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Banking in an Online World [Global Finance](Global Finance Via Acquire Media NewsEdge) Best Practices, Key Challenges and the Way Forward Key Takeaways: * Banks view internet banking as an important channel for growth and retaining customers. * There is a gradual shift in the consumer internet banking model from "Customer Service" to "Customer Engagement." * Banks are leveraging Web 2.0 tools to implement their internet banking strategy. Internet Banking Has Evolved from merely providing information about banking products to offering a complete financial marketplace for its online customers. Over the years, the online banking model has transformed from providing customer service to promoting customer engagement. Today banks treat internet banking as one of the most important channels for growth and retaining customers. Evolution of the Consumer Online Banking Model The early years of online banking included information- and transaction-based services providing features like banks' products and services information, account activity information and money transfer to serve customer's information and transaction needs. However with changing consumer internet usage patterns and the advancement ofWeb 2.0 technologies, the internet has started playing an important role as an online social medium. To leverage growing internet capabilities, banks started offering advisory, engagement and other advanced financial services on their online banking menu. The shift from "Customer Service Model" to "Customer Engagement Model" brought about a radical change in consumer internet banking. Customer Service Model Historically banks were viewed as a provider of financial services and therefore focused on offering the best customer service possible. The same model was adopted for consumer internet banking and many of the initial online banking initiatives - like online transactions and account monitoring - were intended to improve customer service. Over time, technological advancements improved these services drastically. A description of the online banking service offerings and innovations in each of the segments is explained below. * Information Services: These services are used by banks to educate and disseminate information to online customers. Once static pages displaying information about a bank's products and services, banking websites can now provide online demonstrations of their service offerings. Information services include: * Balance Inquiry, Statement and Transaction History - Customers can access their historical transactions with real-time balances. * Consolidated View of all Financial Accounts - Customers can view their bank, credit card and loan accounts (with the same bank) through a single user ID. Many banks have provided the capability of viewing and managing credit account transactions across banks. * Mailbox Feature - Customers can send emails directly and securely to the bank while the bank can maintain constant communication and promote its products and services to its customers. * Transaction Services: Beginning with basic transactions like funds transfer and loan payments, banks are now conducting more and more transactions online. Several banks now offer straight-through processing capabilities on over 90% of online transactions like funds transfer and bill payment. This helps to achieve millions of dollars in annual savings, increased customer satisfaction and greater transparency. Transaction services include: * Online Funds Transfer - Customers can transfer funds to any account, intra-bank or inter-bank. Many banks offer ordine customers the ability to send money to any person or organization. * Account-to- Card Fund Transfer - Customers can transfer money from their bank account to any other debit or credit card. * Online Bill Payment - Customers can pay bills of utility services like phone and energy. Customers can also pay credit card bills and issue checks online. Customer Engagement Model Simply providing the services and features offered in customer service models is no guarantee of success in online banking. That's because almost all banks offer similar features with minimal differentiation. This has resulted in a shift of focus from customer service to customer engagement models, which help build longterm client relationships. Customer engagement initiatives which separate the leaders from the followers are described below. * Interactive Services (Leveraging Web 2.0): Today's customer considers the internet an important medium for banking and expects more customization and interactivity. Banks are embracing Web 2.0 technologies - including social applications and podcasts - to meet these customer demands more effectively. Web 2.0 applications enable banks and their customers to interact with each other in a personalized manner. Interactive services include: * Online Chat - Customers can interact with bankers to solve their financial queries. * Online Video Services - Customers can stream news about financial and business events and banks can continuously engage their customers. * Selfservice - Customers can manage passwords, order new checkbooks and apply for new products and services. * Appointment Reservation - Customers can book appointments at their local branch office. * Personalization of Home Page - Customers can customize their browsing experience with personalized widgets and other graphic-rich features. * ATM and Branch Locators - Customers can quickly locate ATMs and branch office locations using computers and smart phones. * Social Computing - Banks are leveraging Web 2.0 features and social communities like Facebook and Twitter to continuously track consumer behavior patterns. These channels are also being used to market financial products and facilitate two-way communication with customers. * Advisory Services: Banks are becoming stronger partners with their customers by providing strategic advisory services in addition to standard transactional services. Advisory services are being offered in a wide variety of situations including wealth management and mortgage lending. Advisory services offered online include: * Finanaal Calculators - Customers can calculate monthly payments, debt consolidation and mortgage payments. * Simulation Tools - Customers can use online planning tools to help with cash management, financial planning and credit monitoring. * Finanaal Research Tools - Customers can use stock screening tools for basic investment information like dividend yields and advanced screening tools for trading volume and comparative analysis. * Research Reports - Customers can access research reports on individual stocks, mutual funds and economic outlooks. * Podcast ana Webcast Sessions - Customers can stream online broadcasts of management presentations and expert analysis. * Alerts and Messages - Customers can rely on timely email or text message alerts regarding their accounts. * Advanced Financial Services: Leveraging a collateralized financial platform capability, banks are providing a range of advanced financial and investment capabilities in the following segments: * Bill Presentation and Payment - One leading bank is providing bill payment service to over 400 + billers. * Mutual Funds - One-click trading access to mutual fund center through secured online brokering. * Investments - Online IPO application, structured products and multi-currency deposits. * Trading - Online brokerage services with commission-free trading and reward points covering a range of asset classes including equities, derivatives and commodities. * Wealth Management - Covers features like managing funds under various asset classes, tracking portfolio movement and mapping them with long term and short term goals. * Custodian Services - Providing low cost services for online custodian services. All these services are provided with single sign on capability and with emerging technological innovations. Customers can access these advanced financial services through innovative channels like mobile and smart phones using WAP browser. Generally, the banks design their websites with the above features and capabilities to serve customer needs and provide the best possible online experience. Challenges faced by banks Even after adopting highly interactive features and fully integrated transactions online, banks are still facing issues in migrating consumers online. Some of the key challenges observed by banks are: * Lower Adoption Rate: The Baby Boomers are still less inclined to use internet banking even though the Gen Y, and to an extent Gen X, have been the dominant users of internet banking. Even in services like bill payment and online trading the adoption rate is very low. * Branch Banking Still Preferred Over Internet: Even though internet banking is gaining ground amongst consumers in various age groups, people in some countries still predominantly choose branch banking over internet banking. The online banking and branch banking preference varies by region and geography. * Increase in Competition: Banks are not only competing against other banks but also competing with third-party online agencies providing low cost services such as P2P (peer to peer lending), online advisory websites and non-banks serving financial and investment needs over the internet. * Online Banking Security: Even though banks have installed the latest security features and fraud prevention tools for hackers, online security is a critical concern for many customers. Any online fraud lowers the customers trust to transact online. * Impact of Social Media: Most of the banks have not only started to embrace social media but are also integrating it with their internet banking capabilities. Although the nonbank online websites have been the frontrunner, banks are also catching up fast. Conclusion A major theme guiding today's online banking strategy is increased focus on younger and future customers - the generation that spends more time online and may not recall a time without smartphones. Banks have responded by providing personal financial management (PFM) tools on their banking website or creating separate PFM websites. This helps them compete against third-party account aggregation websites. "With the help of social media tools, banks are integrating account aggregation applications and providing widget and mashup features on their websites. The addition of these features increases the value of internet banking as a retail delivery channel. Banks now realize that a successful online banking model cannot be insured by merely adopting a standalone technology or providing good customer service or creating innovative products. For the best odds of success, bankers need to design an online banking model that is adaptable and utilizes a blend of strategies that incorporate emerging themes. For the best odds of success, bankers need to design an online banking strategy that is adaptable. (c) 2011 Global Finance Media Inc. |