Barclays, Santander, Rabobank and Absa joined RBI and
other industry experts for an in-depth discussion on the role
direct banking will play in the retail banking sales and service
mix over the next few years. The broad conclusion was that direct
banking is more important than ever.
Retail Banker International had
the pleasure of hosting its first round table in March – and the
key question of direct banking and its role in a cost-conscious
world was the topic up for debate. The following article is an
edited version of what was said and discussed:
Go deeper with GlobalData
Hugh Fasken,
editor of Retail Banker International:
Online banking remains one of the core success stories of
retail banking, and its place in the distribution mix continues to
rise. For many banks, the online channel has become the dominant
sales and service customer touchpoint.
The online banking channel has been
complemented over the past year by the rapid rise of mobile
phone-based banking (m-banking). And there are some very
interesting success stories: Bank of America says it has over two
million regular users for its sophisticated m-banking product in
the US; telco Safaricom in Kenya reports that five million people
have now signed up to its M-Pesa mobile money transfer product.
But there are concerns regarding direct
banking, especially in terms of the nascent m-banking market. Some
of these problems are:
• A lack of standardisation in the mobile
world, which is hindering growth;
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By GlobalData• A wide variety of mobile handsets and
designs limiting functionality;
• Concerns over mobile security;
• How best to exploit the branch network in an
increasingly online world;
• Fees vs service: can banks ever charge for
mobile phone-based services?;
• Margin pressure: hyper-competition coupled
with the rise of web comparison sites and other aggregators, have
resulted in wafer-thin margins for many direct service. Some
leading banks have suffered significantly: ING Direct in the UK,
its third-largest market in terms of funds entrusted, has lost €305
million ($405.5 million) over the past six years, for instance.
Question to Christo Vrey:
Christo, how important and effective is direct banking and
m-banking as a distribution channel for Absa in South Africa and
how does it fit into the overall product mix?
Vrey: Absa is the biggest retail
bank in South Africa with 10 million clients. South Africa has only
four million people on the internet, but there are 38 million cell
phones in the country. Absa currently has 1.1 million internet
banking users, almost the same number using Cellphone Banking, and
4.5 million messaging clients.
Some 85 million SMS messages are sent on a
monthly basis to customers, and mobile banking is growing at 5,000
to 6,000 users a day.
We know that the ‘wallet-holding’ capabilities
from digital channels is double that of non-digital. Typically
[digital customers] have four products in their wallet from us
compared with 2.2 for more traditional customers and [digital
channels] are a significant lock-in vehicle. The churn is also not
the same as for those not in digital banking.
Online, the number of transactions done by one
million clients is five times more than what happens in the branch
and, in my opinion, mobile phones will surpass what’s done in the
branch over the next year or so.
Fasken: How have you promoted your
mobile offering to the South African mass market?
Vrey: Absa launched m-banking in
August 2000. We went with a secure SMS application, but we found
traction very slow for the first five years. In 2005 we did an
explicit marketing exercise about the convenience factor. We had
220 people in branches walking the queue saying ‘Let me show you
what it looks like on mobile phone banking’. This led to a
considerable upswing in m-banking over the last four years.
Fasken: Are you migrating cost out
of other channels? Has it helped increase cross-sell?
Vrey: We can safely assume, given
the volumes, that some of the costs are being taken out of
expensive channels, and this makes the mobile a powerful
distribution channel. Also, you can distribute other products via
the mobile channel and they may not necessarily be banking
products. And yes, we have witnessed an increased share of wallet
from our customer base.
Timms (Abbey): Over time, at Abbey,
we see branch transactions being substituted by online channels.
The only danger with that is that if everything becomes too
‘transactional’ from the customer’s perspective, then as a bank,
you lose the ability to talk to that customer and offer them other
services.
Question to Matthew Timms:
Branches vs online – you look after e-commerce strategy at Abbey,
part of the Santander Group. How does Abbey/Santander UK get the
channel balance right? Santander has more branches than any other
international bank [over 13,400 globally] at a time when banks are
choosing more direct channels.
Timms: Retail banking is a
relationship industry, and banking through branches is a strength
of the business. We want to supplement that with an online and
direct offering too.
What we see at Abbey is that customers who are
online as well as being branch users are more profitable. I would
agree with Christo: customers who bank online and via digital
channels are more loyal, more profitable and hold more
products.
It’s very expensive to run a branch network –
so an online relationship is much easier and less expensive if you
want to enter a market. However, people want to see an institution
that has the strength and security of a position on the high
street. So having an online presence only may not provide this
reinforcement.
Is mobile banking on our radar at Abbey? It
certainly has a place in the multi-channel mix. It is part of our
strategy to look at text and mobile as part of the next generation
of banking. I imagine we will look at these different services in
the UK. These services have struggled to gain growth in the UK but
mobile banking will be facilitated by devices such as the iPhone.
If you get the customer offering right like they have at Absa,
customers will adopt it.
Martin (APACS): What are the most
successful direct banking initiatives in the UK? I don’t think any
have been massively successful compared with internet banking.
Those that have grown have tended to be the
simpler ones, such as SMS. The more complex and rich [a service]
is, it slows down the uptake.
Mobiles are becoming less like phones and more
like computers. PC or mobile – it will just be ‘online’.
Question to Phil Sowter:
Where does Barclays stand on developing and implementing
alternative channels? You’re considering a major m-banking rollout
in the UK. What criteria does a bank the size of Barclays have to
consider when it’s weighing up new channels?
Sowter: With any new channel
development, we have to ask: does it enhance an existing customer
need or serve a new one? From a mobile point of view, the jury is
still out. There are many different technologies that deliver
service for a mobile interface. We have got to back the technology
that gives us the greatest possible reach and most likely
adoption.
Our research shows mobile needs are simple – a
balance or a statement – so SMS is probably the immediate
technology that gives the banking industry the appropriate reach.
Consumers seem to value it and are prepared to pay for it. The
mobile web is the place to play and the iPhone has given us a
glimpse of what the possibilities may be.
Banks need to invest in SMS and messaging
today. You have to build flexibility into your fixed web
infrastructure. How do you make that banking content relevant to
banking customers?
Question to Nick Staib: First
Direct pioneered the direct banking channel in the UK 20 years ago
in 1989. First Direct now offers Monilink mobile banking, text
message banking, and services such as Internet Banking Plus. How do
you segment your customers and their needs, and drive take-up for
these additional services?
Staib: We have moved to a more
sophisticated form of understanding customer behaviour and we look
at the way customers transact with the bank and their level of
activity.
People are different in the way they transact
with their bank, and so we look at their loyalty, wealth, depth of
relationship, contacts with other banks. That tells us what they
do, and we pass that through an emotional filter. We try and
understand why they do that. Why do they use First Direct?
We’ve had people contacting us a lot on the
phone, perhaps 70 times a month. Maybe they’re lonely! – or maybe
they have to keep a close eye on cash flow. For them that’s a
simple transaction. But we would rather they got that information
through an SMS message than calling us. The call doesn’t add any
value.
Fasken: First Direct launched an
iPhone service in 2007. What are the challenges in launching these
additional services? What drives consumer adoption? In 2008,
firstdirect.com was visited via an
iPhone over 250,000 times, with total visits up 700 percent in 12
months.
Staib: The challenges are technical
and internal. Technically, IT teams have to skill up.
The internal challenge is the bean counters
that don’t get what we’re trying to do. First Direct has been an
innovative bank. We’ve done podcasts and text banking and when the
iPhone came out in the US, we arranged for half a dozen to be
bought and brought back to the UK for us to try out and test. With
our iPhone service, yes, we’ve seen a seven-fold increase in
customer numbers from January 2008 to January 2009.
It could be that the sorts of customers we
have in First Direct are the people for whom new technology is
key.
Sowter: Since the iPhone launched
[in the UK], it has taken 65 percent of the smart phone market and
2 percent of the whole online market. The iPhone is the king of the
castle, though Google’s Android holds the promise of much cheaper
phones. We don’t need all this Java on phones.
Fasken: Didn’t First Direct look at
video-banking via third-generation mobile handsets?
Staib: Yes, we did some podcasts and
you could speak to someone on your handset. It’s an artificial
intelligence type persona – an avatar – and it has to be linked
with the website. If you ask ‘her’ about a mortgage, she can
refresh the website, so it goes to the appropriate section.
Blizzard (KPMG): How important is
internet banking to customers? We can blind ourselves with
statistics. Do they want to spend time in engaging with their
banks? No, they want to spend as little time engaging with their
bank as possible.
It’s a battle for survival right now. When you
look at banks’ strategies, its how do I get liquidity? The internet
continually needs to be freshened and brought up to date.
I’m leading a £70 million internet refresh
project and banks are generally more worried about cutting costs
and their investment is very scarce. Call centres are a third of
the workforce now. Mobile is the best case for investment you can
even find and the growth rates are 15 to 20 percent per annum – but
bank boards are still not making investments.
Question to Steve Blizzard:
How does KPMG see the battle in retail banking? How do you expect
banks’ strategies to develop over the next year? How can banks save
money through getting customers to work online?
Blizzard: There are four things that
will drive [direct banking] forward, including mobile adoption:
1. Profitability. The profitability of
customers who come to you online is 14 percent more than branch
customers;
2. Decreasing attrition. You lose branch
customers more quickly than you lose online customers and 70
percent of online customers also actively use credit;
3. Increasing sales. An online customer has
3.7 products with a bank, but the branch customer only has 2.1
products; and
4. Driving brand loyalty.
There is also the issue of other companies
moving into banking and financial services, such as [UK grocery
stores] Tesco and Waitrose. [Many banks] are falling behind the
rest of the world on the internet because we are not actively
making those sites pleasing.
Banks have a long way to go, because we tend
to use figures from a banking point of view rather than the
customer’s point of view.
Sowter: Fixed and mobile will
definitely converge. You have got to be flexible in the way you
design fixed applications now, so when that convergence takes off,
you can adapt them.
You can get a good web experience on the
iPhone now. Content providers need to make that content relevant.
For me, that’s the path to glory. The handset providers are getting
smarter, and so are the content providers.
Question to Simon Geach and
Dominic Storey: Internet security remains a huge issue for
consumers, and we are seeing mobile security applications now being
rolled out [Kaspersky has signed an m-banking deal with Barclays,
for instance]. What are the biggest issues facing direct banking
models?
Storey: Banks have got to make sure
the user experience is good while at the same time increasing
security. If the user’s only interface is their mobile phone, then
security becomes a large part of that user experience – and we have
a duty to keep users secure, and we have to make their experience a
usual one.
The other side of the fence is protecting the
bank. There are hundreds of millions of points of entry into their
systems, and this touches on the issue of what happens when
[customers] transact more and more on Blackberries and iPhones:
then everyone is a walking risk because they could be mugged. How
many banks have done authentication under duress? Security really
needs to be baked in at the design stage.
Staib: Quite simply, banks should be
able to protect customers’ money without making them jump through
hoops.
Vrey: Our biggest responsibility
lies in educating customers so they can help themselves and they
can protect themselves.
We offered our customer a free mobile security
solution, as we do for our internet banking clients, and we’ve got
a growing awareness of it, but it’s still not top of mind.
Sowter: We’ve been surprised by the
take up of our [free, mobile banking] Anti-Virus offering. The
number one concern is the perception of security – that is the
biggest barrier to the adoption of mobile banking.
van Raalte (Rabobank): Sixty percent
of people are using internet banking and there are still banks that
have not implemented two-factor authentication. I don’t think we
should overestimate the issues. We should be aware that this is
where the customer wants to go and we need to focus on these
security issues. Banks need to supply those security solutions.
Timms: People expect security but
they will be most upset if you increase security and reduce the
user experience. Customers expect us as an institution to secure
their money and they will get angered by additional security that
reduces the customer experience.
Blizzard: The average customer
couldn’t care less. They assume security is being taken care of by
the bank. The customers are driving us and we are trying to
respond.
I can name one bank that’s lost far more than
£50 million this year [through fraud].
van Raalte: Customers do care and
they do want to have a good service with their banks. If you start
communicating with them, they are willing to engage with you. Some
customers don’t care, but a lot of others do.
Geach: Anything that detracts from a
user coming online is bad. You want to get them using the service,
saying ‘There is risk but you can be safe, and here’s how’.
It is very comfortable to walk into a branch;
people go into a branch and they feel as if they are in control.
With mobile banking, it is a very different dynamic.
We as an industry also need to ensure that if
a customer’s mobile device gets lost, they are not compromised by
that loss.
Vrey: There is a significant
increase in the level of sophistication from criminals. What we’ve
picked up in South Africa is a procedure called ‘SIM swap’ where
criminals will disable the client’s mobile phone SIM card,
essentially “hijacking” it and allowing them to receive the
one-time passwords we SMS in order to perform certain
transactions.
Phishing for m-banking passwords is also on
the increase. [Phishers] say, “You will receive a one-time
password. Please send us it as soon as possible”.
The social engineering behind scams, online
and via mobiles, is increasingly sophisticated.
Timms: It’s a battle that will
continue. [The hackers] are continually innovating. The security
industry needs to be moving faster.
Geach: The whole security threat
industry is so much more sophisticated. Now it’s about ‘how much
money can I make?’ They sit behind agents who are going to make
them money. The biggest problem is that they can be based in China,
Russia, South America – and can be effective all over the
world.
Some organisations can’t see if anyone is
doing anything on their systems. You have to make sure you can see
when you’re being attacked or compromised. Are your assets
trackable? Do you know what you have and what they look like? Can
you tell when they change?
The 2008 Verizon data breaches report is worth
reading. Only 4 percent were found by company intrusion systems yet
these companies have the tools there to detect any security issues.
Those who were attacked weren’t checking to see if they had been
hacked and that’s what undid them.
Fasken: Kaspersky Lab is working
with Barclays to secure customers’ mobile phones. If I’m a Barclays
customer, how worried should I be by the threats to mobile
security, compared to say, online security?
Geach: Previously each phone had a
variant of an operating system and so it wasn’t profitable for
hackers to write a different piece of code for every operating
system. As standardisation has started to happen on operating
systems, it’s suddenly become more viable for [criminals] in terms
of planting their malicious code on the device. Mobile threats took
two years to develop compared with ten years in online work.
We have seen drive-by downloads and attacks by
stealth in Indonesia where a Trojan will send SMS messages to a
short number with instructions to transfer money in the user’s
account to another account, which belongs to the cybercriminals.
That is starting to happen more and more.
Security of device is also a huge concern.
When I mean security of the device what I mean is that although
people will say there are no viruses for a mobile, people do lose
their phone and if that happens, you don’t want them to be
vulnerable because of the data – passwords, log in details – on the
phone. So we have to be able to secure the device and allow them to
wipe the phone’s data or track the phone if the device goes
missing. Security of the device and making sure people are secure
even if their device goes missing, is very important for the
future.
Question to Edwin van Raalte:
Rabo’s Inter-national Direct Banking arm has embraced Web 2.0 and
is using a raft of cutting-edge tools such as blogs, forums,
product reviews, eZines and so on to differentiate Rabo from the
crowd.
van Raalte: Web 2.0 fits our profile
and internal objectives. There is significant competition in the
Australian and New Zealand market, but we have been able to rapidly
built a managed funds and deposit book for this region exceeding
A$4 billion in AUM since 2005. In NZ we will break even this year
and have achieved around 3 percent market share and strong brand
recognition. We believe that we have two main points of
differentiation. One is the global centralised ICT operating model
we use based on full STP and operational excellence.
The other important driver is our customer
centric attitude and Web 2.0 approach which truly differentiate us
from often product oriented peers. Examples are our executive
blogs, peer rating reviews on the site, webinars, widgets, podcasts
etc. The result of this is that customer advocacy is becoming the
key source of new business.
An obvious trend is m-banking and soon mobile
wallets, all of which has been clearly helped by iPhone’s success.
In Holland, Rabo has been active since 2003 in m-banking, though
the real take up started in 2006 when we took control on the supply
side by offering mobile package bundles. Rabo is testing near field
communication solutions for payments.
The second trend is that social engineering is
shifting the power away from banks. There are peer-to-peer lending
sites such as Uncrunch and Zopa; social investing sites like Zecco
where like-minded investors share knowledge and transact; social
saving platforms like SmartyPig; and reverse auction sites for term
deposits. For example MoneyAisle.com has over 70 banks signed up
[see RBI 606].
The third trend is that traditional one way
push marketing is becoming less effective as a result of online
social engineering. If you consider customer behaviour and time
spent online then many banks should rethink their media category
spent above line and increase online.
Slowly more and more banks are adopting Web
2.0. Engagement is key.
Fasken: What are proving to be the
most popular Web 2.0 applications? Blogs? Forums? What are
customers getting involved with? Twitter?
van Raalte: Twitter is of great
interest – we have started using it for our direct banks to
communicate. Blogs get a lot of response, including the one written
by our general manager, and we did a webinar which we had a lot of
people watching. It’s a very cheap way of engagement. We
communicate with people at, for example, Facebook, Linked-in, but
Second Life is a very, very niche area which we would not use.
Question to Matthew Timms:
Santander UK now operates a number of different brands. How do you
differentiate services such as Cahoot.co.uk from the online
services that Abbey offers? How important is marketing in the
direct banking mix?
Timms: There is little crossover
between the Cahoot customer base. Cahoot is a longstanding online
offering and it allows us to minimise cannibalisation and crossover
between the brands.
We’ve just been doing quite a bit of online
marketing and the good thing is the measurability of it. We’ve been
looking at aggregators and asking questions such as, ‘Are Google
customers more credit hungry?’ You can then split your marketing
mix and get the best quality business in from different channels.
It’s about making our site more Google-friendly because Google
dominates shopping commerce.
Fasken: How important has Google
become in your marketing mix?
Timms: We call it search engine
optimisation and Google makes up 90 percent of traffic to our
websites. We optimise all our online marketing spend to get the
best coverage. It’s part of our core business practice online. More
importantly we can now measure online spend back to the specific
referrer (ie Google) and have the ability to track savings
liability or loan asset achieved per £ of marketing spend.
Sowter: Nobody should underestimate
the importance of Google in not just online and direct banking but
all aspects of retail financial services.
Round table: Attendees
The attendees were, in alphabetical
order:
• Christo Vrey, managing executive: digital
channels, Absa
• Dominic Storey, technical director,
SourceFire
• Douglas Blakey, deputy editor, Retail
Banker International
• Edwin van Raalte, senior manager business
development – International Direct Banking, Rabobank
• Hugh Fasken, editor, Retail Banker
International
• Matthew Timms, director of e-commerce,
Abbey/Santander UK
• Nick Staib, senior manager, digital
security/digital solutions, HSBC/First Direct
• Phil Sowter, head of mobile and self
service, UK Retail Bank, Barclays
• Richard Martin, business security
consultant, the Association for Payment and Clearing Services
(APACS)
• Simon Geach, consumer sales director,
Kaspersky Lab
• Steve Blizzard, global retail banking
consultant, KPMG
