Consumer Internet Banking

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Consumer Internet banking has evolved from helping customers meet their basic banking needs to meeting more sophisticated requirements like personal financial management. Today, Internet banking is an important revenue builder and competitive differentiator for banks. However, despite its all-too-obvious advantages, many banks are unable to realize the full potential of the Internet banking channel.

Transcript of Consumer Internet Banking

  • 1. White PaperConsumer Internet Banking Arise! - Anjani Kumar, Somil Mittal Consumer internet banking has evolved from helping customers meet their basic banking needs to meeting their more sophisticated requirements like personal financial management. In recent years, the number of internet banking users has been increasing exponentially. Today, internet banking has become an important revenue builder and competitive differentiator for banks. However, in spite of the obvious advantages of having a robust internet banking channel, many banks are unable to realize the full potential of this channel. This is due to the sub-optimal approaches followed by such banks. Banks must follow structured approaches and best practices to transform and realize the full potential of their internet banking channel. This ranges from the right mix of technology, integration, sourcing, support strategies and tactics.www.infosys.com

2. IntroductionOver the years, the internet banking channel has evolved from being a cost-reducingconvenience to a self-reliant channel and a must-have differentiator for the banks. Today,consumers usage of internet banking is growing at a rapid pace across geographies. InNorth America,for example 60% of the times basic transactions were conducted throughonline channel in 2011. In 2011, Internet banking usage in India increased to 7% from 1%five years ago. Nearly 40% of the total internet users visited online banking sites in Europein December 2011. This growth is led by five key drivers listed in Exhibit 1.Exhibit 1: Internet banking drivers Preference of Gen Y customersof internet banking growthRapid expansion of and reductionin cost of broadbandGrowing comfort with internetbanking securityRetail boomrs Drive Technological advances leading to advanced solutions and offerings2 | Infosys 3. Internet banking benefits both consumers and banks. It is estimated that internet banking offers more than 60% cost saving to banks overconventional offline channels. Exhibit 2 illustrates a few examples of how banks and customers benefit from the internet banking channel. Exhibit 2: Benefits of internet banking channelBenefits of internet banking channel To BankTo Customer Support to branch channelEase of use Integral to multi-channel strategies Expeditious payments and other transactionsReduced costPersonalization Higher and proactive cross-selling opportunitiesCompetitive differentiator TransparencyEnables true relationship bankingOnline research capabilities Helps gain customers prompt feedbackon products and services Self-service channelBanks ChallengesUnfortunately, today, many banks are unable to reap the optimal benefits from their internet banking channel. This is due to the lack ofrobust internet banking channel model in such banks. Consequently, such banks are faced with myriad challenges. Also, in many cases,where banks have endeavored to transform their internet banking channel, they have met with another set of challenges and barriers. Thechallenges faced by banks; a) in the absence of robust internet banking channel, and b) in effective transformation of their internet bankingchannel can be broadly categorized into Strategic, Organizational, Customer and Techno-functional.Many banks have huge gap between their internet banking channel expectations and its actual capabilities. Many banksdont buy advanced internet banking functionalities that are available, mistakenly assuming that their customers arentasking for such advanced functionalities. Consequently, such banks customers have silently started leveraging otherStrategicfinancial service providers sites. Innovative non-banks like Mint and Geezeo, supermarkets, pre-paid debit card providers,1 remittance providers and such are all threatening banks traditional models. Many banks want to offer a next-generationinternet banking channel, rich in Web 2.0 elements. However, they are unable to take on the required heavy investmentsto make it happen. Many banks face difficulty in benchmarking and estimating ROI metrics for individual internet bankingfeatures or capabilities. Also, most banks lack integrated channel capabilities. As a result, their inflexible, siloed applicationsand processes get easily exposed to customer.OrganizationalChange does not come easily to banks that have operated in siloed business units, have heavy compliance requirementsand are gripped with internal politics. Such banks have their innovation and creativity stymied and lack agility and focus.This has led to implementation of sluggish, incoherent and ineffective internet banking solutions in such banks. In many2banks, one delivery channel reports to many different divisions of the bank, thereby hampering decision making. In addition,many banks continue to rely on a branch centric revenue model, which leads to dissatisfaction amongst branch employeesand customer frustration. Simplifying such banks reporting structures is difficult to achieve. Infosys | 3 4. Customers, especially Gen Y, have started demanding seamless, multi-channel service and sales experience. However, Customermost banks are slow in responding to changing customers needs. As a result, many customers have started leveraging3 alternative models (e.g. social lending sites like Prosper Marketplace and Lending Club). Also, many customers are contentwith traditional channels like branches; thereby using internet banking sub-optimally. Banks face challenges in gettingthese customers to use internet banking channel optimally.Many banks internet banking channel is not stable, scalable or flexible. Years ago, when such banks entered the internetbanking channel, their primary intention was to get the solution up and running in quick time. This hurried approach resultedTechno-functionalin unruly data stores, inflexible and sub-optimal user experience; and fragmented and weak architecture. As a result, suchbanks suffer from weak IT support of the channel and product alignment, high maintenance costs and long delivery time.Such banks have been slow in adopting sound internet banking technologies like SOA, Web 2.0 and RIA features. Ensuringfool-proof internet banking security is another key challenge for banks. Fraudsters continue perpetuating new methods4of internet banking frauds. Additionally, factors like collaborative Web 2.0 applications that require opening up of bankswebsites to third-party sites and outside technology, has increased banks internet banking security vulnerability. Manybanks lack the analytics capabilities to enable real-time product promotion and pricing to specific customer segment. Manybanks existing internet banking sites are gripped with shortcomings that range from inefficient task flow, requiring usersto jump between multiple site locations, wasted space, hard to read text, un-sized content in windows requiring lots ofhorizontal scrolling, hidden security/privacy policy and unhelpful error messages.Approach for Internet BankingChannel TransformationToday, many banks across geographiesare looking to transform and increase theeffectiveness of their internet bankingchannel on stand-alone basis and withintheir overall channel strategy. However, toeffectively achieve this goal, banks need tofollow a robust approach and where customeris at the core. Customer activation and notjust customer enrollment on internet bankingchannel should be the focus for banks. Banksmust work towards providing an aggregated,customized, social and relevant experienceto customers.They must focus on providing immediate responses to customers and have more two-way dialogue with customers. Banks must alsoaggressively focus on driving higher routine customer transactions through internet banking channel. For this, they could look at makingit harder for customers to conduct routine transactions in branch. Banks must endeavor to leverage internet banking channel for moresophisticated and contextual cross-selling/up-selling.The optimal benefits from an internet banking channel is realized when it forms part of a banks multi-channel integration model. Hence,banks must focus on integrating its information, functionality and services across all channels. For this, it is imperative that a single unifiedview of a customers many relationships with the bank is available on all channels. Wells Fargo is a good example of a bank that has beenfocusing on multi-channel integration. It has been working for years to integrate its consumer banking delivery channels and is focusing onproviding a consistent experience across all of its channels. It is imperative that a single bank executive is made in-charge of a banks multi-channel integration efforts. Such an executive should have the mandate to integrate banks siloed and antiquated channels and be responsiblefor interactive marketing efforts, standardization of metrics across channels and creating true measure of overall channel profitability.Banks should adhere to the following structured approach for their internet banking channel transformation (Refer Exhibit 3):4 | Infosys 5. Exhibit 3: Structured approach Structured approach to internet banking channel improvement12Identify 3 4 customer Prioritize needs needs Identify gapsDefine roadmap & implementIn the first stage, banks must determine the internet banking features that are important to customers. For example, for a large number ofcustomers, secure email communication, single sign-on, ability to set-up alerts and ability to analyze spending and cash flow are very importantfeatures. In the next stage, banks must prioritize customers key stated and unstated needs. While prioritizing, banks should consider boththe current and future needs of customers. In the next stage, banks should do gap-analysis of the prioritized needs vis--vis banks currentinternet banking channel capabilities. Further, banks must define a roadmap to bridge the gap. They must then diligently implement theroad map. Banks could start