Logging On: Making the Most of the Online Channel

Introduction
Online banking, despite being a relatively new channel in historic terms, has achieved mainstream acceptance by consumers around the world. The channel is quickly changing, and new functionality is constantly being added. At the same time, mobile banking has emerged as a new channel for transactional activity, adding another access point for consumers. This report is the second in the global customer experience series, and focuses on the online channel. It assesses the current state of online and mobile banking provision across the world, and discusses likely future developments.

Scope of this research
• Examine the latest developments in online and mobile banking.
• Presents results from Datamonitor’s Financial Services Consumer Insight Survey to highlight consumer preferences regarding online banking.
• Learn how the provision of new online services and functions can enhance the customer experience.
• Discuss the future shape of online and mobile banking provision.

Research and analysis highlights
Online banking has achieved mass acceptance. For many consumers, it has supplanted the branch as the primary channel for conducting basic transactions. The online channel has also become a significant sales and acquisition medium for many financial products.

New developments in the online sphere are emerging all the time. Increasing engagement with social media can help to strengthen customer relationships. The growth of mobile banking and added website functionality are also helping to transform the online experience and facilitate consumers’ lifestyles.

Mobile banking will experience rapidly change in the coming years. From the basic provision of text-based alerts, this channel will eventually allow comprehensive payment and money transfer services. Mobile phones will become the main means by which consumers interact with their banks.

Key reasons to purchase this research
• Find out about the latest trends in online and mobile service provision.
• Read case studies of providers who have brought in particularly noteworthy innovations in online and mobile banking.
• Assess the possibilities for the future evolution of online and mobile banking.


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TABLE OF CONTENTS
Overview 1
Catalyst 1
Summary 1
Methodology 1
Executive Summary 2
Managing finances online has become a mainstream activity 2
Personal finance managers are in the vanguard of providing added-value services online 2
Mobile banking will become the main channel of interaction for many consumers 5
Consumers in developing markets view mobile banking provision as highly important 5
Mobile banking has the potential to greatly enhance the customer experience 6
Social media will become a valuable tool for a minority of institutions 7
Banks with already strong customer relationships have the most to gain from using social media 7
Evaluating the Customer Experience 18
What does customer experience mean? 18
The evolution of customer experience 18
The importance of generating a satisfying customer experience 20
Providers are starting to focus on customer experience management 20
Most banks now have in place extensive programs to monitor customer satisfaction 21
Customer loyalty is the key to profitability 21
Financial providers need to improve the quality of the customer experience they provide 24
There is much room for improvement in the standards of service that banks provide 24
Banks should focus on differentiating their customer experience 25
Creating an attractive customer experience can enable banks to charge a premium for their offering 26
Online Banking has Come of Age 27
Consumers in all regions are increasingly moving online 27
Improvements in technology have boosted uptake of online services 27
The migration of routine banking to remote channels has freed up branches for other uses 28
Managing finances online has become a mainstream activity 28
Routine banking transactions are now mainly carried out online 29
Online application is becoming very significant for some financial products 30
Online management of finances will rise over time 31
The Current State of Online Banking 33
Bank websites remain largely conventional in design and appearance 33
Consumer caution has driven conservative approaches to website design 33
Innovation has so far largely been restricted to smaller banks 34
ASB Bank New Zealand is one of a few that is using its website for customer acquisition 35
More striking designs remain largely the preserve of non-bank websites 36
Online money management functionality is increasing all the time 37
Personal finance managers are in the vanguard of providing added-value services online 38
Only a handful of providers have so far attempted to emulate the PFM websites 40
Financial services providers have been increasing their presence on social media 45
Hundreds of millions of consumers worldwide engage in social networking 45
A significant minority of consumers use social media and other online outlets for financial advice 45
Consumers agree that banks should make the most of new channels 47
Banks have many opportunities to reach out to consumers in the online social sphere 48
To date, efforts to connect with consumers via social media have had limited success 50
Mobile banking is fast becoming a significant channel 51
Take-up of mobile banking is more rapid than for online banking at the same stage of evolution 51
The Far East is embracing mobile banking more enthusiastically than Europe 53
Strategies for mobile implementation differ across banks 54
Developing regions are ahead of the developed world in terms of mobile technology 56
Balancing security of online banking with ease of use remains a challenge for banks 56
Consumers demand both high levels of security and ease of use 56
Criminal activity remains a potent threat to online banking 57
Some banks have been criticized for having relatively poor levels of online security 58
Some security solutions run the risk of reducing ease of access to banking services 59
New technologies provide new opportunities for criminals 61
More user-friendly security solutions are available 62
The Future of Online Banking 63
The Internet is not a suitable channel for all customers all of the time 63
The branch remains the primary channel for sales of many financial products 63
Consumers want to deal with their bank through many channels, not one 66
Banks will need to resolve the growing tension between demands and capabilities 66
Old architecture may limit the ability of banks to improve the functionality of their online services 66
HSBC has made a huge effort to address this issue 67
Santander has also undertaken a similar upgrade 68
Mobile banking will become the main channel of interaction for many consumers 68
Consumers in developing markets view mobile banking provision as highly important 68
Age is also a key driver of mobile banking usage 69
Adoption of mobile banking in more advanced regions is high among customers aware of these services 70
Mobile banking varies in terms of functionality across the world 70
Mobile banking has the potential to greatly enhance the customer experience 74
Mobile is very likely to become the most frequent usage channel for consumers 81
New technologies will improve other aspects of online banking 81
Consumers will soon be able to engage in live video chats with their banks 81
Some banks are adding money management tools to help their customers 82
The introduction of straight-through processing will make consumers' lives easier 85
Technology now allows banks to present a personalized face to their customers 86
Social media will become a valuable tool for a minority of institutions 86
Banks with already strong customer relationships have the most to gain from using social media 87
Many larger banks do not seem to understand how social media works 88
Banks need to focus on facilitating the day-to-day online experience 89
Get the basics right and customer satisfaction will increase 89
Appendix 91
Supplementary data 91
Definitions 102
One-time password (OTP) 102
Two-factor authentication (2FA) 102
Smartphone 103
Methodology 103
Further reading 103
Ask the analyst 103
Datamonitor consulting 103
Disclaimer 103

TABLE OF FIGURES
Figure 1: Globally, three quarters of online consumers regard online banking as important to them 2
Figure 2: PFM sites such as lovemoney.com allow visual representation of spending and transactions 4
Figure 3: Developing markets place a much higher premium on mobile banking than developed economies 6
Figure 4: The ANZ goMoney mobile platform allows payments using just the payee's phone number 7
Figure 5: First Direct is trying to engage with its customers through building an online community 9
Figure 6: Value-added increases as providers move towards an experience-based economy 19
Figure 7: Consumer behavior varies from antagonism to advocacy according to consumer attitudes 22
Figure 8: Many providers now regard NPS as a key metric 23
Figure 9: A growing proportion of the world's population now uses the Internet 27
Figure 10: Globally, three quarters of online consumers regard online banking as important to them 29
Figure 11: Most consumers now carry out day-to-day banking activities online 30
Figure 12: In five markets, more than a quarter of loan holders are applying for their loans online 31
Figure 13: Older consumers are less willing to apply for products online than those who are younger 32
Figure 14: Caution and conformity characterize the current appearance of most bank websites 34
Figure 15: ASB Bank has opted for an informal and unconventional website in order to attract customers 36
Figure 16: moneyStrands is trying to engage with a young demographic 37
Figure 17: PFM sites such as lovemoney.com allow visual representation of spending and transactions 39
Figure 18: Barclaycard is following the lead set by PFM sites in terms of presenting account data 41
Figure 19: BBVA's PFM tool is also available on a customized mobile platform 42
Figure 20: NatWest has recently added a basic savings goal facility to its online banking platform 43
Figure 21: Three in four online consumers prefer to carefully research their financial decisions 44
Figure 22: Globally, around one in six online consumers use online resources for financial advice 46
Figure 23: Online resources are far less popular than friends and family as a source of advice 47
Figure 24: Nearly half of consumers worldwide think that financial providers should embrace new technologies 48
Figure 25: Banks can engage with consumers through a variety of social media outlets 49
Figure 26: Visits to Compare the Market's website shot up in early 2009 on the back of its new campaign 50
Figure 27: Smartphone usage will grow strongly during the next few years 52
Figure 28: All smartphone operating systems will gain in popularity in coming years 53
Figure 29: Banks in the Asia Pacific region commonly allow customers to move money and pay bills on the move 54
Figure 30: Security concerns are a significant worry for non-online bankers in China and Brazil 57
Figure 31: Nationwide is introducing card readers in 2011, despite their unpopularity with users 60
Figure 32: Key fobs are easier to use than card readers 61
Figure 33: Globally, nearly nine in 10 bank account holders opened their account in-branch 64
Figure 34: Only 6% of mortgage holders worldwide applied for their home loan via the Internet 65
Figure 35: HSBC has carried out a major initiative to streamline and modernize its IT systems 67
Figure 36: Developing markets place a much higher premium on mobile banking than developed economies 69
Figure 37: Younger consumers increasingly see mobile banking as a necessity 70
Figure 38: Mobile banking will evolve in terms of interactivity and variety of functions 71
Figure 39: Bank of America offers mainstream, second-generation mobile banking to its customers 72
Figure 40: More advanced mobile services allow banks to significantly improve the customer experience 74
Figure 41: ING Bank offers a geolocation-enabled ATM finder 75
Figure 42: DBS is using mobile applications to broaden its appeal beyond financial services 76
Figure 43: ANZ's goMoney mobile platform allows payments using just the payee's phone number 77
Figure 44: Banks are starting to offer access via the latest tablet-style mobile devices 79
Figure 45: Commonwealth Bank sees mobile technology as a lifestyle enhancer 80
Figure 46: Video adds an extra layer of interaction to online chats with advisors 82
Figure 47: PNC's Virtual Wallet is a holistic money management tool 83
Figure 48: Wells Fargo has revamped its PFM portfolio 85
Figure 49: First Direct is trying to engage with its customers through building an online community 88
Figure 50: Lloyds TSB's approach to online engagement with its customers seems lacking in purpose 89

TABLE OF TABLES
Table 1: Common design cues for bank websites 33
Table 2: 2009 Which? survey of online banking security in the UK 58
Table 3: Proportion of online consumers stating that online banking is important 91
Table 4: Proportion of online consumers stating that mobile banking is important 92
Table 5: Number of Internet users per 100 inhabitants 92
Table 6: Proportion of global online consumers who conducted each activity online, in the six months to June 2010 93
Table 7: Proportion of online consumers using each channel for loan application 94
Table 8: Proportion of product holders who applied via online channel 94
Table 9: Proportion of online consumers who agree they gather as much information as possible when making financial decisions 95
Table 10: Proportion of online consumers who agree they take financial advice from blogs and other online resources 96
Table 11: Sources of advice used by online consumers for financial advice 97
Table 12: Proportion of online consumers who agree that financial services should embrace new technologies 98
Table 13: Smartphone total annual shipments by region (000s), 2008–15f 99
Table 14: Proportion of online consumers who agree that quick and easy access to online services is important 100
Table 15: Proportion of online consumers using each channel for bank account application 101
Table 16: Proportion of online consumers using each channel for mortgage application 102


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