Banks face flat-line growth in online banking unless they can persuade customers to do more on their bank sites rather than going to billers, according to a recent Javelin report. Online banking adoption is flat because it is saturated, said Mark Schwanhausser, director of multi-channel financial services at Javelin. By 2018, 89 percent of American households will use online banking, up from 84 percent today. He suggests that banks focus on a segment he calls Digital Drifters, younger, tech-savvy customers who could be persuaded to pay bills at their financial institution. But for now, 70 percent of them prefer to pay at the biller site.
That may be because banks, said Schwanhausser, are 10 years behind.
“Banks have been sitting there on legacy services and haven’t upgraded. Right now they have to recognize how fast the whole mindset is changing. They have to adapt to providing services not only in mobile, but then they have use what they learn in mobile to reinvent and invigorate their online service.”
The trouble for bankers is that online doesn’t have a clear and attractive return on investment, he added. This is not a new story in banking; each new channel from ATM to drive-through to credit and debit cards and then online and mobile, has added costs without getting rid of other channels. Although now the decline in branch traffic has allowed banks to reduce their size and number.
“You don’t get a lot of money from it [the online channel] directly, but it is a sticky surface that keeps customers coming back. It builds relationships, but you have to justify it with a different kind of math from being able to charge someone $3.”
Perhaps more to the point, a bank without online access is soon going to be struggling for business, or it will be going out of business as its remaining branch customers die off.
Put these elements, such as no clear ROI together with conservative banker mentality and you can see why banks are 10 years behind, he added.
Consumers want convenience and, perhaps, some tools to manage their money. If the bank services are clunky, their customers will go somewhere else, whether that is a biller, an aggregator or a personal financial management site.
Mint, said Schwanhausser, has stagnated since it was acquired by Intuit in 2009.
“It gives you alerts, but you can’t act.” He thinks that Check is better for consumers because it aggregates bills and provides a dashboard view and lets the user pay directly from the site.
“They are very innovative, but when you think about activities and how to manage your money, there are other places consumers will go.”
Banking customers who use online and mobile banking and bill pay through their financial institution are the most profitable for the bank. They are also the path to the future and probably the most adept at moving accounts if they are dissatisfied.
“They are defining banking for the rest of it, and if you can satisfy them, you will satisfy other customers. They are hungry for personal financial management tools, but they won’t wait around for a bank to provide them. They are as likely to look outside a bank.”
Banks have built their business on face to face interactions in the branch, but now they need to reach out through digital channels.
“It’s easier to talk about big data than do it effectively,” he said. “Banks need to look at the transactions they control and see where customers are spending and where they can provide alerts and personal financial advice.”
Banks can help customers save money, lock in deals, cash in a coupon or grab a refund, he said, citing BankAmeriDeals from Bank of America as an example of using customer data to deepen relationships.
To understand customers and offer them appropriate deals will require wider use of predictive analytics, he added. Some vendors, such as Fiserv and FIS, are beginning to get into the business.
“In relationships, how do we use the phone to have a more proactive personal relationship than we did in the day when we waited for people to come to the branch and sit down face to face?” Banks need to ask if they are using mobile phones to their full potential. He looks to features such as geo location for authentication, merchant rewards for loyalty and biometrics for greater security.
Legacy IT is an issue, so is legacy thinking.
“How long since the iPhone, and people are still asking if this mobile banking thing is real. We should be years past that question.”