Banks move to the virtual high street

Home computer banking takes another step forward later this month when Bank of Scotland launches a personal computer banking service based on its existing Home and Office Banking Service (HOBS). For the past six months Bank of Scotland has been testing a PC version and it is now ready to go national with the service.

Most of the bank's larger competitors are carrying out research which will lead to a range of PC banking facilities being offered within the next year, but Bank of Scotland is keeping itself ahead of the pack - it has offered computer banking for personal customers for the past 11 years.

Customers who join HOBS, which costs pounds 4 a month, can examine their current, deposit, mortgage and credit card accounts; transfer money between accounts, including placing overnight deposits into high interest accounts; make payments; apply for loans; send electronic mail to their branch or to head office; and obtain financial information, such as current exchange rates.

The facility is operated using a mouse, responding to simple commands. Software is sent free of charge, and customers can dial up the bank direct, avoiding the need to belong to an electronic service provider, such as CompuServe.

A modem is needed, but Bank of Scotland is offering these at a discount price of about pounds 100 to encourage users. Connection is through normal phone lines.

Further developments are in the pipeline. Bank of Scotland is already working on an updated service, which will be quicker and easier to use, to be launched next year. This will be accessed via CompuServe and other service providers, offering additional facilities, including the buying and selling of currencies. Share trading may also be possible as the system develops.

Meanwhile, Nationwide Building Society has been offering a PC banking service since the end of last year, and leading United States banks have been doing the same for two years. Several US banks have formed a partnership with Barclays Bank, Visa and Mastercard in a pilot trial which will result in the first mass market PC banking service being introduced in October. Barclays' initial trial was launched last month, involving 2,500 customers using Barclays' own software for Windows-compatible PCs.

Lloyds, TSB and Citibank customers can participate in another pilot electronic banking scheme. This works only on portable Psion Organisers, enabling customers to pay bills, examine accounts and transfer money between them.

The expectation is that this service will appeal to busy people on the move who want to sort out their finances in a spare five minutes in a hotel room. Suitable Psion machines cost about pounds 250.

Some banks are reluctant to move too quickly towards PC banking, however, because they believe it will be overshadowed by TV banking. NatWest claims to be the world leader in developing television banking technology through two pilot schemes currently under way.

One, based in Colchester and Ipswich, uses normal BT phone lines, allied to special phone junction boxes and TV set-top boxes, enabling customers to pay bills, examine accounts, transfer money and do home shopping. A parallel trial is taking place through Cambridge Cable, which will determine whether BT or cable links are the most suitable.

The Co-operative Bank is starting its own TV banking service in partnership with Sky TV from May, with information relayed via the satellite link. This service will allow customers to examine their accounts, but will not permit them to make payments or transfers. It is intended to act as a support to the telephone banking service, but can only be used by customers who also have contracts with Sky TV and have a teletext facility.

Most of the bigger banks already have computer banking systems on offer to businesses, so the purpose of the current trials is less to do with the development of technology than tailoring services to the requirements of personal customers. The assumption some banks are making is that TVs will be more user-friendly, especially as few people currently own modems to allow their PCs to communicate with a bank. Barclays is even considering establishing its own digital TV channel to promote home shopping as well as home banking.

There is no doubt that home computer banking will be firmly established over the next few years. Recent research has shown that 150,000 people in Britain have now shopped by using the Internet. In the US almost half of high-earning households now have PCs with modems.

"It is a different type of person who uses a PC," says Ian Andrews, senior manager in retail at NatWest. "Market research suggests that PC and on-line service users are members of high socio-economic groups, professionals and students. It is a very attractive market to us. Part of our reason for our trials is to see which of our customers would benefit from which of our services."

A key reason why home computer banking and shopping are on the verge of an explosion is that previous concerns about security have now largely been overcome, thanks to encryption technology developed by the military now being available to commerce. Equally significant is that by the beginning of the next century the distinction between PCs and TVs will probably be blurred, as they are brought together as single multimedia terminals.

When that happens the home banking market will become very exciting, and may lead to the elimination of the high street bank altogether. Multimedia terminals have the potential to do away with cash as well. All we would then need would be "cash cards," used for even the smallest expenditure, carrying a "cash" balance that could be topped up from our multimedia terminal. It is a future that may not be that far away.