Seventy percent of financial institutions do not have a pricing strategy for e-commerce and, globally, more than 40 percent do not have e-commerce integrated into other delivery channels, finds Ernst & Young`s Seventh Annual Report on Technology in Banking and Financial Services. However, South African respondents have all indicated a stance to pricing.
Nonetheless, institutions indicate that by 2001 they expect to commit 14 percent of their technology budgets, the equivalent of what they are currently spending to support their branch networks, to e-commerce.
Financial institutions across the globe are struggling to identify a business strategy and business case for electronic commerce, including the Internet and personal computing, according to the Ernst & Young survey "Electronic Commerce & Connecting to the Customer."
Excluding the issue of security, executives both globally and in South Africa polled indicated that their major e-commerce concerns included: customer acceptance, business case viability and competition.
At the same time, project that e-commerce will double operating cost savings in the next three years and that transactions processed over the Internet will grow by more than 300 percent this year.
This is in line with South African respondents who also indicate cost savings and growth in the number of transactions over the Internet to varying degrees.
"Financial services organisations are spending money and utilising resources to pursue electronic commerce initiatives without having a clearly defined business plan" said Bruce Young, partner in their banking and financial institutions industry focus group.
"While e-commerce is going to play an important role, organisations do not know exactly how they wish to integrate this technology into their business."
Illustrating their uncertainty about e-commerce, the survey revealed that the majority of financial institutions ranked retaining customers and operational cost savings as top e-commerce business goals.
Only one percent of the survey respondents ranked selling more products or services as a most important e-commerce business goal, while 14 percent ranked gaining new customers as an integral objective.
This defensive strategy was not shared by all South African respondents.
Two non-financial services providers - Amazon.com and Microsoft - were named among the top four e-commerce innovators, as were two financial services firms - Charles Schwab and Wells Fargo.
Technology Budgets Mushroom, Discretionary Spending Shrinks
Ernst & Young`s survey found that overall technology spending is growing at an unprecedented rate that will peak this year with a 14 percent budget increase over 1997. Respondents expect that technology budgets overall will have doubled from 1993 to 2001.
Technology spending is expected to taper off this year and annual budget growth will decline for the next three years, with a more traditional annual budget increase of six percent projected by 2001.
South African respondents indicated technology spending increases to be in excess of historical trends of five to seven percent.
Quite significantly, discretionary budgets are not growing as a percentage of overall technology spending and, in fact, are below the amounts respondents predicted. Today, discretionary budgets account for 26 percent of technology expenditures, as compared to an expected 31 percent.
Discretionary budgets are being impacted by institutions` needs to prepare for the Year 2000 and the coming of the European and Economic Monetary Union (EMU). By 2001, however, respondents forecast they will significantly redeploy assets to new technology initiatives such as the Internet.
E-commerce is creating a number of challenges for financial services firms globally, including maintaining consistency with other distribution channels. The reason for this results from databases not being synchronised (42 percent) and 40 percent not having integrated systems.
The least integrated aspects of e-commerce were Internet banking among 19 percent of respondents, followed by credit card transactions (17 percent). ATMs and smart cards represented other distribution channels not tied into e-commerce.
Another challenge for financial institutions is how to handle existing distribution channels in light of e-commerce. Non-PC based channels will continue to attract significant attention and spending.
Nineteen percent of US respondents and 11 percent of Europeans intend to establish more kiosks and 38 percent in the US and 40 percent in Europe will remodel branches or other distribution channels. Globally, 21 percent said they would reduce the number of branches and the same percentage indicated there would be no changes.
The majority of South African respondents indicated that they would be looking to reduce the number of branches as a result of e-commerce.
"Financial institutions are running the risk of creating a further distribution channel that runs the risk of not being integrated into the big picture," said Young. "This may result in inconsistent delivery of information to clients and the institution`s inability to gather the complete picture about client transactions and needs.
Internet transaction processing, a key step to achieving one-touch processing, has been delayed, according to the survey.
Today, 26 percent of the respondents use the Internet for transaction processing, as compared to six percent in 1996. Internet processing is expected to be in place by 56 percent of the global respondents this year, while 45 percent believed that they would have implemented the capability last year.
Editors Note
Over a hundred of the world`s largest retail banks participated in the seventh annual Report on Technology in Banking and Financial Services. This involved the collection and analysis of data from respondents across 26 countries.
Ernst & Young provides assurance and advisory business services, tax services and consulting for domestic and global clients. Visit the Ernst & Young home page at http://www.ey.co.za.
The South African firm of Ernst & Young is a member of Ernst & Young International. The firm contributes to its clients` success by identifying, developing and implementing business solutions in "partnership" with the client.
Ernst & Young`s Management Consulting Practice provides strategic advice and technology solutions to help businesses become more competitive. Its services include e-commerce business models, customer relationship management, advanced technology solutions, and centers of excellence dedicated to accelerated decision-making and implementation.
The Report on Technology in Banking and Financial Services was produced in association with Mainspring, a Boston based Internet Business Advisory Services firm who target the financial services sector, enabling financial services executives to accelerate their Internet business decisions.
Through on-site, accelerated business sessions, in-depth research and analysis, and personal analyst interaction, Mainspring provides rapid Internet strategy alignment, project assessment and validation, and team mobilisation. Visit Mainspring online at http://www.mainspring.com.
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