A Managerial View of E-Banking
As mentioned previously, e-banking is the extension of traditional banking services to a new channel, but that channel comes with some unique challenges and capabilities. This chapter intends to discuss how managers should consider these challenges.
MANAGEMENT CHALLENGES
The author notes that technology has had dramatic effects on all forms of business, but he will focus on topics that are specific to e-banking.
Increased Customers Expectations
Given that e-banking removes the restrictions of physical location, customers have a broader array of choices, and banks must compete to attract and retain them. This has put customers on a pedestal, and they expect (and demand) the best of everything in exchange for their business. As soon as one bank offers something new, customers will expect it of their own bank. Managers must therefore react quickly to changes - or better, become proactive to ensure that they are perceived as being a service leader rather than begrudgingly offering "me too" services.
Security Problems
Internet security remains a major issue. While much has been done to improve security, there is still a high level of public concern, and the media aggrandizes even minor problems. There is also the speed of technological progress - each innovation brings new vulnerabilities, so there is considerable risk in trying to be on the leading edge.
Technological Challenges
The author asserts that there are "numerous" technical issues, though he names only a few.
Traditional (legacy) systems were developed for business use - a small staff of individuals in a single location, using controlled terminals, each performing a limited number of tasks during business hours. Each of these qualities, which the system was designed to accommodate, is turned on its head for e-banking: a large number of users in various locations, using equipment, to perform a wide range of tasks (some of which are interdependent), at any time of the day.
He expounds upon a the needs (security, scalability, interoperability, etc.) that precipitate from these differences, as a method of hammering home the point that existing systems simply were never designed to handle the operating conditions of e-business.
E-Channels Specific Marketing
Doing business online shifts the balance of power from the service provider to the consumer, which is particularly challenging for banks, which were very autocratic in their relationships with most of their customers. Return to the concept of increased competition, a bank must adapt to be responsive to customers or lose them to more service-oriented competitors. This is a massive shift, and a few examples are given of established banks that are no longer in business because they refused to provide services and new banks that stole their customers.
Aside of customer base, banks are increasingly pressured to tighten their operations. To be competitive, a bank must offer more interest on accounts and charge less on loans, in addition to providing a host of new services. The net result is less revenue and higher expense, making efficiency of paramount importance.
Change Management
The author (re)emphasizes the amount of change that a traditional bank must undergo to be competitive in the new landscape of e-banking - and managing this change should be of particular concern to managers. A great deal of effort may be necessary to shift the employees (and managers) of a company to the new paradigm, and to make sure the change is implemented in a manageable fashion (i.e., that it does not cause disruption and chaos).
Project Management
Project management is mentioned, though it doesn't seem to be anything germane to e-banking (just general description of what it entails). Perhaps this is of particular concern because banking has not been project-driven in the past, but the vast amount of change (and ongoing changes) means it will shift to a more project-driven business.
THE ORGANIZATIONAL MAZE
This section seems to expand on the concept of "change management" - given an industry that has not experienced much evolution in hundreds of years, getting geared for e-banking is going to be a shock to the system. Some topics to consider on that front:
Resistance to Change
The adoption of a new system by users (which may include employees, suppliers, and customers) is critical to its ultimate success. The problem is "user resistance," the desire of individuals to avoid a change.
There will be negative impacts, the result of which will be employee turnover, loss of customer based, and strained (or broken) business relations - possibly devastating. Said again, there will be impacts - they are inevitable - all you can do is mitigate.
One tip: involve stakeholders before the change takes place, to discover reasons for resistance, and to ease the transition. This prepares the users (they see it coming) and can help you identify aspects of the change that will be welcomed (so you can sell benefits) and those that may cause friction (so you can mitigate damage).
Implementation of new systems should be gradual. In addition to practical concerns (issuing equipment, granting access, scheduling training), pay attention to things that seem inessential: chiefly morale. Low morale is the harbinger of employee turnover and, in extreme cases, sabotage. Gradual implementation with careful monitoring will enable you to address problems before they fester.
Some random notes:
- The larger the number of people impacted by a change, the slower it will need to be implemented.
- Pilot programs can enable some to act as evangelists (or if their experience is bad, ths can work against you)
- A major problem is lack of communication - people feel the change is being forced upon them.
EN: Something the author skirts, but does not address directly, is that all of this pertains to user experience, which is generally acknowledged when the impacted party is a customer, but seldom even considered when the impacted party is an employee.
Channel Integration
An important consideration: e-banking provides a new channel for interaction, but it is not the only channel, and consideration must be given to the way in which it will integrate with existing channels.
A warning: forcing a channel-switch is generally not accepted by the market. If you lock the office to force users to bank via ATM, some will simply move their account to a bank that allows them to speak to a teller if they so prefer. See the section above about being heavy-handed with employees and partners.
Especially when it comes to financial transactions, users are slow to adopt new changes. In spite of e-banking capabilities to manage accounts online, customers continue to do most of their account management tasks through tellers and ATMs. It's noted that older customers tend to stick to "outdated" channels (but this is an effect of custom rather than age), and that even younger customers prefer face-to-face for certain transactions (mortgage applications, notably).
Many customers use multiple channels, and expect the interaction to be seamless: a deposit made in the branch should be reflected in the balance shown at an ATM or their home computer as soon as possible (preferably instantaneous) - this means that the bank must make sure that legacy systems and processes integrate with newer channels.
The author returns to SOA as a solution to the problem: if the ATM, Web site, and the terminal used by a teller all speak to the same application services, updating and upgrading them is facilitated.
Another word of caution: be careful to mitigate the sense of competition between channels. Ideally, the channels should promote one another, and there should not be incentive for one to "win" over the others - the result is that customers feel herded to the channel of the bank's preference rather than being permitted to choose the channel they prefer.
Creating Flexibility
There is a brief section on "organizational flexibility," meaning that the business organization can rapidly reorganize itself. He names a bank that credits flexibility for its success, suggests that a "flat" organization with fewer silos and levels of management can be more nimble. Not much in the way of detail, though.
MANAGING RELATIONSHIPS WITH CUSTOMERS
Said earlier: e-banking has reversed the power relationship between bank and customer, and has made customer relationship management a critical issue for mangers.
E-banking is not just for technically sophisticated customers - it is used by a range of customer segments. By current demographics, the channel is used by more affluent and educated individuals, though other sectors are growing.
The author suggests that usability (without using that exact term) is a critical issue. The primary concern is still security, but in close second is the customer's fear of doing things unintentionally or accidentally.
Managers should carefully consider the entire lifecycle: initiating, developing, maintaining, and terminating the relationship with the customer. Termination is the most overlooked (as it is least desirable to the bank), but given switching behavior, it's likely a customer who has closed an account may re-open it (or open a different kind of account) in the future, unless the termination process was poorly handled in the past
In the voice channel, there has been a shift from "call center" to "contact center," where representatives do more than merely process transactions, but seek to use discussion to build and maintain a relationship with the customer (similar to counseling at a branch office). The principles and resources can be leveraged to enrich the e-banking experience.
There is another trend toward the use of "virtual community" to facilitate customer-to-customer support via newsgroups, forums, chat, and blogs among communities with similar interests. The author does not expound, merely states it is a trend and gives a few examples.)
Because products are largely non-differentiated, the development of "integrated and customized" service has become an active area of competition. Breadth of service is also an advantage, as customers do not want to use several different sites to manage their finances. Institutions are reluctant to adjust to this approach, but the author asserts that it is essential to competitive advantage, and even to survival.
The author mentions the credit card product as an example of increased competition and the lower churn rate experienced of customers who have a credit card account and checking account at the same bank, and the advantages to the business (lower operating costs due to electronic bill payment). He does not mention the need to provide a competitive core product, but it stands to reason that customers will forego convenience for cost-savings if the bank is exploitive.
Banks should keep traditional channels (branches and phone banking) intact to serve the preferences of different segments, seek to make a "gentle transition" to e-banking (the most efficient channel), but be mindful of channel conflict.
Winning Customer Trust
Developing a relationship of trust is more difficult via the electronic channel than others (branch and phone banking) that offer more direct contact. Not only are customers leery of the channel, but banks are primarily concerned about security and fraud, often to the detriment of customer service (making the customer feel un-trusted).
From the customer viewpoint, trust is granted to a Web site they feel is secure, available, and reliable. Certainty is of high importance (being sure their actions will have the intended consequences and no unintentional ones).
From a supplier viewpoint, the key requirements are efficiency and preservation of confidentiality, in addition to the estimation of the firm's "worthiness" as an online collaborator (they provide sufficient volume, are willing to act cooperatively for mutual benefit, etc.). The author hints at, but does not address, the parasitic nature of some firms (especially small start-ups) in the online channel.
Building trust online can be done by the usual methods: professionalism, reliability, speed and earnestness of reaction, honesty (especially in unbiased comparisons), and functional assurance. Specific to the online medium, endorsements (regulators, customers, industry groups), historical evidence, and breadth of information can help overcome trust issues.
Human Resources Management
HR is seen as a key factor due to the short supply of skilled workers. In addition to the technical skills (web architects, designers, and developers; IT infrastructure and security) there is a need for those in traditional roles (marketing, operations, customer support, etc.) that can adapt to the needs of the channel (rather than trying to force the channel to adapt to their existing skill-set).
Since the skills are rare, higher salaries are needed to attract skilled workers. Compensation is also a key factor in retaining them (as well as any traditional employees who gain training and experience in the channel).
Beyond compensation, employers must provide an environment where employees who work in the e-channel are not encumbered by traditional channels. The author suggests that some firms have created a separate "online unit" with a more entrepreneurial spirit than their traditional business, though this requires close integration and conflict mitigation.
For existing employees, change management is necessary, even for those who will remain in traditional channels, to understand the new channel and how it integrates with the rest of the business. Skills training will be needed for all employees, as even those who remain in traditional channels will to some degree be affected by the new channel.
A list of considerations is provided:
- Understand that online business is significantly different from other channels. It should not be yoked to the same plow.
- It is critical to obtain the full support of senior management. The online channel should not be dismissed as something apart from the rest of the business.
- The experience and expertise from traditional business should be leveraged. It should not be ignored, nor should it be overshadowing.
- Especially for the online channel, speed is of the essence. It moves, and must move, more rapidly than traditional channels.
- Use "different" ROI calculations for e-business. Treat it as a start-up operation, and take a longer view.
- Expect and accept mistakes, and do not be daunted by them.
EN: Not all of these are germane to HR. Seems to be a laundry list of random thoughts.
MARKETING, SALES, AND EXTERNAL RELATIONSHIPS
The online medium changes the approach to marketing, from traditional mass marketing and direct marketing to interactive marketing. The author provides another list of differences:
- The distribution channel is the Internet itself, primarily e-mail and Web sites (though e-mail is in decline as it's been abused)
- Marketing material is more often written by the company itself (or by consumers) rather than an outside agency.
- The focus should be on the interests of a target audience (rather than focusing on a specific product)
- It is possible to measure interactive marketing with much higher accuracy
- The response rate is far lower (possibly as a result of #3)
- Success should be measured in the long run (impact on customer relationship, customers who "buy" later rather than immediately)
The Internet offers a myriad of opportunities to reach customers and provide them with product information. He mentions that the financial services industry was among the biggest spenders in online advertising (in 2006) and cites one source that claims their online marketing is more successful than traditional channels.
Regarding other channels, he echoes common knowledge: print is largely dead, television is declining, etc. These other channels should not be abandoned (they reach other market segments, provide esteem to the company, and create multiple exposures to the brand), but it's worth considering whether they should continue to be primary in the consideration (and budget) a company gives them.
The author briefly mentions "personalization" as another "P" of marketing, but does not expound. (EN: this was a fad that has passed). He later speaks of "mass customization," which is more of an operational strategy (providing features and flexibility that enable the customer to interact with products according to individual needs).
Of note: pricing strategies must be much more sensitive to the market. While customers may consider other factors, pricing will always be the primary means of competition for financial products. Price increases should be handled with care - because of the ease of switching, a sharp increase will result in a quick exodus.
Marketing should also be closely involved in product development. Customer behavior can be monitored closely, and the way in which customers interact with their products can indicate additional features or services that suit this behavior, such that product development can be more predictive. "Bundling" is mentioned as a way to increase sales when products are complementary, but the products should also be interactive.
Another significant difference between the Internet and traditional media is that individuals are capable of publishing information (it is not limited to, or controlled by, a few major outlets as are most media). What customers say about your company is often more impactful than what the company says about itself.
Of importance to brand management: consistency. The messages provided to the Internet are not isolated from those provided in all media. While the communications approach should be different, the core messages should remain consistent.
REGULATIONS MANAGEMENT
Typically, regulators are motivated by a desire to protect financial institution against criminals, to protect consumers against fraud and privacy violation, and to maintain overall confidence in the security and stability of the financial system. (EN: the author left out "to consolidate power in and generate revenue for the government itself", which is a common motivation, albeit not a very productive or pleasant one)
The financial services sector has long been heavily regulated, and the novelty of the online medium is precipitating a slough of new legislation, some of which is actually necessary (but much of which is not - existing laws protect the online channel as well as others). In addition to creating redundant laws, the regulators have also tended to be more restrictive of the medium. The author suggests this is because of its novelty, unfamiliarity, and the tendency for the media and public to panic. For managers involved in e-banking, there is a need to be aware of and attentive to the relevant regulations, especially those specific to the medium.
One particular concern for the channel is its global impact: a Web site is not restricted to a specific territory, but reaches a global audience, which is of particular concern when conducting transactions that cross borders and providing accounts to serve international customers. There are questions of jurisdiction that regulators and industry groups are only beginning to consider, and it's not uncommon for managers to have to consider multiple sets of regulations.