American Express, the U.S. Postal Service and America Online have all staked out new territory in online financial services this month, challenging banks for customers and their cash. Banks have long faced competition from non-bank corporations, but the procession of new entries indicates that the financial services field will become even more diversified.

A host of non-banks received unitary thrift charters through the Office of Thrift Supervision last year, including Fidelity, Massachusetts Mutual, Aetna and T. Rowe Price. Marsh & McClennan Co. has applied to the OTS to form an Internet-only bank to be based in Natick. The application to form the de novo MMC Bank is pending with a decision due in early May.

Since the passage of the Gramm-Leach-Bliley financial modernization bill, more than 100 companies have applied to the Federal Reserve to form financial holding companies, which have more flexibility than bank holding companies in making business investments. While the list is mostly composed of banks, including Boston’s FleetBoston Financial and State Street Corp., several insurance companies have also applied.

We’re going through an evolution that is as high impact as the airplane had on the railroad, said Don Pare, chief executive officer of MessagingDirect in San Francisco. There’s going to be huge shifts in infrastructure and dinosaurs biting the dust here. The landscape’s going to be quite ruthless over the next three to five years.

Gramm-Leach-Bliley has certainly changed the landscape, but non-bank providers of financial services have been trying to get into the banking business for decades, said Kenneth F. Ehrlich, who leads the banking practice at the law firm of Peabody & Arnold in Boston.

Through the years, companies have found loopholes in banking laws that have allowed them to conduct financial activities, he said. A number of automotive companies bought non-bank banks in the early 1980s, because banking law allowed them to own banks that either took deposits or made loans, but did not do both. Gramm-Leach-Bliley modified banking law, which previously prohibited bank holding companies from engaging in other activities, to allow them to engage in non-bank businesses.

Brokerage firms like Merrill Lynch have offered cash management accounts for years. Merrill Lynch formed a subsidiary called ML&Co. that offers banking, trust and mortgage lending services.

American Express announced this month the formation of the American Express Mortgage Center on its Web site. The company partnered with Prism Mortgage Co. to create the site, which allows consumers to find a mortgage product and apply online. The announcement follows the company’s launch of an online bank, called Membership B@nking, and an online brokerage.

E-Trade Group introduced E-Trade Bank in early April, the first Internet bank to be integrated with an electronic brokerage. E-Trade merged with the Internet-only bank Telebank earlier this year, then integrated Telebank into its brokerage Web site.

Banks view this as very meaningful competition, Ehrlich said.

The convergence of the financial services industries is a natural outgrowth of the financial modernization legislation, said James P. McDonough, president and chief executive officer of the $703 million-asset Abington Savings Bank.

As we see banks such as ours that are active providers of mutual funds and annuities, Fidelity applies for a bank charter, said McDonough, chairman of the Massachusetts Bankers Association. Everyone’s looking to expand in response to customer needs.

Abington Savings has partnered with BISYS Information Solutions to offer Internet banking and Internet services to customers. The bank is testing the service and plans to roll it out in the second and third quarters. The partnership with BISYS will allow the bank not only to provide Internet banking and bill payment services, but also to become an Internet service provider and to offer customized Web portal sites.

For a long time we’ve been saying that the competition for the Abington Savings Bank isn’t the bank next door, but it’s Fidelity, the local mortgage company and the finance company, McDonough said. I think some bankers still tend to look at each other as their primary competition, and quite frankly any serious look at market share studies will tell you differently.

As Abington Savings rolls out its bill payment service, it will be competing not only with other banks, but also against America Online and the U.S. Postal Service. America Online plans to introduce an Internet bill payment and presentment service in the next few months, allowing its 22 million customers to pay bills without writing checks or using stamps. Presentment services allow customers to view all of their bills on one Web site.

The U.S. Postal Service introduced its bill payment service April 5 in an effort to recapture revenue lost as consumers drop their stamps to pay bills from their home computers. Customers can view statements from credit card companies and utility companies through the postal service’s Web site. The postal service plans to add a feature that will give Web payments an electronic postmark, which will ensure recipients that documents have not been tampered with.

‘Bank in a Box’
Online bill payment and presentment services have been provided mostly by banks, but banks are at risk of losing business to non-bank providers, said Pare of MessagingDirect. The software development company creates programs for online payment services.

The ability to present bills and pay them is becoming almost like a bank in a box, Pare said. These capabilities can be delivered to the bigger billers for them to provide their consumers.

Banks that offer online bill payment either send an electronic payment to the biller, or print a check and mail it to the biller. Consumers pay a fee for each bill sent electronically, about the same or slightly higher than they would pay for a stamp to mail the bill.

What is happening is the big billers can deliver the bills to their customers and can bring their customers back to their Web site to complete the payment, thus leaving the banks out of the transaction, Pare said. The banks are very upset about that.

Bill payment and presentment is already big business and has the potential to grow as more consumers go online. About 60 billion bills are issued each year in the United States. If companies charged 30 cents to deliver the bill, and another 30 cents to make the payment, the market easily approaches $40 billion a year, Pare said. It’s banks and the postal service that have the most to lose as non-bank companies jump into the field, he said.

In the midst of these changes, consumers will still want the security of their local bank, McDonough said. Abington Savings has introduced supermarket banking and online banking to give consumers more options. And although consumers have embraced online financial services, banks have already established reputations for safety and privacy, he said.

Most people will choose to deal with organizations such as banks that hold privacy as sacred and that have earned the trust of their customers for hundreds of years, McDonough said. I think ultimately what it’s going to do is open us up to a market that we’re not able to tap into today.

The large conglomerates entering financial services do pose a threat to traditional banks, Ehrlich said, but banks will be able to hold their own.

There’s always going to be a need, in my opinion, for a place that’s more or less around the corner, that’s made of brick and mortar, that’s got a safe deposit vault, where there’s a friendly teller behind the counter that you know, where you can go and put your money, Ehrlich said.