employees and finally signed up 300 Wells Fargo customers. The pilot ended in January 2001, and the company rolled out its wireless services, known as Wells Wireless, to online banking customers in February. The consumer services, which include wireless access to bank balances and transaction histories, as well as the ability to transfer money between Wells Fargo accounts, are being offered free of charge.

While designing the wireless program, Wells Fargo surveyed focus groups to find out what services customers wanted, said Pamela Reed, Wells Fargo senior vice president of consumer Internet services. “Far and away, the most popular services were the balance viewing and transfers that we brought out in Phase I,” Reed said.

Clients also said that in the future, they want to pay bills, monitor their stock portfolios and buy and sell stock wirelessly.

According to Reed, Wells Fargo may add alert capabilities to notify customers of changes in their account balances.

“We’re pacing our releases along with consumer demand and the adoption patterns of consumers in wireless,” she said. “It’s similar to the early days of the Internet. We are monitoring our customers’ activity and doing surveys with them over time.”

So far, the feedback from the pilot has been positive, according to Reed, who said that 80% to 90% of the customers said they would recommend the services to friends and family. Reed attributes the program’s success to the up-front design work Wells Fargo did with application service provider 724 Solutions (www.724.com). The companies created custom interfaces for the Sprint PCS (www.sprintpcs.com) Web-enabled phones and Palm VII (www.palm.com) devices involved in the pilot.

Wells Fargo chose seven Sprint phones based on usage and customer preference. The carrier’s nationwide footprint and ability to roll out services quickly also offered a compelling motivation for teaming up.

When asked about Wells Fargo’s wish list for wireless technologies to enable advanced banking applications, Reed said she would like to see higher-speed networks, but she denied that the current state of wireless security presents a significant challenge. Wells Fargo does conduct on-site security reviews of carriers, inspecting data centers and scrutinizing security procedures.

“Today, there are already security standards in place that are meeting our needs,” Reed said. “We use SSL encryption for transmission. We also have server-level security within the data centers that handle this information. We’re currently using the same SSL encryption that we use with the Web.”

Online banking is a significant part of Wells Fargo’s business. According to Reed, the institution currently has more than 3 million online customers. The institution’s goal is to make its wireless services compatible with and as easy to use as its Internet services.

For instance, customers can use their Web passwords and identification numbers to log onto wireless devices.

“You simply conduct your first session on the computer, then you’re good to go on wireless,” Reed said.

The PDA Connection

No wireless phones were included in First Union Bank’s wireless banking and brokerage pilot, which was launched in April. The pilot program is being tested only on PDAs and 2-way pagers because these devices support digital certificates to authenticate users.

First Union favors public key infrastructure (PKI) for security and chose the PDA route to support a PKI model, according to Mike Pennella, First Union director of channel development.

“In order to get the PKI model, we have to have devices that support client-side processing and client-side certificates,” Pennella said.

First Union’s pilot, with a wireless application provided by W-Technologies (www.w-technologies.com), is being offered to about 550 customers. Customers can access account balances for checking, savings and brokerage accounts, as well as receive account summaries, transaction histories and transfer funds between consumer accounts.

First Union plans to add stock trading and bill paying to its wireless menu; these already are available to its Web users. However, the bank is taking time to design a security application for its wireless program that is compatible with its online security system.

“Our approach online is to have a common set of credentials for customers to authenticate themselves,” Pennella said. “We want to carry that forward to the wireless side so that customers don’t have yet another user password that they have to remember. We have to fit that into our existing security model for authentication, then also be able to encrypt credentials and data from the device back to the First Union system of record.”

Ease of use is another reason First Union opted for the exclusive use of PDAs. Pennella said that the standard wireless phone is not a useful device on which to run applications. He said smart phones, which are just now starting to reach the U. S. market, will be a different story because they offer the intelligence of a PDA inside a phone.

As for future applications, First Union executives hope to offer cash-management services such as wire transfers for businesses. But today’s wireless-security limitations make commercial applications such as wire transfers too risky.

What the industry needs is a way to verify the identity of wireless customers and record wireless transactions for use in case of disputes, suggested Herb Paquette, 724 Solutions vice president of banking and brokerage. This would enable financial institutions to offer wireless services that involve high-dollar transactions.

“The most important (commercial) transaction is wire transfers over the Fed wire system,” Paquette said. “That is how you move money in the business space instantly to meet your obligations and do transactions. But nobody in the industry right now will do a Fed wire transfer over the ’Net, because they just don’t believe in the security.”

Federal wire transfers are irreversible, which means it’s imperative that the transactions be transmitted properly up front; nevertheless, Paquette said commercial wire transfers would be a great application to perform via the mobile Internet because only a few corporate officers are authorized to approve the transactions, and these officers usually are on the go. CFOs, controllers or treasurers might need to give the nod for a $2 million transfer to a third-party bank, a customer or a supplier. The ability to approve wire transfers via wireless would simplify those corporate officers’ lives, Paquette said, reiterating that non-repudiation mechanisms are needed first to verify users and record transactions.

Certicom (www.certicom.com) has partnered with 724 Solutions to create proprietary software, called the PKI Gateway, to enable any kind of digital certificate to be issued, stored and tracked.

“It’s a very non-standard kind of world right now,” Paquette explained. “So we proposed a strategy that would be certificate-issuing-authority agnostic.”

In other words, any company’s certificates can be processed in tandem with the PKI Gateway.

Global Traders

Investment firm Charles Schwab & Company set up a separate division to handle deployment of its global wireless investment service, Pocket Broker. Schwab’s global wireless solutions division reports to the corporation’s chief information officer and vice chairman.

Schwab devoted employees to a separate wireless division to develop services quickly. Also recognizing that wireless is a worldwide phenomenon, Schwab took a global approach, said Jonathan Craig, Schwab vice president, global wireless solutions.

Schwab has deployed its wireless investment services in Canada, the United States and Hong Kong and plans to roll out services in the United Kingdom soon.

Schwab’s wireless services are available on the AT&T Wireless (www.attws.com), Sprint PCS, Nextel (www.nextel.com) and Verizon Wireless (www.verizonwireless.com) networks. The investment firm’s customers can receive real-time quotes and news, check account balances, monitor portfolios, set up watch lists and buy and sell stocks via Palm, RIM (www.rim.net) devices and wireless phones.

“When we think about the future, we think about three things,” Craig said. “One is what our customers needs are and how they are changing. Two is what technology changes are coming, and the third is what is unique about wireless.”

According to Craig, Schwab plans to exploit wireless to offer unique future services. For instance, “Call Schwab” allows wireless Internet users to dial a Schwab call center automatically. As 2.5G networks evolve, the investment firm plans to give customers the ability to toggle between data and voice.

What does Schwab need from the wireless industry before it can roll out advanced investment services? According to Craig, the technology advances that will make wireless more alluring also will foster wireless banking advances. These include increased bandwidth, devices that enable easier Internet navigation and increased battery life.

Schwab conducted its pilot program in 1999 and launched the services for access via Palm and RIM devices in 2Q00. In September 2000, the services became available on Web-enabled phones. Since then, the company has monitored its customers’ opinions and has made discoveries that ran contrary to executives’ initial assumptions. For instance, Schwab initially assumed that Pocket Broker would be used primarily by active traders but found that long-term investors also use the services.

“Therefore, we need to develop the application with that in mind,” Craig commented. “The other thing we’ve learned from customers is that integration is very important. Customers want to be treated as one customer across all of Schwab’s channels.”

By Christopher Clark

In the best climate, wireless banking would have no problem proving itself as a premier function among wireless adopters, a sort of killer app for m-commerce. Whether or not the current economy gives banks pause before entering the wireless fray, many continue to plot relationships with carriers and software vendors.

“Wireless banking is a competitive advantage for a banking institution to have just like ATMs were 10 years ago,” said Fred Tanzella, Air2Web (www.air2web.com) vice president of product management.

But a cooling economy raises nagging questions about services that consumers may be willing to do without. Analysts are split on whether banks should target frequent, affluent wireless users who are willing to pay a premium for anywhere banking, or concentrate on lower cost, less sophisticated services to lure a larger demographic.

“Banks are reluctant to invest aggressively in mobile financial services because of the problems experienced with the Internet economy,” said Fred Schneidereit, A.T. Kearney Financial Institutions Group principal (www.atkearney.com). “Nevertheless, the leading players continue to plan for the future by carefully entering strategic alliances and making strategic investments. This is driven by the need to keep their current customers and gain new ones by staying in control of the interface to these customers.”

Ease of use — screen size, not-so-navigable buttons, connection drops — may present banks with their biggest hurdle to expanding m-banking from affluent mobile-savvy users to a larger base of beginning- to-intermediate users who want more but with a fast learning curve.

“Mass markets do not adopt technologies, they adopt services that bring value to their life,” said Herb Paquette, vice president of banking and brokerage for 724 Solutions, a mobile transactions software provider that counts Bank of Montreal (www.bom.com), Bank of America (www.bankofamerica.com) and Wachovia Bank (www.wachovia.com) among its clients. “There’s nothing here that didn’t happen with PCs or the Internet. For these phones with small real estate … people who do it all the time have no problem, but for the average person, it’s pretty tough entering stock trades over the phone,” Paquette said. Nevertheless, Paquette said handset manufacturers will meet the demand for ease of use. What’s more, m-banking may not always mean a handset.

Diethard Buehler, A.T. Kearney vice president for communications and high-tech, predicts the mobile market will show three separate segments with “fuzzy edges and overlaps:”

• A consumer market with either “voice-only” terminals (comparable to those of today) or “voice and data” (Gameboy-style or PDA-sized terminals)

• A business market with high-end phone terminals, telephone PDAs and phone-laptops

• A segment of specialized applications and terminals mostly optimized for machine-to-machine communications, such as vehicle-based computers with online connections

“All terminals beyond simple phones can be used — with varying degrees of convenience — for mobile banking,” Buehler said. “Clearly, some will allow more features than others, but as we expect the market for phone-laptops to increase significantly in market share, probably becoming the most important data-centric market, we believe that there is a lot of potential for mobile banking on the terminal side.”

Buehler cautions that “operators need to test new products, package them intelligently, and pull them off the market if they don’t prove attractive. Thus, there is a constant trial-and-error activity on the market, bringing about bursts of product and feature development.”

“In North America, you’ve got a half-dozen standards,” 724’s Paquette said. “That has hindered roll-outs. Standards add great challenges in using multiple networks when you roam. Anytime you develop technology without common standards, it takes longer, because people make mistakes.”

Clark (cclark2@kc.rr.com) is a freelance writer based in Kansas City, MO.