Banks must see the new competitive landscape and paint a dotcom strategy
On Nov. 12, President Clinton signed the financial reform bill, repealing the depression-era Glass-Steagall Act of 1933, which separated commercial and investment banking, and amending the Bank Holding Company Act of 1956 so holding companies may underwrite insurance.
On the surface it sounds wonderful: Banks can leverage their client base, cross-sell securities and insurance products, and become the trusted adviser for all financial service products. Imagine the Web site that has it all: one-stop-shopping, combined statement across all products, central destination for all bill presentment and payment services. Or a call center that efficiently handles my request while effectively presenting additional products and services that deliver real value for me, their customer. Ahh, nirvana, at last. Well ... maybe some day, but hardly today!
Banks have their hands full increasing customer satisfaction and cross-selling their existing product mix. Take me, a typical retail bank prospect. I'd like to believe most financial institutions would consider me a desirable, profitable customer. But because I have relationship with seven different organizations, how is any one institution able to see the full picture of who I am and the potential business I represent? Perhaps the more interesting question is why haven't any of them asked what relationships I have elsewhere?
The sad reality is that 10% of banks customers contribute 128% of the profit. So should the bank jettison the other 90% and take care of the profitable ones? Probably not. Their 'C' customer is likely someone else's 'A' customer.
I bank with a credit union and full-service brokerage firm, not a bank. The credit union doesn't hit me with fees right and left, and the brokerage earns their fees through consistent, proactive and productive advice; and since they allow me to write checks at no cost, require no minimum balance and provide a credit card that functions in ATM machines, why should I switch to a bank? By the way, it's the only organization that has ever asked me what accounts I have elsewhere. The brokerage first asked the question over 15 years ago, and continues to ask the question. Is it any small wonder banks have lost "share of wallet" to non-bank competitors?
My home loan is through a bank, the third that has purchased servicing rights to my loan during its existence. Another bank provides the credit card that earns miles for my frequent flyer account, and yet another firm has the credit card for business emergency backup of "no credit limit." When I was still paying for my car, it was through a source recommended by my auto dealer. The mortgage, auto loan and credit cards were all provided by top five U.S. banks. Did any of them ever approach me to expand our relationship? Never. These operations run so autonomously that the marketing teams at the holding company don't seem to know I exist--classic information silos. And in the world of insurance, my home/life, health and auto are through three different companies. So how does the bank fix that?
Millions of dollars have been spent implementing data warehousing solutions with questionable return. Granted, banks now have more customer data at their fingertips than ever before, but the question is how to turn data into knowledge that yields measurable value for both the customer and the bank. While those projects were the rage two to three years ago, they're now part of the bigger world of customer relationship management (CRM)--a great concept on paper--but rather pathetic in execution. More than any other financial services segment, retail banks are investing heavily in CRM technology. But at what return?
The Ernst & Young "1999 Technology in Financial Services" study (focused on top 100 global banks) found a 31% increase in CRM technology spending vs. 8% overall. Yet 63% of the respondents didn't know how CRM initiatives have affected customer profitability.
Profitability models have historically focused on products, not individual customers. In-house systems are so disconnected that the call center is lucky if it sees a comprehensive view of the customer. Visit the home page for CitiGroup , the conglomerate of Citicorp, Traveler's and Solomon Smith Barney, and you'll find links to each of these organizations' Web sites but no integrated view from the front page. Clearly it's where things are heading, but what's being done today?
At the December Bank Administration Institute Retail Delivery Conference, the largest U.S.-based banking conference, the theme was "Redefining the Retail Business System: Connecting with the Information-Rich Consumer." Where last year's discussion was balanced between branch, call center and Internet channels, this year it was all about the dotcom strategy and how to effectively hire, train and manage the talent required to deliver value to the bank customer. The competitive landscape is in cyberspace--Intuit/Quicken, Yahoo, MSN, AutoBytel, E-Loan, IOwn--and it moves with lightening speed.
When asked how the bank views those kinds of organizations, James Rager, vice chairman of Royal Bank of Canada , provided a refreshingly candid response: "paranoid." He further commented on how banks have a reputation of wanting to be in control, that they're known to be stubborn and slow to change. It's this prevailing tradition within the megabanks that likely drove Bill Harrison, CEO at Chase Manhattan , to form a completely separate group that could act outside the typical bureaucracy to define and implement a comprehensive Internet strategy.
The conservative companies probably sit back with a wait-and-see attitude. After all, the numbers don't seem compelling. According to Ernst & Young, in 1998 only 1% of banking transactions were conducted via the Web, with projections at 10% by 2002. Only 3% to 4% of U.S. households currently bank online, growing to 20% by 2002. Why aren't the figures higher? It isn't because people aren't aware of online banking. It's because banks have typically delivered poorly organized sites-- ones that started with brochureware and have, in a highly reactive mode, thrown other services online with generally poor planning and no connectivity behind the scenes.
A variety of studies show unsettling customer feedback. In the "Cybercitizen Finance" report, Cyber Dialogue found that of the 6.3 million online banking customers reached this year, 3.1 million discontinued their use of Web banking. More startling is its finding that 35% of the "ex-users" are unwilling to try it again.
The challenge is in creating "sticky" sites. Mass personalization; relevant, frequently updated content, customer-centric rather than self-serving content, interactive and online applications and inquiries--those fundamental ingredients keep customers online. And the returns are significant. According to Forrester Research , the more active people are with Internet banking, the more likely they have a higher income, making them even more attractive for a broader suite of products.
So given all that, where is the opportunity for the product and service suppliers?
It's important to understand that the focus has dramatically shifted toward Internet spending. While call center spending grew at 4.5% in 1999, spending on Internet/Web banking grew 29%, and U.S. Internet-related technology spending is expected to grow at a 49% compounded annual growth rate through 2002, according to TowerGroup .
Banks will be testing new approaches through their Web strategy and will likely bring those concepts back to mainstream operations. Few organizations have integrated their call centers and the Web--10% in 1998, according to Datamonitor . Banks need tools that automate responses to e-mail traffic, projected to grow to 25% of inbound call center contacts by 2003, according to TowerGroup. And they need workflow engines to integrate traffic from the Web, fax and phone system and deliver them to qualified agents. They need to move data programmatically from Web pages through credit approval and servicing cycles without requiring manual transcription or generation of paper. Sales force automation systems need to be enterprise deployments that ensure every touch point sees the complete picture of a customer relationship. They're not just sales systems; they're also the basis for servicing systems that seamlessly integrate with back-office customer files. And data must be converted to knowledge that is captured and leveraged.
Equally important is sensitivity to the fact that banks are having a hard time proving the worth of their technology investments. Selling technology for the sake of technology doesn't work. It's all about solutions, but even those must be presented in meaningful terms. Banks are accustomed to working with companies that take the time to understand their business. Telling them you can help improve service, increase retention and create competitive advantage is old news. They've heard that for years. Establish relationships with companies that round out the solution offering and create long-term mutually beneficial partnerships that have as their first priority enabling the bank to meet or exceed its objectives--then everyone reaps the rewards.