High-tech roller

Mississippi bank stakes its future on a wide range of Internet services

Here's a logical idea for boosting Internet banking at your bank: Get your customers hooked on the Internet before offering them online banking services.

That horse-before-the-carriage strategy is being pursued by Britton and Koontz First National Bank in Natchez, Miss., a bank with $172 million in assets that has provided Internet banking for about three years. Perhaps more important, the bank also offers Internet access to all of Natchez's 20,000 residents, regardless of whether their bank customers have any interest in online banking.

This one-two punch approach has put Britton and Koontz First National in the catbird seat for online banking, says Walter Reed, the bank's senior vice president and chief operations officer. Once people are hooked on the Internet, cross selling the bank's other online services is much easier. So is solidifying customer relationships and boosting fee income.

"We know that once someone has signed up for Internet access, or banks with us in a package that includes Internet services, it's hard for them to leave," Reed says. "They're not just going to pull up roots and disconnect just because somebody is offering a cheaper checking account elsewhere."

For Britton and Koontz First National, the past several years have focused on committing itself fully to Internet technology and its banking offshoots. Rather than invest heavily in brick-and-mortar facilities, the bank-which operates a headquarters office, two ATMs and two branches-has invested in online service delivery channels. But the bank's technology investment hasn't come cheap: Its overall capital budget for computer systems for the last two years has totaled $1.2 million.

"This isn't a casual commitment, something that we're just saying or doing because the competition is doing it," Reed says. "We want to provide the bank's resources to our customers 24 hours a day so that they can do everything at home that they could if they were within our walls."

LOOKING TO THE LONG TERM

Bazile R. Lanneau Jr., Britton and Koontz First National's executive vice president and chief financial officer, says he is pleased with the results of the bank's online strategy so far. The bank has 8,000 customers with about 800 subscribing to its Internet service. Of those 800 online customers, about 40 percent bank over the Internet and the remaining 60 percent have some other kind of banking relationship.

"I'd like to see 100 percent [of his bank's online access customers] bank with us, but I'll take 95 percent," Lanneau offers. "The market potential is great."

People who only subscribe to the bank's Internet access services pay $9.95 for five hours of Internet access per month, and $1.95 per hour after that. Those people using the Internet services can also sign up for a variety of banking programs. "Most of our customers sign up with us because they want banking services," Lanneau says.

In fact, the bank's most popular program is the "UltimatePlus Checking Account," which costs $19.95 and includes 30 hours of Internet access per month. Each additional hour of Internet access costs $3.

UltimatePlus customers also receive unlimited check writing, enjoy overdraft protection and have no minimum account balances to maintain. They can also purchase traveler's checks and money orders at no cost.

"What amazes me is that we compete successfully with other Internet providers," says Lanneau. "I'm sure there are quite a few customers who have said, `If Britton and Koontz can provide Internet service, I'm sure they can do our banking well."'

To residents outside Natchez, the community may not seem a likely place to support a growing Internet banking business. In the southwest corner of Mississippi, the town's primary industry is tourism. However, competition for online customers in Natchez is not as high as in other communities, Reed admits. "We've got two out-of-state banks, a larger statewide bank and another locally owned bank, and I don't think any of them are providing home banking services."

SPARKING AN IDEA

What got Britton and Koontz First National interested in providing Internet access and electronic banking services? Reed says it was a chance meeting at a 1994 banking conference between Lanneau and Richard Reppert, president of Summit Research Inc., a software development firm in Dallas.

"At the time I was very interested in check imaging systems, and Richard wanted to develop one using client-server database technology and TCP/IP, an Internet networking protocol," says Lanneau. "A critical question for us was: `Why make the significant investment in check imaging merely to provide customers with monthly copies of checks?' So we started asking ourselves what additional value we were already giving customers through other services and whether those services could provide us with a strategic advantage. "We concluded that imaging itself was not enough to give us a competitive advantage, but the ability to obtain account information would, including images of checks that had cleared the night before." Lanneau wanted the bank to find a way to attract new customers while leveraging its investment in check imaging technology. Back then, he says, he was unable to find an existing home banking system that would satisfy his goals. "Unfortunately, at the time, all home banking solutions were proprietary and most were DOS-based, making the delivery of check imaging difficult. An Internet-based solution was attractive, but there wasn't Internet access in our community. So we became an Internet service provider and started building the communications infrastructure necessary to attract an electronic customer base."

The Internet access service quickly became a success for the bank, Lanneau says. Demand for its online banking system, which was integrated with the imaging system, soon grew as well.

Bank customers can order checks, transfer funds, apply for loans and open accounts on the Internet. They have access to two years of their account history and one year of check history. And soon they'll be able to pay their bills online. Now the bank is marketing its online banking system to other financial systems.

"We think we've developed a system that is one of the more advanced and more popular," Lanneau says. "We have services that others don't."

Yet even with all its investment, efforts with and faith in Internet technology, Britton and Koontz First National's managers admit they aren't sure which electronic enhancements, products and services to pursue next. Being on the leading edge of technology, the bank's next steps remain a bit of an open question.

"We can't see what's in the crystal ball," says Reed. "All we're promising is to keep our eyes and ears open and to keep pushing ahead."

[Author Affiliation]

Lawrence Richter Quinn is a freelance writer in Chicago.