A couple of days ago I was asked informally what I think an Internet banking unit of a major bank should do to increase their competitiveness. The bank, which I will call “Incumbank” for the purpose of this article, was a pioneer of Internet banking and has won many awards in the past for its innovative and leading Internet services.
Like many other traditional banks, Incumbank has been hit by growing competition from niche players. The end of the 90-ies saw the rise of a number of online trading offerings at very low commission as well as a number of low-cost retail phone and internet banks. Traditionally, neither of these newcomers really threatened banks such as Incumbank.
The new business models catered only to a small niche of the market – day traders and small volume frequent traders. The phone and internet pure play banks captured some of most price sensitive consumers, but these hardly provided the margins necessary to compete with traditional banks’ returns.
Today, these niche plays have matured and most of them offer a broad range of services both for consumers and corporate addressing lucrative segments such as credit, private banking and mutual funds. Naturally, many of the new players lack the physical retail facilities and legacy systems of e.g. Incumbank meaning lower opex, growth, scalability and effective acquisition of a new customer base.
So what does a traditional player like Incumbank need to block this kind of competition and retake the online initiative to scale its operating expenses with some growth revenues?
In my view there should be three strategic imperatives listed below in order of timing of fulfilment/ completion.
Without going into too much detail, success starts with log-in, user interface and basics – I call it core customer experience. Once that is in place I believe key is to put an organization in place that thinks like an on-line transactional business not like a bank. Sales focus and getting the most out of every visit (much like traffic into a shopping mall) is key.
Last but not least, banks need to understand that they are no longer in a one way street. They need to not only use customer feed back for innovation but offer the customer the tools to voice feed back (blog etc). This is an important part of driving on-line demand.
