Problematic Issues in E-Banking Management
The Internet is fundamentally different from other channels with which the banking industry has greater experience. While it increases the significance of risk factors, it also presents previously nonexistent opportunities - but to take advantage of them, bank management must be aware of them, and mist be willing to make the organizational changes necessary to pursue them. Failure to do so will lead to an uncompetitive business model in an increasingly competitive industry.
The present chapter addresses issues that pose considerable risks to e-banking projects and may prevent banks from achieving their desired e-banking related goals. These include: lack of agility for the organization, resistance from employees, obstacles to the integration of systems, security issues, new and complex regulatory issues, and project management problems.
TECHNOLOGY RELATED PROBLEMS
IT and Telecommunication Infrastructure Issues
Infrastructure is a particular concern for emerging markets, which lack the telecommunications, banking, commercial, and legal infrastructure. However, it is also a problem for established markets, whose infrastructures are becoming outdated (witness the lag in the adoption of the mobile channel in the United States as compared to its rapid adoption in Southeast Asia).
Capacity/Scalability Problems
The ability to adequately handle increased demand for system resources is an evolutionary problem: banks cling to outdated technology, designed for internal use, and attempt to merely open the gates for public access. Even those who have upgraded their systems fail to account for future growth; hence "increased" capacity becomes insufficient in a very short time.
The author also mentions two specific issues: "Disproportionate advertising" is a cause of problems. A marketing campaign (or even a rate change) can lead to a spike in traffic that far exceeds typical demand, and systems cannot cope. Also, the reluctance to spend budget in advance (paying today for capacity that won't be needed until next year) places banks in a perpetually precarious position.
Availability and Systems Integration
In addition to capacity issues, legacy systems were generally designed for availability during business hours and operate based on overnight batch-processing, both of which are obstacles to providing 24/7 availability and real-time processing required to do business on the Internet. The "new" systems designed to overcome these limitations are often patches to existing legacy systems that provide makeshift patches in an attempt to overcome the lack of critical core capabilities.
System incompatibility is also an issue: the e-banking customer expects a seamless integration of products, whereas each product may be administered by a self-contained system that is not designed to share information with other systems. Solutions are likewise kludge.
At the core of both issues is the unwillingness of banks to part with legacy systems, but instead to patch and kludge and work around the inherent problems, which puts established companies at a disadvantage to newcomers in the market.
Web Site Design and Operational Functionality
The author provides a number of examples of badly-designed sites. In sum, they do not provide the functionality the customer desires, the functionality they do provide is awkward for the user, and the visual design is completely rotten. For the individual company, poor site design results in loss of customers to institutions with "better" Web sites. For the industry, the widespread problems with the majority of company sites is detrimental to the customers' willingness to trust e-banking at all.
MANAGEMENT PROBLEMS
Regulatory Issues
Because the Internet is a global medium, transactions and service relationships often cross the territorial boundaries of state and country. There are jurisdictional issues that banks must address on a much larger scale than before (before the Internet, interstate and international transactions were negligible).
There is also the problem of novelty. Customers unfamiliar with the medium are easily panicked, and the governments that seek to protect their interests are prone to panic as well, rushing ill-advised legislation that may be burdensome to obey.
Information Management
Because of the shift from internal information systems with a small user base of employees to internet systems with a large audience of customers, suppliers, and the general public, IT management lacks the knowledge and experience to make the transition, and many cling to outmoded practices.
The problem is not unique to e-banking, but the consequences are much greater, as the information (data) that pertains to accounts and financial transactions is core to their operations rather than a secondary concern (as it is for manufacturing and retail).
Outsourcing Problems
Because the task of developing and implementing systems is short-lived, many organizations outsource these tasks or buy them as application services from third-party providers. While this approach often allows a bank to implement solutions more rapidly and at lower cost than in-house development of custom systems, it has many disadvantages:
- The bank loses control over its critical operations (the company must rely on a vendor to do things, cannot do them itself)
- The bank loses the ability to manage its operations (business practices must conform to the system, not vice-versa)
- The bank loses competitive advantage (using the same systems as a competitor undermines product differentiation)
- The bank loses the ability to integrate systems (products of different vendors are self-contained and closed)
- The bank loses flexibility (it becomes "married" to a system)
- The long-term cost for consulting are higher (any discussion about the system requires the participation of the vendor, which comes at a cost)
These and other problems arise even in instances where the vendor fulfills their contractual obligations and works cooperatively with the bank. There is a much longer list of problems that come from poor vendor relations, and their incidence is high.
Simply stated, "outsourcing is not a panacea" and a bank should carefully consider whether it is willing to accept the limitations and disadvantages for the sake of the perceived cost-savings.
Security
Security is the leading issue for e-banking. In addition to the financial damages, the damage to a bank's reputation as the result of a breach can be far more destructive to its ability to attract and retain customers.
While the criminal element (hackers) are scapegoat, the core problem is that the banks are exposing to the Internet legacy systems designed for a small number of users in a discrete location, which were not engineered to include the core capabilities to maintain security in an open environment.
Security issues are fairly straightforward: a system must allow itself to be accessed only by authorized users, allow them to access only the data and functions they are authorized to access. The author goes into a lot of detail about specific concerns, but they are not specific to e-banking.
A few loose facts:
Loss of Personal Relationship
In the branch, banking is based on a personal relationship - particularly with high-net-worth customers with whom the bank strives to provide personal service, but also with the average customer who is able to speak to a teller or loan officer in a face-to-face manner.
Similarly, banks had a geographic advantage: customers often chose banks that were conveniently located, and comparison shopping was difficult (meant visiting several physical locations in person).
In the online medium, the bank cannot rely on such relationships, as there is no human contact at all and do not have a geographic advantage. To compensate, the bank must deliver a highly competitive product and provide adequate information to customers and prospects to attract and retain their business.
Organizational Structures and Resistance
The introduction of any change to business operations tends to generate conflicts and morale problems, and e-banking constitutes a large and broad change to an industry that has been relatively stable for decades. This resistance to change must be carefully managed, as the cooperation and support of employees is ultimately necessary to succeed. The author expounds on this, far more than is necessary.
The author points to a model (Cao) of change management that describes four categories of change:
- Process - Change in the workflow (e.g., a "new" way to do a task is implemented)
- Structural - Change in the organization (e.g., a new business unit is created)
- Cultural - Change in values and beliefs (e.g., having to negotiate, rather than dictate, interest on a loan)
- Political - Change in the locus of power and influence (e.g., the new e-banking department gets more resources and attention from top management)
The author goes a bit whole-grain, (mis)using "holistic" a lot, but his thrust is that each of these aspects should be considered. As for the how, the author stays in the nebula, but the core message is common: provide information in advance, control or react to disinformation, seek to gain acceptance, no ugly surprises, etc.
Trust Issues
Lack of consumer trust is a major hurdle in the growth of e-baking in general, and for the individual firm looking to transition its operations (hence customers) to the channel. "Trust" is a complex subjective issue, and there is no single formula that can be used to attain the trust of customers.
The author goes into a handful of different factors:
- Trust is generally related to risk. The greater the uncertainty or impact, the more the user will be hesitant to move forward.
- People trust in brands, even those with which they have no experience, which gives established banks an advantage over newcomers.
- Experience builds trust. The author uses the example of ATM transactions - users were cautious at first, but in time it became a routine action and users don't think twice about it.
- Approvals or endorsements can help to overcome trust issues.
- Genuine guarantees against consumer losses can decrease the perceived impact.
- The design (appearance) of a Web site can bolster or undermine trust, as can quality of content (voice, grammatical correctness, etc.)
- Complexity undermines trust (creates a greater perception of risk)
- The endorsement or identification of the channel through other channels engenders trust
EN: I think the author missed an important factor: he focuses on getting customers to trust the bank, but overlooks the need to get the bank to trust its customers. This is an area in which many businesses falter.
EN: It's also worth mentioning that, like the ATM example, "trust" issues are likely to be short-lived. While people who are new to e-banking are going to be wobbly, this may pass in a decade or so - though calling attention to trust and security only makes them more mindful of it.
Adoption/Acceptance Issues
Customers cannot be compelled to adopt the channel. A bank can address every conceivable issue and provide every possible incentive, and some users simply will not switch. Customers value their channel over their bank - so if forced to switch channels, they will switch banks instead.
Whether to retain an "outdated" channel should be a decision based on acceptable losses. If the cost of operating a branch office exceeds the revenue generated by customers that uses the branch, it can be closed down (even if you lose every single customer, the company is better off).
Clash With Other Services Delivery Channels
E-banking was long dismissed as a channel because it was believed that there would be cannibalization - though given that the electronic channel is the least expensive, it represents a significant reduction in expenses (even if it generates no new revenue).
Channel conflict, however, is a different matter: if a company is perceived as being in conflict with itself (the branches are attempting to dissuade customers from using the phone or Web channels), this can be detrimental to the company's brand, hence to customer trust.
Change Management Issues
Since the electronic channel is new, it represents a change in the way the organization will do business, and a change in the organization itself. Employees (and even management) will be resistant to change. (Note: the author has written on this topic in a few other channels, the rest of this section merely repeats some of the information.)
Ethical Issues
The "ethics" of e-banking seem to focus on the way in which banks use the information that is available to them by analyzing customer behavior (EN: information they have always had, but have never sought to use because it was previously difficult to aggregate and analyze).
The primary benefit of analyzing this data is that it can help the bank to identify needs that may be filled by an existing product (or indicate the value of developing a new one). It also enables banks to identify patterns of behavior as a means of detecting fraud or unauthorized use (that doesn't fit the customer's usual pattern).
The objections seem to surface when the information is shared with third parties, used to draw unflattering conclusions, used to restrict the customer's access to certain products, etc.
In the end, regulators are still struggling with the uses of information that can be considered "legal," so deciding what is "ethical" is a quagmire. (EN: the best approach is openness - if you're reluctant to do something if the customer knew it, it's probably ethically shaky)
CHAPTER SUMMARY
A rehash, except to state the implicit: that an organization should consider each of the topics discussed above when embarking on any new project or business venture as a way to predict, and be proactive in addressing, and potential issues.