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Consumer 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.

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Exhibit 1: Internet banking drivers

IntroductionOver the years, the internet banking channel has evolved from being a cost-reducing convenience to a self-reliant channel and a must-have differentiator for the banks. Today, consumer’s usage of internet banking is growing at a rapid pace across geographies. In North America,for example 60% of the times basic transactions were conducted through online 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 Europe in December 2011. This growth is led by five key drivers listed in Exhibit 1.

Retail boom

Technological advances leading to advanced solutions and o�erings

Growing comfort with internet banking security

Rapid expansion of and reduction in cost of broadband

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Preference of Gen Y customers

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Internet banking benefits both consumers and banks. It is estimated that internet banking offers more than 60% cost saving to banks over conventional offline channels. Exhibit 2 illustrates a few examples of how banks and customers benefit from the internet banking channel.

Banks’ ChallengesUnfortunately, today, many banks are unable to reap the optimal benefits from their internet banking channel. This is due to the lack of robust 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. The challenges faced by banks; a) in the absence of robust internet banking channel, and b) in effective transformation of their internet banking channel can be broadly categorized into Strategic, Organizational, Customer and Techno-functional.

Exhibit 2: Benefits of internet banking channel

Bene�ts of internet banking channel

To Bank To Customer

Support to branch channel

Integral to multi-channel strategies

Reduced cost

Higher and proactive cross-selling opportunities

Competitive di�erentiator

Enables true relationship banking

Helps gain customers’ prompt feedbackon products and services

Ease of use

Expeditious payments and other transactions

Personalization

Transparency

Online research capabilities

Self-service channel

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Many banks have huge gap between their internet banking channel expectations and its actual capabilities. Many banks don’t buy advanced internet banking functionalities that are available, mistakenly assuming that their customers aren’t asking for such advanced functionalities. Consequently, such banks’ customers have silently started leveraging other financial service providers’ sites. Innovative non-banks like Mint and Geezeo, supermarkets, pre-paid debit card providers, remittance providers and such are all threatening banks’ traditional models. Many banks want to offer a next-generation internet banking channel, rich in Web 2.0 elements. However, they are unable to take on the required heavy investments to make it happen. Many banks face difficulty in benchmarking and estimating ROI metrics for individual internet banking features or capabilities. Also, most banks lack integrated channel capabilities. As a result, their inflexible, siloed applications and processes get easily exposed to customer.

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Change does not come easily to banks that have operated in siloed business units, have heavy compliance requirements and 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 many banks, 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 employees and customer frustration. Simplifying such banks’ reporting structures is difficult to achieve.

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Customers, especially Gen Y, have started demanding seamless, multi-channel service and sales experience. However, most banks are slow in responding to changing customer’s needs. As a result, many customers have started leveraging alternative models (e.g. social lending sites like Prosper Marketplace and Lending Club). Also, many customers are content with traditional channels like branches; thereby using internet banking sub-optimally. Banks face challenges in getting these customers to use internet banking channel optimally.c

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Many banks’ internet banking channel is not stable, scalable or flexible. Years ago, when such banks entered the internet banking channel, their primary intention was to get the solution up and running in quick time. This hurried approach resulted in unruly data stores, inflexible and sub-optimal user experience; and fragmented and weak architecture. As a result, such banks 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. Ensuring fool-proof internet banking security is another key challenge for banks. Fraudsters continue perpetuating new methods of internet banking frauds. Additionally, factors like collaborative Web 2.0 applications that require opening up of bank’s websites to third-party sites and outside technology, has increased banks’ internet banking security vulnerability. Many banks lack the analytics capabilities to enable real-time product promotion and pricing to specific customer segment. Many bank’s existing internet banking sites are gripped with shortcomings that range from inefficient task flow, requiring users to jump between multiple site locations, wasted space, hard to read text, un-sized content in windows requiring lots of horizontal scrolling, hidden security/privacy policy and unhelpful error messages.

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Approach for Internet Banking Channel TransformationToday, many banks across geographies are looking to transform and increase the effectiveness of their internet banking channel on stand-alone basis and within their overall channel strategy. However, to effectively achieve this goal, banks need to follow a robust approach and where customer is at the core. Customer activation and not just customer enrollment on internet banking channel should be the focus for banks. Banks must work towards providing an aggregated, customized, social and relevant experience to customers.

They must focus on providing immediate responses to customers and have more two-way dialogue with customers. Banks must also aggressively focus on driving higher routine customer transactions through internet banking channel. For this, they could look at making it harder for customers to conduct routine transactions in branch. Banks must endeavor to leverage internet banking channel for more sophisticated and contextual cross-selling/up-selling.

The optimal benefits from an internet banking channel is realized when it forms part of a bank’s 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 unified view of a customer’s many relationships with the bank is available on all channels. Wells Fargo is a good example of a bank that has been focusing on multi-channel integration. It has been working for years to integrate its consumer banking delivery channels and is focusing on providing a consistent experience across all of its channels. It is imperative that a single bank executive is made in-charge of a bank’s multi-channel integration efforts. Such an executive should have the mandate to integrate banks siloed and antiquated channels and be responsible for 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):

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In the first stage, banks must determine the internet banking features that are important to customers. For example, for a large number of customers, secure email communication, single sign-on, ability to set-up alerts and ability to analyze spending and cash flow are very important features. In the next stage, banks must prioritize customers key stated and unstated needs. While prioritizing, banks should consider both the current and future needs of customers. In the next stage, banks should do gap-analysis of the prioritized needs vis-à-vis banks’ current internet banking channel capabilities. Further, banks must define a roadmap to bridge the gap. They must then diligently implement the road map. Banks could start small with internet banking channel improvements and then scale up. Refer Exhibit 4 for key considerations for internet banking transformation.

Exhibit 3: Structured approach

Exhibit 4: Key considerations

Structured approach to internet banking channel improvement

1

Identify customer

needs

2

Prioritize needs

3

Identifygaps

4

De�ne roadmap & implement

Internet banking transformation - key considerations

Features

Technology Leverage solution

providers’ expertise

Security

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1. features: Banks must focus on improving navigation and usability of their web sites, streamline access and linkages to account data (within and across financial institutions); and provider richer content. They must break the Chinese wall that exists between their private and public web sites. A bank’s internet banking channel should have high level of flexibility for customization and content. For example, it should enable creation of customized and personalized online offerings and pricing models as per customer segment, profile and relationship with bank. Banks’ internet banking channel should provide co-browsing feature to support dynamic consultations to customers. Banks should also work towards simplifying their online account opening process. Infosys’ Unified Account Opening Solution is one good example of online account opening platform. Banks must also work towards leveraging the full potential of social media. A good recent example isCanadian bank TD (@TD_Canada) using social media for customer service . To differentiate their internet banking channel, it is important that banks prioritize and gradually start providing advanced features that customers are asking for. Good PFM tools, transaction categorization, multi-firm account aggregation, enabling online research capabilities, remote deposit capture are examples of advanced features that customers prefer. Refer Exhibit 5 for good examples of advanced features that are already provided by many banks.

2. Security: Banks should endeavor to comply with updated FFIEC e-banking authentication guidelines. They should implement advanced security features like multi-factor authentication and multiple-layer defensive architecture. Implementing secure lock-down standards procedures, having bill pay security key, enabling separate password to authorize transactions, subscription based two ways multi-channel alerts are few examples of security best practices that banks could implement. Banks should consider leveraging best-in-class vendors’ security solutions. Infosys’ Finacle banking platform’s security aspects and Gemalto security solutions (Ezio Way and Ezio Suite) are good examples. Banks must also have robust mechanisms to ensure that the third party sites linked from their internet channel are secure, appropriately certified and that these pose no security threat. Banks must conduct regular and comprehensive security audit of their internet banking applications.

Exhibit 5: Advanced features

Examples of advanced features

Personal Financial Management (PFM)

(e.g. My Money Map from Wells Fargo)

Online check deposit(e.g. Services from Bank of

America, Citibank and PNC)

Secure chat and messaging, email alerts, single sign-on,

multi-lingual support

E-vault services(e.g. Wells Fargo’s vSafe service)

Online advice tools(e.g. Barclaycard’s “My Money

Steps”, National Australia Bank’s “Online Assistant” )

Peer-to-Peer(P2P) fund transfer

(e.g. services from Bank of America, Wells Fargo)

Online tools(e.g. Bank of America Home

Loan’s “online home loan guide”)

eTransfers and electronic bill payment

(e.g. Wells Fargo)

Personalization(e.g. BBVA)

Account aggregation, expense categorization, consolidated bill

payment, budgeting tools, setting of savings goals, spending comparison

and community forums

Example: budget planners, savings calculators, credit calculators,

product selectors

Alert examples: balance, deposit/withdrawal, bill payments

reminders and con�rmations; secure message alerts

Example: personalized spending analysis, homepage layout, search and compare non-bank products

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ConclusionInternet banking channel has already become one of the main channels and key differentiator for many banks. In today’s hyper-competitive environment, consumer banks across geographies can no longer ignore or defer the transformation of their internet banking channel. This is imperative for a bank’s very survival and growth. Importantly, the effective transformation of a bank’s internet banking channel requires a holistic and structured approach. Those banks that follow such an approach are destined to reap immense business benefits through enhanced share of customer’s wallet, increased customer loyalty an advocacy; and much more.

3. technology: Banks must look towards implementing new-generation internet banking solutions that are built on open architecture and industry standard platform; and that can provide true relationship banking functionality. Good internet banking solutions follow international technology standards, take a component based approach and follow model driven architecture. Such solutions’ application architecture are enabled for high performance and leverage Web 2.0 potential and RIA capabilities. Infosys Finacle and FIS TouchPoint/Xpress Solution Suite are examples of best-of-class internet/multichannel banking platforms. A bank’s internet banking channel should be integrated with its core banking solutions (directly or through industry standard middleware) and also with the bank’s analytics applications. Banks must enhance their analytics, customer tracking and on-line chat capabilities to achieve higher cross-selling/up-selling.

4. leverage Solution Provider expertise: Where appropriate, banks must leverage the expertise of leading internet banking solution providers (e.g. Infosys’ Finacle) for the transformation. They must do the due diligence in selecting the vendor. Banks must study the solution’s technology, scalability, flexibility, environment, architecture and security aspects. Solution’s installation base and reference clients, and whether it can support cross-channel interactions and transactions must also be looked into. Banks must also review the vendors’ product positioning, business strategy and support model, performance history; sourcing, integration and delivery capabilities. Banks should also consider choosing between deploying a licensed in-house solution, using a hosted application or going for a hybrid model.

About the Authors

Anjani Kumar is a Principal Consultant with the FSI Domain and Process Consulting, Infosys Limited. Anjani has over 15 years of IT, domain and process consulting experience. He has deep knowledge and expertise on the Consumer Banking techno-functional aspects; with special interest in the Banking Channels and Analytics space. At present, Anjani is leading many domain competency development initiatives in FSI unit of Infosys. He can be reached at anjani_kumar@infosys.com

Somil Mittal is a Senior Consultant with the FSI Domain and Process Consulting, Infosys Limited. Somil has an overall 5 years of experience in process and domain consulting. His areas of expertise are strategic consulting, business research and business development. He has been involved in developing research based consultative insight and analysis for client engagements and business pursuits. At present, he is a Senior Consultant with FSI Research Center within Financial Services and Insurance vertical in Infosys. He can be reached at Somil_Mittal@infosys.com

© 2012 Infosys Limited, Bangalore, India. Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.

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