Can Small Banks Offer E-Commerce Portals?

• Author: Weinstein, Lynn

Problem

Our community bank is considering offering an online shopping connection to our website. Is offering an e-commerce portal realistic for a community bank, and, if so, what should we consider in developing our strategic plan?

Solution

Community banks are in a strong position to offer Web-based shopping or e-commerce to their customers, especially if banks partner with local merchants and are aware of area demographics and shopping trends. Despite the ongoing problems with many dot-com retailers, thousands of financial institutions have added retail business-to-consumer and business-to-business "electronic marketplaces" to their websites, including many community banks and credit unions.

With management firms such as Jupiter forecasting 48 million online shoppers at the end of 2000 ("A Rosier Look for Online Holiday Sales," New York Times, Sept. 18, 2000), this is a market that banks do not want to overlook, particularly since banks can provide the means to finance online shopping through credit cards or bill payment.

In this article, we will examine what financial institutions of all sizes are doing in the consumer e-commerce shopping arena, and we'll mention some of the information-technology vendors that are bringing these Internet portals to the forefront.

A number of vendors providing Internet shopping capabilities are targeting the community bank market. Examples axe Q UP of Austin, Texas; Online Resources and Communications Corp. of McLean, Va.; Digital Insight of Calabasas, Calif.; and Open Solutions Inc. of Glastonbury, Conn., according to "E-Marketplaces Draw Community Banks" in the August 2000 issue of Bank Technology News. As reported in Bank Marketing's March 2000 issue, an alliance between two Atlanta firms, Nexchange Corp. and nFront Inc., will provide community banks with access to Nexchange's shopping network without leaving the host bank's website.

Costs and revenues

Host banks generate revenue streams from e-commerce in a number of ways. Merchants are often charged a hosting fee or enter into an agreement to share revenues with the vendor. In some instances, community banks are providing merchants with their only Web access point. Banner advertisements and special placement advertising generate additional revenue.

Some vendors provide add-on financial services, such as loans, insurance and online brokerage. Some small banks include local news and information of community interest in addition to shopping in an overall...