Back to The Velvet-Roped Lines

By Philip Elmer-DeWitt

When Chemical Bank introduced its home-banking system five years ago, the Manhattan institution touted the new service as a breakthrough in consumer finance. For $12 a month, customers equipped with personal computers and telephone modems could tap into the bank's electronic ledgers and handle many of their banking chores from the comfort of home. Chemical viewed it as both a high-tech lure to draw new customers and a strategic first step toward a checkless, cashless future.

Alas, the system, called Pronto, was too slow in catching on. The bank has advised an estimated 25,000 home-banking subscribers that their accounts will be canceled, as of Jan. 31 for individuals and Feb. 28 for small businesses. The move has jarred the banking industry and raised doubts about the future of all home financial services.

In the brochures, at least, home banking comes across as a great advance. Customers can pay bills with a few keystrokes. They can instantly move money from one account to another, enabling them to keep cash in interest-bearing money-market accounts until the exact moment it is needed elsewhere.

Yet consumers have not rushed to gain this edge in speed or convenience. Of the 3.3 million U.S. homes equipped with computers and modems, only 95,000 subscribe to one of 41 different home-banking systems. Many who tried home banking complained that the software was often bug-ridden, difficult to use and slow. Moreover, inexplicable delays -- sometimes lasting weeks -- cropped up between the time customers ordered bills paid and the arrival of the payments.

Another drawback has been the cost. Home-banking customers pay up to $144 a year for the service, far more than the average household spends on the checks and stamps used to pay bills. But the biggest obstacle is that home computers have no way to produce hard cash, so they fail to eliminate a customer's periodic trek to the bank or automated-teller machine.

While failing to excite customers, home banking has been a costly proposition for the banks. One problem: although many large creditors like utilities have computerized accounts that allow their bills to be settled electronically, most small businesses do not. So when a home-banking user hits a button to pay, say, a doctor's bill, someone at the bank often has to print out a check, stuff it in an envelope and put it in the mail.

Chemical apparently decided to cut its losses after investing tens of millions of dollars. At the moment, other institutions plan to give the technology more time, but if customer interest does not pick up, there are likely to be more dropouts from the home-banking business. "For a technology to affect the way we live, it has to be cheap, simple to use and offer a strong reason to use it," says Timothy Bajarin, an analyst at Creative Strategies Research International in Santa Clara, Calif. "So far, for computer banking, those signposts aren't there."

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Cynthia Davis

CAPTION: BIGGEST HOME BANKERS

With reporting by Linda Williams/New York and Dennis Wyss/San Francisco