in Retail Banking
This report examines the impact of electronic commerce (e-commerce)
on retail banks. Its 9 chapters and 11 case studies define e-commerce,
analyse the legislative and technological developments that govern
its future evolution, and assess the extent to which retail banks
should adopt e-commerce strategies and how they should do so.
The report includes several series of action points for readers
with executive responsibilities.
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Fifteen conclusions summarise the key findings of this report
for you and your organisation, as follows.
is not achievable by technology alone. Priorities must include
successful implementation of knowledge management, customer-relationship
management and an overall reorientation of the enterprise towards
the customer. In the already crowded virtual high street,
retail banks must also defend and reinforce their brand identites,
and cater for an e-customer base that will judge an institution
by the performance of its technology as well as by how well it
delivers its primary commercial proposition. E-commerce is a new
method of achieving and servicing a customer relationship which
may operate alongside or independently of traditional methods.
It is new in that it is evolving, so that retail banks must remain
open to new technologies and newly evolved best-practice models,
and in that it imposes a need to understand and master complex
delivery mechanisms that require abilities beyond conventional
delivers effective control of the point of transaction to the
customer. E-commerce is characterised by an emphasis on achieving
effective front-line systems to render customer contacts user-friendly.
This is because e-commerce requires only the presence of the customer
and the relevant enabling technology. The retail banks presence
is not required. For example, a retail banks website appears
on a screen in the living room, or perhaps even the bedroom, and
operates whether or not the bank itself is open for business.
Also, the retailer need not be aware of the transaction while
it is happening. A smart-card transaction occurs between retail
outlet and customer without reference to the bank and involves
a customer-determined amount of value. Such a transaction does
not require authorisation as it occurs because the required value
has already been downloaded on to the card. The downside of engaging
in any form of e-commerce, therefore, is that the retail bank
effectively forgoes control of the point of transaction.
stage of an e-commerce interaction will impact upon the reputation
of the providing bank. From the speed of downloading of images
to the tone of voice of the written material on a
website, for example, the positive or negative experience of any
e-commerce transaction is credited first to (or debited first
from) the reputation of the providing institution. This means
that the customers whole experience of a retail bank engaged
in e-commerce is potentially contained in the single transaction-event.
The customer can enjoy the transaction and like the bank, or pull
the plug, all without interruption. The banks reputation
with the individual customer can be influenced by defective technology
as easily as by an unsatisfactory service provision.
4. An effective e-commerce strategy must be supported by the
effective communication of the banks core values to the customer.
The customer should come away from any e-commerce transaction or
other contact with a sense of the banks character, purpose
and identity (as these are intended to be perceived) as well as
with, say, details of current accounts and interest rates. The baseline
objective of any e-commerce strategy should be, therefore, to convey
a package to the customer representing core values, in one or more
easily accessible, user-friendly electronic formats. Due consideration
should be given to supplying a personalised element (email, fax
or postal confirmation of instructions represents an opportunity
to add to the communication with the e-customer, for example), while
providing a means to add value to the e-relationship.
5. Devising an effective e-commerce strategy requires careful
analysis of the business case. Key drivers towards e-commerce
strategy should be designed around goals including:
are pressed for time and want to bank at hours convenient to
institutions want to reduce their brick-and-mortar premises
to save costs, as well as meet customer demand
customer behaviour from one channel to a lower-cost one
of new customers and increased value-added transactions
via e-commerce should be easier than transacting by conventional
means if these goals are to be achieved. This is a technology
issue, in that training as well as investment is required, but
it has a budgeting implication. E-commerce cuts long-term costs.
However, the e-commerce spend should be targeted towards achieving
transactional ease, and this may mean high start-up costs.
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6. E-commerce requires implementation of a change-management strategy.
E-commerce is at an early stage of evolution. Customers will become
increasingly competent in their use of e-commerce delivery platforms.
Although market penetration of some enabling technologies (personal
computers with internet access, for example) is sufficient for
e-commerce to occur, best practice is not yet established. New
technologies will appear, and usage of established technologies
will change. Legacy research on customer behaviour will be invalidated.
E-commerce will also change the retail environment in which banks
operate. Retail banks must therefore plan and implement strategies
7. Accessibility matters more than technology. An accessible
online presence matters more than the means whereby it is effected.
PCs are not necessary to e-commerce and nor are other specific,
individual technologies. But e-customers must find the bank, whatever
technology they use to conduct their search and whether they are
looking for the bank or a generic financial service. The internet
represents an electronic environment where banks may establish
an accessible presence and enter into interactive relationships
with their customer base. It is not necessarily D though in the
short term it may remain D an environment where the main priorities
are to devise a user-friendly website and to develop a policy
for email communications. Websites, for example, become redundant
if mobile telephones become the primary access mechanism for online
information, because mobility limits screen size. It may be that,
in future, internet service providers will be succeeded by cable
broadcasters or telecommunication companies, and that e-commerce
in retail banking will require TV-presenting talent rather than
website-design skills. But the customer still needs account information.
e-commerce removes the personal element of retail banking, it
does not achieve its full potential. If e-commerce is treated
as part of the overall commercial proposition, with bank managers
and counter staff (or other point-of-contact staff, however designated)
also available, three customer-service objectives may be achieved:
anywhere banking for consumers of any net worth
banking characterised by the consumer perception that it is controlled
by the consumer
to supply value-added services beyond core banking products, quickly
cannot be operated in isolation from the overall commercial mix.
Integration across the enterprise is a vital factor.
9. Due-diligence problems may be addressed by a combination of
law and technology. The key questions relate to the enforceability
of online contracts, the reliability of online signatures and the
potential liabilities arising from remote interaction with e-customers.
Current standards of encryption provide verification of the counterparty,
while established practice in online contracting is such that enforceability
will generally rest upon whether closure entailed an extended series
of email exchanges. The bank must provide detailed acknowledgement
of the terms of an online contract by email, and the customer must
acknowledge receipt of the banks email. Only when this double
acknowledgement is complete will an online contract be binding.
Prudent retail bankers will tend to prefer PIN/password identification
and paper verification until portability of electronic signatures
(on smart cards, for example) is common practice, and until electronic
signatures are intrinsic to the individual (as is the case with
iris prints or fingerprints). It may be judged unusual for any signatory
to a substantial e-contract to object to paper-based verification
in most circumstances.
may pose a threat to retail banks. The evolving pattern in
e-commerce is for a lead provider to issue the technology
or the service, with secondary providers supplying
functionality beyond that provided by the lead provider. This
may lead to a significant commercial disadvantage for secondary
providers. For example, if a retail bank provides a smart card
that can be used as a railway ticket (exchanging value for ticket
status rather than a separate ticket at a railway-station
terminal), it follows that the bank will get credit for a pleasant
journey. But if the railway company provides a card that can be
used to go shopping and pay for lunch, the railway company gets
the credit. This is why retail bankers should be alert to smart-card
initiatives that are not led by the banking industry. The commercial
priority is for retail banks to move towards lead-provider status
in all their e-commerce initiatives.
11. The effect of e-commerce on customer expectation is that
the primary product of any provider must be efficient delivery that
goes beyond the core. Brand identity is significantly dependent
on the effective operation of technology. Also, a best-practice
standard is evolving for e-commerce whereby non-core added value
is regarded as vital to ensure customer loyalty. A good
bank is one where the technology works quickly and efficiently,
while an e-competitive bank is one where the customer
is provided with value-added reasons to tune in, visit the website,
and/or use the smart card. In this context, a key characteristic
of e-customers is that they are effectively connected to the bank
even when their requirement is not for a banking service, because
they visit the same outlet to satisfy banking and non-banking requirements.
The bank has the opportunity to satisfy non-banking requirements
and may gain increased customer loyalty by doing so.
12. Providing added value is necessary to prepare customers for
future core provision. A user of an online banking service will
grasp the techniques necessary to view account information and issue
transfer instructions but will not necessarily develop familiarity
with other techniques that are not required for effective use of
that service. Therefore, introducing further core products to the
service (online brokerage, for example) will not meet with automatic
take-up by existing online customers. The required IT literacy will
not necessarily be there. Retail banks increasingly regard initiatives
to improve their online customers familiarity with information
technology as a key part of their e-commerce strategies. This should
be achieved by a gradual increase in the functionality offered by
the e-commerce service. For example, a bank might introduce an online
electronic-purse scheme whereby a customer holds value online for
spending in an online mall. This is added value in itself, but it
also provides experience of using techniques that might subsequently
be applied to management of an online brokerage account.
13. E-commerce requires effective customer-relationship management
(CRM). A retail bank must achieve presentation to the client
of a single picture of that clients banking activity,
from current-account balance to, say, mortgage-application status.
This is not simply because e-customers prefer dealing with an institution
that can conduct a whole relationship through any single point of
contact, but because if a bank seems unable to see the whole of
the single picture, this may cast doubt upon its internal administrative
efficiency and customer-service standards. The key determinant in
successful CRM is that the member of staff who is the point of contact
with the customer should have access to all necessary information
about that customer. Solutions to the difficulties in achieving
CRM should focus on the orientation towards the customer that e-commerce
provision must be strongly branded. Brand protection in the
context of e-commerce is the protection of a retail banks
reputation and goodwill, in that these accrue from the provision
of good electronic products and services, whether
these are provided by the bank or only accessed through a bank-branded
outlet. Commercial pressures oblige retail banks to provide access
to other retail institutions e-commerce provision through
their outlets and, correspondingly, to secure access to their
own provision through other outlets. The danger to the brand is
the potential for confusion in the customers mind as to
who provided any given product or service.
15. Existing customers are a valuable asset for e-commerce.
Loyalty to a retail-banking relationship increases over time and
may be expected to lead to an increase in the amount and range of
business accruing to the relationship. Therefore, existing customers
should be regarded as the primary marketing target for a new e-commerce
initiative. The message for existing customers should focus on the
added value presented by the e-commerce service rather than describing
it either as new or as an alternative to existing processes. Marketing
beyond the existing customer base should take the opposite approach.
Where an e-commerce initiative is sufficient to dislodge a banking
relationship, its contributing characteristics will be its newness
and its ability to offer an alternative to boring, safe, conventional
banking. In this context, the innovative use of IT is a key element.
Inclusion in the small print of technical data regarding, for example,
minimum system requirements may have a positive marketing effect.