On April 2008 The Banker publishes and excellent article on the opportunities of on line banking.
The Banker affirms that online banking is struggling to keep pace with web trends and losing the lucrative social networking market as a result. But some players could be on the verge of a breakthrough.
Dr Thomas Meyer, an economist at Deutsche Bank Research in Frankfurt, has studied the impact of Web 2.0 technologies on the financial services industry and he notes that the new generation of online users (dubbed the ‘millennials’) form their loyalties at an ever-earlier stage. He advocates the importance of ensuring a unique customer experience, driven by innovation in the underlying online banking technology capability itself, as the way in which the banks can attempt to develop “a kind of connection to the customer”.
Wall Street-based consultancy Celent reported in its 2007 survey of US college students, that 60% of respondents said they would maintain their present banking relationship into their working lives –a 12% increase on the same survey in 2003.
Javelin Strategy & Research estimates that the “millennial” generation’s total income during the course of the next decade will outstrip that of their baby-boomer parents, hitting about $3480bn.
First Direct, explored the world of Web 2.0 outside the online banking firewall, with the creation of a number of rich content features, such as podcasts and RSS (really simple syndication) feeds, which push information to the user. (See more on: www.interactive.firstdirect.com/podcast.html).
Infosys, found that several big names – including Wells Fargo, American Express, HSBC and AMEX – scored very highly on collaborative features and content.
Dr Jai Ganesh, who leads the Web 2.0 research lab at Infosys, believes it is still early to know where and how banks might be able to integrate Web 2.0 technologies into the online banking piece itself to deliver a unique experience, using the customer’s personal financial data.
Among the handful of intrepid banks and financial services providers addressing the challenge:
1. US-based online brokerage and bank E*Trade Financial, an early pioneer in the online space, is exploring and has developed prototypes of mashups and widgets (new tools and services created with content from multiple sources) that would use data from customers’ portfolios and accounts. These tools would allow customers to make a seamless comparison of data from their own portfolio against streams of live data provided by other websites, so they could monitor their portfolio’s performance more effectively (see more: https://us.etrade.com/e/t/home). E*Trade’s interest in such Web 2.0 technology lies in the ongoing personalisation of its customers’ accounts. To this end, it has also made considerable efforts to integrate all of its online account offerings.
2. Banks must begin to examine where else in the online realm they might begin to integrate their service offering: Paul Halpern, executive vice-president at E*Trade, believes “website integration will not be sufficient to meet customers’ needs in the future. At some point you don’t need a website: you just need to position your functionality right where the customer needs it”.
Executives at Citibank online, bank Egg, coincide: “confining the bank’s online development to the build-out of its own website could prove a self-limiting strategy”. Ken Woghiren, head of architecture and innovation at Egg, has overseen some research into the evolution of the bank’s customer behaviour: “The research that we have done has shown that our customers are interacting with us in different ways, and that trends around technology are beginning to have a marked impact:”
- The rise of social networks: the phenomenon has a direct impact on the amount of time consumers spend browsing banks’ websites, he says. “the type of customer that we deal with is ‘cash-rich, time-poor’. They would have a few minutes sitting at their desk, and interacting with our website. Now they are spending those cracks in the day on their social networks. We need to show up in the place where people are spending their time.”
Facebook, the US-based website founded in 2004 by a Harvard Business School student, is one such social network. With more than 68 million active users globally, Facebook is the sixth most trafficked site in the US. Facebook and its chief competitor MySpace have sparked controversy in the US and UK press, largely because they have reached a point of critical mass never before seen in either the online or physical realm.
“We have been looking at a few innovative payment propositions, using the Facebook infrastructure for example,” says Mr Woghiren, from Bank Egg.
Egg has managed to convert its own e-mail-based person-to-person payment facility to operate with the Facebook messaging system, “with minimal effort”, says Mr Woghiren. It is not yet a proposition that the bank has taken to market but “it is one of the things we are considering”.
E*Trade is “already looking to do some things along those lines” says Mr Halpern. “[Customers] should not necessarily have to log on to our site to buy a stock or make a payment, and take action against their portfolio.” “We will have to see how that plays out.”
The Banker has also learned that a major UK-based high street bank is “seriously” considering the Facebook proposition. “It’s a quick route to market,” observes a senior manager at the bank.
With the under 25s serving as the site’s fastest growing demographic, and boasting an 85% share of the social networking market of the US’s major universities, Facebook serves as the young, tech-savvy and affluent, ready-made sweet-spot. “As a bank, how do you read those demographics? It’s well known that Facebook has a higher net worth,” he adds. “The payment is the more commercial point of sale, but [using] Facebook would also allow the bank targeted advertising. And if you understand more about the customer from their Facebook account, you can better cross-sell to them.”
Facebook has already moved into a number of e-commerce activities through its open application programming interface (API), which allows independent, third-party developers to create extendible widgets for use on Facebook pages. Hundreds of such widgets have been created, among them a range of personal finance features. These include: a peer-2-peer lending facility, The Lending Club; BillTrack, which allows Facebook users to keep track of their bills through their Facebook profile; and MyMoney, an online home banking application that takes information from a number of banking institutions. Its functionality includes viewing account balances and money transfer between accounts.
In November 2007, KeyPoint Credit Union, a small US-based member-owned financial co-operative, became the first financial institution to offer fully fledged account access through Facebook. Using a mobile banking platform, powered by mShift, a mobile banking solution provider, Facebook members are able to view their KeyPoint online account balance within their Facebook account without any additional login required.
Juli Anne Callis, the chief operating officer of KeyPoint and an expert in demographics, has noticed some instructive trends in the adoption of KeyPoint’s Facebook application. She says that it is not just about young people: All “people want to be in touch with their money any way they want”.
Web 2.0 banking experience is also operated by Google. Google told The Banker that a number of European and US banks have approached it regarding the integration of its software-as-a-service (software that is delivered over the web rather than deployed in-house) suite into their online banking and brokerage account platforms. Of particular interest to these banks is the integration of the search giant’s Google Apps suite, in which a number of applications, including e-mail, documents, calendars and talk capability, are offered as a bundled service. The suite was originally created as a free consumer tool but its functionality and ease of use has propelled Google into the enterprise market.
One idea that has been mooted, Mr Armstrong reveals, involves the use of the Google Apps suite to create a centralised, fully integrated hosted platform for interacting, at least in the first instance, with high-net-worth client accounts. “We would envisage the service and the data to be supplied by Google. The bank and customer would then interact in a particular domain. It would appear as a personalised web page”.
The integration of business intelligence software has also been discussed. If Google were to integrate some of the capability and knowledge it enjoys as the world’s largest custodian of online human behaviour with the customer bank account, it would be able to develop an in-depth profile of the online banking user as a three-dimensional individual.
The conjunction of Google and the online bank is not yet a “fully baked” proposition, says Mr Armstrong. The discussions outlined nonetheless signal a tangible shift in the way US, European and UK banks are thinking about the entire online banking paradigm. Egg, for example, is exploring the use of the iGoogle launch pad – a web page on which the user can arrange a number of information feeds and Google Gadgets – to allow its customers to aggregate their various accounts in a personalised way.
When consumer technology of this kind is so familiar, easy to use and ubiquitous, it seems increasingly likely that a third-party provider specialising in the online consumer experience will eventually dominate the next generation of online banking functionality.
The Banker writes that entering the world of Web 2.0, challenges include privacy, information security and avoiding losing online customers to the branch or to younger and nimbler alternative providers.
