Comment: Trusted Agent Status Gives Banks Web Advantage

American Banker, August 15, 2000 | Go to article overview

Comment: Trusted Agent Status Gives Banks Web Advantage


Financial institutions are in the catbird seat when it comes to the Internet, but many of them have not realized it, primarily because the Web has so far proved more of a cost center than a revenue channel.

However, the Internet offers tremendous opportunities for visionary institutions that have built solid relationships with their customers through traditional channels over the previous decades.

Unlike Internet start-ups, banks have trusted agent status among customers, and can move from being a home banking Web site to becoming the central hub for all customer transactions with relative ease.

As the functionality of the site grows, it is natural for customer interaction and transactions to grow with it. The barriers to change become stronger and more numerous as these users move more transactions online with their financial institution, and the relationships become more entrenched. They have no reason to take their transactions anywhere else -- unless their bank gives them one.

And one compelling reason is a failure to provide desired services.

New and emerging tools and opportunities prove the value of Internet banking beyond customer retention. The very real potential for cross-selling to existing customers and even generating fee income from an effective e-finance channel is offering banks tangible results.

Statistics tell us Internet banking users log on at least six times and look at about 20 pages of information each month. Every logon event and page is a sales opportunity. Banks have the ability to reach customers via this new channel and to offer the right services to the right customers at the right time.

For example, if a customer has six months remaining on a 48-month auto loan, the bank could leverage the relationship by offering a new loan just when the customer begins looking for an alternative.

For mortgage customers, banks can offer refinance options at the best possible time. Some modest-sized institutions are taking applications for loans of over $1 million every month through this channel at comparatively minimal expense.

Suddenly a defensive strategy may not be the best one. The Internet has clearly become a viable channel that can deliver millions of dollars of revenue instead of being just one more expenditure.

The prospects of moving forward are even more promising.

For example, organizations moving from first-generation Web sites to "portals" that typically offer a search engine, links to useful pages, and possibly news or other services are looking at what could be a significant revenue stream. Industry estimates show that businesses can earn between $15 and $50 for each customer who travels through a portal. Financial institutions could pay for Internet banking simply by bringing those customers through their portal.

A new model is emerging -- one that sees financial institutions marching toward a goal of profitability for the Internet banking services they have adopted.

The overriding premise of this model is that the Internet as a channel is not going to magically disappear. We won't return to the way things were. …

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