INTERACTIVE MEDIA & MARKETING;BANKS HOPING TO CASH IN ON VIRTUAL SERVICE:FIRST CHICAGO TO SECURITY FIRST PUT THEIR TRUST IN TRANSACTIONS ON THE INTERNET

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Banking on the Internet has arrived, and the swiftest-moving financial services companies are cashing in.

With zero advertising, the nation's first "virtual bank," Security First Network Bank, has lured more than 2,000 customers since opening last fall (http://www.sfnb.com).

Offering customers everything from checking services to loans without requiring them to set foot in a branch, the virtual bank is doing business with dramatically low operating costs and ideal convenience for PC-happy users.

Security's success has spawned a half-dozen other imitators. And hundreds of traditional brick-and-mortar banks, from Chase Manhattan to Bank of America, are racing to add transaction functions to their Web sites.

The temptation to offer banking without walls is so great that banks are pouring millions of dollars into testing and exploring it. But realistically, banks don't expect to replace branches with Web sites anytime soon, if ever. The overwhelming majority of customers still haven't caught onto the more convenient, less costly bank-by-phone options that have been around for a decade.

RACING TO BE FIRST

Regardless, banks' desire to slash costs and remain competitive is so high that about a dozen major companies including First National Bank of Chicago and Fleet Bank are now competing to be the first brick-and-mortar banks to offer real-time transactions on Web sites.

"Security aspects of doing business over the Internet are rapidly being resolved, opening up a wide range of opportunities for banks to get out there and do business far more effectively in non-traditional ways," said Ken Horner, a managing partner at Deloitte & Touche, New York, specializing in electronic commerce.

Web site banking is already giving birth to a new Internet industry: turnkey systems for banks that want to add Web transactions to their array of services.

Five Paces, Atlanta, is one such developer that created and markets the Web site transaction interface used by Security. A spokesman at Five Paces says at least three other banks will add virtual banking capabilities this year.

Home Financial Network, Westport, Conn., is another startup offering turnkey Web site banking systems, and promises at least six bank clients will add transaction-based Web sites this year.

Home Financial has even devised the first Web site-based "Home ATM," which will allow consumers to download cash to their PCs and to computer chip-loaded "smart cards."

"Every PC will eventually come with a smart card reader, and consumers will be able to interact with their PCs to do all their bill-paying, account reconciliation and financial planning, plus getting everyday cash," said Thomas Dittrich, Home Financial's VP-marketing.

LONG WAY TO GO FOR MOST

Traditional banks still have a long way to go before migrating customers to such technologies. About 400 banks currently have Web sites, say banking experts, with dozens more adding sites each month. Most offer nothing more than information about banking services and products.

Fleet Bank, Boston, last month unveiled a new Web site (http://www.fleet.com) designed to evolve gradually into a transaction tool.

For now, it allows customers to send financial and account data to Fleet via a secure personal access code. Fleet in turn sends information back to the customer via the Web site about products and services specifically of interest to that customer. Fleet advertises its Web site via its own collateral materials.

FIRST CHICAGO ONLINE

First National Bank of Chicago next week unveils a state-of-the art Web site (http://www.fcnb.com) that will add transaction capabilities throughout the year. Late this fall, First Chicago expects to have real-time account access for its more than 3 million customers in Illinois, Michigan and Indiana.

About 50 banks already offer various forms of dial-up PC online banking, which require specially designed software that must be periodically updated.

Web banking could give that system a run for its money, experts say. Consumers need install no software; PIN numbers and access codes are all that's required for security. Banks also prefer up-to-the-minute control over Web site customer interfaces, rather than supporting the software needed to run online banking programs.

Some consumers will never accept any substitute for walking into a bank branch, but banks are ready for those who will.

"The next generation may never set foot inside a bank," said Mr. Horner.

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