The Economics of Online Banking (1,040 words)
Knowing the Pros and Cons
Clearly the Internet offers dramatic cost savings, but it does come with risks, particularly for small independent banks and credit unions. While the Web may help slash operational costs, it threatens to do so by eroding the very foundation on which small financial institutions have been built: personal interaction and service. The repeat in-branch visits may be expensive, but through personal interaction, in-branch personnel know what the customer is buying, what the customer is saving for and what the customer has planned for retirement. In turn, branch employees can offer the right financial products, at the right time, to customers.
For as long as banks have existed, individual institutions have risen or fallen based on their ability to recognize, anticipate and service these individual needs. There's no reason to think that the Web would make it otherwise.
Financial institutions looking to migrate customers to the Internet—and still keep them as customers—cannot fail to maintain this intimacy with every customer. And doing that via the Web depends on two distinct IT capabilities: first, the ability to collect and reconcile customer data captured from all corners of the company—branch, ATM, call centers and Web—and second, the ability to analyze the data to the point where they reveal individual preferences and propensity toward different financial products.
To date, most banks have demonstrated an ability to gather and reconcile customer data from a variety of touchpoints and deliver that information to the Web. For instance, ATM transactions usually appear in online summaries of activity long before the customer is in a position to check his or her account on the Web. By and large however, this type of summation and reporting is the extent to which customer data is used on the Web. Interestingly, the reconciled customer data—-the profiles that contain data from all corners of the business—typically contain little information on customer activity on the Web site, such as pages accessed, duration of the visits or frequency of the visits. This begs the question: How can a bank successfully migrate individuals to the Web without understanding how those individuals use the site?