A report released Monday by Cap Gemini Ernst & Young suggests the role of online banking portals and e-business initiatives is shifting from a cost-saving measure to one of customer retention.
The amount of money banks are pouring into online ventures is increasing, but return on investment has actually been declining, says Madonna Bailey, vice-president of financial services for Cap Gemini Ernst & Young Canada.
“A few years ago the financial institutions were investing extremely heavily in e-commerce, and they expected to get a lot of cost-savings. They’ve been disappointed over the last few years,” says Bailey.
This is the 10th annual Cap Gemini report on the financial services industry, and for the last few years banks have had their hopes dashed with return on investment.
In 1998, banks projected they would save six per cent in costs through online initiatives, and the actual savings were two per cent. In 1999 it was a projected seven per cent savings versus a realized one. Last year, expectations climbed to eight per cent, but the one per cent actual savings held fast.
“They’re re-evaluating,” says Bailey. “They’re much more disciplined about building a business case. Sometimes you can’t necessarily measure (portals) on return on investment, but you can measure them on other metrics.”
A better indicator of a bank site’s success, she says, may be number of visits as a means of gauging customer retention or loyalty.
Despite low returns, portals do serve a customer niche and banks are increasing investment into their sites. Globally, banks will on average increase their discretionary spending on CRM from four per cent to nine per cent by 2004, according to Monday’s report. Those numbers are applicable to Canadian banks, says Bailey.
Bank portals, like ATMs, are favoured for simple transactions, she says, whereas customers prefer face-to-face interaction for more complex banking, like mortgages, loans, investments.
Alice Cheung, IT planning manager for the Bank of Montreal, says transactions may be cheaper online, depending on the number of people using the site, but many still prefer the comfort level of interacting with bank personnel when it comes to matters of money. “For complex things, stuff people don’t feel comfortable with, they require some expert advice. . . . They’re swarmed with all these different products. If you’re a first time buyer, you’re probably more comfortable talking to someone with the experience,” Cheung says.
The financial services industry is becoming increasingly competitive, according to the Cap Gemini report, and banks are no longer under the illusion they can start phasing out branches. However, they are more likely to be relocated to more high-trafficked pedestrian areas like malls, grocery stores and department stores, says Bailey.
Banks have become more differentiated in terms of services offered, adds Bailey, but the last few years have also heralded more cooperation in financial services, such as partnerships between banks and investment companies, insurance companies and credit card companies. There is also a greater trend towards offering competing products in the name of satisfying customers, particularly in Canada. According to the survey, 43 per cent of Canadian banks currently provide or plan to offer competing products or services through e-commerce channels, versus 21 per cent of banks globally.