Chapter 4 On Banking.....
RETAIL BANKING
Internet banking is still in its infancy. Although most of the top 100 banks in the U.S. have a Web site, the Online Banking Report classifies 24 of them as ATrue Internet Banks@Cbanks that let their customers review balances, transfer funds and pay bills on their Web sites. Smaller banks also have Web presences. In Online Banking=s list of 133 ATrue Internet Banks,@ 109 do not make the list of the top 100 U.S. banks ranked by assets.
Before the decade is out, customers are likely to be able to do most of their banking transactions on the Web. According to a 1996 Booz-Allen & Hamilton survey of North American financial institutions with Web sites, 80 percent of respondents planned to allow their customers to conduct most traditional banking transactions over the Internet within three years.
Online retail banking is being driven by lower operating costs, the ability to offer new services, and the ability to do one-to-one
marketing.
Lower operating costs
Online banking services are less expensive to offer to customers than other forms of banking. Checking an account balance or transferring funds from a checking account to a savings account can be done in person at a branch bank, over the telephone, with an Automatic Teller Machine (ATM), at home using a PC, or, in some cases, on a bank=s Web site.
A branch bank can serve as many customers as it has staff to handle. Once the investment is made to create a fully functioning Internet site (for a large bank, the initial investment could be millions of dollars; a more limited solution for a small bank might cost tens of thousands of dollars), the bank=s Web site can handle one customer inquiry or tens of thousands a day.
Booz-Allen & Hamilton estimates that it costs about a penny to conduct a banking transaction using the Internet and more than one dollar if handled by a teller at a branch bank (Figure 8).
New Services
Today=s online banking allows customers to check account balances, transfer funds, and update customer informationCtransactions that can already be performed through traditional banking channels. For some customers, the convenience of banking from home or the office is preferable to calling the bank=s automated phone service or going to a
branch bank. Others do not find the services offered online today reason enough to change their banking habits.
In the future, analysts expect that Internet banking will be enhanced with new services that make online banking easier and more convenient than banking by ATM, by phone, or visiting the branch bank. Paying bills electronically is one such example.
Checks are the preferred method of bill payment in the United States. For a business, preparing and sending paper bills can be costly. For a consumer, paying bills by check can take a great deal of time. Billers print out and mail the bills to a consumer=s home. The consumer writes a check, records the check number and amount paid, balances the checkbook, finds a stamp and mails the check back to the biller. The biller receives the check, updates his accounts and sends the check to the bank to credit to his account. Handling paper bills and checks can cost a biller between $1.65 and $2.70 each time he sends out a bill. It costs the customer time and the price of a stamp to pay each bill.
Today=s Internet-based bill payment services take some of the paperwork out of the process. Rather than writing a paper check and mailing it to the vendor, a customer authorizes his bank to pay bills on his behalf. This saves the customer some time, and may save the vendor some money, if all steps are completed electronically. However, vendors still incur the costs of mailing the bill to the customer. And, smaller vendors without an electronic connection still have a series of manual and paper-based steps to complete.
Some banks believe that future Web-based bill payment services can make the entire process paperless. The vendor will send an electronic image of the bill to the customer=s bank. The customer will electronically authorize the bank to pay the bill, the bank will debit the customer=s account, and the vendor will receive payment electronically. The vendor=s printing and mailing costs are eliminated, and processing costs are greatly reduced. The customer enjoys the convenience of paying bills without having to keep stamps and envelopes on hand. With services that automatically update account balances, the customer also saves time he formerly spent balancing his checkbook.
One-to-one Marketing
Today, most banks are still equipping their Web sites with basic transactions processing and do little with tailored or one-to-one marketing. However, some now realize that through the Internet, a bank can get to know a customer=s banking priorities and preferences even better than it could when banking was done in small neighborhood branches.
Bank of America=s ABuild Your Own Bank@ provides an example of how one-to-one marketing could work. Internet customers using this service provide the bank with basic information about their place of residence, occupation, age, income and gender, whether they own or rent a home, and what types of accounts they have with the bank. They then indicate their financial interests and prioritiesCwhether saving and investing, home buying/improvement, building a business, retirement, economic and financial markets, electronic commerce, or simply better financial organization and budgeting. Based on these inputs, the bank responds with Money Tips and news items geared to the customer=s interests, and special offers for the services the customer has prioritized.
These and similar mechanisms give banks the opportunity to cross-sell products and services. Ideally, the customer benefits from these tailored offerings, as well. At a minimum, he should benefit from greater convenience. Because his account profile automatically gets called up when the customer logs into a personalized site, he wastes no time entering account information. Having up-to-date information about balances in each account gives the customer a snapshot of his holdings with the bank without having to do the math himself. The personalized tips and special offers may help the customer to make important financial decisions.
The Future
Over the next few years, a growing number of American households are expected to do their banking onlineCwhether through a dial-up connection to their bank or through the Internet. Roughly 4.5 million households were banking online in 1997. By the year 2000, as many as 16 million households are expected to bank online. |
