Electronic Banking, a Future for, or the Decline of Banks?
SAP America Inc. will roll Internet and telephony capabilities into selected modules in its R/3 client/server application suite in 1996. SAP is partnering with several companies, including Netscape Communications Corp., Sun Microsystems Inc., and Microsoft Corp., to give its customers advanced methods for conducting EDI (electronic data interchange) and other transactions via the Internet. This also looks like mended fences in banking circles, stopping the rivalry of Visa and MasterCard to develop a direction and protocol for Internet commerce. This is, however, only the tip of the ice berg in overall bank thinking on the Electronic banking frontier. In the past nine months, online banking has moved from being a cutting edge toy to part of any bank's survival strategy. From our perspective it seems that online services, software giants, and global entertainment companies, have the pipelines and navigation tools to make banking obsolete. If banks don't act with foresight and firm purpose, the prognosis is for a continuing erosion of their core retail business. (Don't forget the recent Bill Gates quote, when he thought he was going to get control of Intuit, "Banks are dinosaurs.")
For the past two decades, banks have seen their market share drop as non-bank financial companies, such as mortgage companies, brokerage firms, Independent Bankcard Processors and mutual funds have carved out some of their most profitable customers. Banks face the same risks from emerging online providers, unless they can effectively leverage their key assets: customer relationships and customer information. To leverage these assets, banks need to decide what kind of online players they want to be and what kinds of services to offer to the rapidly expanding universe of online customers.
Online Banking Delivery
I was recently amazed to find that upon buying Intuit's home banking product, Quicken 5, that my personal bank, Bank of America, is not listed as a participating bank for On-line banking services. The point here is, you may be a big bank and yet still not have committed to an Electronic direction. The reason, of course, is that many players have been waiting to see if cable delivered TV services, phone services or PCs were likely to emerge as the delivery mechanism for home banking for an emerging electronic world. While many may still be pondering this question, the Bank Administration Institute (BAI) believes that PC's are the answer. This thinking is supported by research indicating that PCs with modems will be in 40 percent of U.S. households by the year 2000. One of the most attractive segments of the banking population (under 30, more than $50,000 income) already has a PC/modem penetration of 43 percent. Almost 70 percent of current financial transactions are conducted using methods other than branches and at ATMs, such as phones, mail and Automated Voice Response Units (AVRUs). Of the remaining 30 percent, almost half are interactions with ATMs. Customers who currently bank by phone or use ATMs will migrate more quickly to online banking. As online banking takes hold, says the study, it will cannibalize existing "electronic" banking delivery systems first, those used most by the affluent "early adopters" of technology.
In this rapidly changing environment, banks must not forget the wellsprings of their competitive advantage. Owning current customer relations with a high level of trust, a breadth of delivery channels for customer convenience, payment systems access and, above all, access to customer data are assets that must be leveraged properly if banks are to survive. Transforming that data into information remains the single biggest challenge for banks today and one that is crucial for an effective online presence. In fact, the sophistication and flexibility of individual banks' "legacy" customer information technology reveals a lot about which will thrive in the online era.
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