E-Banking Technology: Enhancing Retail Delivery, Customer Service

The Internet today is no longer an option in banking; it has evolved into a critical component of every bank’s strategy for delivering financial services and an important tool for enhancing operational efficiencies. Like ATMs, e-banking won’t supplant bank branches, but a bank without a presence on the Internet certainly has become a rarity.

Grant Thornton, the accounting and business services firm headquartered in Chicago, estimates that by yearend, 93% of community banks will have websites. And while plenty of bank websites qualify as little more than electronic brochures, there is clearly a trend toward enhanced e-banking functionality. Among community bank executives surveyed late last year by Grant Thornton, 58% said their banks had transactional websites (i.e., websites that support online transactions, like bill paying, funds transfers, and access to customer service functions). Executives at 13% of banks surveyed were planning to add transactional capabilities this year, and another 10% of the community banks polled had plans to do so soon after 2003.

Driving this trend is customer adoption. Last year, 22% of U.S. households were using some sort of online banking service. Celent Communications, San Francisco, predicts 38% of households will be e-banking customers by 2010. Tower Group, Needham, Massachusetts, is more optimistic; it predicts household utilization will hit 37% by 2007. By comparison, roughly 40% of U.S. households are believed to have access to the Internet.

Rather than substitute visits to branches and ATMs or calls to bank customer-service centers, Internet access has become one of several options American consumers want for their banking convenience. In a recent survey by TowerGroup, 85% of consumers who said they used Internet banking at least once a month also visited a bank branch office during that time frame. This isn’t far afield from overall branch utilization rates: 92% of all bank customers visit a branch at least once a month, according to TowerGroup’s research.

Celent conjectures that bill pay is a big draw for e-banking. But experts warn that transactional capabilities alone will not drive e-banking over the long term. On the wholesale side, e-banking is picking up, too, as companies big and small turn to the Internet for routine services, from information reporting and transaction initiation to lending and investments.

“E-banking has become a traditional banking channel,” says George Tubin, a TowerGroup senior analyst. Full-service banking today “is all about how a bank’s channels work together; every new channel just increases the number of transactions along the way,” he explains.

For a community bank that wants to enhance its e-banking presence, there are plenty of options. All of the major core-processing companies offer off-the-shelf solutions and supporting consultative services that can help a bank create, maintain, and improve its e-banking presence. Banks that want to stand out from the pack, however, will seek out the counsel of specialistsu00e2u20ac”consultants who understand e-banking, who understand the nuances of today’s community bank market; consultants who can help a client bank blaze an Internet trail to enhanced efficiencies and improved profitability.

Sometimes the solutions these experts help bring to the table are seemingly simplistic, like honing in on transaction capabilities. “People tend to yawn when you talk about [Web-based] transactions. But there’s still a lot of stuff that can be done there,” insists Erik Hoghaug, technology practice manager with Alex Sheshunoff Management Services, Austin, Texas. And quite often, he suggests, the underlying technologies are already in place and can be leveraged without much difficulty to enhance a client bank’s e-banking presence.

A case in point: Web-based positive pay services. Positive pay is a cash management service that has wide appeal among businesses, and is considered a crucial weapon for combating check fraud. With positive pay technology, banks automatically reconcile files of checks issued by business customers against checks presented for payment and flag any exceptions for customer inspectionu00e2u20ac”automating workflows and reducing liabilities in the process.

In its early iterations, positive pay was bare bones, and something only the bigger companies bothered with. A company would send its bank a list of issued checks and the bank would contact the company by telephone and/or fax copies of any suspected duplicates or doctored checks presented for payment. Payment would be held pending customer approval.

With the evolution of check imaging, networking, and Web technologies, however, it is now easy and inexpensive to offer online access to check images, making positive pay an even better proposition for banks and their business customers. “There are ways we can really tweak that for a community bank,” explains Hoghaug.

These same technologies also can be leveraged to enhance the consumer banking experience, with banks providing consumers online access to cleared check images, in lieu of or in addition to mailed statements. Tech-savvy consumers like the idea, and Web-based image access helps banks contain check processing costs, experts note. “Reducing costs and improving customer satisfactionu00e2u20ac”what more could you want from an initiative?” asks Tubin rhetorically. Finally, there are huge opportunities for improving sales and customer service by merging MCIF and Web banking, explains Hoghaug.

Where the consultant comes into the process is in helping the community bank determine its strategic direction. “What is our niche? What is it we want to stand out as: a high-tech/high-touch bank, a small-business bank, or something else?” Hoghaug posits.

Or, put another way,”What is it you’re trying to do? Are you more interested in driving down costs, driving convenience, or improving service?” Tubin asks.

From there, consultants work closely with bank executives, evaluating technologies and how they can be leveraged to achieve the bank’s goals. Are there check imaging technologies available that can be tapped for business banking? What call-center technologies are there that can support an enhanced Web presence? “We try to help them lay the foundation, then we start discussing how to build it out slowly,” explains Hoghaug.

Richard Bell, a research manager at Framington, Massachusetts-based Financial Insights, concedes “there are enormous variations from one institution to another,” most e-banking programs these days attract just 5%-6% of customers consistently during an average month. When viewed in 90-day chunks, Bell notes, some banks report an average 20% of customers using e-banking channels, sometimes more, but nothing approaching 50%.

Clearly there is room for growth in e-banking utilization. To appreciate the potential of e-banking, Bell says, banks need only look to ATM programs, which typically record customer utilization rates of 60%-70%. “The upper limits of e-banking utilization are nowhere where anybody would expect,” he declares.

Enhanced service and added functionality, alone, however, will not drive e-banking initiatives, Tubin warns. He says apprehension surrounding Internet security is a serious threat to consumer adoption of e-banking. “A lot of the problem has to do with perception versus reality,” explains Tubin. “People don’t know what happens when they send transactions over the Internet.”

But they hear a lot about things gone awry on the Internet. The Internet Fraud Complaint Center (IFCC), a federal enforcement resource, reports that it fielded more than 48,000 complaints last year from individuals who believed they were victims of Internet fraudu00e2u20ac”a threefold increase over 2001. While e-banking fraud is not tracked specifically by the IFCC, Tubin asserts that overall growth in Internet fraud certainly increases consumer trepidation about e-banking.

While there are many protections in place for consumers using the Internet to do banking, “banks don’t really do much to make customers feel secure,” Tubin argues. He encourages banks to adopt zero-liability policies for e-banking customers and to make these policies known, front and center. “Until banks step forward with that kind of confidence, they’re not going to get the people who are concerned about security to go online,” he says.

E-banking will never replace the branch; nor will it replace the cash-dispensing/deposit-gathering functions of ATMs. The “big switch” to Internet-based banking that was predicted a few years ago never materialized. But e-banking is far from a dead issue.

“Banks are getting more realistic about the [Internet] channel and the role it plays in the delivery scenario,” observes Bell. “It’s a healthy development.”