It`s the end of the bank as we know it

Johannesburg, 06 May 2002

The Internet is facilitating change so profound that banking as we know it will all but disappear within the next 10 years. This emerged at the IQ Business Group/ZAFinance Financial Services Seminar in Sandton this morning.

Addressing the seminar, Dr Theresa Torris, senior research director for Forrester Research, told delegates that financial services leaders are taking a holistic view of technology, and leaning towards "organic IT" that allows for capacity, functions and processes that adapt to meet the needs of businesses and consumers.

Torris said studies in Europe had found that while financial institutions were maintaining a "flat" IT budget, the number of consumers making financial transactions online was increasing steadily. Around 18% of all European adults are currently banking online, and this figure is expected to increase to one in three (around 110 million) by the end of 2005.

Torris said many of those currently banking online are opting to buy short-term or one-off products, rather than applying online for banking or financial products, or buying long-term financial products such as life insurance.

"Our research has found that it takes up to four years for a new Web user to feel comfortable about sharing their personal financial information online," she said. "It is not simply a matter of security. Financial institutions wanting to speed up Internet banking adoption cannot simply offer increased security, they need to educate and assist customers, to change their perceptions."

According to Torris, financial institutions proving most successful in converting offline customers to online customers are those that offer dynamic, personalised services and that cut costs through outsourcing basic, non-competitive business processes. "Leaders are using innovation and customers service - offering personalisation of products, account aggregation and automated advice."

She noted that major cost-cutting problems in terms of financial institutions` IT spend include overpriced IT products and services, high maintenance costs, the complexity of integration, poor vendor execution and a shortage of skills. Outsourcing and shared basic business processes and Web services will allow for proactive restructuring and cost-effectiveness in certain areas, making more of the IT budget available for the development of innovative online banking products, she said. "In the world of tomorrow, we will see dynamic, open financial products and interactions."

A new report released by Absa bank, entitled "A South African Perspective on the Internet and Banking", echoes the trends discussed in the presentation. According to the report, SA currently has around 2.4 million Internet users, with close to a million people making use of online banking.

Claiming the biggest share of the online banking market in SA, Absa says it has over 300 000 online banking customers and processed R8.7 billion in Internet transactions during March. Absa calculates its market share to be around 36%. The bank attributes its success to its free Internet offering, which introduced 56 000 new users to the Internet and spontaneously increased awareness of Internet banking in SA. Absa reports that its free Internet initiative, which cost R45 million last year, brought in 100 000 new online bankers and R3.3 billion in transactions for Absa.

Highlighting certain notable local online banking failures, the Absa report says that in order to succeed, Internet banking should offer personalised offerings through the self-service channel, focus on specific customer segments, offer convenience, ease of use and robust functionality and provide value to the bank.

Absa says it will develop future propositions by offering sophisticated online solutions to retain and increase the subscriber base, as well as making Internet access and banking more affordable to a wider spectrum of society. The bank says key factors for the success of an online banking offer include a customer-centric approach, total stakeholder management, new technology, new thinking that challenges the status quo, continuous improvement and change, a flexible business model and new value propositions.