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Copyright 1997 by The Tides Center/NetAction. All rights reserved. Material may be reposted or reproduced for non-commercial use provided NetAction is cited as the source. NetAction is a project of The Tides Center, a 501(c)(3) non-profit organization.NetAction
About the author: Nathan Newman has been writing for years on the economics of computer and Internet technology. His writing on Internet commerce has appeared in MIT's Technology Review and State Tax Notes, and his research reports have been covered in Reuters and a range of other news sources. He has been a featured speaker at the Association of Bay Area Governments and the annual conference of the California State Association of Counties and has been interviewed on C-SPAN and The Web. As co-director of UC-Berkeley's Center for Community Economic Research from 1991-1996, he helped pioneer use of the Internet in support of education and outreach, receiving notice for his work in the New York Times, Business Week, the Washington Post, CNN, USA Today, the Nation and C-SPAN. He is finishing doctoral work at UC-Berkeley where his research has focused on the emerging role of information technology in shaping the economic geography of regions.
What is at stake in the Department of Justice's antitrust intervention against Microsoft? Are there dangers to innovation and rapidly expanding electronic commerce from government meddling in the "free market," as many critics of the DoJ charge?
To begin with the first question, it should be clear that, despite all the discussion about Internet "browsers," the main issue is not market share for a piece of software that is generally given away for free. If all Justice were doing was protecting us from Bill Gates' generosity in giving away Internet Explorer, they need not have bothered.
But the heart of the issue is a much broader fight over corporate power and control of the Internet--the pathway that will direct and guide economic commerce and financial transactions as we move into the next century. The very fact that Microsoft is willing to spend hundreds of millions of dollars developing its Internet Explorer, and then give it away for free, tells you that the browser is only a shadow of the real fight involved.
Browsers are more than a piece of software--they are, at this time, the preferred gateway for information and economic exchange on the Internet. Browsers are the primary means for any computer user to "read" information from Internet computer servers, whether youØre looking at a graphic gee-gaw or accessing your savings account to pay for goods purchased over the Net. No matter how innovative your software or impressive your product being sold over the Internet, if a customer's browser can't access it from their home or office, it might as well not be sold over the Internet. And if you are working in the crucial area of making direct financial transactions over the Internet--essentially a transfer of information backed by legal recognition of the transfer--the Internet standards involved in such virtual transactions are a key part of that fight. If a company controls those standards, it controls the economic lifeblood of Internet commerce.
Which brings us to Microsoft and the DoJ intervention. Much of the focus on this investigation has been as a fight within the "software industry," while downplaying the fact that most systems of management in all industries are increasingly forms of software, whether they are controlling industrial machines, running the Internet, or organizing financial transactions over electronic networks. If a company like Microsoft can control those software standards, it can essentially take over many of the management functions associated with such industries.
In the case of banking and finance, an industry already heavily electronically networked, the threat of monopoly and distorted competition is much more dire than in almost any other field. As examples ranging from the U.S. Savings and Loan debacle to the present crisis in East Asia show, any unregulated and rapid changes in the financial field not only threaten to undermine financial systems but usually end up being a burden on the taxpayer when things go awry. As well, current financial institutions have specific community and fiduciary responsibilities that work to assure some degree of equal access and consumer protection, so any changes in that industry must assure that those responsibilities are addressed. For these reasons, governments must and have gone beyond traditional narrow antitrust rules and given special attention to monopolistic and anticompetitive practices in the banking and finance industry.
With all the discussion of the merits of the present investigation of Microsoft over its "browser" distribution practices, there has been surprisingly little evaluation of the successes of the Justice Department's previous actions against Microsoft, particularly its 1994-95 intervention against Microsoft's acquisition of Intuit software, the leading seller of personal finance software then and now. That Microsoft is not already controlling electronic commerce is in real measure due to that original intervention. Reviewing the arguments over that case both highlights the present dangers to open competition in the electronic finance field and emphasizes the broader issue of how government intervention has been a force for assuring competition and open standards in the emerging online economy.
This white paper will review the Justice Department's intervention in the Intuit deal and the arguments made both for and against that intervention. It will examine the aftermath of the blocking of the Intuit acquisition and the positive expansion of open standards and vibrant competition in electronic banking. Finally, it will outline current dangers posed by Microsoft's anticompetitive practices and the kinds of intervention at the present time that will assure open competition and a secure financial system for all citizens. For, while the Justice Department's intervention against the Microsoft-Intuit merger blocked that route to Microsoft monopolization of online banking, there are still serious dangers from Microsoft's anticompetitive strategies.
When Bill Gates decided in 1994 that Microsoft should seek to become a central player in a transformed global financial system, he described the opportunity at a Microsoft strategy session as a "pot of gold." In the middle of the session, he exclaimed, "Get me into that and God damn, we'll make so much money." From that attitude, Microsoft set out to dominate the emerging electronic banking field by every means possible.
Microsoft's own personal finance software, Microsoft Money, was a dismal second in an area dominated by Intuit's Quicken software which had over a 70 percent share of the finance software market. Intuit dominated the market not just because of its ease-of-use or early entry into the software category--a critical advantage in the software industry in any case--but also because of key alliances in the financial system.
Increasingly, Intuit was tying its dominant Quicken interface standard into the financial standards of the banking world. With an installed base of almost seven million software customers, Intuit had launched new ventures such as the Intellicharge Visa credit card, and had almost 300,000 bank customers paying bills electronically in 1995 with Quicken. In 1994, Intuit had acquired the National Payment Clearinghouse Inc., an electronic bill payments system integrator whose staff had helped create the Cirrus national automated teller machine network. Intuit also sold TurboTax, a top-rated tax preparation program. If Microsoft had proven that dominance of the operating system would give it an overwhelming advantage in selling strictly computer-based software, Intuit was demonstrating that its early entry and dominance of the nexus between the banking world and computers gave it a persistent advantage in the arena of personal finance software.
In 1992 as an also-ran in the database market, Microsoft had spent $175 million to acquire Fox Software--at the time the largest software merger in history. In 1994, Microsoft made a $1.5 billion offer to acquire Intuit (an amount that would rise to $2 billion) and buy its way into dominance of the personal finance software market and, in combination with Microsoft's own strengths, control of electronic banking. To placate critics, it offered to sell its finance software, Money, to Novell Corporation.
Soon after the deal was announced, the Department of Justice came out in opposition to the merger, citing the anticompetitive effects on the personal finance software market. The Justice Department would argue that, "If consummated, the proposed transaction...would likely add to the dominance of the number one product (Quicken), would weaken greatly the number two product (Money), and would substantially increase concentration and reduce competition in the personal finance/chequebook software market."
Worse, since entry into the personal finance industry was "difficult, expensive and slow," the DoJ argued that "potential new competitors, if any, would find it even more daunting to compete against Quicken, the number one product in the market, if it were in Microsoft's hands." It pointed out that Microsoft had, with its considerable advantages, been trying to break in for four years and had yet to turn a profit on its finance software investments. Moreover, the DOJ noted that H&R Block had decided to exit the market because of the planned merger and had sold its finance software subsidiary, Meca Software, to Bank of America and NationsBank in May 1995.
Many critics at the time saw the sale of Microsoft's Money software to Novell as a distracting ploy that would be a figleaf on an anticompetitive dominance by Microsoft. The fact that Novell's Chief Executive Robert Frankenberg said publicly at the time that it preferred to license Quicken than own Money just highlighted how much more preferable Quicken was over Money, with QuickenØs vast installed base and ties to the banking community. As it has done many times since (most recently in its investment in Apple Computer), Microsoft was seeking to prop up artificial competition to justify its own monopoly position in a market.
Adding to critics' condemnation of the proposed merger were Microsoft's plans to introduce its new Microsoft Network, itself to be tied into its new Windows 95 operating system. If the dominant financial software was integrated into both the operating system and the new online service, many worried this would put the final nail in the coffin in competition for financial software and, conversely, strengthen Microsoft's monopoly on the desktop. "If they are to put the Microsoft Network in Quicken into Windows 95," said MECA CEO Paul Harrison at the time, "we feel that would give them a tremendously unfair advantage in providing the consumer with a gateway to a host of financial and nonfinancial products and services."
In this sense, the Justice DepartmentØs interest in the merger was much less about the specific market for the then-$29 Quicken software than in the much larger electronic marketplace to which it would connect users. In this fight was the early echo of the present investigation of Microsoft over the role of Internet browsers as a tool for dominating Internet commerce. And again, the worry was that Microsoft's practice of "integrating" whole categories of software into its operating system had stifled competition repeatedly in the personal computer industry. Back then, as now, many critics of the Department of Justice focused too much on the single piece of software at issue while ignoring the much broader underlying issue of how interfaces, from operating systems to financial software to Internet tools, are a critical element of market domination in the new information economy.
Just as there are defenders of Microsoft today, there were critics of the Department of Justice in seeking to block the Intuit merger. Some of the Microsoft defenders are the same; one example was House Speaker Newt Gingrich, who assailed the DoJ probe then, arguing, "I think we now go out and kill American jobs, creating problems, because the Standard Oil model of monopoly is almost impossible to create."
And many of the arguments were the same: most pervasively that government interference would cripple Microsoft's ability to innovate and sabotage its role in promoting standards that advance the whole industry. Many argued that only a Microsoft/Intuit merger could create the critical mass of market power to advance home banking. One of the most prominent defenders of the Intuit merger was Richard K. Crone, senior manager of the Center for Electronic Banking at KPMG Peat Marwick: "We really need a company with the size and resources of a Microsoft in order to make the electronic connection." Krone and others argued that without Microsoft, few people at home would get comfortable with online commerce, so Microsoft's monopoly role was indispensable to the advancement of all online commerce.
On May 20, 1995, Microsoft announced that it was abandoning its planned acquisition of Intuit in order to avoid what it saw as a protracted and expensive fight with the Department of Justice.
So what were the results of the Justice Department's actions against the Microsoft-Intuit merger?
Most obviously, and against the predictions of those who saw Microsoft's monopoly role as indispensable, online commerce has exploded in the years since the decision. By 1997, consumers were spending an estimated $2-4 billion online. As significantly, analysts such as Forrester Research estimate that one out of four of the 40 million Internet users had bought something online. With analysts projecting up to $10 billion in online consumer commerce by the year 2000 and up to $160 billion in business-to-business online transactions projected by that time, it is clear that those who defended a Microsoft monopoly as the only route to online commerce were dead wrong--an important warning to those wringing their hands that any limitation on Microsoft will impede computer progress.
In the personal finance software market, competition has remained healthy and, if anything, more innovative. Intuit retail sales have tripled since 1994 and continue to dominate retail sales of personal finance software with over 10 million people using its Quicken software and with Intuit's business software, Quickbooks, having 80 percent of the retail software market for small business.
More importantly, the continued competition between Intuit and Microsoft opened the way for tiny MECA Software to become a major competitor. Largely abandoning direct retail sales, MECA--now co-owned by seven banks--has concentrated on selling its personal finance software, called Managing Your Money, directly to banks which in turn package it with their own online banking services to their own bank customers. By 1997, MECA was distributing about 45,000 copies of Managing Your Money each month through its bank relationships--almost double the number that Intuit was distributing through retail outlets. MECA offers banks a range of turnkey services, including a call center for customer support that now handles over a million calls a year. In 1998, MECA struck a deal with Intuit to customize Quicken software for individual banks, another competitive option against Microsoft. This range of competition in 1998 would have been unlikely if in 1995 Microsoft had been allowed to merge with Intuit and turn Quicken into the de facto Windows standard for all personal finance management.
There is an argument that without that de facto Microsoft standard, overall home banking use may not be as large today as it could have been, but the slowness to adopt that original vision of home banking is itself one of the best arguments against having monopolies short-circuit technological competition. Microsoft's vision in 1995 for its Intuit merger was to build on Quicken's proprietary software interface to create a system of online banking and bill payment controlled completely by Microsoft. Tied into Microsoft's original vision of its Microsoft Network online service, itself originally based on proprietary non-Internet standards, that system of online banking might have taken off faster but would have been technologically limited and created a system that might have slowed down growth of the overall Internet due to incompatibilities. Without monopoly control of financial standards through its Intuit purchase, Microsoft's whole initial Microsoft Network proprietary model was no longer viable, and by December of 1995, Microsoft had abandoned those proprietary standards in favor of Internet standards. While the strength of the Internet would probably have forced Microsoft to adapt to Internet standards at some point, an initial position of monopoly control of personal finance standards on the desktop might have created a wasteful and destructive delay in Internet expansion as Microsoft built on its rival proprietary model.
As the Internet has grown, online commerce has had to adapt itself to the changing contours of the whole range of technologies involved, but that step-by-step growth between competitors working around broad open standards has created the vibrant Internet industry we have today. A short-term delay on some aspects of that commerce (and very short delays by any long-range evaluation) are more than compensated for by the flexibility and vigor of open standards and competition. Defenders of corporate monopoly control of standards as a short-cut to industry development ignore the long term effect of the loss of competition and the lock-in to substandard technology.
By fall of 1996, Intuit itself was fully committed to moving its customers to the Internet and sold off its proprietary system for electronically paying bills to a company called CheckFree. Intuit received a stake in CheckFree but began to focus on building Internet standards into its software and creating a Web-based interface for its customers. It eliminated the proprietary online standards in all of its software in favor of Internet-based links. The company's BankNow service, originally introduced on AmericaOnline, has been brought directly onto the Web to allow customers to check bank balances and transfer funds at any participating bank. Its Quicken.com web site both supplements its software and gives any Web surfer access to a range of financial information and tools, including new services oriented to stock trading, insurance purchases, and home mortgages. Microsoft has worked to match these services through its own software and its Microsoft Investor web site.
As both companies raced onto the Internet in 1996 and 1997, they created a joint standard with CheckFree, called Open Financial Exchange (OFX), to create a common system for financial institutions, businesses and consumers to conduct transactions electronically over the Internet. Since controlling such standards, which would regulate much of electronic exchange on the net, was the original goal of Microsoft's proposed acquisition of Intuit, having to work with other companies on a joint standard was a testament to the antitrust success of blocking the merger.
Taking what had been three separate initial approaches--Microsoft's Open Financial Connectivity, Intuit's OpenExchange and CheckFree's electronic banking protocols--the companies created one open standard accessible not just by the three companies involved but by any business. OFX was quickly endorsed by a range of institutions, including Bank of America, Chase Manhattan, Citibank, KeyBank, and Wells Fargo. The OFX partners created a Banking Steering Committee with responsibility for dealing with future issues effecting OFX and setting its direction for the future. Fidelity Investments, Charles Schwab and Dean Witter joined a similar brokerage steering committee to help determine standards effecting financial investments, while the Home Financial Network, Peachtree, Vertigo and even rival software MECA have joined a steering committee governing financial applications software.
If the competition between Intuit and Microsoft was not enough to keep OFX standards open, a whole alternative financial transaction standard called Integrion is vying for loyalty, This alternative standard was created largely by IBM and some of the largest banks--many of them joint owners of MECA--in early 1997. In fact, it was the existence of a viable MECA software that created the possibility of this alternative approach, since MECA is developing much of the Internet-based banking transaction capability for the Integrion platform. A third standard developed by Visa called Visa Interactive was acquired by the Integrion consortium in late 1997, further strengthening its position by incorporating its customers into the Integrion standard. Intuit has also begun supporting the Integrion standard as well as the OFX standard and there are strong efforts to combine the two standards into a single open Internet standard for financial transactions with broad involvement by all sectors of the business community. While it is conceivable that this non-Microsoft controlled result could have occurred even with the Intuit-Microsoft merger, it seems unlikely.
While the Justice Department's intervention against the Microsoft-Intuit merger blocked that route to Microsoft monopolization of online banking, there are still serious dangers from Microsoft's anticompetitive strategies. Like a hydra, as one strategy to monopolization is chopped off, another one pops up in its place as the company uses its presence in so many aspects of computing to squeeze out rivals.
Blocked from directly controlling the standards for electronic transactions, Microsoft has increased its efforts to dominate sales of the computer systems and Internet servers where those transactions happen. With its Windows desktop monopoly as a base, Microsoft has increasingly expanded its market share in general business computing using a whole combination of development tools, control of technical training, and its involvement in Internet standards to reinforce its dominance. (See NetAction's White Paper "From MS Word to MS World" at http://www.netaction.org/msoft/world/ for an in-depth analysis of those developments.)
Already, a majority of computers being sold for hosting information on the Internet or on corporate Intranets use Windows NT software, and Microsoft is focusing on electronic commerce as a key area for business software dominance. Microsoft has established alliances with Hewlett-Packard and Verifone--the maker of most credit card "swipe" machines in retail stores--to promote Microsoft's server software for electronic transactions. Tandem computers (now owned by Compaq) has been a traditional supplier of computers for banks and has created an alliance with Microsoft this past year to promote Microsoft's database server to banks managing their ATM networks.
For companies interested in doing transactions directly over the Internet, Microsoft has promoted what its calls its Merchant Server. Lacking the technology inside the company, Microsoft in mid-1996 purchased a company called eShop Inc., which held patents on key technology for online sales, and encorporated that technology into Merchant Server. Analysts described Microsoft's purchase of eShop as a body blow to competing Web technology. Microsoft itself stated that eShop technology would give it a one-to-two year advantage, and outside analysts have been saying it gave Microsoft as much as a three- year jump on the competition--a lifetime in fast moving technology areas. Major financial institutions including Bank of America and Wells Fargo, as well as hundreds of other financial institutions, agreed to support Merchant Server. Microsoft and its online partner Verifone added secure Internet retailing and payment systems, further strengthening the package that Microsoft has been able to offer in selling not only Merchant Server but its underlying NT computer software, as well.
For banks and financial institutions themselves, Microsoft introduced the Marble server in 1997 to turn bank Web sites into "branded virtual ATMs." Marble gives banks a conduit to provide Net banking functions, such as funds transfers, bill payments and balance inquiries. Tied to the OFX standards, Marble automatically connects banks to personal finance software packages and Internet browser software. Marble is designed to connect these functions to the bank's other information systems with 128-bit encryption to provide security.
Despite its compatibility with OFX, Marble is most tightly integrated with Microsoft's Money and Investor personal software, thereby helping Microsoft in the personal finance software market. In this way, Microsoft is able to use dominance in one area, operating systems and server technology, to gain an anticompetitive advantage in another, in this case the financial software market it could not dominate as merely a one-on- one competitor. Internet analyst Scott Smith, the director of the digital commerce group at Jupiter Communications, has argued that Intuit could be in deep trouble; "Intuit is going to need some kind of technology partner in the long term to help them maintain their market share because the benefit of a total solution like Marble is that it gives you everything at once...Why should a bank just use Quicken as their interface if that means they have to go out and develop the rest of the system themselves?"
Aside from assisting Microsoft in its core sales of software and helping to extend its monopoly over operating systems into all reaches of business computing, the whole transition to online commerce is shifting power from financial institutions themselves to those managing the software through which customers access all of these services. As banks and brokerage firms increasingly conform to standards like OFX, it becomes easier for software to reduce each service to a line on a software screen and quickly search for the best deal.
In the words of many analysts, financial services are being "commoditized," meaning consumers will not go to banks or brokerages as one-stop centers but instead go through intermediaries, particularly the personal finance software and web browsers that connect people to the Internet. As Microsoft assumes an ever greater role in all aspects of financial software and technology services at both the consumer and business end, it gains a greater and greater advantage in becoming that center for accessing the whole range of financial services. Analysts predict that the fees paid to sponsor and participate in the Microsoft Investor web site will continue to increase. While Microsoft has spent lavishly on free services and financial analysis to attract customers to its Investor site, it has used the Web traffic to generate fees and commissions from participating financial services companies. Charles Schwab and Fidelity Investments already allow their customers to trade stocks through Microsoft's service. Since Schwab alone already has 908,000 active online customer accounts with holdings of more than $66 billion, even a piece of that and other financial allies' business promises large growth areas for Microsoft.
Controlling the browser market and entry to the Internet allows Microsoft to increasingly direct customers to its Internet sites, and to those financial services from which it gets a commission. Even if the core Internet standards are not controlled by Microsoft, it increasingly has designed associated standards for online exchange and services that are linked to its own financial enterprises. It is control of that browser gateway that gives Microsoft tremendous power in shaping the whole range of financial exchange on the Internet.
For many analysts the "holy grail" of electronic financial services is the ability of companies to send bills to customers over the Internet. Up to now, customers have used software like Quicken and Money to electronically pay bills they received through normal mail. This kind of service saved the customer time but had little cost savings or profit for anyone else, so most online banking customers paid extra for the service. But if companies sending bills could save the expense of printing and postage associated with mailing bills to customers, online banking would then have savings that some company could convert into serious profits.
In late 1997, Microsoft made clear that it intended to be that company. In a partnership with First Data Corporation, Microsoft formed a new company called MSFDC to develop the means of electronically "mailing" consumers their bills. First Data is already the largest merchant processing service for Visa and Mastercard, so the combined company starts off with a massive advantage in converting paper credit card bills over to their new electronic system. For consumers, the service would be free while MSFDC would collect 35 to 50 cents for each bill presented to the consumer--less than a company would spend on paper and postage but a large accumulating sum for MSFDC.
In December 1997, Wells Fargo became the first bank to agree to pilot the system, while major billers like Advanta Corp., Chase Credit Card, GE Capital, The Hartford Financial Services Group Inc., J.C. Penney Company Inc., New Century Energies and their subsidiary Public Service Company of Colorado, Payment Systems for Credit Unions Inc., PECO Energy Co., Shell Oil Co. and Texas Utilities all signed on for the service. Taking a page from its competitor MECA, Microsoft is offering the service under Wells Fargo or any other banks' "brand" even as Microsoft will get a cut of each bank transaction. This service is expected to radically change how banks operate. "Wells Fargo believes that bill presentment is the key to providing a truly compelling online banking offering for our customers," said Dudley Nigg, executive vice president of Wells Fargo Bank at its introduction. "They will be drawn to the convenience and power of receiving and paying bills in one easy step, with all of their payment information fully integrated into their banking relationship."
Adding to Microsoft's increasing dominance of online transactions is its purchase of WebTV and its role as a supplier of software for cable boxes that will give consumers high-speed access to the Internet. In January 1998, one of the largest cable companies, Tele-Communications Inc. (TCI), agreed to order Windows CE software from Microsoft for an initial 5.9 million cable boxes (at a price of $25 per box for Microsoft) . Not only will this strengthen Microsoft's Windows monopoly, it will also put the company in the position to supply the bill payment and other online financial software applications embedded in cable set-top boxes. It is rapidly forging similar deals with a range of other cable and telephone companies as well. Once again, Microsoft is using market power in one area, in this case operating systems combined with its cable and telephone alliances, to give it an anticompetitive edge in other markets like bill payment and online transactions.
Going beyond its role as supplier of software and online transaction services, Microsoft is increasing its role as the direct retailer of products and services over the Internet. Along with selling financial services through its Investor web site, with plans to add real estate, mortgage services and insurance to its menu, Microsoft is branching out to everything from selling cars, booking travel for customers, to selling tickets to local entertainment venues. (Again see "From MS Word to MS World" for more in-depth discussion). By packaging these product services together, and with its increasing control of desktop browsers, Microsoft is building an integrated financial and commercial empire where customers will use Microsoft-produced software to access web sites using Microsoft server software, then buy products sold by Microsoft, and have the transaction processed through a bank using a system owned by Microsoft. This is a level of vertical commercial integration never before seen in the history of the country.
The initial success of the Justice Department's intervention against the Microsoft-Intuit merger shows the benefits of antitrust action in the high technology arena. By that action, the Justice Department helped assure three years of open competition in the online financial services marketplace. In those three years, the Internet moved from being largely a toy of academics and hobbyists to being a core part of the global economy. New competitors to Microsoft were able to enter the marketplace and gain at least a foothold in markets that Microsoft was seeking to monopolize. And hard as Microsoft sought to control the standards of online commerce, it was forced to compromise with competitors in building core open standards into the online financial economy.
Unfortunately, Microsoft has used the breadth of its financial and technological power to slowly rebuild monopolistic positions in other parts of the computer world, allowing the company to position itself to build the monopoly position in online transactions it had initially sought through direct control of online standards. This highlights the need for continual vigilance by the Justice Department in investigating all aspects of Microsoft's monopoly-oriented actions. It also highlights the danger of letting one company like Microsoft operate in so many aspects of the computer and telecommunications markets. Such vertical integration allows by its nature the use of power in one market to leverage anticompetitive advantages in other markets.
As noted in the introduction to this report, there is a special need for antitrust vigilance in anything that effects the core of our financial system. The Savings and Loan crisis in the U.S. was the result of many technological and economic changes in the 1970s, and the costs were born overwhelmingly by taxpayers and some of the most financially vulnerable customers of the banking system. Similarly, the recent East Asian crisis has been driven by rapid changes in their financial systems that went sour. Any economic or technological change in financial systems, however beneficial in many respects, has the potential to destabilize whole sections of our economy. This threat is especially real when such changes are driven not purely by economic efficiency but by monopoly and technological power.
As Microsoft and its large banking partners take over the functions of bill payment and check clearing, this change will come inevitably at the expense of smaller community banks across the country. As one representative of independent banks noted, "If you get Citibank and Microsoft controlling access to the payment system, where does that leave us? I think, out in the cold." These are the banks that are usually the engines of local small business growth and hold the accounts of poorer, less "wired" customers who will not benefit from these early efforts at online banking.
At best, this will mean higher bank fees for the poorest customers and less funds available for typical small business loans in those communities. The traditional link between local savings and local economic development, already frayed under changes in the banking marketplace, would be completely severed. Even for online banking customers, a Microsoft monopoly would mean less innovation in services and higher costs without strong competition.
At worst, we could repeat the disaster of the Savings and Loan crisis as local banks go bankrupt across the country, with Microsoft being enriched in the process and taxpayers spending billions to restabilize the banking system. There are obvious gains in efficiency from online commerce but there are less obvious dangers that regulators and the Justice Department must keep in mind, especially with monopoly players like Microsoft pushing forward changes not necessarily because they benefit the financial system as a whole but because they benefit Microsoft's business strategy.
In the birth of electronic commerce, there is the promise of exciting new services along with more convenient and cheaper financial services. To assure that promise, we need to maintain open competition and a commitment to equal access to financial services for all members of our society. The government must play a strong role in preventing Microsoft's control of browser standards for financial exchange and assuring that no one company assumes too much power in the overall financial system of this country. Government intervention oriented to open competition and economic equity today will assure that much larger, more expensive intervention won't be needed tomorrow.
Copyright 1998 by NetAction. All rights reserved. Material may be reposted or reproduced for non-commercial use provided NetAction is cited as the source.
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