Bill Gates Is Rattling The Teller's Window

William H. Gates III, multibillionaire chairman of Microsoft Corp., wants to manage your money. He also wants to process your checks and pay your bills, perhaps even arrange a loan.

To get there, Gates on Oct. 13 announced plans to pay a staggering $1.5 billion--a 40% premium--for Intuit Inc., the maker of the best-selling Quicken personal-finance software. If the deal passes regulatory muster, Microsoft would instantly land the top spot in that tiny but fast-growing market. More important, Gates sees Intuit, coupled with an on-line service Microsoft is creating nicknamed Marvel, as a springboard for building a vast electronic marketplace for home-based financial transactions. Banking is just one piece. Eventually, Microsoft hopes to offer everything from mutual funds to brokerage services over its network.

The prospect has many banks spooked. For years, they have dabbled, mostly unsuccessfully, with remote banking. Now, Microsoft and Intuit have sent a jarring message: Get wired or get left behind. "If banks don't heed this wake-up call, they won't need another one," says William Randle, senior vice- president of Huntington Bancshares.

"DINOSAURS." Microsoft and Intuit insist they want to work with banks--not shut them out. "We have no interest in being a bank," says Scott Cook, chairman of Intuit who, upon completion of the deal, will become Microsoft's electronic-commerce czar. But many bankers view Intuit's purchase last July of National Payment Clearinghouse Inc., an electronic bill-processor, as an encroachment on their territory. And Gates has made no secret of his view that banks are "dinosaurs."

What's at stake? Lots. In the brave new world of electronic commerce, the companies that own the transaction infrastructure will be able to charge a fee, much as banks do today with automated teller machines. That could be lucrative. Transaction-processing services today account for as much as 25% of noninterest income for banks, figures Richard K. Crone, an electronic-banking expert at KPMG Peat Marwick.

It's no wonder banks are on the defensive. Ten years ago, they processed 90% of all bank-card transactions, such as Visa and MasterCard, says Crone. Today, 70% of those transactions are processed by nonbanks such as First Data Resources Inc. If Microsoft and other interlopers become electronic toll-takers, banks could become mere homes for deposits--"money mortuaries" in the words of Huntington's Randle.

Even more worrisome, banks could lose the all-important direct link to customers that lets them hawk profitable services. Straightforwardness is the key: "It's so simple to use," says San Francisco entrepreneur Alice Rose. Now, when customers such as Rose turn on their PCs to do their banking, the first names that jump out at them are likely to be Microsoft and Quicken. "We would like to be the customers' primary provider of financial services--but Microsoft would like that, too," says Bruce A. Luecke, a vice-president in alternative-delivery systems at Banc One Corp. Adds William P. Anderson, president and chief executive officer of Block Financial Corp., a unit of H&R Block Inc.: "Gates believes, in the end, they will be his customers."

HEAD START. Anderson figures this could work to his advantage. Block, which also owns the CompuServe on-line service, is pursuing a "bank-friendly" strategy that lets banks customize and resell its Managing Your Money software program. That approach has won Block such powerful allies as Visa U.S.A. Inc.--and, potentially, its 600-member banks--as well as Interactive Transaction Partners, an Electronic Data Systems, France Telecom, and U S West venture. Still, Quicken has six million customers--six times as many as its nearest rival.

Some financial institutions figure that mighty Microsoft would be a good partner. And for now, Microsoft needs access to the banks' vast customer base. That means it will have to share profits, says Joseph S. Pendleton III, senior vice-president for electronic banking at Meridian Bancorp Inc. Meanwhile, some banks are forging ahead with software of their own. Says Pendleton: "Not all dinosaurs roll over and die. Some of 'em can run real fast and bite the hell out of you."


BLOCK FINANCIAL This H&R Block unit owns Managing Your Money personal-finance software and CompuServe. Provides electronic-banking services for Visa member banks.

COMPUTER ASSOCIATES Sells CA-Simply Money software.

In discussions to market the personal-finance package through banking partners to on-line retail customers.

MICROSOFT Initial banking partners include First National Bank of Chicago, Michigan National Bank, and U.S. Bank of Oregon. With Intuit, it gets Quicken software and NPCI, an

electronic bill-payer.

PRODIGY Teaming up with Meridian Bank and others to offer

PC-based home banking via its electronic-information service.

Software companies are allying with banks to sell home banking

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