Paying bills will never be the same as banking takes off in cyberspace

Hamish McRae

The mobile phone is the credit card of the future - the technology already exists

The mobile phone is the credit card of the future - the technology already exists

IT HAS been the week of Internet banking, with the Halifax, Co-op and now the Woolwich all setting up e-banking ventures. Add in HSBC's recently launched interactive-television system and of course the various phone-banking operations and it is clear that all major banks will in future offer a range of delivery systems.

But then so will all businesses everywhere. The first-mover advantage, in as far as there was one, is gone. Yes, there may be some advantage to be gained by applying the new technologies with skill. Yes, of course the pioneers - about whom so much is being written right now - will prosper, or at least many of them will. But the Internet is an open technology, so it will be hard for any one company to use it much better than the others. And it will have its seismic impact on the business community as a result of it entering the mainstream businesses of the giant corporations, not because it is creating a clutch of Internet paper millionaires.

The Internet banking boom, however, is important as it is a very good example of one way in which the Net is changing an old business - a new way of delivering a long-established product. The basic things that banks deliver, current and deposit accounts on the one hand, and overdrafts and loans on the other, have hardly changed in two centuries. The method of production of the services changed progressively from the 1950s onward, for instead of paper ledgers and manual transactions, the work was done by computers, but the delivery mechanism until recently was unchanged. So what is happening now will do for delivery of banking services what computers did for their production.

Not just banking: the ability to deliver services over the Net will mean that any service currently handled by a call-centre will have to offer an Internet option. Call-centres are the fastest-growing form of employment in the UK, a measure of the way in which centralised phone-based service is replacing other forms of delivery. That is happening because a call-centre uses human time more efficiently than the previous scattered telephone operations. It is easier to pack in the sophisticated computer information systems that support call-centres; and the people using the kit are more productive because their own time is being used more efficiently.

Expect even faster growth of Net-based service, though the employment implications are more fuzzy: while there will be a lot more jobs needed to set up these systems, ultimately the overall impact on employment is going to be negative. One main justification for going the Internet route is to substitute computers for human beings.

If any service that uses a call-centre also will use a Net delivery/inquiry service, the choice between the two will become a simple equation between cost of delivery and consumer choice. Some people will always prefer to talk to a human being than peck at a computer. Others will prefer to peck. Since it is cheaper (from the point of view of the bank) to peck than talk there will be great pressure on banks to separate the Internet-based operations from the phone-delivered ones, just as Midland did when it launched First Direct as a stand-alone bank, rather than as an offshoot of Midland.

The experience of telephone banking gives a further hint of the limits of Internet banking. You might have expected telephone banking to take over entirely, but it hasn't. Conventional branch banking has continued and the overall penetration of telephone banking has more or less levelled off. Much the same will happen with Internet banking. There will be a surge as early-adopters grab the product, then it will become mature, just like all other businesses - except for one thing.

That thing is the ever-closer relationship that is developed between the Internet and mobile telephony.

At the moment we think of the Internet as a computer-delivered service: virtually all access to the Net is via a PC or a Mac. That is going to change, as Web-based services are packaged so that they can be delivered over a mobile phone. Banking is an obvious example of just such a service, because you don't need to have a complex screen to pay a bill or to transfer money from one account to another. Expect banks to race to develop draw-down menus, designed to enable people to do so - banks in Scandinavia are currently well ahead on this score.

The next stage - as this is perhaps the most interesting development of all - will be for the phone to become a payment mechanism itself.

This is already happening in Finland. I know of two such examples: one is on a golf range, the other with a couple of soft-drinks machines.

If you go to the golf range and need to get some balls, you go up to a vending machine which will, at the tap of a few digits, disgorge some balls for you to drive. It is, I am told, very useful if you go early in the morning and there are no staff on duty. The other example is the soft-drinks machines where you get a can of Coke or whatever by tapping in the appropriate numbers. The cost of the golf balls or the Coke appears on your monthly phone bill - but of course there is no reason why it could not be directly debited to your account.

This raises a further issue. Maybe, just maybe, the mobile phone becomes the credit card (or rather the debit card) of the future. The technology exists now. All that has to happen is for it to be hooked up.

The credit card is so convenient that it is almost unimaginable that it could be superseded by the phone, but the latter has some security advantages. If there is any doubt, the user can always talk to the bank and clear the transaction orally - a mobile phone thief is not likely to know the maiden name of your mother.

The big point here is that we should not think of Internet banking in a separate box. It will become integrated with the other delivery mechanisms for financial services. The charges will differ depending on the different costs of access, just as interest rates differ on different types of account. But the choice will be the customers', not the banks'.

What we do not know is what customers really want. We can find out what they say they want by asking them, but we don't know what services will triumph in the marketplace.

The great thing about this week's series of initiatives is that the mass-market will be offered the new delivery system of banking services by mainstream banking groups. We have a choice. No one is forcing us to buy.

This is one more step along a path that will almost certainly deliver a better banking service, but only if this is what customers really want.