6.1 Banking on an Online Future
These are the following opportunities and threats posed to retail banks by online banking. The development of online banking has proved a mixed blessing for retail banks. By allowing customers to service their accounts online, online banking represents a clear opportunity to reduce the costs of face-to-face banking.
However, the study suggests that over a quarter of Internet users are now using online banking, the majority of customers are proving slow to take it up, and even those who do still demand the reassurance of one-to-one personal support, whether provided online or over the telephone.
A survey underlines the fact that customers valued the personal touch, with 63% citing responsive service and being treated as a valued customer as the most important factor driving their overall satisfaction with their bank or other financial institution.
The problem is that for most banks, providing the personal support that customers’ value so highly can rarely be justified.
But at the same time bankers admit that the single biggest reason that customers didn’t effect was the inconvenience of changing banks.
6.2 Cost Trap
It seems that banks are caught in a classic “cost trap”: Customers want detailed, one-to-one, personalized advice, yet neither they nor their financial providers are prepared to pay for it. In the past this circle was squared through the medium of an independent financial adviser (IFA), offering free advice in return for the opportunity to sell financial products on commission.
However, the threat is pensions mis-selling have made many consumers wary of the motivation of the IFA, while the introduction of CAT standards for a number of financial products is cutting into the commission available to fund, “free” financial advice.
“With the coming of CAT, the selling of financial products will have to be done on a simpler, more direct model,” says Dave Patel of financial software developers DPR Consulting: “You can’t have five layers of people taking 1% commission and then managing that product for the customer’s lifetime. A lot of the banks are interested in getting away from IFAs and owning the client directly.”
Banks’ motivation to move into the provision of advice will be as much about, customer retention as selling products – the challenge is to be able to do it cost-effectively. He believes that the answer is for banks to invest in online, self-service products which use knowledge management techniques to automate the provision of advice which is nevertheless personalised to the user.
A suite of products should be created which can be tailored by banks to offer a detailed wealth check to their users. Users need to spend about 20 minutes entering their details, but in return they receive instant feedback, and by the end will have created an online portfolio from which they can continue to manage their affairs.
A financial adviser probably has knowledge of no more than 100 products. It’s also more personal that one can say he does not want any IT investments, or that he only wants environment friendly funds. And the software will spot contradictions in his responses.”
6.3 The Rewards
The payback for the bank is in the amount of information about customers the online check delivers - up to 300 items of information on employment, home ownership and so on. This approach is most applicable to the “mass affluent” customer with over £10,000 in liquid assets.
Once implemented, online advice systems can be made available at no extra charge to less valuable customers, and also be used to underpin the personal advice given to customers with more complex affairs.
With several retail banks, there seems to be a great deal of caution about creating more and more online capability.
E-commerce generally has failed to live up to expectations, and the withdrawal of players like First-e from the market has made the prospect of Internet-only banking as distant as the paperless office.
“There are lots of nice things you can do online, but you have to look at the costs and benefits,” says Angela Mackintosh, marketing director of “multi-channel” bank If.com. “It’s like the 1980s when people did all sorts of computerised stuff on the basis that you could do it, rather than that it was what the customer wanted.”
Ms Mackintosh says that If.com took a conscious decision when it launched not to offer financial advice: “About 60-70% of our mortgage business comes from intermediaries, and obviously if a financial adviser introduces business then that creates the opportunity for them to speak face-to-face with the client. In the end the customer doesn’t pay anything for that advice. The product costs the same, but we do less advertising and pay the intermediaries what we would normally pay for acquiring customers through advertising.”
6.4 Understanding Your Customer Base
However, the ability at any time to drop out of the website and contact a human being is seen, as equally important.
The problem for direct operators is that they are heavily dependent on branding, and therefore cannot switch advertisement spendings into customer acquisition through intermediaries. And, like all players in e-commerce, they are discovering that the opening of new channels to the customer does not necessarily mean that old ones can be phased out.
There is an assumption that people who are technophiles and who use the telephone and Internet a lot will do that across the board, but that’s not so. A lot of people are happy to do their banking online but for other things they want to see someone.
A lot of the basic transactional customer calls are going onto the web or to SMS banking via mobile phone.
6.5 Cautious Future Expected
Banks have indicated that while online advice is something that they are looking at in the medium term, in the absence of any strongly expressed customer demand, it is unlikely to be a priority. Either way the tradition of getting financial advice funded by the backdoor looks set to continue for some time.
People are not prepared to pay the money but there is a balance between paying the money and spending the time. Ultimately the more affluent will pay for advice simply to free up their time.