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Last Updated
16 February, 2003



Building banks with mouse clicks, not bricks

Money has become nothing more than an assemblage of ones and zeros, the fundamental units of computing that are piped through miles of wire, pumped over fibre-optic highways, bounced of satellites, and beamed from one microwave relay station to another, it has no tacile dimension, no height or weight. Money is now an image.

Today, money has ceased to be associated with its physical form of notes and coins. Yet while money is rarely more than a blip on a computer screen, banks continue to think largely in physical or geographical terms. It is not a case of removing bank branches from our cities and towns, but of enhancing the relationships built in the physical world with higher levels of convenience and service in the electronic world. In short, via the Internet.

Customers - and corporate customers in particular no longer expect to align their schedules with the opening hours of the bank. They expect to do their private banking at a time and in a place that best suits their lifestyle and working practices. The traditional bank branch, ATM machines, even a kiosk at the airport or the local mall... are no longer enough. Today’s customers are demanding 24x7 availability, a quick and efficient way of working, absolute confidentiality and security. In short, a single place to manage their finances at their home, office, car or hotel room.

While customers have everything to gain from private electronic banking, banks are also winners. There are productivity increases and cost-efficiency gains to be made from the straight through processing of transactions. Marketing campaigns can move faster and target ever smaller customer segments. New financial services can be brought to market at lower cost. Bank staff can focus on developing relationships with customers, rather than devoting their time to the mundane paperwork.

Saturation and Cherry-Picking
Today most banks in Europe incorporate some sort of Internet or PC banking within their offering. BlueSky International Marketing issued figures in July 1999 that the number of consumer banking websites in Europe has more than doubled to 1,845 sites, up from 863 sites in November 1998. Over the last six months the number of banks accepting online transactions has more than tripled to 1,245 sites.

European Internet banking services are popular: Barclays in the UK stated in August that it has gained 380,000 customers for its service, while Germany’s big banks have in the region of 400,000 online banking customers. These numbers show that the “traditional” Internet banking consumer, the software engineer or high net worth individual, is now being joined by a far wider market that embraces single professionals, DINK households (dual income, no kids), young families, senior and middle management.

Yet while electronic services have ceased to be a “nice to have” or a “special” service to valued customers, it is rare to find an Internet banking service in Europe today that stands out from its competitors. E-banking strategies typically fall into two categories: defensive and aggressive. Aggressive is about playing leapfrog: providing the best possible online financial services to retain existing customers and attract new ones. Defensive is about playing catch-up: developing competitive financial services to protect valued customers from being attracted by a competitorís products and services.

Europe’s banks have largely played defensive. The first Internet-only banks are only now beginning to emerge in Europe. And web surfers across Europe are increasingly saturated with online versions of traditional banks, all of which look more or less the same, and all of which are simply a mouse-click away from the next bank. Without a bank that is ambitious enough to take thelead, we are likely to see pan-continental “cherry-picking” consumers, retail and corporate alike, shopping around for financial services, banking with several banks, not one. The result will be a reduction in business volumes (and fees) for each bank. This is the ideal habitat for an online predator, such as one of the Internet brokerages or supermarkets, to step in and show banks what they are not delivering.

Looking to America: Financial Portals and Stickiness
The long-term winners are likely to be those online banks that have proved that their brand is the best in its class, for example for private customers, retail customers, small businesses, large businesses, international corporates, etc. Experiences in the mature Internet banking market of the United States suggest that it pays to be not just the firstest but the bank with the mostest. Dedicated websites that rate the best Internet banks have helped to draw attention to services that add value for customers. They have also stirred the banking industry out of complacency in their e-banking strategies: cases abound where banks have launched an online bank only to leave it relatively dormant as the web has evolved.

“Aggressive strategy” online banks in the US - such as Security First Network Bank, rated no. 1 by Gomez for five consecutive quarters - are characterized by the richness of their offering. These banks have been able to build sites that produce “stickiness”, the industry’s new buzzword. “Stickiness” can be defined as the ability to retain customers, win new ones, and cross-sell financial services (such as pensions, insurance, financial advice, custodianship). Like a boomerang, customers come back.

For small business, private and corporate banking, value-add features such as bill presentation, trade finance and Letter of Credit functions, netting and global custody have become more important. For the retail segment, Internet banks are adding functions such as bill payment, portfolio management, access to wireless devices and mobile phones, one-to-one-marketing and information services (news, weather, entertainment, as well as advertising), in addition to traditional attractions such as high interest rates.

The overall trend is towards creating a functionally-richfunctionally rich “financial portal” - a bookmarked webpage (such as the generic portal www.yahoo.com) where consumers go whenever they need to manage their finances. The financial portal is a customized one-stop shop for financial services: consumers can find a loan for a new car, start a pension plan, buy insurance, seek tips on hot Wall street stocks, as well as simply check their accounts and make payments. When the bank’s offering is this good, the customer is less likely to switch to a competitor.

The rewards are there for those brave enough to take the lead. Wells Fargo (also rated highly by Gomez) claims that online banking customers generate 50% more revenue than the bank’s average, hold 20% higher balances and use 50% more products; at the same time, their attrition is 50% of the bank rate and their servicing costs are, on average, 14% lower once online. The perfect case for mouse clicks against bricks. To quote  the journalist Sylvia Carr, “In the end, everyone wins. Who doesn’t love transferring funds in their underwear?”

Michel Akkermans
Chairman and CEO



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