Business of banking includes offering to merchant customers a commercially enabled retail Website hosting service so that participating merchants can receive and process credit card orders over the Internet. 03/05/99

A retail enabled web site will be able to accept credit card purchases on-line. This service will allow Retailers to

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create and maintain a web site that can also use the Bank’s secure payments service. Bank is currently offering a

web site credit card enabling service as a stand-alone service to retailers with web sites either established or in

development. This particular product offering has, thus far, generally been directed at larger companies with their

own established web sites.

Comptroller of the Currency

Administrator of National Banks

Washington, DC 20219

Interpretive Letter #856

March 5, 1999

March 1999

12 USC 24(7)

William W. Templeton

Senior Counsel

Legal Department

Fleet Financial Group

50 Kennedy Plaza

Providence, RI 02903

Dear Mr. Templeton:

This responds to your request for an opinion on whether a national bank may offer certain

connected Internet services and payments services to its small business banking customers

pursuant to the authority in 12 U.S.C. § 24(Seventh) of the National Bank Act. Specifically, Fleet

National Bank (the “Bank”) wishes to offer a package of services that will include enabling its

small business banking customers (“Retailers”) to establish a retail sales presence on the Internet.

Based upon the information and representations provided, I conclude that the proposed activity,

as described in detail below, is permissible for a national bank.

BACKGROUND

The Bank proposes to offer its small business customers a package of electronic services

(hereafter referred to as the “Product”) that bundles traditional merchant credit card banking

services with the software, hardware and technical support necessary for a small business to have

its own retail web site that is able to accept credit card payments in a secure environment. The

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package also includes monthly reports relating to activity on a Retailer’s web site.

f electronic services

(hereafter referred to as the “Product”) that bundles traditional merchant credit card banking

services with the software, hardware and technical support necessary for a small business to have

its own retail web site that is able to accept credit card payments in a secure environment. The

1

package also includes monthly reports relating to activity on a Retailer’s web site.

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Bank will charge a one time set up fee and a monthly maintenance fee for the Product. The web site Product (with

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related system support) is not available as a separate product offering and cannot be purchased without the entire

package of associated banking products and services, such as the checking account and merchant credit card

relationship. Although the Product will generate revenues from several sources, the Bank expects that the revenues

from the associated traditional bank products will greatly exceed those relating only to the web site services.

This address will be a Universal Resource Locator (“URL”).

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The use of part of the Bank’s name in the Retailer’s URL could under some circumstances create a risk that the public

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will identify the Bank with the web site of its Retailer customers. However, that risk is mitigated here by the Bank’s

commitment to take all appropriate measures to limit its reputation risk associated with the Retailer’s web site. Once

activated, the Retailer’s web site “store” will not carry any indication that it is carried on the Bank’s servers or supported

by Bank, aside from the URL that may be used by some Retailers (and the concomitant URL registration information

that is publicly available). No Bank logo or any other reference to the Bank will appear within a Retailer’s web site

store, except as may be necessary to effect the payments processing component. Bank will also limit its reputation risk

by reserving the right to prohibit offensive or indecent material from hosted sites

be used by some Retailers (and the concomitant URL registration information

that is publicly available). No Bank logo or any other reference to the Bank will appear within a Retailer’s web site

store, except as may be necessary to effect the payments processing component. Bank will also limit its reputation risk

by reserving the right to prohibit offensive or indecent material from hosted sites.

This retail web hosting activity does not carry the same risks of bank customer confusion that can arise when a bank

links its retail web site to sites of third parties so that bank customers are transported from a bank site to a non-bank site,

e.g., a bank sponsored “virtual or Internet mall.” Compare, OCC Conditional Approval No. 221, supra. However,

these risks could arise if the Bank began to link its retail banking web site to the Retailer sites it hosts. Bank has not

indicated any intention to do this and, thus, we do not address it here.

To purchase the Product, a Retailer must: (i) already be, or qualify to be, a credit card merchant

customer of the Bank, and (ii) have, or establish, a business checking account with the Bank. The

Bank will provide authorization and processing services for credit card payments received through

a Retailer’s web site and will deposit the proceeds in the Retailer’s checking account with the

Bank.

In exchange for a one-time set up fee, a Retailer is assigned a unique Internet web site address,

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which the Bank registers with the major Internet search engines. The web site address can either

include or not a reference to the Bank’s URL, (e.g., “http://www.Bank.com/yourbusinessname”

or http://www.yourbusinessname) depending upon the Retailer’s choice.

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The Retailer’s web site resides on Internet servers that are controlled by the Bank but not

connected to any of the Bank’s mainframe accounting or internal systems processing servers

et search engines. The web site address can either

include or not a reference to the Bank’s URL, (e.g., “http://www.Bank.com/yourbusinessname”

or http://www.yourbusinessname) depending upon the Retailer’s choice.

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The Retailer’s web site resides on Internet servers that are controlled by the Bank but not

connected to any of the Bank’s mainframe accounting or internal systems processing servers. The

Retailer also is given access to the web site’s “storebuilder wizard”-- a menu-driven software that

enables the Retailer to build a catalog of product descriptions, pricing, delivery information and

order forms. The Retailer works independently to build the web site to its satisfaction subject

only to the limitation that the site cannot list more than 500 products. The product database

(representing the Retailer’s online catalog) is maintained and stored on the Bank’s server.

Once the Retailer has established a business checking account, obtained credit underwriting

approval to be a credit card merchant customer, and completed construction of the web site, the

site is activated so that potential retail customers can access the site. After activation, the Bank

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Each Retailer is responsible to maintain and update the store and product information contained on their web site.

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The ordering function is a web page that lists all products selected by the visitor to the site. The paying function page

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allows the visitor to enter their credit card number, address, and shipping location in association with their potential

purchase. These functions are applications that provide temporary storage of information relating to items selected for

purchase as well as necessary payment and shipping information. Upon purchase authorization by the visitor, the

application requests credit authorization and provides notification to the buyer and Retailer when authorization is

received so the purchase may be completed if the parties elect to do so

tions are applications that provide temporary storage of information relating to items selected for

purchase as well as necessary payment and shipping information. Upon purchase authorization by the visitor, the

application requests credit authorization and provides notification to the buyer and Retailer when authorization is

received so the purchase may be completed if the parties elect to do so.

Traditional merchant banking services are those services that enable retailers to collect the funds from credit card

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payments for goods and services sold. Once a retailer is approved through the credit underwriting process, the

merchant bank provides the retailer with a card-accepting device for authorizing and recording credit card

transactions. The merchant bank then provides services to clear and settle the credit card payments to the retailer,

depositing funds collected in the retailer’s account.

The Bank also provides sales tax calculations for the Retailer using information on the product sold, the merchandise

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receiving location, and the identified state in which the Retailer operates. When constructing their web sites, the

Retailers are responsible to identify the product codes and to identify their state of operation. In their agreement with the

Bank, the Retailers acknowledge that they are responsible for the accuracy, collection, and submission of all appropriate

and applicable sales taxes.

provides ongoing maintenance and support of the web site’s host servers and monthly reports on

empirical data such as site “hits” and transaction volume.

The Bank servers maintain all the data associated with the web site, including product

descriptions, images, and pricing. The Bank also provides functions by which customers of a

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Retailer select products, communicate their selection to the Retailer, and pay for products

site’s host servers and monthly reports on

empirical data such as site “hits” and transaction volume.

The Bank servers maintain all the data associated with the web site, including product

descriptions, images, and pricing. The Bank also provides functions by which customers of a

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Retailer select products, communicate their selection to the Retailer, and pay for products.

Payments are made through a credit card, for which the Bank provides the payment authorization

and processing.7

The Bank’s retail web site hosting service also, via the Internet, provides an electronic

communications pathway between the Retailer and its potential customers through which product

orders and payment information flow. When a visitor to a Retailer’s site submits a potential

purchase order, the Bank captures and processes the necessary payments-related information and

forwards an electronic message to the Retailer with the associated product and shipping order

information. The Retailer is also able to electronically confirm payment authorization before

shipping any goods. Payment proceeds are deposited into the Retailer’s business checking

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account with the Bank.

To maintain the site, the Retailer pays the Bank a monthly maintenance fee for the web site. In

addition, all credit card purchases made through the site are assessed a credit card processing fee

as a percentage of the amount, called a “merchant discount.” The business checking account

carries a fee as well. The Retailers will be cross-marketed other Bank products and banking

services tailored to small business in an attempt to win other aspects of their retail banking

business.

site. In

addition, all credit card purchases made through the site are assessed a credit card processing fee

as a percentage of the amount, called a “merchant discount.” The business checking account

carries a fee as well. The Retailers will be cross-marketed other Bank products and banking

services tailored to small business in an attempt to win other aspects of their retail banking

business.

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As with other merchant credit card customers, applicants for the proposed product will be subject to a credit

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underwriting review by the Bank’s merchant credit card division.

Through an addendum to its merchant credit card agreement with its customers, the Bank will limit its legal

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liability for security breaches and systems failures.

Assuming arguendo that the retail web hosting service was not part of the business of banking, an alternative

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grounds for permitting the activity would be that the Bank’s web hosting activity is incidental to two traditional

banking services: merchant credit card processing and business checking account services. The Bank has provided

information indicating that provision of the web hosting service will significantly enhance the utility and desirability

of these established banking services to the Bank’s retail merchant customers and to allow the Bank to meet

competition from non-banking firms that provide a similar package of services. See, e.g., OCC Conditional

Approval No. 221, supra, and OCC Interpretive Letter No. 742, supra, (national banks providing home banking

services via the internet may also provide internet access service to the banking customers as a product incidental to

Internet home banking). Further, information provided by the Bank establishes that the anticipated level of revenue

from the Bank’s retail web site hosting component relative to the revenue from the associated business deposit

account and merchant processing services would likely meet the subordination requirement for non-banking services

incidental to banking services

as a product incidental to

Internet home banking). Further, information provided by the Bank establishes that the anticipated level of revenue

from the Bank’s retail web site hosting component relative to the revenue from the associated business deposit

account and merchant processing services would likely meet the subordination requirement for non-banking services

incidental to banking services. OCC has said an incidental product may not dominate its connected banking service,

but that where the gross profits generated by an incidental product provided in a package with a banking service do

not exceed thirty percent of the total gross profits from the entire service package, the sale of the incidental product

meets the subordination requirement. OCC Conditional Approval No. 221, (Dec. 4, 1996); OCC Interpretive Letter

No. 754, reprinted in [1996-1997 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81,118 (November 6, 1996)

(national bank operating subsidiary may sell general purpose computer hardware to other financial institutions as part

of larger product or service when necessary, convenient, and useful to bank permissible activities). However, it is

unnecessary to address that issue here because we conclude that the Bank’s web site hosting activity is part of, rather

than incidental to, the business of banking, and thus is not subject to scope limitations that apply to some incidental

activities.

OCC recognizes that the proposed activity exposes the Bank to risks associated with accepting

retail credit card payments on the Internet and conducting the activities necessary to clear and

settle the payments received. The risks associated with credit underwriting, payment

authorization, and processing are the same risks that banks already assume when providing

merchant credit card processing services for business customers

d activity exposes the Bank to risks associated with accepting

retail credit card payments on the Internet and conducting the activities necessary to clear and

settle the payments received. The risks associated with credit underwriting, payment

authorization, and processing are the same risks that banks already assume when providing

merchant credit card processing services for business customers. The risks associated with

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accepting and authorizing payments through the Retailer’s website are identical to those already

assumed when the Bank enables an established website to receive credit card orders. These risks

include maintaining the accessibility, integrity, and confidentiality of the information systems

necessary to complete the retail transactions through the website.

To the extent that the Bank

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contracts with other service providers, notably technology firms, to provide any of the necessary

products and services to offer the Product to small business customers, the Bank will manage its

indirect risk exposure to the activities of the service providers. Accordingly, the Bank has the

necessary skills and expertise to effectively manage the risks.

DISCUSSION

The Product offered by the Bank to Retailers has three component services: retail web site

hosting, retail payments processing, and business checking accounts. As each of these

components is part of the business of banking, the Product is part of the business of banking and,

thus, permissible for national banks under 12 U.S.C. § 24(Seventh).11

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12 CFR § 7.1002 provides in its entirety:

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(a) General. A national bank may act as a finder in bringing together a buyer and seller.

sting, retail payments processing, and business checking accounts. As each of these

components is part of the business of banking, the Product is part of the business of banking and,

thus, permissible for national banks under 12 U.S.C. § 24(Seventh).11

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12 CFR § 7.1002 provides in its entirety:

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(a) General. A national bank may act as a finder in bringing together a buyer and seller.

(b) Qualification. Acting as a finder includes, without limitation, identifying potential parties, making inquiries

as to interest, introducing or arranging meetings of interested parties, and otherwise bringing parties together

for transactions that they themselves negotiate and consummate. Acting as a finder does not include activities

that would characterize the bank as a broker under applicable federal law.

(c) Advertisement and fee. Unless otherwise prohibited, a national bank may advertise the availability of, and

accept a fee for, the services provided pursuant to this section.

Earlier OCC decisions regarding finder activities cite 12 CFR § 7.7200. OCC interpretive rulings at 12 CFR Part 7

were revised and renumbered effective April 1, 1996. Interpretive ruling § 7.1002 (1996)

replaced former interpretive ruling § 7.7200. The Bank has committed that its finder activities will be conducted in

accordance with the provisions of 12 C.F.R. 7.1002.

See also, Letter from J.T. Watson, Deputy Comptroller of the Currency, February 26, 1969 (unpublished); Letter from

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John M. Miller, July 26, 1977 (unpublished); Letter from Paul Allan Schott, Chief Counsel, May 9, 1988 (unpublished);

Letter from Elizabeth Corey, May 18, 1989 (unpublished); OCC Interpretive Letter No. 238, reprinted in [1983-1984

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,402 (Feb. 9, 1982); OCC Interpretive Letter No. 472, reprinted in

[1989-1990 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,008 (Mar

July 26, 1977 (unpublished); Letter from Paul Allan Schott, Chief Counsel, May 9, 1988 (unpublished);

Letter from Elizabeth Corey, May 18, 1989 (unpublished); OCC Interpretive Letter No. 238, reprinted in [1983-1984

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,402 (Feb. 9, 1982); OCC Interpretive Letter No. 472, reprinted in

[1989-1990 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,008 (Mar. 2 1989); Letter from Lee Walzer, Attorney,

Securities, Investments and Fiduciary Practices Division, August 24, 1992 (unpublished); and OCC Interpretive Letter

No. 741, reprinted in [1996-1997 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-105 (Aug. 19, 1996); and OCC

Conditional Approval No. 220 (October 2, 1996). Cf. Norwest Bank v. Sween Corp., 118 F.3d 1255 (8 Cir. 1997).

th

Retail web site hosting, as proposed by the Bank, is a form of finder activity authorized for

national banks. The OCC has long recognized the finder function as a permissible banking

activity that includes, "without limitation, identifying potential parties, making inquiries as to

interest, introducing or arranging meetings of interested of parties, and otherwise bringing parties

together for transactions that the parties themselves negotiate and consummate.” 61 Fed. Reg.

4863 (Feb. 9, 1996) (codified at 12 C.F.R. 7.1002(b)). Finder activities are part of the business

12

of banking. OCC Interpretive Letter No. 824, reprinted in [1997-1998 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 81-273 (February 27, 1998); OCC Corporate Decision No. 97-60 (July

1, 1997); and OCC Conditional Approval Letter No. 221, supra.

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The OCC has also recognized that banks may use new technology to conduct the finder activity.

We have said:

The means that national banks use to act as finders for their customers have evolved

due to technological advancements. Where banks once performed this service for

their customers via newsletters and personal contacts, they presently conduct the

activity with computer technology.

Id

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The OCC has also recognized that banks may use new technology to conduct the finder activity.

We have said:

The means that national banks use to act as finders for their customers have evolved

due to technological advancements. Where banks once performed this service for

their customers via newsletters and personal contacts, they presently conduct the

activity with computer technology.

Id. See also, OCC Interpretive Letter No. 516, reprinted in [1990-1991 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 83,220 (July 12, 1990) (national banks may provide electronic

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Accordingly, we also find that the Bank may, as part of its finder service, register a Retailer’s web site with search

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engines. This is merely an additional device to serve the finder function of making information available to potential

buyers.

communications channels for persons participating in securities transactions) and Letter from Julie

L. Williams, Chief Counsel, October 2, 1996 (unpublished) (national bank as finder could use

electronic means to facilitate contacts between third party providers and potential buyers).

Clearly, one of the Product’s most significant functions for the Retailers is to provide potential

customers, via the Internet, with information about the Retailers’ goods and services. The OCC

has concluded that “[p]roviding information [to prospective buyers about the products or services

of prospective sellers] is one of the fundamental activities of a finder,” and that as part of the

finder function national banks may “make inquiries as to interest, arrange a meeting of the

interested parties, and provide information pertinent to the meeting of the buyer and seller.” OCC

Interpretive Letter No. 653, reprinted in [1994-1995 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 83,601 (Dec. 22, 1994). The function of finder involves the “conveying of information

about available products or services to potential markets for them….” OCC Interpretive Letter

No. 741, supra

the

interested parties, and provide information pertinent to the meeting of the buyer and seller.” OCC

Interpretive Letter No. 653, reprinted in [1994-1995 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 83,601 (Dec. 22, 1994). The function of finder involves the “conveying of information

about available products or services to potential markets for them….” OCC Interpretive Letter

No. 741, supra. See also, OCC Corporate Decision 98-13 (February 9, 1998) (national bank

finder, as a benefits counselor, could provide potential buyers with information on benefits

programs available); OCC Interpretive Letter No. 824, supra, (banks participating in a finder

program would provide brochures, leaflets, and other literature informing customers on the

availability of products and services from the potential seller); OCC Interpretive Letter No. 630,

reprinted in [1993-1994 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,513 (May 11, 1993)

(finder banks may distribute informational brochures); OCC Interpretive Letter No. 593, reprinted

in [1992-1993 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,418 (July 1, 1992) (finder

banks providing information on third party brokerage services); and Letter from Julie L. Williams,

Chief Counsel, October 2, 1996 (unpublished) (national bank as part of finder function could

provide marketing materials and information about third party service providers to potential

buyers).

Maintaining or providing an Internet web site for Retailers is one device that national banks may

use as finders to provide or make available information to potential buyers. Thus, in Corporate

Decision 97-60, supra, the OCC found that a national bank conducting finder activities to support

sales of pre-owned automobiles could maintain and operate an Internet web site which provided

information to potential buyers on the vehicles offered.

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It also follows that to perform its finder function of providing information, a national bank must

store and retrieve the information to be provided

ision 97-60, supra, the OCC found that a national bank conducting finder activities to support

sales of pre-owned automobiles could maintain and operate an Internet web site which provided

information to potential buyers on the vehicles offered.

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It also follows that to perform its finder function of providing information, a national bank must

store and retrieve the information to be provided. Thus, in OCC Interpretive Letter No. 741,

supra, the OCC found that under the finder authority, a national bank could operate a call center

facility which provided access to bank-maintained database on new or used vehicles offered for

sale. A similar finding is also implicit in OCC Corporate Decision No. 97-60, supra. Thus, it is

permissible for the Bank, when hosting an Internet web site as a finder, to store and retrieve

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The OCC said:

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When the hardware is such that it is not to be used for uses beyond the [bank services], it may well be

considered literally an indistinguishable part of the [banking services]. Accordingly, a national bank’s

sale of such hardware is permissible as a part of the [service] permitted under 12 U.S.C. §

24(Seventh), just as the bank’s sale of checkbooks to its customers is a permissible part of offering

checking accounts.

electronically on its servers the data set for the Retailer’s on-line catalog as part of the finder

function.

There is no need to analyze whether the data set storage and retrieval functions in this case are

“incidental” to the permissible finder activity because, for the reasons discussed, the data functions

are actually part of the finder service, not a separate product or service. The OCC has

distinguished incidental products, which support business of banking activities, from products like

the data set functions here that, although arguably distinct from a related banking product, really

are so closely connected to the banking product that the banking product cannot be provided

without it

unctions

are actually part of the finder service, not a separate product or service. The OCC has

distinguished incidental products, which support business of banking activities, from products like

the data set functions here that, although arguably distinct from a related banking product, really

are so closely connected to the banking product that the banking product cannot be provided

without it. In other words, the other product is effectively merged with and becomes part of the

banking product and, hence, becomes itself part of the business of banking. OCC has said:

In analyzing the extent to which national banks may provide hardware and software,

the OCC has distinguished between general purpose items, which can be used for

purposes beyond banking services, and limited purpose items, which can be used

solely for banking services. Limited purpose hardware is considered an

indistinguishable part of banking services and, thus, part of the business of banking.

OCC Interpretive Letter No. 754, supra. See also OCC Interpretive Letter No. 737, reprinted in

(1996-1997 Transfer Binder) Fed. Banking L. Rep. (CCH) ¶ 81,101 (August 19, 1996)(where a

national bank was providing a closed stored value system to an institutional customer, the bank

could as part of that service also provide system participants with certain hardware and software

to be used for the stored value functions; the equipment was not viewed as a separate product or

service) and OCC Interpretive Letter No. 345, reprinted in, [1985-1987 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 85,515 (July 9, 1986).

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Another significant finder function is to bring together potential buyers and sellers. The OCC has

found that one approach to this communication function is for the finder bank to provide an

electronic medium to support communications between potential buyers and sellers so they can

arrange their transactions. Thus, in OCC Conditional Approval No

king L. Rep. (CCH) ¶ 85,515 (July 9, 1986).

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Another significant finder function is to bring together potential buyers and sellers. The OCC has

found that one approach to this communication function is for the finder bank to provide an

electronic medium to support communications between potential buyers and sellers so they can

arrange their transactions. Thus, in OCC Conditional Approval No. 221, supra, the OCC found

that, as part of the finder function, a national bank could provide hypertext links between the

bank’s retail banking web site and the web sites of third parties interested in selling products or

services to the bank’s customers. We said: “By providing links to third party vendors’ web sites,

the [LLC] merely introduces two parties who then engage in a transaction.” See also, OCC

Interpretive Letter No. 611, reprinted in [1992-1993 Transfer Binder] Fed. Banking L. Rep.

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See also, OCC Interpretive Letter No. 516, supra (national bank that is providing customers with a permissible

16

database service of information relating to financial instruments can also provide software that enables the customers

to download and analyze the information) and OCC Interpretive Letter No. 419, reprinted in [1988-1989 Transfer

Binder] Fed. Banking L. Rep. (CCH) ¶ 85,463 (Feb. 2, 1988) (national bank that is providing customers with a

permissible electronic transactional and information service can provide software that enables customers to participate

in the system).

(CCH) ¶ 83,449 (Nov. 23, 1992) (national bank linking non-bank service providers to its

communications platform of smart phone banking services was within its authority as a finder

“in bringing together a buyer and seller”) and Letter from Julie L. Williams, Chief Counsel,

October 2, 1996 (unpublished). For this reason, the Bank may communicate to its Retailers the

offers to buy that result from their Bank hosted web sites as part of its Product

ng non-bank service providers to its

communications platform of smart phone banking services was within its authority as a finder

“in bringing together a buyer and seller”) and Letter from Julie L. Williams, Chief Counsel,

October 2, 1996 (unpublished). For this reason, the Bank may communicate to its Retailers the

offers to buy that result from their Bank hosted web sites as part of its Product.

Finally, by hosting the web site, the Bank does not become involved in the negotiations of the

parties and thereby exceed its proper role as finder, i.e., merely bringing parties together for a

transaction that the parties themselves negotiate and consummate. The courts are likely to view

retail web sites as inviting potential buyers to make an offer to the seller to buy the goods

advertised on the site. Thus, in this case, the Retailers would retain the ability to reject a potential

Internet buyer’s offer of any potential purchases that might arise from the web site hosted by the

Bank. See, generally, W. A. Effross, “The Legal Architecture of Virtual Stores: World Wide

Web Sites and the Uniform Commercial Code,” 34 San Diego L. Rev. 1263 (1997) at 1329-

1331.

Accordingly, the retail web site hosting component to the Bank’s Product is part of the business

of banking and, thus, permissible for national banks. We now turn to several other aspects of the

Product.

As noted, the Bank will provide Retailers with access to software that will enable the Retailers to

design their web sites and software that enables the Retailer to build a catalog of product

descriptions, pricing, delivery information and order forms. This is permissible. OCC has found a

national bank can provide access to software that will enable bank customers to use or receive

electronic banking services from the bank such as a specialized payment service or informational

services

lers to

design their web sites and software that enables the Retailer to build a catalog of product

descriptions, pricing, delivery information and order forms. This is permissible. OCC has found a

national bank can provide access to software that will enable bank customers to use or receive

electronic banking services from the bank such as a specialized payment service or informational

services. The software is “necessary” to use or fully enjoy the permissible service and, thus, is

either part of the service (if limited function) or incidental thereto (if full function). Thus, in

Conditional Approval No. 221, supra, the OCC found that providing full-function web browser

software is a permissible incidental activity when a national bank is offering a home banking

system based on web server technology using “Internet compatible” browser software. The fact

that the customer might use the browser software for other non-banking purposes did not

preclude the sale.16

The Bank will also process payments resulting from orders received from a Retailer’s web site.

Clearly, payments processing and handling of accounts receivable is part of the business of

banking. OCC Conditional Approval No. 289 (October 2, 1998) (national banks may acquire a

minority interest in a firm that, among other things, provides accounts receivable processing and

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Under its agreements with its Retailers, the Bank will have an obligation to maintain the confidentiality of the

17

transaction specific data, e.g., that relating to specific purchases by customers of a Retailer, that the Bank will acquire by

offering the Package.

Interpretive Ruling 7.3500, 39 Fed. Reg. 14195 (Apr. 22, 1974).

18

49 Fed. Reg. 11157 (Mar. 26, 1984).

19

OCC Interpretive Letter No. 677, reprinted in, [1994-1995 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,625

20

(June 28, 1995). See also, OCC Interpretive Letter No

at relating to specific purchases by customers of a Retailer, that the Bank will acquire by

offering the Package.

Interpretive Ruling 7.3500, 39 Fed. Reg. 14195 (Apr. 22, 1974).

18

49 Fed. Reg. 11157 (Mar. 26, 1984).

19

OCC Interpretive Letter No. 677, reprinted in, [1994-1995 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,625

20

(June 28, 1995). See also, OCC Interpretive Letter No. 737, supra (national bank may provide transaction and

information processing services to support an electronic stored value system); OCC Interpretive Letter No. 653, supra

(national bank may act as an informational and payments interface between insurance underwriters and general

insurance agents); and OCC Interpretive Letter No. 346, reprinted in (1985-1987 Transfer Binder) Fed. Banking L.

accounts payable processing); OCC Conditional Approval No. 282 (July 7, 1998) (national bank

may acquire an interest in a firm that would, among other things, engage in payments processing

for the health care firms); and OCC Interpretive Letter No. 731, reprinted in [1995-1996 Transfer

Binder] Fed. Banking L. Rep. (CCH) ¶ 81,048 (July 1, 1996) (national banks as part of the

banking business may collect and process accounts in relating to an electronic toll collection

system).

The Bank will provide its Retailers with monthly reports on empirical data such as site “hits” and

transaction volume arising from their web sites, including number and types of products sold. To

the extent that these reports involve the processing and transmittal of information relating to

specific payment transactions the Bank handles for the Retailer, it is part of the payment

processing function and not a separate service. OCC Interpretive Letter No, 731, supra and

17

OCC Interpretive Letter No. 732, reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 81,049 (May 10, 1996) (design, development, marketing, and maintenance of a network

for electronic funds transfer and electronic data interchange permissible for a national bank). Cf

art of the payment

processing function and not a separate service. OCC Interpretive Letter No, 731, supra and

17

OCC Interpretive Letter No. 732, reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 81,049 (May 10, 1996) (design, development, marketing, and maintenance of a network

for electronic funds transfer and electronic data interchange permissible for a national bank). Cf.

Letter from Julie L. Williams, Chief Counsel, October 2, 1996 (unpublished) (national bank acting

as finder could maintain a database of transactions resulting from its finder activities was

“integral” to the finder function).

As for the more general information and reports, the OCC has long held that as part of the

business of banking, national banks may collect, transcribe, process, analyze, and store for itself

and others banking, financial, or related economic related data. The general reports will involve

the processing of banking, financial, or related economic data and, thus, are part of the business of

banking.

An earlier version of 12 C.F.R. § 7.1019 stated that “as part of its banking business and incidental

thereto, a national bank may collect, transcribe, process, analyze, and store for itself and others,

banking, financial, or related economic data.” Although in its 1984 revision of the ruling, the

18

OCC deleted this statement because it believed that “specific examples [of permissible electronic

activities] are inappropriate given the imprecision of terms and rapid pace of change in the data

processing industry, the “analytical framework” embodied in the ruling remained the same.

19

There was no intent to narrow or restrict the substantive effect of the rule.20

revision of the ruling, the

18

OCC deleted this statement because it believed that “specific examples [of permissible electronic

activities] are inappropriate given the imprecision of terms and rapid pace of change in the data

processing industry, the “analytical framework” embodied in the ruling remained the same.

19

There was no intent to narrow or restrict the substantive effect of the rule.20

- 10 -

Rep. (CCH) ¶ 85,516 (July 31, 1985) (national banks may maintain records on commodities transactions).

Case authority strongly supports the OCC precedent. In Ass’n of Data Processing v. Board of Governors, 745 F.2d 677

(D.C. Cir. 1984), the D.C. Circuit Court of Appeals upheld a Federal Reserve Board finding that data processing and

database services were closely related to banking (and thus a proper activity for bank holding companies) if the “data to

be processed ... are financial, banking or economic....” In reaching this conclusion the court said: “The record of this

proceeding amply demonstrates, if any demonstration is needed, that banks regularly develop and process for their

customers large amounts of banking, financial and economic data, and that they do so (and will presumably continue to

do so) through the most advanced technological means.” 745 F.2d at 689. Moreover, the court indicated that

“economic data” would include: “agricultural matters, retail sales matters, housing matters, corporate profits matters,

and anything of value in banking and financial decisions.” 745 F.2d at 691.

In National Retailers Corp. v. Valley Nat'l Bank, 411 F. Supp. 308 (D. Ariz 1976), aff'd, 604 F.2d 32 (9th Cir.

21

1979), a national bank was held not to have the authority to offer a data processing service to retailers involving the

collection and compilation of information relating to their retail sales that had been collected by a special cash

register

inancial decisions.” 745 F.2d at 691.

In National Retailers Corp. v. Valley Nat'l Bank, 411 F. Supp. 308 (D. Ariz 1976), aff'd, 604 F.2d 32 (9th Cir.

21

1979), a national bank was held not to have the authority to offer a data processing service to retailers involving the

collection and compilation of information relating to their retail sales that had been collected by a special cash

register. The district court held that no express provision of the National Bank Act authorized national banks to

publicly market a retail information service (“RIS”) and concluded that, since the RIS was not within the enumerated

powers, the determining issue was whether the RIS was within the bank’s “incidental powers.” 411 F. Supp. at 313.

Thus, by implication, the court held that the “business of banking” includes only the enumerated powers. This

position has since been superceded by the Supreme Court’s ruling in NationsBank v. Variable Life Annuity Co., 513

U.S. 251 (1995), that the “business of banking” is not limited to the enumerated powers. The National Retailers

court failed to consider that non-enumerated informational services can come within the “business of banking” and

specifically that the processing of banking, financial and related economic data is part of the business of banking.

Ass’n of Data Processing, supra. In light of these defects, the holding of National Retailers is not entitled to much

weight. Moreover, it is distinguishable from the Bank’s proposed retail data reporting services that are to be offered

in connection with its finder services which, for the reasons discussed above, are clearly part of the business of

banking.

Clement Nat’l Bank v. Vermont, 231 U.S. 120 (1913).

22

Thus, OCC has concluded that national banks may keep financial and other records of its

customer’s sales and disbursements arising from finder banking services provided by the bank.

See OCC Interpretive Letter No

ffered

in connection with its finder services which, for the reasons discussed above, are clearly part of the business of

banking.

Clement Nat’l Bank v. Vermont, 231 U.S. 120 (1913).

22

Thus, OCC has concluded that national banks may keep financial and other records of its

customer’s sales and disbursements arising from finder banking services provided by the bank.

See OCC Interpretive Letter No. 653, supra (national bank acting as a finder for insurance could

also keep financial and other records relating to the client agency sales, receipts and

disbursements). See also, OCC Interpretive Letter No. 741, supra (national bank acting as finder

for automobile dealers may also maintain a comprehensive system that allows dealers to track

information on customers referred and to generate market statistics such as buying trends and

cycles).

21

Finally, as part of the Product, the Bank will calculate the sales taxes owed by its Retailers on

their Internet sales. This activity is incidental to the retail web hosting and payments processing

services and is thus permissible. In Clement Nat’l Bank, the Supreme Court held that a national

22

bank, incidental to its deposit services, could compute, report, and pay the state tax levied upon

the interest earned by bank customers on their deposits.

CONCLUSION

- 11 -

Based upon the foregoing facts and analysis, and the representations made by the Bank in

connection with its request, I conclude that the proposed activity is permissible for a national

bank.

Sincerely,

/s/

Julie L. Williams

Chief Counsel