Consumer Internet Banking

Consumer Internet Banking

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Cognizant 20-20 Insights

Executive Summary

Internet banking has evolved over the last decade from product brochureware, to a complete financial marketplace for its online customers. Banks see Internet banking as the key channel for growth and customer retention. As such, the online banking model has moved from tactical and lower cost customer service, to a more strategic form of customer engagement.

Many banks have adopted the latest technologies and added new Internet banking functionalities and features to stay ahead of the competition. However, when measured by key performance indicators such as customer growth, revenue growth, etc., the value delivered varies from bank to bank. While some banks achieve better customer response and retention from adding new technology/feature bells and whistles, others have received moderate to poor acceptance, which has undermined their return on investment. The challenge is to find the right approach and leverage the right mix of technology and features that keep customers happy and transacting over an extended period of time.

Industry Trends

When online banking was launched in the late 1990’s, the online business model of banks was centered around customer service. Banks offered online “information-based” and “transaction-based” services, delivering product and services collateral, account activity, money transfer, etc., thereby serving customers’ informational needs. However, with changing usage patterns and the advancement of Web 2.0 technologies, the

Internet is now the preferred channel of commu-nication for customers.

To accommodate changing customer behavior and leverage growing Internet capabilities, banks began embracing a model of tighter customer engagement. This translated into an expansion of their online offerings to “advisory services,” “engagement-based services” and “advanced financial services.” This shift from a customer service model to a customer engagement model brought about a radical change in consumer Internet banking.

What follows is a brief description of how and why these models were adopted and the features that banks provided within each of these models, over the years.

Customer Service Model

Initially, banks were viewed as the primary provider of financial services; hence, they focused on providing the best service possible. The same model was adopted by banks for their consumer Internet channel, aimed at practices and procedures for serving customers most effective-ly. With technological advancement, the quality of these services has improved dramatically.

Information-based services: These services

were introduced with the objective of dissemi-nating product and service collateral to online customers. From static pages, which displayed rates, terms and conditions, bank Web sites have become more interactive, offering features such as interactive product and services demos. This development served not only to promote

trans-parency in bank offerings but also to educate cus-tomers on the best ways to utilize banking prod-ucts and services.

Transaction-based services: The self-service

transactional capability was introduced to the online channel to enable enhanced service efficiency, which included both value- and non-val-ue-added transactions. Starting with basic trans-action features such as internal funds transfer, banks have expanded to include advanced trans-action offerings like external utility payments, securities trading, etc. Several banks now offer straight-through processing (STP) capabilities to 90% to 95% of banking and non-banking transac-tions, which helps them achieve millions of dollars of cost savings per year, increased customer sat-isfaction and greater transparency.

Customer Engagement Model

The services and features offered in customer service models are no longer the keys to success for online banking. Almost all banks provide features on similar lines with no differentiation. This has resulted in a shift in focus from a service to an engagement model to establish long-term customer relationships. These relationships not only create new revenue opportunities, but they also turn customers into advocates who bring new customers to the bank through favorable word of mouth voiced through social media channels. The objectives and features offered in this model are as follows:

Interactive services (leveraging Web 2.0):

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The overload of information in static pages created cluttered Web sites with prohibitively

representing banking products and services, and two-way interaction between the customer and customer service representatives.

Advisory services:

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up the value chain, from a focus on satisfying consumer financial needs, to creating and inspiring them. Advisory services were introduced with the objective of providing expert insights into customer wealth management, identifying and selecting the best investment avenues (e.g., provider and product comparison engines) and providing self-service capability, with complex product simulations and projected financial returns.

Advanced financial services:

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of banking and investment avenues available, banks needed to offer one-stop solutions for all financial needs. This required a single platform for customers to track and manage all financial products, with collateralized trading capability.

With emerging technological innovations, cus-tomers can now access advanced financial ser-vices on the go through mobile phones, using mobile apps or a WAP browser. Figure 2 (next page) offers a snapshot of the features in each of the segments.

Internet Banking Strategy: Evaluation,

Analysis and Roadmap

Banks have come to realize that merely adopting a stand-alone technology, providing best-in-class customer service or having innovative products in their portfolios is not a guarantee for the success of their Internet-banking model, nor can these

Figure 1

Changing Internet Banking Business Models

Customer Service Model Customer Engagement Model

Information-based services (e.g., information on bank’s products and services) Transaction-based services (e.g., fund transfer, bill payment, loan repayment, etc.) Advisory services (e.g., online financial advisory services) Engagement-based services

(e.g., using Web 2.0 for customer engagement) Advanced financial services (e.g., collateralized financial platform capability)

Feature Comparison: Customer Service vs. Engagement Model

Figure 2

Feature Description

Customer Service Model Service Information

Balance inquiry, statement, transaction history

Customers can check out their previous transactions, with real-time balance.

Single view of bank accounts Linking various accounts so customers can view their bank, credit card and loan accounts (with the same bank) through a single-user ID.

Mailbox Customers can send e-mails directly to the bank, and the bank can also maintain constant communication and promote its products and services.

Transaction

Features

Transfer funds online Customers can transfer funds to any account (irrespective of the bank to which it belongs). The money sent is delivered to the receiver’s doorstep. Account-to-card fund transfer Customers can transfer money from their bank account to any other debit

or credit card.

Pay utilities bill Customers can pay bills to providers of utility services like phone and energy; recharge their pre-paid mobile cards; pay credit card bills of any card provider; etc.

Customer Engagement Model

Interactive Features

Online chat Live chat features that allow customers to interact with relationship man-agers for all their financial queries.

Online TV services Some banks provide online TV services to share information about financial and business events, so as to continuously engage with their customers. Online appointment reservation With the help of this service, customers can book their appointments at the

branch well in advance.

Personalization Using personalization and localization, customers can customize their dashboard with graphics-rich features.

Online banking widgets Essential widgets like calendar and calculator are provided, with the option of adding more interactive widgets based on customer preferences. Social computing Leveraging social communities like Facebook, Orkut, Digg, etc., along with

micro-blogging sites like Twitter and social forums.

Advisory

Services

Financial calculators Interactive calculators to calculate monthly payments, debt consolidation, card selectors, mortgage selector tools, wish list, unit fund selector, etc. Simulation tools Budgeting tools for cash and money management, financial planning tools,

credit management tools to manage debt, simulated trading tools, etc. Financial research tools Stock screening tools for basic screening information, advanced screening

tools (sector, industry, volume analysis tools, etc.) and comparative tools. Research reports Research reports on exchange-traded stocks, S&P reports, educational

articles on mutual funds, mutual funds investing, etc.

Podcast and Webcast sessions Online broker sessions, sessions with experts for market and financial information, etc.

Alerts and messaging services Daily, weekly, monthly alerts through e-mail and other messaging channels.

Advanced Financial

Services

Bill presentation and payment Bill payment services to over 400 billers.

Investment services Online IPO application, structured products, Euro-dollar deposits, multi-currency deposits, etc.

Mutual fund selection One-click trading access to mutual fund center through secured online brokering.

Trading services Online brokerage services with commission-free trading and reward points covering a range of asset classes like equities, derivatives, futures, options, bullion, commodities.

Wealth management services Features like managing funds under various asset classes, tracking portfolio movement and mapping them with long-term and short-term goals. Custodian services Providing low-cost services for online custodian services.

Figure 3 translates these needs into a features and capabilities mix that banks should offer to online customers. One caveat: When the overall online migration strategy is measured across certain key performance indicators, the results vary. Key performance indicators can have financial attributes (e.g., cost savings, revenue generated through online products and services, etc.) or be non-financial (e.g., new accounts opened, percentage of online customers, percentage of online transaction volume, etc.). They can also include other indicators (e.g., percentage of satisfied customers, number of innovations delivered though online banking, perception of bank’s Internet features, etc.).

Segmenting Consumer Banking Web Sites

Banks design their Web sites with features and capabilities to serve customer needs and provide the best possible online experience. However, the breadth of functionality and the depth of informa-tion/interactivity on their online banking channel depends on the bank’s overall strategic theme (as enumerated in Figure 3). Based on service offerings, Web sites of banks can be classified into the following categories (see Figure 4, next page):

Basic Internet Bank

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Virtual Advisory Bank

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Virtual Bank

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Virtual Financial Market

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Banks started with basic vanilla offerings of information and transaction services through their online channel. Some banks still have basic features on their Web sites, and their online strategy is to leverage this channel to supplement the branches and contact centers. In order to achieve cost savings through the Internet — transferring control to customers and providing complete self-service — banks are pushing more and more banking and non-banking transactions online. They view the Internet as an alternate to the branch channel.

These banks have designed their Web sites with rich interactive features, providing capabilities to handle almost all banking and non-banking transactions online with 100% STP. Their online banking channels can be categorized as a virtual bank.

A virtual bank fits into the customer service model. However, with the changing business focus from customer service to customer engagement, virtual banks must offer interactive, advisory and advanced financial services through their Internet banking channel. Banking Web sites classified

Key Strategic Themes in Consumer Internet Banking

Key Themes Key Initiatives

Innovative products and services

Banks are on an innovation drive to launch products and services catering to evolving consumer lifestyles. Key initiatives include interactive Web sites for shopping, e-statements, targeted solution campaigns, straight-through processing (STP), instant online card approval, any-bank credit card bill payment, innovative customer rewards, online financial health-check tools, alerting services, immediate online transfers within accounts in other countries, etc.

Enhanced customer experience

Banks look to deliver enhanced customer experience to retain existing clientele by providing best-in-class customer service. This includes enhancements to online portals, micro-site links, educating and engaging customers, online customer surveys, using social media, adopting analytics to understand consumer behavior, online demos, etc.

Integrated online banking Web site

Banks are offering a comprehensive, integrated online banking experience that looks to replicate the offline channel in most functionalities. The top global banks have undertaken key initiatives, such as integrating with the core banking platform, integrated multi-product views ,integrated online financial centers and integration with other channels, such as the ability to register for Internet banking through the ATM, debit or credit card or phone banking number, etc.

Secured and trusted online banking

experience

Banks are providing multiple secured features, such as strong encryption technology, virtual keyboard, two-/three- factor authentication with dynamic code generator and PKI-based smart cards, key loggers, secured online signatures, anti-phishing, anti-Trojan, etc. For fraud prevention and resolution, some of the key features include multi-layered global fraud monitoring tools, real-time suspicious account activity, regular ethical hacking test, Web action team, well-defined dispute resolution team, etc.

under the virtual advisory bank category provide rich interactive features that leverage Web 2.0 features and advisory capabilities. However, they do not provide online brokerage services. Transcending from “bank in a box” to “financial market in a box,” online customers can now access all the banking and financial markets

(investment management, trading, wealth

management services, etc.) using a single sign-on (SSO) capability across the bank’s lines of business. When banks provide such capabilities to customers, they become the virtual financial marketplace to serve their online customers’ complete financial needs.

Implementation Approach

After critically analyzing the key performance indicators of lower adoption rates, reduced online banking success in certain geographies and current online banking challenges, the question that comes to mind is, “What is the right Internet banking strategy?” or, “What is the right mix of features and services for the online channel?” The answer is, “There is no panacea to all ills.” The correct response depends on customers. Banks must contend with geography-specific issues and account-focused needs; for instance, customers in some regions may have a high preference for a particular feature, while in other regions, this feature may not be a high priority.

Information / Interactive Features

Information Features Advisory Features

Advanced Services

Transaction / Value-Added Services

Transaction Features

Virtual Financial Market

Virtual Bank

Basic Internet Bank Virtual Advisory Bank • Consolidated view of accounts

• Access to wide range of banking services through single sign-on • Straight-through processing • One-stop payment banking • Banking through innovative mediums such as mobile devices, etc. • Innovative media for sharing financial information, such as iPTV • Online demos of bank’s products and services (e-Kiosks)

• Global view of accounts

• Collateralized trading programs for complete financial products, such as equities, currencies, etc.

• 3-D interactive experience for banking, financial, investment services, etc. • Personalized banking experience

• Comparative experience of third-party products • Social financial blogging

• Online financial forums and communities

• Financial advisory through online TV • Online advisory services for mortgages, portfolios, etc.

• Online financial product selector for credit cards, mortgage products, etc. • Financial health-check

• Investment profiler • Wish-list tracking • Stock comparison tools

• Advanced advisory tools, such as sector reports, analyst opinions, price performance tools, etc. • Sharing information on banking

products and services • Online payment services • Online account opening • Promotional and award points • Alerting and mailing services • Anytime-anywhere banking • Branch and ATM locator • Interactive tools and calculators

Figure 4

Segmenting Consumer Internet Banking

Evaluate

Features

Roadmap

Define

Define Current

& Future

Positioning

Figure 5

About Cognizant

Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 130,000 employees as of September 30, 2011, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.

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About the Authors

Vipin Kumar and Sanjit Bose are Senior Consultants within Cognizant Business Consulting. They have executed multiple projects for Top-10 players in the banking industry, spanning consulting, business process optimization and IT project execution. Ashish Shreni is the Consumer Lending Practice Head with Cognizant Business Consulting and has worked for over 12 years in BFSI space with projects spanning across Business and IT Strategy, Business Process Optimization and Complex Project

Execution. They can be reached at [email protected], [email protected], and

[email protected] respectively.

The approach for defining the right strategy for a better feature mix depends on careful analysis of a number of factors, including the current- and future-state vision of the bank’s Internet banking offering; the current customer base and their preferences; customer inclination for adopting new technologies; and the competitive landscape. Once the current and future positioning segment is identified, a detailed evaluation of features should be conducted to benchmark performance vis-à-vis competitors on the Internet banking business impact and level of maturity. The result

of the evaluation can be used to identify maturity and feature mix gaps in the online offering. Finally, the resultant prioritization roadmap, with the list of features and implementation plan, should be prepared for a phased implementation.

This is a continuous approach, wherein key per-formance indicators should be evaluated on a periodic basis to re-prioritize the feature mix and add midcourse corrections to stay ahead of the competition.