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Home Banking: Building or Breaking Bank Brands?
Submitted to the San Jose Mercury News,
February 1996, by Carol Holding
Our local newspaper recently carried an article on electronic
banking that described a woman returning home after work to a
house where the electricity had been turned off, not because she
hadn't paid her bill but because her bank's electronic bill payment
service had failed. A similar scenario happened to me in 1986:
I wasn't aware of the possibility of failure until I refinanced
my apartment and was turned down because my electronic payments
had been late more than 3 times - and this was from one big bank
to another. Though I loved the convenience, I couldn't risk the
bad credit rating.
If the most precious commodity a bank has is its image, inexorably
linked to security, why are banks jeopardizing this to get into
electronic banking? First, many believe that if banks don't do
it, they will become anachronisms, dinosaurs that will be made
irrelevant by financial technology start-ups like First Internet,
software companies like Intuit and Microsoft, and brokerage companies
like Schwab that are cherry picking wealthy and techno-savvy customers.
Second, electronic transactions from a PC cost the bank a small
percentage of what checks cost. Brick and mortar overhead are
reduced and variable costs like employees, slashed. So in the
long run electronic banking must replace the cash + branches formula.
Third, banks see electronic banking as increasing their storehouse
of customer information. Even now, banks have more information
than anyone else about their customers. And when customer profiles
are tied to debit or credit card purchases, they can theoretically
figure out and market to you exactly what you're going to buy,
say, new skis to take with you on the mountain vacation you just
paid for with your Visa card. They also know when you can pay
for it, say, after your automatic paycheck deposit.
But customers may not want to be marketed to - and doing so in
too obvious a manner will surely hurt a bank's image in the long
run. After all, the banking industry has only a few things it
can own, and two of those are the safety and security that comes
with aversion to risk?
One tantalizing idea comes from a technology developed for the
investment houses. About 3 years ago, when derivatives exploded
in places like Orange Country, the big investment firms realized
they had no way to calculate risk across all internal departments.
Each department had its own accounting system, its own way of
calculating risk and its own hedging strategies to minimize that
department's risk.
That was three years ago. Today, these firms are calculating risk
using a technology that will soon be available for banks to offer
to consumers: data mining sends an electronic agent to each account
regardless of which department controls the assets.
Using the same technology, banks have an opportunity to actually
increase the equity of their brands by providing a safe way to
access data regardless of where it resides. Banks provide the
front end into their customers' entire portfolio, the interface,
the tool to collect all financial data into one place. Rather
than dig through piles of old statements (which may or may not
actually be found); rather than search across the Web for electronic
statements from multiple institutions, customers can go to one
place and activate an agent who will do it for them.
Why does this service make the most sense coming from the banks?
They're the only ones who have a reputation for security, for
safety. Brokerage houses don't have the right image. Neither do
insurance companies. Intuit may have the foresight, but not the
loyalty and safe image that banks have.
What do banks have to gain? Every time a customer uses this service
to access account information from any account, anywhere, that
bank name appears on the screen. Their brand becomes synonymous
with prudent money management. Banks once again are the guardians,
the gatekeepers, the symbols of security just as the bank vault
is now (or used to be).
As the brand images of the banks morph from vault to electronic
guardian, each bank must persuade the market that it can both
continue to supply the product that is associated with its brand
- physical cash, branches - while entering a whole new product
category, one that has attributes of "change, newness, disruption."
Banks like Wells Fargo and Citibank are managing that change quite
effectively, cutting back on branches and personnel while building
electronic capabilities and easing the transition for their customers.
In all the rush and confusion of information and communication
technology these days, there are gaping opportunities for an entity
like a bank to emerge as a touchstone of stability and security.
Indeed, banks have entered the fray, but they haven't, as of yet,
made their mark.
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