MP65034

MAPS : Electronic Banking : October 2004

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This report covers: electronic, banking, telephone, mobile telephone, future of, wireless, internet, automated teller machines, credit cards,viruses, fraud, identity fraud, electronic trading, mobile banking services, cashless payment instructioons, Belgium, France, Germany, The Netherlands, Sweden, The US, USA, Uk, security, cashpoints, mobile telephones, electronic purses, interest rates,

Companies covered include: Cahoot, EGG, First Direst, ING Direct, Intelligent Finance, Nationwide, Smile,

EXECUTIVE SUMMARY

Executive Summary

In the late 1990s, the concept of electronic banking was heavily promoted and in the first wave of the application of the Internet — before the rise and fall of dotcom companies — banks were advised that the days of traditional high-street branches were over. Instead, it was thought that cards or electronic purses would take over the role of money in only a few years. When people needed financial services, they would visit the local supermarket or contact their telephone supplier to access a full banking service for all their needs remotely, through a call centre. Alternatively, customers would load their smart card using mobile telephones or manage their financial affairs through interactive television in the evenings.

In the preceding years, the majority of these visions from 1997 have evaporated or have been delayed until an appropriate market for these services is identified. However, Singapore may well be the first place to operate using mostly electronic money by 2008. In addition, the bank Nordea has a significant proportion of customers who bank electronically and the electronic bank Intelligent Finance (IF) claims a healthy share of the mortgage market.

In their anxiety to promote heavy investment in new distribution channels for banking, strategists of the late 1990s overlooked the concept that customers did not want this technology. Instead, many require a friendly and efficient service. Exclusive research conducted for this Market Assessment report by BMRB Access in April 2004 shows that although a significant proportion of the 977 respondents claimed to use their bank electronically, very few of them showed any enthusiasm for electronic banking services. The survey indicates that people are not very interested in automated telephone services, nor in being advised on their financial affairs by their bank. In addition, they are even less interested in using electronic purses or a cashpoint for all their financial affairs, and are not at all interested in interactive television banking or downloading cash to their mobile telephones. In fact, a considerable proportion of the respondents believed electronic banks to be insecure and, as such, would not trust them to handle their affairs. Although many of these respondents were elderly and in the lower social grades, it would be politically unwise to disregard their opinions.

In Scandinavia, Nordea bank does not face such problems and has a large, international clientele of remote customers who are happy with the wide range of services available to them. In Singapore, the introduction of electronic contactless smart cards has been pioneered by the road charging system and there is a consensus (85%) in favour of these cards.

However, in the UK, consumers are more cautious and banks now accept that their branches are a valuable part of a multichannel distribution system. Despite this, branch closures have not been forgotten. Cashpoints are being upgraded, although providers are increasingly charging for their use. In addition, plastic cards are being used increasingly for both payments and borrowing. Debit cards are now more popular than credit cards, leading to a long-term decline in margins on card operations.

Regulations are becoming more onerous, and the technological demands on banks to comply with Basel II, Sarbanes-Oxley and Anti-Money Laundering (AML) requirements are expensive. Alternatively, opportunities to review the technological structure of the bank to ensure fraud is revealed early, as well as to `know the customer', will lead to greater efficiency and effectiveness once customer-relationship management (CRM) has been realised.

Banks need to be able to show that they have mastered electronic banking technology, can offer full security and demonstrate that they can provide a service that meets customer's needs. When this happens, customers in the UK will be ready to accept the technology that is already being rolled out in Singapore, Hong Kong and South Korea.

TABLE OF CONTENTS

Text © 2004 Key Note

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Last updated by Amanda Porteous November 2004