Online banking presents a real mix of opportunities and obstacles for financial service providers. Customers in this market are intelligent and tech savvy and are 50 percent more likely to stay with their bank than customers using traditional services.
Unfortunately, many financial institutions do not have adequate technological infrastructures to reap the rewards of this channel. Banks are known for legacy systems and information silos--segregated databases from autonomous divisions with separate record keeping, customer information and agendas to protect. Online channels are said to be the most un-integrated of all channels and can easily pose more problems than they resolve.
Over the last few years, most banks took a laissez-faire approach to online banking initiatives. Now they acknowledge the need to invest heavily, and they know that CRM--a key factor in an industry built on trust and relationships--is key to fully integrating this channel and to maximizing return on investment.
Richard Bell, director of e-Banking at TowerGroup, a Massachusetts-based banking technology consulting service, says banking institutions are beginning to realize that offering their existing services on the Internet probably doesn't have a strong business case behind it. "But," he says, "there are things they can do once those services are online that do have strong business cases."
According to Bell, if a bank can find out enough about its customers' financial environments and it can make more appropriate offers that strengthen its ties with consumers, then that has value. "This is where there is a strong tie between Internet banking and CRM because people who do Internet banking, by their actions, provide a real gold mine of data about what their financial needs and activities actually are."
This emerging financial services tenet comes at a moment when online banking is in transition. Until recently there was not a lot of value in banking via the Internet: It actually took longer to pay a bill online than it did to write, stamp and mail a check. One third of early online banking adopters retreated to offline channels with more services.
According to Bell, the percentage of households banking online has increased from approximately 15 percent to 19 percent over the last two years. (These numbers vary widely depending upon institution, region and specific geographic location.)
Experts disagree on the actual number of current and future customers banking online. IDC, for instance, estimated 6 million in 1999 and predicts 23 million by 2004. Gartner's similar figures range between 27.5 and 55 million, respectively. Different definitions of what actually constitutes an online customer contribute to the blame--the industry is that green. These numbers, which may seem low, could represent as much as 40 percent of the total possible market. Yet, obstacles remain. In the United states, between one third to one half of banking customers are currently unwilling to use an ATM.
CRM: Money In The Bank
All of these statistics, no matter how disparate, evidence the potential of online banking services--a fact not lost on the banking industry. In fact, Web and customer-centric technologies may help level the playing field between banking behemoths and smaller institutions with limited market reach. A smaller, community bank with an aggressive online strategy can target the customers of larger institutions and offer them better services at lower prices.
In light of this, it's no wonder firms like Meridien Research in Newton, Mass. forecast a massive increase in CRM technology spending by financial institutions. In the United states this is expected to become a $6.8 billion market in 2001, with a growth rate of 13 percent.
Kathleen Khirallah, a senior analyst for retail banking with TowerGroup, says CRM is important across the banking spectrum, well beyond just the online factor. "CRM is the need to understand customers fully, to maximize the value of customers, and to really strengthen the relationship with customers, and that means all channels, not just the Web channel," Khirallah says. "The Web channel has some interesting capabilities that make it somewhat unique, but it is a mistake when a brick-and-mortar bank expands online and does not make sure its CRM strategy encompasses all channels. One of the biggest mistakes a bank can make is to maximize one channel to the detriment of the others."
Bell adds that "as banks come to grips with the available data that they have, they can move out of the 'one-percent era,' which is when companies promote to consumers by throwing stuff at them and praying that one percent of it sticks. That's just real silly, and anybody getting a one percent return ought to be looking for something better to do. The Internet gives you a chance to go from a one percent approach to responding to individual consumer opportunities. That's not the sort of CRM that says 'okay, we are going to try to get you from one percent to three.' That's the kind of CRM that says 'We are going to try to get you from one percent to 60.'"
San Francisco Giant
Most banks have been experimental in their online approaches. Wells Fargo, the San Francisco-based financial services giant that conducted the world's first electronic banking transaction by telegraph during the gold rush, is an acknowledged trailblazer. The company's Internet Services Group's Web activities date back to 1989. In May 1995 it delivered online banking functionality by offering Internet access to account balances and transaction history. Wells Fargo signed its one-millionth Internet customer in August 1999 and a second millionth the following June. And its efforts have paid off: The bank earns 1.5 times more revenue from an online customer than it earns for other customers; for every dollar spent on an offline customer, the bank spends only 86 cents on an online one.
Gailyn Johnson, Wells Fargo senior vice president for online customer service, reports that major data and systems convergences last year were tremendously successful and the company now has major customer-centric architecture defined. Their ECIC (Electronic Customer Interaction Center) uses CRM and Web-based tools. Agents can look up any e-mail ever sent by a customer, note all the specifics from a past trouble ticket and know about any information transacted at any touch point in the enterprise. When the architecture is completed, the stores will have that access too.
"Online is helping to drive out that architecture by defining what a customer is," Johnson says. "We're finding that historically all banks considered customers as accounts. We now recognize that a customer is a human being and a human being has multiple relationships with us. We want to look at any touch point, look at this human being, and understand his or her entire relationship with us. Since 1995, Wells Fargo has focused on getting any available transaction onto the Internet. There are still some to go, but our goal is that at any time, at any place, and at any touch point you can have the same products and services and the same fine level of service."
The bank has recently begun to focus on personalization as well. "MyWellsFargo is the place where you are starting to see a lot of personalization and you will see more and more added on. We are seeing significant growth there. Every month more and more people sign up online," Johnson adds.
e-Bankers Hours: CRM Systems and the Bottom Line
CRM, especially in a field like banking, will always be about a lot more than systems, but as financial services increase online, systems are integral. Tom Richards, research director for CRM at Meridien Research, cites an old banking axiom: "Twenty percent of your customers generate 150 percent of profitability, 30 percent contribute zero percent and 50 percent cost 50 percent of your profitability. So you better know who the 20 percent are, and you've got to make sure you retain them. You've got to find the reasons why they are with you, why they are paying premium prices, why they may have a lot of accounts and how you created value in that relationship to make switching either too expensive or undesirable. You need to know lots of things about that 20 percent."
Richards says CRM is about better pinpoint targets for direct mail campaigns and telephone solicitations. "If you think of that 20 percent, you realize that if you conduct those campaigns, four out of five customers you acquire are going to be draining profitability--in the short and long run. Banks, financial services and insurance companies are starting to understand that retention is the name of the game and retention is a complex, difficult process, especially if you are a large institution.
"When we sit down with clients that want to talk about CRM strategies, they usually want to start with execution. I understand that motivation, but they need to start by knowing who their customers are, which ones contribute and which strategies are sure to retain them," he says. "Do banks need a CRM strategy? If the statistics I mentioned are anywhere near close and you don't know who your 20 percent are, you are by definition now heading down a CRM path and you need to be."
An e-Penny Saved is an e-Penny Earned
The future of online banking heralds the usual suspects: portals, broadband and wireless. (See Mobile Banking, this article.) Wells Fargo has a portal strategy that offers everything from account aggregation to stock information, maps, news, weather and horoscopes. Broadband will increase streaming media and real-time functionality. Wireless will empower the bank to alert you to deadlines and to opportunities--anytime and anywhere. This ride is just beginning.
As with all e-commerce, a long-term view is recommended. About 25 years ago, Citibank titan John Reed put forth a 10-year ATM plan that covered New York's five boroughs with dual machine kiosks equipped with phones for service and emergencies. People thought he was crazy.
Reed did not go to the board and say "We are going to do CRM and we think we are going to increase the profit of the bank by 18 basis points next year." He said "Make no mistake, this is going to take a while because we are changing behaviors...We think it's time and it's ready, but it isn't going to happen overnight."
Tom Richards says that Reed had the courage to take a 10-year view. "Many banks now get involved in large IT projects but will not get involved in a project that takes longer than a year to implement. At the end of the year they want to understand what business benefits have been produced. That's not the kind of vision that financial institutions need for CRM. CRM is a behavioral, attitudinal, organizational, cultural, leadership, strategy and vision process. CRM is about people not systems. Time and again we see broken CRM projects because they lack those critical components. If there's not leadership there, with strong vision and an appetite for staying the course, then CRM projects don't flourish--they just don't do well."