RETREAD

For Banking Kiosks, a Second Chance

It's an idea that gasps and wheezes but won't die.

Nearly every bank that's installed Internet kiosks, or anything like them, has seen them flop. But that isn't stopping Bank of America, First Union and others from making fresh attempts to deploy online interfaces in their branch banks.

Four years ago, First Union bet heavily on kiosks. The bank spent more than $250 million modernizing its branches, equipping them with souped-up ATMs and kiosks with phone connections to specialized call centers. The plan was supposed to give customers extra services while letting the bank cut its staff.

Only one problem: Customers hated the devices. They complained that branch personnel used the machines to steer them toward phone conversations with staffers hundreds of miles away. The experiment failed, and two years later the bank had to hire more than 2,000 tellers, many for positions earlier eliminated.

This time, First Union is taking a softer approach, says senior VP Parrish Arturi. The bank will make Internet kiosks available to customers, but it won't push the service - and it will provide employees to guide users around the bank's site.

"It's a different twist. Rather than forcing people, it's about showing people other ways to interact with the bank," says Arturi. First Union is hoping the machines will lure more customers to its online division, which already has 1.7 million accounts. It's the same goal that's leading Bank of America to experiment with in-branch kiosks for the first time.

It's easy to see why banks are so eager to bring customers online. The average cost of a Web transaction is just 20 cents, reports the financial services research firm Tower Group. A visit to a teller, by contrast, costs a bank eight times as much - and a typical meeting with a bank officer to ask about a complicated product like a mortgage costs a whopping $4.20. Even if kiosk users never convert to Net banking, banks are still way ahead: Tower Group puts the average cost of a kiosk transaction at about 40 cents.

While offline banks are using kiosks to point clients to the Net, online banks are embracing kiosks as a way to offer a physical presence to their customers. Directbanking.com, one of the few profitable Net banks, recently opened a Boston branch packed with online workstations. And WingspanBank.com has set up kiosks in Phoenix-area branches of its offline parent, Bank One.

To be useful, though, the kiosk has to offer something the banking customer can't get at home, says Richard Bell, an analyst with Tower Group. "What's the value add? What am I going to get at a bank kiosk that I won't get by surfing the Web or by reaching the call center? That's the problem. They haven't answered that one yet." / Joel Obermayer

PERSONAL PEDIGREE

A Vague Plan for Success

Last August, when venture capitalists were busy sewing shut their wallets and new-economy CEOs were running scared for cash, Richard Vague (above right) closed a $94 million round of funding for Juniper Financial.

How did he do it? Well, it wasn't the business plan. So far, Juniper, which launched in October, promises to be an online bank much like other online banks, none of which have turned out to be gold mines. Sure, there are differences, but not many. Juniper advertises better customer service and more wireless options than its competitors. It offers, for instance, to alert customers by phone when their balances fall below a certain level. It has a distinctive marketing plan, heavy on direct mail, and the late fee charged by its credit card is $10 less than rival fees.

More likely, the reasons for Juniper's funding success are - forgive the pun - entirely Vague. The CEO has enormous stature in the financial services community as the man who, in the 1980s, built First USA into the nation's No. 2 credit card issuer. Never mind that when he resigned from First USA in 1999, the company had just pushed its parent, Bank One, into a $500 million shortfall. And never mind that he was followed out the door by James Stewart (above left), who had joined him in founding Bank One's troubled WingspanBank and is now second in command at Juniper. Vague and Stewart's previous successes at First USA established them as stars.

"They understand this business inside and out, and they're experts on the science of direct marketing," says Tom Smith of Total Technology Ventures, a Juniper investor.

Innovative marketing could prove crucial for Juniper. The company's betting on a direct-mail campaign to woo credit card customers, whom it hopes to convert to banking products. Stewart predicts that a hefty portion of customers will move quickly from plastic to checking accounts with bill-pay features. "Right away you get some cross-sell," he says, pointing out that at Wingspan, 10 to 20 percent of customers who were pitched a second product accepted it.

If the notion of converting credit card holders to online banking customers sounds familiar, it should, says Ken Posner of Morgan Stanley Dean Witter: It's already being pursued successfully by competitors - like MBNA and Capital One - who dwarf Juniper in size and experience.

But the one-two pitch is hard to do. "You have to be very good at suggesting the right product to the right consumer," says Posner. You also, hopes Juniper, have to have the right team calling the shots. / Deborah Asbrand

INTERNATIONAL EXCHANGE

Moola for Midas

Libertarians have long dreamed that the Web would free them from the constraints of government. But such freedom remains out of reach as long as national treasuries control the value of money. Fans of E-gold.com would like to change that.

Offering an online currency backed by gold, E-gold bills itself as "always as good as the gold it's backed with - this year, next year, a thousand years from now." About a third of E-gold's 90,000 account holders come from nations with wildly unstable currencies, says the site's founder, former radiation oncologist Douglas Jackson. Because gold's value is fixed, buyers and sellers in different countries can enjoy greater convenience with it, he says. "It's no harder to spend in Malaysia than in Hoboken."

But no easier, either. To obtain E-gold, customers must go through a gold seller and pay by credit card, check or wire transfer. Once the gold is credited to users' accounts, they can spend it at select merchants by the gram and centigram. But very few online stores accept E-gold. Among the handful listed on E-gold's site are a cigar merchant, a seller of handmade teddy bears and an English-Chinese translation service. In most cases, customers will need to change their money back into dollars, working through an intermediary like OmniPay, which charges $1 for the service.

There's also an annual 1 percent storage fee and a small charge on every E-gold payment. That doesn't faze users like Jeff Fitzmyers, a California Web designer who keeps a couple hundred dollars in an E-gold savings account for his goddaughter. Sure, he loses interest by keeping his cash in E-gold, but the loss is mitigated by the reduced risk of inflation, says Fitzmyers, who notes that he doesn't "like how the Feds have control over the money supply."

But who controls E-gold? Its founder doesn't know. Jackson owned the site but spun it off in 1999 to a company incorporated in the Caribbean. And the company's name? "It's simply not relevant for me to know that," says Jackson. Sounds a bit sketchy for a currency that's supposed to be more reliable than the dollar, but Jackson insists all E-gold is safe, even from the company that owns it, since the actual bullion is in a bank in Toronto and held by a trust in Bermuda. International currency indeed. / Michelle Goldberg

TALK THE TALK

Net Terms Slip into the Mainstream

Bashers: Short sellers and sourpusses who flame companies in chat rooms, driving down the stock price.

ECNs: Electronic Communications Networks. Match, buy and sell orders electronically.

Quote-to-close: Not quite cradle-to-grave, but covering every step of a loan process. As in, "Did you check out the back end on that quote-to-close mortgage ASP?"

EDGAR: Electronic Data Gathering, Analysis and Retrieval System. The SEC site that makes public information about public companies available to the, er, public.

Pump and Dump: When a chat room cheerleader revs up stock prices (the pump) to sell shares at a higher price (the dump). Not exactly legal.

WEB WAGES

A Bias for Brick?

Here's a job to avoid: Director of online financial services. Web honchos at brick-based financial firms earn less green than most of their fellow execs, says staffing agency Kforce.com. A peek up the corporate ladder:

HOT SEAT

Tough Time to Head a Tech Exchange

You think the market handed you a bad year? Try eyeing the ticker from the inside out.

That's the view of Nasdaq President Rick Ketchum and Chairman Frank Zarb. When 2000 began, their exchange was acknowledged as the world's most powerful. And they had a to-do list to match: Spin off Nasdaq into a for-profit, public corporation. Establish a 24-hour global stock exchange. And launch a new tech platform modestly dubbed SuperMontage.

Then, well ... you know. The Nasdaq index dropped by half. Suddenly, the prospect of taking the exchange public seemed about as likely as Bill Gates naming his next kid Jackson. So, like many another techco, Nasdaq had to settle for less - a private placement of just 40 percent of the company.

Conquering the world turned out not to be so easy, either. In May, Nasdaq announced it would create a pan-European exchange, starting with the soon-to-be-merged London and Frankfurt markets. In September the merger fell through, and Nasdaq ended the year with a scaled-back plan to open a division in London. The tech exchange had better luck with its June launch of Nasdaq Japan. Still, trading volume on the Asian exchange has been lower than anticipated. And, so far, Nasdaq Canada, which debuted in November, is just a network of terminals on the desks of some brokerages in Montreal.

Meanwhile, SuperMontage has turned into a super headache. The proposed trading interface was supposed to give investors a more fair and transparent trading environment by displaying more orders and automating trades. And - oh, yeah - it also would give Nasdaq a shot at reclaiming some of the trading volume it's lost to electronic systems like Instinet, the Island and Archipelago. But those companies, which handle more than a third of Nasdaq trades, noticed the challenge and made sure the Securities and Exchange Commission took note, too. Nasdaq submitted its SuperMontage proposal to the SEC eight times, and saw it batted back an unlucky seven. Will no news be good news on version 8.0? Ketchum and Zarb will have to hope.

Eventually, Nasdaq is likely to achieve some version of all its initiatives. Despite the tough year, Ketchum is optimistic - about the exchange as well as underlying market conditions. "It's hard not to be positive," he says. "The best predictor of the market over time is the number of 49-year-olds in the country. There will be many for the next 15 years." /

INFLUENCE

The Secret Legacy of David Chaum

It's hard to get a good look at David Chaum. He's squinting into the sun, and as he speaks he keeps covering his face with his hands, so his gray eyes, salt-and-pepper beard and ponytail reveal themselves only in glimpses.

It seems an appropriate way to view a pioneer cryptographer who some say has done more than anyone else to create technologies that protect privacy on the Web. A former computer science professor, Chaum started thinking about privacy and financial transactions 20 years ago when he became convinced that vendors didn't need to know buyers' birth dates to verify their purchases. He discovered an alternative way to confirm the buys, and set off on a quest to demonstrate that consumers didn't need to sacrifice personal information to ensure the safety of their financial transactions.

Chaum took his passion to the Web about a decade ago, when he invented the world's first digital currency. Based on a technology called "blind signatures," Chaum's electronic cash gave customers a way to transfer funds without revealing their identities. To market the new currency, Chaum founded DigiCash and landed DeutscheBank as a client. But, for Chaum, creating complex technologies was easier than running a new company. DigiCash failed to sign other high-profile clients, and the company ended by filing for Chapter 11.

Though DigiCash has disappeared, Chaum's influence persists. True, the Web has grown into a place where financial transactions can be identified and traced as never before. But in 1999, eCash Technologies bought the rights to Chaum's blind-signature invention, which it employs in a variety of products, including electronic currency that's used by DeutscheBank, in gift certificates to online retailers, and in a pilot system for credit card processing that is used by Metavante. Chaum's dreams of anonymous action also survive in companies like Canada's Zero-Knowledge Systems, which bases parts of its online-privacy software on his innovations.

While others make use of his early inventions, Chaum himself is busy creating fresh technologies, and it's likely that the world of online financial services has not heard the last from him. With 25 patents submitted for approval, he's working on a system that includes a new type of electronic cash. The system will shield buyers from surveillance by banks, retailers and ISPs.

Don't bother pressing him for details, though. As you might expect, mum's the word. / Alicia Neumann

MASS MARKET

Online IPOs Seemed Like a Good Idea ...

In Hong Kong, the Web is getting a tryout at crowd control.

Investors here have a history of hitting the streets in hordes for anything - from cakes to plastic McDonald's figurines to IPO applications - that can be bought low and sold higher. But last February was particularly unruly: 300,000 investors converged upon just 10 designated banks to apply to buy shares in the Chinese portal Tom.com. Crowds pushed and shoved, spilling onto streets that eventually had to be closed. As police scrambled for control, one on-duty officer was caught trying to sneak in his own application. While newscasts broadcast the scene around the world, the city's Financial Secretary Donald Tsang expressed his embarrassment, calling it "unthinkable" for such chaos to occur in Hong Kong.

"Any way to alleviate this would be good," says Ben Dunn, manager of personal e-business at the Hongkong & Shanghai Banking Corp.

So the city tried a new approach to keep Hong Kong's competitive investors in check - and off the streets. When the government took part of its underground railway company public last fall in a massive $1.2 billion IPO, Hong Kong trumpeted its first electronic offering. Banks and brokers splashed full-page ads in major newspapers and advertised online, promising investors a small rebate if they used the Internet to apply for shares in the Mass Transit Railway Corp.

But the e-IPO was beset with problems. The issuer accidentally sent out more than 1,500 duplicate share certificates. One site stopped taking applications a full day before the offering so that typists would have time to create hard copies and pass them on to a broker. And applicants who braved the process didn't escape the usual offline hassles: They still had to submit signatures and receive their share certificates by regular mail.

Indeed, by most measures, the online offering was a failure. Though the city's largest bank, HSBC, attracted twice as many online subscriptions as it claims it had expected, in all, less than 10 percent of the total applications were taken over the Net.

"It will take longer for [online offerings] to reach a broader population and for more investors to adapt," says Kelvin Lee, head of the Hong Kong Exchanges and Clearing.

But who's going to prompt that change? Months after the first online offering, no one's clamoring for a second experiment in the new medium. As of December, none of the companies that had gone public since Mass Transit - nor any of the 33 approved for offering - had requested the e-IPO treatment. There are no mobs storming Hong Kong's Net. / Joanne Lee-Young

TURNABOUT

And Now for Something Completely Different

Mike Grossman and Kevin Talbot could help you secure instant approval on a loan of up to $100,000. But they'd rather not.

Both men head up sites that promise "real time" responses to applications for small-business loans. Both carefully recruited networks of prestigious lenders and crafted partnerships with portals like Bizzed.com to drive traffic to their sites. Now, both are working feverishly to move their companies past the business of brokering loans online.

Grossman, who heads LiveCapital, and Talbot, chief of PrimeStreet, cite similar reasons for their about-face: The tiny commissions their businesses took each time a loan was approved couldn't begin to cover the costs of luring customers to their sites. To make matters worse, many visitors never closed their loans online. Instead, they downloaded offers, then used them to negotiate better terms with their usual lenders. Similar troubles killed direct lender Mortgage.com last fall. Grossman puts the problem succinctly: "The old business model required us to lose money for a long time."

So, like many a Net exec in these tight-belt times, Talbot and Grossman are scrambling to redefine their companies. They've turned in similar directions - licensing their technology to lenders and also to online retailers like Staples.com, who want their business customers to be able to get instant credit to make big buys. For both companies, the main idea is to land a few deals worth hundreds of thousands of dollars each rather than a pile of loans worth a few hundred dollars each.

Talbot and Grossman consider themselves fortunate that their businesses closed major funding rounds before the market's collapse - $40 million for LiveCapital, $38 million for PrimeStreet. But they know they can't turn to the public markets for additional cash. So, PrimeStreet, which grew out of Royal Bank of Canada, has Goldman Sachs hunting down another $40 million. And LiveCapital is throwing ice on its burn rate - dropping nearly all marketing, along with a pricey deal for placement on Yahoo.

Neither company is far along the road to reinvention. Meanwhile, the sites continue to serve their original functions of putting credit applicants in touch with interested lenders. So far, their rhetoric has changed more than their accounts receivable. "We're lucky," says Grossman. "We read about so many dot-coms having troubles right now. But we're not a dot-com anymore. We're an infrastructure company." So goes the new Valley mantra. / Lori Patel

UNORTHODOX INSURANCE

Health, Auto ... and Alien Abduction

VIEW POP UP CHART - SORRY THIS CHART IS NO LONGER AVAILABLEGetting stalked by little green men? Relax. For less than $20, you can insure yourself against alien abduction at SirHuckleberry.com. The Amsterdam-based site also underwrites policies in case of apocalypse, bigamy or Prohibition.

Armageddon aside, most of SirHuckleberry's policies insure against ordinary catastrophes like air turbulence and short-lived marriages. Yet the site - which insists its policies are "perfectly authentic" - has paid out only a few claims. That may be because validating a claim takes some doing. You'll get up to $500 if your cell phone dies for 48 hours straight - if you can prove it with a note from your telco. Collect up to $20,000 for bad lotto tickets, but only if you blow five out of six numbers for 52 weeks straight. And that meeting with martians? Better back it up with testimony from an internist, air traffic controllers and the local police. Of course, since most policies are purchased as gag gifts, the fine print isn't really the point.

Last year, SirHuckleberry sold fewer than 20,000 policies, mostly to Dutch and German customers, says founder Knut Eicke. But the entrepreneur, whose once-red hair and schoolboy high jinks inspired the site's name, has big plans. He's targeting corporate clients who can afford to buy in bulk - car dealers, for instance, who might want to reward their customers with gift policies that would pay out if gas prices hit a particular price. By 2004, Eicke aims to sell 1 million policies, and this year he intends to take the company public. Sounds risky - good thing SirHuckleberry insures against stock market crashes, too. / Jen Muehlbauer

LUCKY BREAK

Windfall for Webcasters

A new law meant to protect small-time investors is bringing big business to firms that specialize in online investor relations.

The Securities and Exchange Commission created the fair-disclosure regulation - which went into effect in October - to ensure that the Joe Ameritrades of the Web get the same access to corporate info as heavyweight analysts and investors. Eager to show their compliance with the new regulation, corporations are rushing to stream their conference calls and earnings announcements over the Web. That's brought a parade of new customers to the companies that host Webcasts, including Investors Broadcast Network, Corporate Communications Broadcast Network and BestCalls.com.

Business is booming at CCBN, which counts Cisco, Intel and General Motors among its clients. The company had 2,500 Webcast clients in the third quarter of 2000 - up from 250 for the same period in the previous year. "[The SEC] has absolutely increased our business," says CCBN VP Lynn Little. "There is a lot of pressure on companies to get as much information out there as possible." One-fourth of clients who signed up between late August 2000 and October 2000 cited the fair-disclosure regulation as their reason for hiring CCBN.

CCBN and its competitors tout Webcasting as an affordable alternative to conference calls. While phone companies charge per listener, Webcasters charge flat fees ranging from $750 to $1,000 for the quarterly online events. That turns out to be a bargain for large companies like Cisco, which, Little says, has attracted as many as 15,000 online listeners.

In the last part of 2000, Webcasting was at its cheapest. Both CCBN and Investors Broadcast Network waived their fees, hoping to pull in new clients and then steer them toward buying extra services, like managing Web sites and hotlines and targeting e-mail and faxes. So far, the plan is working. "[New customers] start out saying they want just the Webcast," says Little. "But in the end, we have moved many onto our gold or diamond package." With the full packages priced between $2,200 and $2,500 a month, online IR companies should collect revenues well worth announcing. / Blair Clarkson

INSULT TO INJURY

Schlock Market

It's hard to imagine that many Net investors survived 2000 flush with cash and hungry for fresh adventures in humiliation. But just in case, financial sites like Nasdaq.com are peddling a flea market's worth of tchotchkes that can only be described as high-risk investments. A sampling of the more dubious items:

1) Bull and bear plush toys, Nasdaq.com, $18.99

2) Jester hat, Fool.com, $35

3) 9-INCH statue "The Trader," IPO.com, $39

REAL ESTATE

On Sale Now: www.Ripoff.com

Web watchers scoffed when incubator eCompanies paid $7.5 million for the Business.com URL. But now decent business names are in short supply, and even the owner of lackluster InternationalBankLoans.com dares to ask $1.35 million. The good news? Plenty of business-oriented names remain available. The bad news - choices like these:

1GoodDeal.com
2GetRich.net
4ANestEgg.com
BuySuccess.com
CreateAbundance.com
DollarsNSense.com
DollarRushTime.com
EarnADime.com
Hello2WallStreet.com
MoneyIsMyFriend.com
PaymentsByEmail.com
SpeculateHere.com

Sources: domainnames-forsale.net, insanedomains.com, urlmerchant.com

FACE-OFF

Can You Spot the Expert?

Sure, the stock market spent most of 2000 in a serious funk, but nothing that the superstar analysts of Wall Street couldn't predict, right? Not quite. Last year the pros got slammed, but the best amateur analysts on financial site iExchange.com turned a handy profit. Here's a look at how some top amateurs fared against their famous counterparts:

VIEW POP UP CHART - SORRY THIS CHART IS NO LONGER AVAILABLE

TAX TIME

Paper or Plastic?

The IRS wants you to give it a little credit. Really. In an attempt to buff up its less-than-user-friendly image, the tax agency now accepts MasterCard, Discover and American Express. So you can charge your debt to the government and rack up frequent-flier miles at the same time.

Here's the hitch: The credit card option is available only to those who file their taxes online. Last year, about 180,000 people paid with plastic, and the IRS hopes the number will grow. Turns out that taking credit payments online is the easiest way for Uncle Sam to collect his due. "We don't have to process a check, and fewer people have to handle paper," says IRS spokesman Bill Steiner. "You get validation and payment confirmation within 24 hours."

Of course, consumers get other perks - like the chance to pay off their tax bill in installments to the credit card company. If you haven't got the dough, credit is the way to go, since companies are unlikely to seize property, garnish wages or dole out jail time - as the IRS does to tax evaders.

So far, the biggest attraction for MasterCard holders is convenience, says company VP Lisa Brzezicki, who happily points out that not all credit card companies can offer the tax-payment service: The IRS doesn't accept Visa. / Blair Clarkson

Credit History
America's love affair with plastic has been 50 years in the making.

1950 Diners Club issues the first credit card: a thick paper token used in 14 Manhattan restaurants.

1958 American Express debuts. Attracts 250,000 cardholders. A year later, the card goes plastic.

1972 American Express introduces the magnetic strip.

1987 U.S. airlines offer credit cards to frequent fliers, allowing them to rack up miles with their purchases.

1990 Exxon and Mobil gas stations let customers "pay at the pump."

1997 NextCard begins issuing credit cards online. Grocery chains begin accepting Visa and MasterCard.

2000 More than three-quarters of the United States' 200 million adults carry credit cards.

Correction: "Paper or Plastic?" incorrectly limited IRS tax payments by credit card to online filers. In fact, the agency also accepts credit card payments over the telephone.