Internet Banking - Scene of last decade and some learnings

In the days of virtualization where working mothers and traveling sales-team prefer to use flexi-time and remote jobs profile; Internet is being adopted as a parallel medium of communication, transaction, and social networking. Internet banking is fast gaining momentum across the globe for its convenience and ease of conducting transactions at a speed and service levels never dreamt of, a decade ago. Bankers needs take some learning for this last decade of e-driven environment.  

Internet Banking introspection

In-spite of its multiple advantages, there is a need to step back and re-think on perceptions of the masses. Is Internet Banking truly replacing the layers of branch banking in a big way? Is Internet Banking a definitive future of how world people will transact over net?  There are enough evidences of Internet Banking gaining considerable adoption in developed and to a lesser degree in developing countries. However ample evidence exist to suggest that Internet banking has been highly is accepted in only specific line of services and yet global bankers have to fight a fierce battle when Internet Banking will be a truly serious and parallel banking channel, complementing offline banking in a big way. But one thing is sure, e-banking has going through a lot of transformation fr a decade and will surely keeping it's footprint across the globe.

By next decade, mobile banking may take over as preferred channel in the tribal regions of Africa and world may follow the pattern. Bangladesh has successfully tested mobile banking for have-nots (with limited functionalities thouh) and again proving a point to the word that micro-banking is not the only aspect they are leading, given the size and status of their economy.  

Maintaining e-banking infrastructure 

Developing and maintaining Internet Banking is extremely tough call for a modern day banker. At one side the cost and efforts of maintenance of e-banking infrastructure (given the security needs and compliances) may not necessarily justify the benefits to bank of every size. And at the same time, intangible cost of not providing full-fledged internet banking platform is also huge and may affect the opportunities loss for banks. Having said that, in today's context, providing full-service Internet banking platform is more of "when and not if" and the benefits are comparable to "chicken or egg" theory.  

Pre- Y2K 

In the first generation of Internet Banking, i.e. pre Y2K era, banks in the developed world provided basic facilities such as view balance, e-statements, check-book request, stop payment instructions, Electronic bill payment (EBP) etc.  

Post - Y2K 

In Post Y2K era banks aggressively adopted various services such as Electronic Bill Presentment and payment (EBPP), customized reporting, account aggregation over multiple bank accounts, Investment banking, also portfolio / investment management, comprehensive money management, and trade finance etc.  

Internet-only Banks

Y2k was also an era when few "Internet only" banks were established, and out of which Japanese have better survived by now. Rest of the world is struggling to keep this "internet only" concept alive.

Needless to say,  debate is on for account aggregation Vs multi-factor authentication Vs privacy Vs so on.  

2007 and beyond 

In the present regime of 2007 and beyond, the banks are concentrating on targeting the incremental service-level in online banking value-chain e.g. developing creative ways of countering security threats, targeting comprehensive supply chain management for entire life cycle of a transaction utilizing straight through processing (STP) , Customizing the social network in wbe2.0 including offering more control to the user , aligning internet banking with multiple channels to offer the best-in-breed technological upgrades to the customer including Electronic Fund Transfer (EFT) / bulk transfers using RTGS, mobile banking services, incorporating GIS, imaging, workflow etc. The debates of Zopa, prosper, paypal Vs traditional banking are endless as if the debates on traditional banking Vs Wall Mart was not enough. Banks are targeting Internet banking as a medium to generate new business and attracting either offline or fresh customer through effective ways of cross-selling, establishing cross border services for various corporate as well as consumer segment. Internet Banking is also been used as a channel to create profile driven marketing campaign for various banking products.    

Research suggesting Internet Banking growth story

• As per Pew Internet & American Life Project in 2005, around 53 million Americans conduct majority of their banking online. This is approximately a quarter of all adults and this has risen over 47% since 2002.
• Forrester predicts this online number to reach 74 Million household in USA by 2011. The major factor promoting this number is Generation Y, as this segment of online banking is expected to grow by 136% in next 5 years timeframe. EBPP is expected to be a major driver for achieving this envisaged growth of e-banking volumes.
• Aite Group forecasts that by 2010, 13% of checking accounts will be opened online in the United States, up from 3% in 2006.
• Global e-commerce activity is currently estimated to be   approx 10 Trillion US$. Increasingly, Internet banking will be used as a payment mode either using physical / virtual credit cards or though fund transfer / direct debits. Currently Physical card plays a major role in these global payments with or without using Internet Banking. 

 Security Threats over Internet - a need for introspection 

In contrast to the growth stories, parallel research by organization such as Mintel in USA suggests a flip side of the story.  e.g. study by Mintel indicates around two thirds of 40% younger consumers developed or matured market between 18-34 are turning way from online banking services, as they "don't trust transactions on the Internet". Therefore a huge introspection is needed from bankers for planning to counter the security threats in terms of hacking, Phishing, Pharming, keystroke logging, Trojan horses and several other modes of attacks on customer as well as banks.  Several Banks across the globe had to either compensate customers of security scams or to accept the responsibilities of major overhaul of their Internet banking channel. In fact, The Australian Securities and Investment Commission (ASIC) has invited a major debate within banking industry whether to accept liability of banks to compensate customer and / or design higher customer responsibilities for Internet Banking Frauds.   A security threat a major deterent for consumers aggressively using Internet Banking. However it is also seen that perception of threat is much higher in the minds of consumers in comparison to the actually threat itself. Banks have to aggressively work on cost-benefits to offer insurances or liability guarantee to the customers, which may help to garner huge untapped market.  But this still leaves with issue of data floating around with the fraudster, which may not be resolved with guarantees.  

Some Learning by banks

• Internet is one of most cost effective channel of conducting banking operations. It is estimated that Internet banking offers up to minimum of 60% (and much more at higher volumes) cost saving over normal offline banking. But this numbers keep changing esp in of SOA, Multi-channel integration, web 2.0 environments.
• Bankers across the world have realized that customer using online banking have lesser attrition in comparison to other channel of banking and offer a relatively loyal customer to the bank. But can they take this for granted, as new online financial service community (esp non-banks) is posing strong threats?
• Per product usage per customer for Internet Banking channel is growing exponentially comparing offline banking. But can this become a norm? Can they improve on this numbers as a lot needs to be done yet? Is profile driven campaigning used to it's best? Banks have to yet mature to provide with complete life cycle offerings in true sense.
• As per Gartner, on an average, companies save about 45 cents every time they send an account statement electronically instead of by paper mail. A bank that sends monthly account statements by paper mail to 5 million customers would spend $27 million more than if it sent electronic statements. (So much less wood saved for countering global warming.)
• Many banks have started waiving or reducing transaction fees on Internet banking accounts and have been for long, offering higher deposit rates to attract this cost-effective channel of banking transaction.
• Branch managers (esp of traditional / old banks) across the globe have realized that Internet Banking offers is not a hindrance or competition to their business growth, but it complements the operations as it actually reduces the excessive burden of servicing customers.
• Banks are offering customized reporting aligning with tools e.g. "Quicken 2007 or Microsoft money" etc for customers to analyze their income, expenditure items in various heads and this helps individual families to study / budget their spending from e-banking statements. But bankers need to watch as to how many percent actually use this flashy customized gadgets or are they spending money at wrong places.
• "Offering image view for checks" is already an established value-add facility to the consumer after modern day regulations such as "check 21" have established it's footprint in USA.  Banks in developed countries are also enabling customer to remote deposit checks using scanned images of checks, whereas many countries across the globe are far behind this initiatives. But why would you need checks in next decade? A thorough introspection is needed here.
• Banks are struggling to defy the threats of hacking, hacking, Phishing, Pharming, keystroke logging, Trojan horses etc The organization-wide extensive IT security policy involving establishing protection to IT and network infrastructure, anti-intrusion initiatives, multiple audit programs, tracking suspicious trends, disaster recovery and business continuity, regulatory compliance, customer education and awareness programs are being utilized to counter external threats and save consumers from any probable attacks.   FFIEC's  recent authentication norms have opened up new scenario and opportunities, but debates on Man-in-the-middle" or "is this full-proof protection"  continue. A major industry-wide drive is needed to counter the security threats in terms of actions from banks as wells customers.
• Banks are now providing liability guarantees for any unauthorized transaction over Internet, but a lot is desired as compelling restrictive clauses in the "small-print" not doing enough justice to customer's apprehension towards security threats. Infact Industry-wide debate as well as co-operation amongst players is must and not just wishful.
• Can we devise threats-free and full-proof  / secured environment, where users will have to conduct minimum actions and not be held responsile for type of anti-virus, anti-threat gadgets they use? I pray this would be true in next decade or so.
• Mobile banking may cross over Internet Banking volume within less than a decade. (Internet channel heads, better watch out)
• Multi-channel enabled applications is driving the technology architectures, assuming newer channel-driven growth paradigms

 Note: - Opinions expressed here are my personal views and  do not in any way reflect views of my employers.