Banking in the On-Line World

Who? How? and Why?

This document summarises some of the central findings of our forthcoming report Banking in the On-Line World, from a speech given by RBR to the Internet for Banking and Financial Services Conference in Hong Kong and Singapore in January 1996.


I'd like to begin by trying to put some kind of context to banks' activity on the web by sharing some of our research into which banks are using the web in terms of their size and the geographical markets they compete in. It is important to understand that the Internet is no longer virgin territory. Banks are using the net in ever increasing numbers. If you are thinking of establishing a presence on the web, or if you have a site already and are deciding how to develop it, you will not be alone, you will be entering a world where competition is already taking place.

I'll then talk a little about some of the many different ways in which these banks are already using the web in terms of the differing approaches to constructing a web site. Once a bank has decided to establish a site on the web, a whole range of options open up in terms of the content which they are going to make available and the way in which they are going to present that content. It will be helpful to understand some of the methods, tactics and tools that banks are already using, so that you can use them to analyse and assess whatever sites your competitors may be offering, and also to put together a site that does justice to your own institution and meets the targets you set for it.

In the third part of my talk, I'd like to turn to the customer relationship, and to make the point that whatever other changes the world of on-line banking might bring, the customer relationship, and specifically the account relationship, is going to remain central to banks' competitive strategies.

Finally, I'll try to offer some answers to the following question: "How important will on-line delivery become, relative to other delivery channels, in servicing the account relationship." To do this I'm going to use as a case study the development of retail banking delivery in France. For over ten years, France has had a national, on-line information service. This service, called Minitel, is used on a daily basis by millions of people across the country to get access to a range of different types of information. Banks have been using it for several years to deliver account services into homes and offices, and it has become a widely accepted and used delivery channel for banking purposes.

By looking at the ways in which real on-line banking services have developed and matured in a national market, we can gain valuable insights into the ways in which the Internet and other on-line delivery systems might make their mark on banking in the future.

Which Banks are on the Web?

To begin I'm going to say something about who is on the web. A bank deciding to invest in a web site will be competing for the attention of web users with other institutions. How many institutions that will be, and how well developed the competition is, depends to a large extent on the part of the world you are in.

Over 200 Banks

Towards the end of last year, RBR searched the web for sites being operated by retail banks. All in all we found over 200 different banks operating web sites, and this number was increasing rapidly. To have a site, which last year was fairly rare, is this year becoming more and more commonplace. Running a web site can no longer be associated with technological leadership, and in some cases, a bank joining the web will be competing for attention with several others from its own home market with presences already established.

Where are They From?

This slide shows the total population of banks with web sites, split by geographical region.

Around half of all the banks we found are based in the USA and Canada. This is where penetration of computers is the highest, and where many of the individuals and companies driving the expansion of the web are based.

The web is developing more rapidly in the US than in other parts of the world, and the US is one of the best places to look for new ideas on how to use the web, and to see what directions the web might develop in the future.

As you can see, a further 35% of banks originate in Europe, Asia accounts for only 7% of the total - this means that competition is as yet by no means as intense here as it is in Europe or the US, and in some countries there may not be any banks as yet operating web sites.

The 9% of banks in the rest of the world originate principally in Australasia, South America and Africa.

How Big are They?

This shows the total population of banks with web sites, split by their size in terms of asset strength. The first section shows that 37% of all the banks are among the five largest in their home markets. The first and second sections together represent 54% of the total - this is the proportion of banks which are among the 1,000 largest in the world. The remaining slice of 46% are in neither of these categories. They are generally the smaller regional or local banks from the USA or Europe.

In terms of asset strength, the full gamut of the banking industry worldwide is represented on the web. At the top the Japanese giants Dai-Ichi Kangyo, Fuji and Sumitomo (Ranking 2, 3 and 4 in the world) are present. At the bottom there are local savings banks from the USA, young banks from the former eastern bloc and a handful of newly-created "cyberbanks". Within individual countries, banks of all sizes are present. In Germany for example national institutions like Deutsche and Dresdner Banks rub shoulders with the smallest of local banks such as the Sparkasse Schwerin which is able to serve just a tiny proportion of the German market.

Who is on the Web? Conclusion

So. A diverse collection of banks, big and small, national and local have established a presence on the web. There are a number of conclusions we can draw from this information.

In the first place the presence of local banks, and the strength of that presence - demonstrates that although the Internet is a global network, that need not prevent local institutions from using it to serve local communities. If we consider that not everybody is equipped to use the world wide web, it is clear that there are some banking web sites out there which are aimed at an audience of perhaps just one or two hundred people.

This is possible because setting up a simple site is easy and cheap. The programming skills needed are by no means in the realm of rocket science and are within the reach of the smallest of institutions. You don't have to spend long using the web to realise that a large and growing number of ordinary members of the public are setting up and maintaining their own sites.

Of course, many of the sites run by the public are fairly basic and unsophisticated, and most customers would probably expect their banks to offer them something with more professionalism and polish.

This returns us to the idea of competition, because for most markets, simply having a site is no longer impressive in itself. Web users will form an opinion of an institution which is based in part at least on the quality of the content and presentation of their web site.

And it is here that I should restate that in general web users are likely to be among a bank's more valuable customers, and the ones a bank should be least willing to disappoint. Surveys conducted in the US and Europe show web users to be predominantly young, relatively affluent people, and although they are as yet a small segment of the total banking market, they are going to continue to grow in number for some time.

So to move on to my next question, I'd like to look at what banks are actually doing on the web.

What are Banks Doing on the Web?

Ten Ways to Play

For the purposes of this speech, I'm going to discus ten different ways in which banks are participating in the web This list is by no means comprehensive, and certainly by no means final. The web is still a very young medium, individuals and institutions are still experimenting with its possibilities, and we expect that more and more innovative ways to exploit it will emerge month by month for several more years.

The purpose of this, and what I hope you will find of value, is that it can be an ongoing framework for understanding what other banks are doing, and how you might develop your own site.

Banking on the web is still very young. Different banks are using it for different purposes. Because the base of web users at present is relatively small, many banks feel that they can use the web to experiment in a number of different ways, and if they make mistakes it won't matter too much.

I should also point out, that in some ways, the culture of the banking industry and that of the community of web users, tend to pull in somewhat different directions. Most banks can be considered to be relatively conservative organisations, valuing stability, circumspection and tradition. In many cases they do well to promote this kind of culture because these are the values which most customers want and expect their banks to have.

In contrast, the culture of much of the world wide web tends to value youth, novelty, humour, randomness, and a general sort of unbuttoned freedom in both the content and presentation of web pages.

This can place banks in a dilemma, and there are some quite important decisions to be made in achieving a balance whereby you can address the audience in its own language and capture its attention, and also do your best to maintain the dignity which is appropriate to a financial institution.

The following list then, explores some of the ways that banks have already found to address the challenges posed by the web.

1: Sign

The first level of participation, and undoubtedly the lowest, is simply to put up a sign. Some people have called it "maintaining a zero presence". This involves having a site on the web which consists only of the company logo and perhaps a contact telephone number. One site I have seen consists entirely of a picture of that particular banks' headquarters building. This particular institution was by no means one of the smallest on the web.

Fortunately there are relatively few of these sort of sites out there as they do little to endear users to the bank. A common complaint about the web is that it can sometimes be quite slow to run. A site such as this is, if anything, going to be counterproductive as most members of the public - having waited for a page to load - will want to see more than a single graphic or picture.

2: Shop Window

At the next level, and by far the most common sort of site, is the shop window. Here banks offer information about themselves and their products. Common types of information include pages from the annual report which they think their customer might find interesting. Or descriptions of account products, loan products, card products, etc.

In terms of size and complexity sites such as these can be as small as three or four linked pages offering lists of the categories of products that the bank sells. Others can be large, elaborate experiences, offering product information in great depth and detail and allowing users to find out as much or as little about individual products as they choose.

The advantages of this sort of site are that it can be set up and maintained with relatively little investment, it allows a bank to give its customer access in a single place to information that might otherwise be scattered in several brochures and documents, and it is almost always in keeping with the dignity of the institution it represents.

On the minus side, most of these sites don't offer any kind of interactivity, and with the relative wealth of interesting material that can be found on the web, they seldom offer any reason to return.

A site such as this also does little to distinguish a bank from others that may be out there already or soon to join.

Very few banks at present are further advanced than the level of the shop window, and the remaining categories that I want to talk about, for now at least each have only a handful of banks in them. In these cases, the sites I'll talk about are ones where banks have used the basic shop window set-up, but have supplemented it with one or more of a range of extra elements.

3: Financial Advice

One higher level of web site goes beyond product information to offer more general financial advice, sometimes with a level of interactivity. In this respect the site of the Toronto Dominion Bank in Canada is a model.

One of a number of financial advice services it offers is called the "Wealth Allocation Model", this allows customers to answer questions about themselves and their tolerance for risk, and receive advice on how best to allocate their assets. The program itself is a fairly simple one, it asks for a customers age, income, when they will need their money, and gives three choices for risk tolerance. An example of one is "You are looking for both income and capital appreciation and are willing to incur some risk to reduce taxes and hedge against inflation". On the basis of this selection and my other details I was told that my investment profile was "Income and moderate Growth" and was shown how I might allocate my assets between various investment funds.

Toronto Dominion also offers pages called "Everything you wanted to know about buying a home but were afraid to ask" and "How to save money on your mortgage". These gave advice and answers to the most commonly asked questions in their respective areas.

Some other sites ask users to submit questions by e-mail, and the best questions are posted onto the site along with the answer given by the relevant expert.

This sort of financial advice and interactivity can be a useful way to help customers who may be unsure of their needs, and certainly goes some way to helping the bank that offers it to stand out from the crowd.

4: The Bank not the Banking

The fourth category I have called "the bank not the banking". This is when a site offers information on a banks' non-bank activities. It gives customers a chance to see what else the bank does, how it behaves when it is off duty.

This might mean for example giving details of a bank's charitable or community aid endeavours. Some banks may give money to a particular charity, or allow their staff time off to do community work and so forth. The web is a good place to let customers know about it, and to show them that their bank has its eye on something other than the bottom line.

Also in this category I would place information on events that the bank is sponsoring.

This year, for example, NationsBank in the US is one of the official sponsors of the US Olympic team. Their web site has lots of information about the sponsorship, the team, and the Olympics in general. One page for example, called "Hometown Hopefuls" describes the bank's commitment to the US Olympic team - how much they are going to invest, where the money will go and why they think it is important to support the Olympic team. Another page on the same site is a searchable database of the events that form the 1996 Atlanta Olympics, allowing users to search for specific sports in specific places and times.

This sort of site has a number of distinct advantages. In the first place it allows banks to show that they have a role in their community beyond that of simply banking.

In the second place, the example of the Nationsbank Olympic database shows that banks can use the web to provide both customer and non-customer with a useful resource of information which they could use over and over again and will help keep the bank in their minds.

5: The Exploding Whale

My fifth point I have entitled, the exploding whale. This is not flippant, it comes from a real example of a banks' web site.

Some banks have decided to include material that is nothing at all to do with banking, but which they believe may be of interest to people using the site anyway.

In this respect Bank Austria offers a page in which it gives its opinions on the implications of Austria's membership of the European Union. Some local banks in America carry local community information and news.

Lloyds Bank in the UK has a site which is aimed full square at students, and contains a page of links to other sites that students mind find interesting. One such link for example goes to the "Exploding Whale Page", where we can see a news report (in text or video) about some people who tried to get rid of a whale, which had beached on their stretch of coast, by blowing it up with dynamite.

Not every banker will approve of Lloyds' exploding whale link. Many banks would want to aim their pages at a different sort of user, but whether or not you approve of Lloyds methods, their site does show that they have understood and acted upon some of the characteristics of the medium they are using.

I'd like to pause for a moment over these last two ways of using the web because I believe that they may have an important place in the future of banking competition. One of the key ways in which banks will compete in the future is by broadening and deepening and lengthening and leveraging their relationships with their customers.

When competition is tough and products and prices are similar, customers will choose the bank they like best for some other reason - this other reason may have less to do with banking and more to do with a banks' outside interests - its personality if you like.

An important decision that banks will face in the future is how to develop their personalities and how to position themselves in their non-banking capacities. This means understanding customers better and becoming the sort of bank that they would want to do business with.

The better sites on the web show that institutions have understood this need and have acted on it.

6: Hub for Commerce

A rather different way to get involved in the web is to become a hub for commerce. There are a number of "virtual shopping malls" on the world wide web, and some of them are run by banking institutions. Among the first was BarclaySquare, a site operated by BarclayCard, the largest Visa issuer in the UK. The site includes a dozen or so shops selling books, wine, and other products for delivery by post. BarclayCard have been able to leverage their acquiring relationships to sell their retailer customers the technology and expertise to set up shop on the web.

7: Facilitator of Transactions

The idea of the commerce hub is linked to the role of general facilitator of payment transactions. One of two banks are doing this in a limited way in the United States. In many ways this activity is apart from the other categories, and is somewhat beyond the scope of this presentation.

At this stage I am going to leave aside the problems of security and confidentiality on the Internet and assume, as Bill Gates does in his recent book, that with enough companies working on these problems, they will be solved. Security issues are unlikely to prove a significant impediment to the transacting of confidential business across the net.

One bank which is piloting a project to become a facilitator of transactions is the Mark Twain Bank in the USA. It has partnered with DigiCash, one of a handful of technology providers offering e-cash solutions, to pilot a service for its own customers.

8: Selling Financial Products

Some banks have gone so far as to sell financial products on the Internet. At this stage it is most common to allow customers to fill in an application form for a credit card on-line and complete the transaction by more mundane methods such as the post, but we can expect that the future will see banks moving to complete sales entirely on-line, and to sell more complex products.

The area of selling financial products entirely on-line is a complex one. Questions are raised such as: what will people be willing to buy on-line?, what sort of people will want to make purchases?, how secure and confidential can the information generated by a sale be?

There are many other questions such as these, which for the time being are difficult to answer, but are likely to emerge as central areas of research not only for banks but for the business world in general.

9: Gateway to the Internet - Internet Access Provider

One bank that we know of, Crédit Mutuel de Bretagne in France, has taken Internet participation to a new level with its system called Citelis.

Under normal circumstances, the public get access to the world wide web through a service provider. In this case bank customers dial their bank directly in the first instance, and the bank routes their call out to the Internet.

The bank gives its customers proprietary software. The customer connects to the bank by a direct telephone link. Once connected, a screen appears which comprises a mall on which the bank can be found alongside several other shops. Other parts of the mall give access to other services including a route out to the Internet. In this way the bank acts as the gateway and access provider to the web itself.

This is an important step, and a significant strategic decision, because it is positioning the bank in an area some way beyond banks' traditional areas of competence, but also allows the bank to control the customer relationship.

10: Account Services

Finally, a very small number of banks have begun to offer account transaction services on the Internet. This means that they are using the net to offer everyday transactions such as balance enquiry, transfer between accounts and bill payment. The institution which has attracted the most attention in this respect is based in America and called, Security First Network Bank. This is in fact a tiny, one branch local bank based in Kentucky, which as well as being a bank in its own right, is a showcase for the products of the Atlanta-based software company 5Paces.

The offering of account services is among the most advanced uses of the web, because it presents all kinds of challenges in terms of integrating the web offering with the account database, and raises questions of security and confidentiality of customers information.

However, it is also one of the most important areas in which a bank can use on-line delivery to serve its customers, as it is among the main planks of the relationship with the customer.

And Many More

So, those are some of the ways in which banks are using the web already. They are many and varied and require differing levels of commitment, technical expertise and investment.

As I mentioned earlier, this is by no means a definitive list. but I hope it can be of some value anyway. There are a number of things we can learn from it.

What you Do Matters

One of the main things we can learn from this survey is simply this: that there are lots of options to be considered when developing a web site, and the ones you choose must be appropriate to your image as a bank and to the needs of your customers, because they will have a role to play in reflecting and defining the relationship between bank and customer.

The Customer Relationship

I'd like to look now in some more detail at this customer relationship. Although the Internet may change many areas of retail banking, one thing at least is likely to stay the same. The relationships that a bank has with its customers will remain of central importance to that banks' competitiveness and profitability.

A Quote

"Individually, banks will need to develop an on-line delivery and payments strategy aimed at broadening relationships and retaining customers."

Bank Administration Institute / Boston Consulting Group

A recent study by the Boston Consulting Group concluded that the principal aims of a bank in developing a strategy for on-line delivery should be to broaden the customer relationship, and to retain customer loyalty.

Account Banking

The heart of the relationship with the customer is the account relationship - it's the one thing that keeps customers coming back to you week after week.

The account relationship may not itself be the most profitable element of a customer's banking activity, but it should show some profit, and it is likely to be the starting point for a lifetime's relationship of cross selling.

As we have all been told, in the on-line world competition is intense, some areas of financial services may become commoditised. This does not mean that the old paradigm of the lifetime relationship with a bank must disappear. All it means is that banks can no longer take the lifetime relationship for granted. They have to work to maintain it.

How Important Will On-Line Delivery Be in Maintaining the Account Relationship?

The question I'd like to address now is this: How important will on-line delivery be in maintaining the account relationship?

To begin, I should make the point that on-line delivery can be effected in a number of ways. The Internet is by no means the only, nor necessarily the preferable, way to reach out to customers with a screen-based banking service. Account services can come to a PC via the Internet, through a banks own software, through a personal financial management package, and in several other ways. The pros and cons of each method are beyond the scope of this talk. However, the comments I have to make are about on-line delivery in general, and are not confined to a specific delivery mechanism.

What the Internet is likely to do, however, is drive demand for on-line banking, and ensure that an increasing proportion of customers are equipped with a PC and modem allowing them to use whatever services are available.

We believe that one of the better ways to get an idea of how important on-line delivery might become in, say, 10 years time, is to examine another delivery system that shares many of the important characteristics of the on-line PC with the exception that it has been around for 10 years. The system I have in mind is Minitel, the national on-line videotext service in France.


Although, technically and cosmetically Minitel differs from the newer on-line platforms, from the utilitarian point of view - it is very similar. It is screen based and menu driven; it supports a wide variety of services, it can be used in the home or the office, and in banking use it can deliver a wide range of transactions.

Minitel can help us understand how on-line banking will mature because it is itself a mature medium. It was launched, amid gales of hype, in the early 1980s. It went through a period of astonishing growth as the French government gave away several million terminals. It's initial novelty value wore off, and various technical enhancements were made to it. Until now it has settled down to what we can consider a fairly steady pattern of use. After around 12 years some sixteen and a half million people have access to a Minitel terminal, either at home or at work. That means that on-line banking is available to something in the region of 40% of all adults.

There are several things that we can learn from the experience of the French banks using Minitel. These are just a few of them.

On-Line Account Banking a Competitive Necessity

The first is this. The French banks consider it a competitive necessity to offer account banking through Minitel. Almost every bank in France offers at least some basic transactions in this way.

Considerable Differences in the Transactions Offered

From a total of seven French banks, this slide shows how many of them offer each type of facility through Minitel. As you can see, only one facility - that of viewing balance and statement details is offered by all the banks. It's interesting to note that share dealing is up there with the more mundane transactions as an important area of competition.

On-Line an Important Delivery System, But Not Dominant.

Although Minitel is an important delivery mechanism, it has supplemented rather than replaced other methods. This slide shows the same facilities and same seven banks as before, and has now added the number of banks which offer those facilities through telephone based systems - either with a human operator or voice response. As you can see, a number of transactions are available on multiple channels.

Additionally there are a number of transactions that are only available on a telephone system or at the branch itself.

Customers Want Minitel, but Not Minitel Alone

The final point is this. The French public's behaviour over the past 10 years shows that although there is significant demand for on-line delivery, customers do not want that to be the only delivery mechanism. This slide, from a survey last February, shows the proportion of account transactions made through each of four delivery channels. The results here only include those people who have access to a Minitel terminal.

As you can see, among those who have access to it, Minitel is used more than any other channel. But it still represents only a little over a third of all transactions.

So, to sum up then, I'll try to draw some general conclusions from the research.


The main ones are these:

This information is taken from the report Banking in the On-Line World, to be published later this year by Retail Banking Research Ltd.

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