CASHLESS, NOT BANKLESS

By Adam Zagorin

After watching everyone from Microsoft to Meca Software gobble up online-banking customers, banks have become eager to prove that they're not headed for extinction. Last week IBM and a group of 15 U.S. and Canadian banking behemoths, including Bank of America, Banc One and Mellon Bank, unveiled a venture that aims to provide a full range of financial services to the banks' 60 million customers at the touch of a telephone button or the click of a mouse. Called Integrion, the partnership will phase in such activities as bill paying, electronic lending and stock and bond trading beginning next year. "If we are dinosaurs," says Robert Gillespie, the chief executive of Cleveland-based KeyCorp, "then we're putting competitors on notice that a new breed has evolved with a voracious appetite for expanded market share."

Perhaps so, but the new predators have some catching up to do. Fewer than 300 U.S. banks have set up Internet sites. Most analysts give the holdouts four years to either get wired or get left far behind. Consumers can already pay bills and check balances through computer networks like America Online and CompuServe. Microsoft, too, has been signing up banks to provide electronic financial services. Integrion plans to battle the software giant by linking consumers to accounts through the Internet, and with financial software like Intuit's Quicken. The partners will also set up interactive kiosks that act like bank branches for home banking away from home. "With this new venture," says IBM chairman Louis Gerstner, "electronic commerce will take its biggest step forward to date."

The ambitious project will join a host of so-called E-money experiments that are popping up around the globe. The goal is to replace cash and checks with electronic transactions that cost just pennies to process. Citibank, a leader in this push for a cashless society, is developing what it calls an Electronic Monetary System that will permit consumers and companies to make payments electronically anywhere in the world. Visa, fresh off a test of 300,000 smart cards--plastic embedded with a cache of electronic cash--at the Atlanta Olympics, will soon launch similar projects in 14 other countries, including Canada, Australia and in Hong Kong.

E-money devotees like Valerie Baptiste, a San Francisco secretary, think cash is passe. Baptiste pays for her morning bagel and decaf with a smart card designed by Britain's Mondex and being tested in the U.S. with partners that include Wells Fargo and AT&T. As other customers fumble with change, Baptiste hands her card to a cashier who takes less than five seconds to punch it into a machine that deducts $2.15 from the stored-up funds. "This is the beginning of the end of cash," Baptiste says. Unless banks charge swiftly into the E-money era, it could be the end of many of them too.

--By Adam Zagorin