Online banking is struggling to keep pace with web trends and losing the lucrative social networking market as a result. Some players, however, are on the verge of a breakthrough. Michelle Price reports.
In the fast-evolving world of web-based services, the realm of online banking remains conspicuously static. Since its inception more than a decade ago, the functionality of the online bank has struggled to keep pace with web-based innovations. Most noticeably, it has yet to embrace fully the vast majority of so-called Web 2.0 software tools and services, the key features of which are user interaction, collaboration, visual richness and intuitive ease of use.
Increasingly, however, the imperative to capture the imagination of a new generation of online users (dubbed the ‘millennials’) most of whom are conversant with a range of cutting-edge consumer web tools, grows ever stronger. Such individuals form their loyalties at an ever-earlier age, says Dr Thomas Meyer, an economist at Deutsche Bank Research in Frankfurt, Germany, who has studied the impact of Web 2.0 technologies on the financial services industry.
This phenomenon has been borne out in research by Wall Street-based consultancy Celent. In its 2007 survey of US college students, 60% of respondents said they would maintain their present banking relationship into their working lives. This represented a 12% increase on the same survey in 2003.
User experience
The potential revenue-generating value of this demographic group has ballooned. Research conducted by US-based analyst house Javelin Strategy & Research estimates that the millennial generation’s total income during the course of the next decade will outstrip that of their baby-boomer parents, hitting about $3480bn.
If the banks are unable to woo this generation through innovative or competitive product offerings, it is the transacting experience itself that becomes the centrepiece of the customer banking relationship. As such, says Dr Meyer, ensuring a unique customer experience, driven by innovation in the underlying online banking technology capability itself, is one way in which the banks can attempt to develop “a kind of connection to the customer”.
Understanding which technologies will best serve this end remains the central challenge, however. Many banks, such as First Direct, have explored the world of Web 2.0 outside the online banking firewall, with the creation of a number of rich content features, such as podcasts and RSS (really simple syndication) feeds, which push information to the user. Infosys, the Indian IT services giant, is among a handful of organisations globally to have measured such efforts, and found that several big names – including Wells Fargo, American Express, HSBC and AMEX – scored very highly on collaborative features and content.
What remains more inscrutable, says Dr Jai Ganesh, who leads the Web 2.0 research lab at Infosys, is where and how banks might be able to integrate Web 2.0 technologies into the online banking piece itself to deliver a unique experience, using the customer’s personal financial data.
A handful of intrepid banks and financial services providers are starting to address this challenge. US-based online brokerage and bank E*Trade Financial, an early pioneer in the online space, is one such organisation. It is exploring and has developed prototypes of mashups and widgets (new tools and services created with content from multiple sources) that would use data from customers’ portfolios and accounts. These tools would allow customers to make a seamless comparison of data from their own portfolio against streams of live data provided by other websites, so they could monitor their portfolio’s performance more effectively.
E*Trade’s interest in such Web 2.0 technology lies in the ongoing personalisation of its customers’ accounts. To this end, it has also made considerable efforts to integrate all of its online account offerings.
However, Paul Halpern, an executive vice-president at E*Trade, believes that website integration will not be sufficient to meet customers’ needs in the future. “At some point you don’t need a website: you just need to [position] your functionality right where the customer needs it,” he says.
Like Mr Halpern, executives at Citibank-owned online-only bank Egg are acutely aware that confining the bank’s online development to the build-out of its own website could prove a self-limiting strategy. Rather, banks must begin to examine where else in the online realm they might begin to integrate their service offering, they say.
Behaviour evolution
Ken Woghiren, head of architecture and innovation at Egg, has overseen some research into the evolution of the bank’s customer behaviour. “The research that we have done has shown that our customers are interacting with us in different ways, and that trends around technology are beginning to have a marked impact,” he says.
First and foremost of these trends, says Mr Woghiren, is the rise of social networks – websites in which groups of globally distributed individuals develop highly personalised profiles and interact with one another. The phenomenon has had a direct impact on the amount of time consumers spend browsing banks’ websites, he says.
“Typically, the type of customer that we deal with is ‘cash-rich, time-poor’. They would have a few minutes sitting at their desk, and interacting with our website. Now they are spending those cracks in the day on their social networks,” he says.
This finding caught Egg’s attention, says Mr Woghiren. “If the eyeballs are moving away from our website then we need to show up in the place where people are spending their time.”
Facing the future
Facebook, the US-based website founded in 2004 by a Harvard Business School student, is one such social network. With more than 68 million active users globally, Facebook is the sixth most trafficked site in the US.
In recent months, Facebook and its chief competitor MySpace have sparked controversy in the US and UK press, largely because they have reached a point of critical mass never before seen in either the online or physical realm. Their growing presence has not escaped the notice of Egg or its peers, who are warming to the notion that Facebook is a powerful channel through which to provide, at least in the first instance, some basic banking services.
“We have been looking at a few innovative payment propositions, using the Facebook infrastructure for example,” says Mr Woghiren. “The ability to occur in that network in such a way that makes sense and is relevant to our customers keeps us relevant and keeps us in the place where they are.”
In its experiments, Egg has managed to convert its own e-mail-based person-to-person payment facility to operate with the Facebook messaging system, “with minimal effort”, says Mr Woghiren. It is not yet a proposition that the bank has taken to market but “it is one of the things we are considering”.
Like Egg, E*Trade is acutely aware of the powerful potential of the social networking milieu. “We’re already looking to do some things along those lines,” says Mr Halpern. “[Customers] should not necessarily have to log on to our site to buy a stock or make a payment, and take action against their portfolio.” Cautiously, he adds: “We will have to see how that plays out.”
The Banker has also learned that a major UK-based high street bank is “seriously” considering the Facebook proposition. “It’s a quick route to market,” observes a senior manager at the bank.
With the under 25s serving as the site’s fastest growing demographic, and boasting an 85% share of the social networking market of the US’s major universities, Facebook serves as the young, tech-savvy and affluent, ready-made sweet-spot. “As a bank, how do you read those demographics? It’s well known that Facebook has a higher net worth,” he adds. “The payment is the more commercial point of sale, but [using] Facebook would also allow the bank targeted advertising. And if you understand more about the customer from their Facebook account, you can better cross-sell to them.”
Facebook has declined to comment on these issues. But the site’s reticence cannot be a function of disinterest – quite the contrary. It has already moved into a number of e-commerce activities through its open application programming interface (API), which allows independent, third-party developers to create extendible widgets for use on Facebook pages. Hundreds of such widgets have been created, among them a range of personal finance features. These include: a peer-2-peer lending facility, The Lending Club; BillTrack, which allows Facebook users to keep track of their bills through their Facebook profile; and MyMoney, an online home banking application that takes information from a number of banking institutions. Its functionality includes viewing account balances and money transfer between accounts.
The most noteworthy development of all, however, came in November 2007, when KeyPoint Credit Union, a small US-based member-owned financial co-operative, became the first financial institution to offer fully fledged account access through Facebook. Using a mobile banking platform, powered by mShift, a mobile banking solution provider, Facebook members are able to view their KeyPoint online account balance within their Facebook account without any additional login required. Social networking and the world of online banking are already, it seems clear, entering a period of convergence.
Juli Anne Callis, the chief operating officer of KeyPoint and an expert in demographics, has noticed some instructive trends in the adoption of KeyPoint’s Facebook application: “Everyone thinks it’s just about age, that it’s just young people who are embracing this new world, but it’s not: it’s psychographic in nature. We are seeing take-up from three generations.” As such, the imperative to increasingly integrate banking functionality into new, emerging online platforms is even stronger than popularly believed. “People want to be in touch with their money any way they want,” says Ms Callis.
Google alert
Facebook is not the only or most feasible online platform by which banks might realise a true Web 2.0 banking experience. One web-based ecosystem that might revolutionise the online banking space is operated by Google, the search engine giant whose presence on the internet is nothing short of formidable, with ambitions to match. Google told The Banker that a number of European and US banks have approached it regarding the integration of its software-as-a-service (software that is delivered over the web rather than deployed in-house) suite into their online banking and brokerage account platforms.
Of particular interest to these banks is the integration of the search giant’s Google Apps suite, in which a number of applications, including e-mail, documents, calendars and talk capability, are offered as a bundled service. The suite was originally created as a free consumer tool but its functionality and ease of use has propelled Google into the enterprise market.
“What really intrigued me was that the conversation was spun on its head,” recalls Dave Armstrong, product manager for Google EMEA. “We went into the conversation assuming we were talking about providing Google Apps internally across the enterprise but in fact they wanted to provide them externally.”
One idea that has been mooted, he reveals, involves the use of the Google Apps suite to create a centralised, fully integrated hosted platform for interacting, at least in the first instance, with high-net-worth client accounts. “We would envisage the service and the data to be supplied by Google. The bank and customer would then interact in a particular domain. It would appear as a personalised web page,” says Mr Armstrong.
The integration of business intelligence software has also been discussed to provide further insight into the user’s online behaviour elsewhere on the web, says Mr Armstrong. Similar analytics capability is deployed behind Google’s search engine, which Google increasingly tweaks to provide the user with an ever-customised search result. If Google were to integrate some of the capability and knowledge it enjoys as the world’s largest custodian of online human behaviour with the customer bank account, it would be able to develop an in-depth profile of the online banking user as a three-dimensional individual.
Risk reward
The conjunction of Google and the online bank is not yet a “fully baked” proposition, says Mr Armstrong. The discussions outlined nonetheless signal a tangible shift in the way US, European and UK banks are thinking about the entire online banking paradigm. Egg, for example, is exploring the use of the iGoogle launch pad – a web page on which the user can arrange a number of information feeds and Google Gadgets – to allow its customers to aggregate their various accounts in a personalised way.
When consumer technology of this kind is so familiar, easy to use and ubiquitous, it seems increasingly likely that a third-party provider specialising in the online consumer experience will eventually dominate the next generation of online banking functionality.
If the banks are truly to enter the world of Web 2.0, however, they will have to overcome challenges pertaining to privacy and information security – an issue of which they are acutely aware. But to a very large extent, they have no choice but to build out additional Web 2.0-based functionality when faced with the prospect of either losing online customers to the branch or to younger and nimbler alternative providers.
