E-Banking--A Fuller Picture
The author states that the last chapter is "a summary of previous chapters" - if it's anything like his chapter summaries, it will be a straight rehash with no new information, but I'll annotate it all the same ...
INTRODUCTION
E-banking is the extension of banking to a new channel, in which the customer interacts with the bank via a computer or mobile device. There were some early attempts to bank by modem, but the channel didn't catch on until the arrival of the Internet, which created an instant demand for service via the online channel.
During the past decade or so, many established banks provided service via the online channel, and a handful of exclusively online banks have arisen. While traditional banks still dominate the market, they are losing market share to the new arrivals, and competition among them is fierce.
Often, the goal; of e-banking is to provide all of the services offered at a traditional bank. The interactive nature of the medium enables banks to enhance these core services and derive new ones. It also has led banks to computerize their entire operations, enabling them to have unprecedented ability to access and analyze customer information, which facilitates greater responsiveness to customer behaviors and needs.
As all of this is new, many banks face significant challenges in competing in the online medium, and many banks are restricted by an organizational culture that reflects the nature of their previous channels (uncompetitive, not responsive to customer needs, etc.)
REASONS FOR IMPLEMENTING E-BANKING
E-banking requires a significant investment of resources and sweeping changes to an organization. The motives for banks to implement the new channel are:
- Customer Demand - A bank fears losing customers to competitors who support the channel (this is the most common motivation)
- Share of Wallet - The electronic channel facilitates offering new products and broadening the scope of products purchased by existing customers
- Share of Market - The electronic channel facilitates obtaining customers from outside a bank's geographic area without the need to build additional branches.
- Environmental Changes - A number of economic and social changes (a more service-oriented economy, more mobile population, widespread adoption of mobile devices, etc.) make branch banking less convenient, desirable, and even possible.
- Competitive Advantage - By being a first-mover in providing innovative products and services, banks hope to gain advantage (albeit short-lived) over slower-moving competitors.
- Operational Efficiency - Computerization reduces operating costs (versus paper and manual processing) and network computing enables a faster flow of information through an organization.
BENEFITS OF E-BANKING
E-banking provides a number of benefits to banks who utilize the channel:
- Customer Preference - It is more convenient for customers to acquire and service financial accounts via the electronic channel than through branches or phone banking, and rapidly adopt services provisioned through this channel.
- High-Value customers - Internet users have higher than average income levels and a greater demand for high-margin financial products and services.
- Account Aggregation - E-banking provides ability to pull financial data from multiple accounts (checking, savings, credit card, loans) to get an aggregated analysis of financial standing, which is of value to the customer and the bank
- Image - A bank that has e-banking services presents a competent and modern image to customers (actually, the converse is true - if you don't have it, you look stodgy and behind the times)
- Increased Revenues - Between increased number of customers, increased share-of-wallet, and better customer relationship management, a bank can increase its top-line revenues by selling more products/services (and more profitable product lines)
- Cost Reduction - The e-banking channel has a lower cost-per-transaction.
- Easier expansion - It is easier for a band to expand, both geographically and in service offerings.
- Load Reduction - As more customers transition to the e-channel, there will be less need for face-to-face support. Employees can be eliminated or retrained for more value-added tasks.
- Organizational efficiency - Changes can be implemented more quickly through the electronic channel than through a physical organization
- E-Marketing - The Internet presents a new medium for marketing that has a broader reach and can be more cost-effective than traditional channels
- Channel management - The business can automate its relations with suppliers and partners
BARRIERS TO E-BANKING
Banks may face obstacles to implementing or taking full advantage of the electronic channel.
- Consumer behavior - Some consumers are still reluctant to conduct financial business online
- Language and Culture - Especially for multinational corporations, a single approach to business through the e-channel may not be efficient or effective for serving multiple cultures or customers who speak different languages
- Industry trends - The author cites phenomena such as deregulation, legislative restriction, economic consolidation (e.g., the emergence of the Euro), and various mergers, as undermining stability and making change difficult.
- Competition - Entering the online channel means dealing with increased competition, and banks may feel they are unable to compete successfully in the medium.
- Security - PR and trust issues aside, some banks existing information systems cannot be secured for use in a networked environment.
- Resources - Banks do not have the in-house resources (project mangers, Web developers, etc.) to implement e-bankign and are unwilling to add to staff
- Cultural Issues - Banks may be reluctant to change the way they do business to accommodate the demands of the online medium
- ROI - Banks may not feel that they will get adequate return on investment to justify the expense of e-banking
- Internal Politics - Individuals in positions of power within an organization may be opposed to e-commerce for purely political reasons.
TECHNICAL ISSUES IN E-BANKING
Most banks already rely heavily on legacy information systems to support their business activities, and these systems will need to be adapted to serve the needs of e-banking. However, they may be ill-suited to the task, because they were not designed to accommodate many of the requirements of e-banking (large numbers of users, security, real-time processing, etc.) Also, banks typically have a myriad of systems, each of which is designed for a specific task (processing credit card transactions, for example) and does not have the ability to integrate with other systems.
The most common solution to this problem is the development of a middleware layer that communicates with each system independently and aggregates data and operations to the e-banking interface. An increasingly dominant model is service-oriented architecture (SOA), which consists of many small "services" that perform specific tasks, as opposed to a complex single program that performs a wide variety of tasks.
However, channel coordination is also an issue - customers expect than bank to operate as one business, so a deposit at a teller and a withdrawal at an ATM should both show on the user's mobile device in a reasonable amount of time (minutes, not days).
Design is also critical, in that a bank' Web site or mobile offerings serve as a branch, and the site is the company. The site must be visually appealing and easy to use.
TOOLS FOR MANAGING E-BANKING
The author lists a number of e-business tools that can be of use to e-banking.
- Data warehousing technology is used to collect data from dispersed and disparate systems to build a central repository of business intelligence.
- CRM Systems track the organization's interaction with its customers, individually and as a whole, and can be used to provide data for more ifnorrmed decision-making in handling customer relationships.
- Knowledge management systems gather information from within the organization, breaking down a number of silos and barriers to open communication and exposing knowledge that was previously unrecorded.
SOCIAL ISSUES
While the technical issues tend to take center stage, human factors are also critical to success - namely, getting employees, partners, and customers to adopt and accept the new channel. The author details how to handle this, but it comes down to providing information to the users before hand and seeking their involvement when practical. (EN: I think he misses the baot here, sees users as cattle to be herded, which is never a good thing).
PROJECT MANAGEMENT ISSUES
Implementing and maintaining e-banking will require an ongoing series of projects, and project management is an area in which banking is weak. Specialists (project managers) need to br brought in, operations and process mangers changed, and the business oriented to a project management perspective.
The author cautions against the systems approach to project management, putting IT before the business processes (and the people who will be involved) will result in many problems, up to an including the failure of projects to achieve the objectives of the business.
RECOMMENDATIONS
Some of the key recommendations of the book are consolidated here:
Strategy Development
E-banking should be approached as any other large-scale business operation: carefully considered and planned, with support from the top of the organization. Banks that have taken haphazard and piecemeal approaches have had corresponding results, and have damaged their long-term potential by focusing on short-term results.
Consider not only strategy that builds on the past, but that which predicts and adapts to change and innovation, and ensure that e-banking is a component of enterprise strategy rather than standing apart from the rest of the organization. IT should be involved in strategy, and should sometimes drive it (EN: I vehemently disagree with the last bit).
Channel Integration
Regardless of how the customer interacts with their bank (branch, ATM, phone, web, etc.), they expect to be dealing with a single organization. This requires the integration of transactions, but this is the bare minimum: the entire customer experience must be seamless and consistent. Channels supported by legacy systems, that do not process in real-time, are inflexible, or do not share information with other systems, will be a challenge to integration
Change Management
One of the primary reasons for failure in the electronic channel is poor change management. To be successful, a change must be accepted and adopted, often by individuals over whom the bank has no direct authority (customers, partners, etc.).
Internal change-management is relatively straightforward: keep employees informed, involve them in projects that will impact them, provide information early and openly, ensure there is adequate training, and control rumor and disinformation.
Competing with Start-Ups
Established banks have the advantage of familiar brands, but should not be dismissive of small Internet start-ups, as there have been numerous occasions where traditional companies have failed in the new channel to unknown start-ups. The advantage of a trusted brand is significant - but it is not enough.
Banks are large and slow-moving organizations. To compete with nimble start-ups, the author recommends an "adaptable, flexible" model for its e-banking operations (and eventually, the organization as a whole).
Banks must foster an "innovation culture," realizing that taking existing products to the online channel is not enough: the bank must discover new products, new features, new service options, etc. The cost of innovation is large, but ultimately cheaper than trying to win back customers from more innovative competitors.
Reinforce "Trust Relationships"
Trust is critical in financial services, and difficult to forge through the e-channel due to lack of face-to-face contact. Keys to building trust are reliability and credibility, quality of experience, customers' comfort level, credible endorsements and guarantees.
Trust is usually considered in terms of customers, but is just as important in relationships with employees and business partners.
Universal Product Offerings
Customers have access to a wide range of financial services and expect online sources to aggregate various products to serve their needs. A bank that offers only basic accounts (checking and savings) offers less value than one that offers multiple services in an integrated fashion. Banks must either broaden their product offerings or partner with other firms to ensure that they offer a comprehensive suite of services to customers (or lose customers to the firm that does).
Security
Security-related issues are a primary concern in the banking industry. E-banking exposes systems that were once internal and isolated to the "open and risky world of the Internet," which brings a number of risks (fraud, intrusion, hacking, etc.) for both the bank and its customers. The negative PR can be more damaging to a bank than the act itself.
Technology Issues
In moving to the e-channel, banks are hampered by the myriad of problems inherent in legacy systems, having disparate systems to support separate products, a lack of industry standards, a lack of technology infrastructure
Marketing Issues
Banks are accustomed to having a small geographic market based on branch location, and are unaccustomed to the aggressive sort of marketing necessary to compete on a national (and international) medium, where competition is intense. While banks are accustomed to providing personalized service to wealthy individuals. they are likewise inept at managing their relationship with the common customer.
Human Resources
Human resources are an issue because banks need to obtain personnel with the skills needed to operate in the electronic medium. Companies do not seem to understand what these skills are, lack the contacts to obtain them, and do a poor job of managing and retaining these employees, for whom there is significant demand.
Mobile Banking
While mobile computing has been touted for a decade, it is evolving toward becoming a reality. The widespread use of mobile communications and their improving functionality means that there will be need for banks to compete in this specialized subset of the electronic channel.
Multi-Channel Banking
E-banking is not a revolutionary development, but merely an evolutionary step for an existing industry. Not all customers will switch over immediately, nor will customers who take to the e-channel abandon other channels altogether.
Some e-channel pure players can use the low cost structure to offer better returns and rates, but many customers continue to prefer the most primitive channel (branch banking), especially for transactions in which consumers lack confidence or have anxiety.
For the foreseeable future, the banks that offer service through multiple channels, enabling the customer to use the channel of their preference, will continue to command the lion's share of the business.
CONCLUDING REMARKS
The author looks outside the banking industry for other factors that may affect the future of e-banking: the consolidation of currency (exemplified by the Euro), the reduction in the need for paper currency at all, the lowering of hurdles to International business via treaties and trade blocs, the rapid growth of personal wealth, and the continued growth of the Internet all point in a direction that supports the perpetuation and growth of the electronic channel.