By all accounts online banking is a mature channel. With some
studies showing that over a third of American households are using
their financial institution’s online banking capabilities, the big
question is what is next?
Security is certainly top of mind for everyone, and compliance is an
ongoing priority for financial services firms. From a functionality
angle, progressive institutions are looking for ways to enrich the
experience for their users, cross sell products and services, and
deepen customer loyalty. This forum provides our industry leaders with
the opportunity to discuss the latest trends in online banking and how
they will affect both consumers and financial institutions.
George Tubin
Research Director – Delivery Channels
and Financial Information Security
TowerGroup
TowerGroup has been closely monitoring developments in consumer online banking and now reports that almost 40% of all US households bank online, and the number increases approximately 4% a year. Perhaps more interesting is that the online bank continues to outpace every other channel in number of transactions, growing at over 27% annually and slowly becoming the most powerful channel the bank has ever deployed. The online bank stands uniquely poised to become nothing less than the ‘core’ of the delivery channel architecture, delivering value and support indirectly through collaboration with the ATM, call center, and branch.
While online banking adoption rates are impressive considering the channel is a scant 12 years old, banks still want more online customers. To get them, banks must address two key issues: security fears and apathy. General consumers’ concerns about online fraud spill over into concerns over the safety of online banking. Fortunately, Internet banks’ implementation of stronger authentication techniques and education on avoiding Internet fraud have helped allay consumers’ fears. Many banks report a pickup in both online banking activations and transactions since the implantation of multifactor authentication techniques. Thank you, Federal Financial Institutions Examination Council (FFIEC)!
The second barrier to online banking adoption is apathy; consumers simply do not understand the benefits of online banking. Banks that have successfully penetrated over half of their customer base spend a considerable effort educating their customers and prospects on the benefits and ease of online banking. They reach most prospects via Internet and in-store marketing. According to TowerGroup primary market research, 93% of all consumer banking customers continue to visit a bank branch at least once a month, making this the most effective channel for converting current bank clients.
In the next few years, banks will try to continuously improve their customers’ online banking experience by making the channel more usable, useful, and potentially indispensable. Improvements include implementing similar transaction categorization, functionality for spending analysis, and capabilities for planning and budgeting as provided by personal financial management (PFM) tools like Quicken from Intuit Inc. and Microsoft Money. Banks also want to simplify online payments and adopt an ‘online payments hub’ paradigm in which the consumer is concerned only with the payee, payment speed, and payment cost instead of the payment mechanism. Finally, keep an eye on mobile banking and Web 2.0 technologies (including blogs, podcasts, and really simple syndication, or RSS feeds) for future enhancements.
Greg Haislip
Managing Director - Banking
Microsoft Corporation
Security continues to be one of the biggest inhibitors to the online banking population, particularly for the more mature banking population. However, due to the rapid evolution of the user mix between Gen X, Gen Y and this population, the 50% household usage barrier will be penetrated significantly over the next 5-10 years given these populations are much more trusting of the online channel and are rapid adopters of technology.
To help drive this increased adoption, FIs should focus on creating simple, easy to use, yet dynamic experiences for their customers whereby they are providing the most relevant information and services coupled with contextual assistance and advice when necessary. The interaction should be proactive, and highly visual so that the customer has a perception that they are personally connected with the FI and that they are in a trusted partnership with the institution as they interact, whether the experience is for a service request or a new account application.
In regards to targeting the younger generation, FIs must remember that they are very fickle and demand instant access, rapid feedback and also like to be rewarded for their business. Plus, they are very social, collaborative and technically savvy. This will create an opportunity for innovative FIs to use technology to address these needs through mobile devices and loyalty programs, providing flexible payment capabilities and by creating online communities such as blogging to assist with product selection and for advice.
By working with the Microsoft platform and our partners, our customers are seeing significant improvements in time-to-market and the ability to deliver a more flexible, real life online experience whether that experience occurs through the Web, a Smartphone or a Windows Media center in the home. This enables them to attract new customers, retain and extend the relationships of existing customers while enhancing profitability and loyalty. It also provides the technology platform for future capabilities which will address the emerging demands of the next generation of online users.
Tom Berdan
Vice President, Product Management
Harland Financial Solutions
In many respects, online banking is an essential commodity. Yet, banks must continue to aggressively advance their efforts to add new functionality to Internet banking services and persuade non-users to take advantage of this feature. Study after study has confirmed that online bankers, especially those who use online bill pay, are more satisfied and loyal customers. It is a double win for the bank: it moves its customers to a low-cost and convenient banking channel, while at the same time strengthening its relationship with them for the long-term.
To sustain the appeal of online banking, however, banks must continually update and expand their online offerings. We are seeing a trend towards delivering better online financial management tools to customers so that they can control their finances in a more granular way. For example, we offer financial calendars and different ways to categorize expenses and payments. Providing real-time alerts is another area that is growing in popularity.
Many of our financial institution clients work with ‘micro-businesses’ that have fewer than five employees, so we have begun augmenting our consumer online banking experience with more advanced features typically provided to the business banking users. Micro-businesses often utilize the retail online banking platform, but we have recognized that they can also utilize many of our cash management tools. There are substantial opportunities for getting more businesses to use online banking, particularly when they can realize the benefits of functionalities such as ACH, payroll and remote deposit capture.
The more difficult task is migrating non-Internet users to take advantage of online offerings. Security, identity theft and privacy concerns are prevalent in the customers’ minds and we must assist our banks with tools to help them address these concerns. Harland Financial Solutions works to provide our clients with a comprehensive set of marketing materials so that they can effectively market their Internet banking products. This includes an anti-phishing response kit and information to address any security concerns.
At Harland Financial Solutions, our goal is to provide a powerful and comprehensive core system, along with all of the ancillary modules, such as online banking, CRM, MCIF, document management, item and payment processing, etc., that allow our clients to increase customer satisfaction, attract and retain customers, and grow their business.
David Becker
Chief Executive Officer
First Internet Bank of Indiana
As an Internet-only bank, First IB does not face the challenges that traditional financial institutions face when trying to convince their customers to use the online channel. Traditional ‘brick and mortar’ banks have generational hurdles to overcome with older consumers who still like to interact with their favorite tellers, plus there are also a large number of people who are simply caught up in a routine of visiting their nearby branch and haven’t overcome the inertia to make the change to online banking and all of the convenience that it offers.
Our customers are very Web-savvy and do quite a bit of shopping, research and work online. They love the fact that the bank literally goes where they go. To get them onboard initially, we have put a tremendous effort into streamlining the new account opening process. Our prospects can sign-up in just a few minutes, and usually without human interaction. Once they are onboard, we strive to provide them with very efficient and robust service, so they can complete all of their banking with just a few clicks and without picking up the phone for assistance. Our customers demand full service and a wide range of financial products and services. By staying with ‘off-the-shelf’ systems and open software, we are able to move quickly and add new products as needed, which is crucial in a marketplace where consumers face no shortage of banking options.
Traditionally, online banking has been used as a tool to manage your finances based on transactions that have already happened, but going forward it will be used more as a financial planning tool, to control future transactions and cash flows. Personal financial management tools will be tightly integrated into Internet banking, which will make it possible to plan for the far-off goals like college or retirement, as well as the next-week issues of not bouncing the rent check and arranging for the car loan payment to be made after payday. First IB aims to be the helping hand there to guide our customers through the life changes that affect their finances.
Michael D. Nicastro
Senior Vice President
Open Solutions Inc.
The online banking channel is certainly mature at this point because consumers love the convenience of checking their balances, transferring money, paying bills, applying for loans and all of the other functionality that Internet banking delivers. Yet the adoption rates are starting to top out, at least on the retail side. Consumer penetration levels will continue to inch up, but I don’t foresee any major advances.
However, there is still a lot of room for growth on the business side of online banking. More businesses – especially smaller ones – are starting to see the advantages of online banking for managing their cash flow, handling wire transfers, invoicing, paying bills, etc. An even bigger growth area will be in remote deposit capture and all of the back-office conversion efforts that are just starting to get underway.
While online banking has been extremely successful for all of our clients, it has not really reduced usage in the other channels – the branch, call center, ATM and telephone banking. More complex issues usually demand a branch visit, while picking up the phone and using the IVR is still one of the easiest ways to check balances and move money. With streamlined menus and processes in place, along with newer voice response systems, telephone banking remains very popular.
Of course, mobile banking is a hot topic right now. We see mobile banking and payments as supplemental to online banking – again it won’t displace any usage of that channel or any other channel. As functionality and bandwidth increase, you will see some of the same growth rates that online banking has experienced in the past few years. There will be a relatively quick uptick of adoption rates, especially among younger consumers, and then it will hit a plateau.
Regardless of the channel, financial institutions need to have a complete view of their customers at all times. The fully relational database in our core system allows our clients to achieve this goal. Whether it is online or in person, our enabling platform is the key to tracking, understanding and personalizing every interaction.