Electronic banking can help small businesses manage their funds and maximize interest earnings. But there's a rub
Every afternoon Allen Systems Group Inc.'s chief financial officer, Frederick Roberts, sits down with the software company's Miami bank. He's spent the morning pooling treasury information from the company's network of 11 international banks as well as its domestic banker, working in concert with financial staffers to reconcile figures and update projections. After wrapping up his daily planning session with CEO Art Allen, Roberts is ready to go over a series of highly detailed account transactions with the bank, transactions aimed at maximizing the company's cash flow and credit line. All in a day's work? Yes. But there's a high-tech twist. Miami is 100 miles away from the $20-million international computer company's headquarters, in Naples, Fla., and Roberts is doing all that treasury management on his personal computer.
Welcome to the wide world of on-line banking, where the future is now. PC-to-PC account management not only is here to stay, it's driving the U.S. banking industry -- with most banks launching new technology-based products and services faster than the Girl Scouts sell cookies. And it's rapidly changing the way U.S. businesses do their banking, if only because banks themselves are convinced that technology is the key to their competitive edge.
What do all those technological innovations mean for the owners of small businesses? It's too early to know for sure, but what's clear is that they'll have to start making some basic decisions soon about which products and services it makes sense to try. Some small companies have already begun sampling technology-based services; others will undoubtedly sign on as more options become available at the regional and community-based banks that handle their business. And given that bankers are marketing those high-tech products and services like there's no tomorrow, more and more entrepreneurs are going to have to get up to speed on the technology whether they want to or not.
If you've heard all the hype but still aren't clear about what high-tech banking means, here's an overview. The biggest game in town is electronic cash management -- the ability to access account information directly, without a visit to a real or an automatic teller. The banks that are most technologically advanced allow their customers to dial in via computer; others can give customers account-balance updates at specified daily intervals, by either fax or secure voice mail.
How does electronic banking benefit a business? The basic pitch goes something like this: With up-to-the-minute information at their fingertips, business owners can make more timely decisions about how to manage their funds. On-line banking lets them move cash between accounts to pay bills while they still earn as much interest as possible on their cash reserves. With PC-to-PC banking, cash-management decisions are transmitted from business to bank by computer, the way Roberts transmits his decisions to Allen Systems' domestic bank. These days companies can also use their computers to control automatic payroll plans, so they don't have to phone or fax salary-payment instructions to their bank. And they can use computers to authorize tax payments and international-currency maneuvers.
Banking-industry experts project that within two to three years, computerized banking could begin to make traditional business banking ancient history. "On a day-to-day basis almost all your financial transactions would take place electronically, including invoicing your customers, receiving their payments, and authorizing your own payments to suppliers and tax authorities," speculates Raymond S. Sczudlo, a partner and banking specialist in the Washington, D.C., office of the law firm Weil, Gotshal & Manges. "The only reason you'd need a bank is to actually carry out the transfer and hold funds."
Large corporations already conduct many financial transactions electronically, or they will soon. As of next January, for example, the IRS will require all businesses that paid more than $50,000 in payroll taxes during 1995 to convert to an electronic filing system. But these days it's possible for any business owner with a 486-or-faster PC, a modem, and sufficient time and energy to comparison shop among a growing range of electronic-banking options. To hear the bankers tell it, the business world stands to gain significant advantages by going digital: up-to-the-minute account information, easier access to that information, the ability to make financial decisions quicker, fewer transaction errors, and, ultimately, lower banking costs.
At the moment, however, the reality isn't quite that rosy if you're a small-business owner. Although bankers talk a good game, especially when they're selling new and sometimes pricey products, they haven't done much in the way of figuring out how to get the business community -- especially smaller companies -- from here to there. While the new technology promises to make cash management quicker and more cost-effective, so far it does little to address the small-business community's thorniest financial problem: its lack of access to capital.
Some bankers are candid about the uncertainty in their industry. "It's still too early for us to tell how much the new technology is going to help our smaller business customers," says Barbara Davis Blum, chairwoman, president, and CEO of Adams National Bank, based in Washington, D.C. "People talk a lot about PC-to-PC banking, but so far only a small number of our customers are doing it." She pauses and then adds, "Small businesses are just not that technologically oriented. Our small-business customers are not out there clamoring for state-of-the-art services and products. But there's a really strong feeling here that we have to stay ahead of the curve because that's where the competition is."
Blum is quick to note that the bank's outreach is already under way. Last spring Adams National began a push to develop technology-driven services specifically geared to save small and midsize companies time and money. The bank is experimenting with a program that sends loan officers, laptops in hand, to visit prospective business borrowers. The goal is twofold: to save business owners from having to visit a branch office when they're applying for a new loan or an upgrade, and to speed the bank's decision-making process on loan requests of up to $100,000. Adams National also launched a Web site in July 1996 so that customers can access its credit applications on-line if they need loans and are comparison shopping between banks.
