Electronic Banking: Blueprint for Success, Failure

By Greene, James S. | American Banker, March 3, 1997 | Go to article overview

Electronic Banking: Blueprint for Success, Failure


Greene, James S., American Banker


Many prognosticators believe that all a bank must do is introduce an aggressive entry on the Internet and the holy grail of banking in the future will be theirs for the taking. However, our experience with many of the world's leading financial services or ganizations indicates a more sobering reality.

While consumer migration to a more electronic world of banking is a likely eventuality, there is uncertainty on how long it will take - and on which attributes will make the journey as smooth as possible. The key to a successful transition might lie in ho w successful a bank is today, and how much capital-both financial and psychological-it has invested in the current paradigm. Ironically, the more successful a retail bank is today, the more difficult it might be for it to dominate virtualized banking ten years from now.

History has taught us that the change agents during major shifts in commerce are usually not the dominant players. Why? Because they believe they have too much at stake in the current economic structure and therefore only dabble in new arenas to minimize their risk. That leaves room for the interlopers, such as Microsoft, Intuit, Charles Schwab, and American Express, who have far less invested in the current paradigm-and more to gain from the new order. This dynamic may be exacerbated by today's capital m arkets players, many of whom adversely view any provocative electronic commerce action and respond by punishing a bank's stock price. As a result, the banks could find themselves in a Catch-22.

If history repeats itself and banks lose the lead to market-savvy nonbanks, traditional banks might have a hard time catching up, especially given the capital base of the likely competition. And while the lack of geographic boundaries in electronic commer ce might appear to provide unlimited room for players, it's likely that only a few successful companies will survive. As a result, many banks-especially larger mass-market players-might have no chair to sit on once the music stops.

So how does a bank avoid this scenario? The solution embraces several guiding principles that banks can adopt to successfully and cost effectively navigate through the obstacles of electronic migration:

n Get support from the top -up front. Many banks pursue their electronic commerce initiatives in a piecemeal fashion; this approach often reflects the fragmented support for electronic migration. Electronic commerce initiatives will be successful only if they have the direct support of a CEO who has a clear vision and focus of what the future holds in electronic commerce.

n Offer sufficient delivery options. It's naive to assume that consumers will gladly leap directly from the teller window (the most expensive delivery channel) to the laptop PC (the least expensive). Therefore, a full gamut of interim steps-multitask ATMs , cash back at point- of-sale (POS) networks, call centers, and PC/home banking-is necessary to satisfy customers while keeping the bank's delivery costs as low as possible.

n Closely monitor customer behavior. The attributes and pricing of new delivery channels are still being tested, so the specific migration path consumers will adopt is still unknown.

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