Learning from the mistakes of internet banks

Retail banks are realizing that Internet banking is not living up to the hype that surrounded it a few years ago. At that time, analysts predicted that demand would follow the trends in general Internet usage and grow to hundreds of millions of users by the middle of this decade. Some brave entrepreneurs were even betting that the age of the branch-based deposit institution was over, and that upstart "Internet-only" banks would be able to capitalize on hot new technology to steal all the customers. Yet adoption rates are low, and customer interest is flagging. Why? Online banking is a good example of how bricks-and-mortar institutions can stumble when they try to solve new economy problems with old world approaches.

Do people really want this stuff?

The major retail banks have invested unprecedented amounts of money on IT initiatives, and they continue to roll out new online services and technologies, but adoption rates have stalled around 5 to 10% of their customer base. This is happening just as Nielsen Ratings report that 60% of all American homes are now online. Internet-only banks are doing even worse. Two years ago, there were about 60 players in the market. Today, the field has shrunk to less than 20.

Is it possible that the demand for financial services was simply overestimated? Actually, most indications say the opposite is true. According to a recent TowerGroup report, a confluence of social trends is creating plenty of demand. For example, as baby boomers continue to age, they are marrying, buying homes, and having children later in life. In other words, more Americans are making, investing, and borrowing money while simultaneously getting closer to retirement. Meanwhile, household assets are on track to double between 2000 and 2005. The need to manage these increasingly complex situations is driving strong demand for personalized wealth management and other sophisticated financial services.
And don't forget about the young and not-so-wealthy. They need financial services, too. According to Forrester, today virtually all 22-year-olds have bank accounts and credit cards. In addition, their lives often involve a key financial obligation, such as a car or student loan.

So why is Internet banking still stuck at the gate?

The answer lies in the way banks have tried to tackle these problems. Traditionally, banks have defined themselves in terms of assets and the products they provide. Taking this thinking to the Internet, the strategy has been to deploy new technologies in order to present and sell financial products online. At first, the focus was on providing account information. The latest trends include account aggregation, wireless access, and electronic bill presentment and payment. "If we can get these things out there," the thinking goes, "we can more successfully sell our ever-growing range of products."

No doubt these tools have potential, but without a solid understanding of what must be accomplished, it is next to impossible to predict how successful these initiatives will be.
Customers don't care about the latest technology if it doesn't satisfy their basic goals. The Internet-only banks provide a good cautionary tale here. Among many other customer service gaffes, many of these banks have failed largely because they didn't provide a good way to accept deposits or dispense cash. It seems obvious in hindsight, but designing a bank that didn't satisfy the basic need for depositing and withdrawing money was doomed to failure. How can you avoid making expensive mistakes like these?

Start with the people

In order to design successful customer experiences, you must start by understanding the people you are trying to serve. Who are they? What are their real needs and problems? What is truly important to them with respect to their money?

Unfortunately, it isn't good enough to conduct surveys, or simply ask people what kind of products they would like to have. If you ask questions like these, what you tend to get are "off the cuff" product suggestions instead of an understanding of what is really important. A better approach is to use ethnographic research methods to uncover key motivations and needs. By doing this, you will begin to decipher your customers' goals, like "not worry about the future," "educate my children," or "understand what is happening with my money."

Once you have this data, you need to collect it into actionable information. Creating personas is a good way to do this. Personas are fictional characters that represent the needs and goals of various members of your target markets. A persona set is a great tool for evaluating how well your products and technology are aligned to create experiences that serve customer goals in useful new ways.

For example, in the banking industry, current Internet services are often marketed by touting convenience and time saving. These are true benefits, but ATMs and phone banking already provide much of the same, without the hassles that often come with computers. This is why many customers report that they were enticed by marketing efforts to enroll in online banking services, but then stopped using them even though they were mostly satisfied. Online banking services attracted the early adopters, but haven't provided enough value to the other 80% of customers for them to change their usage patterns. A persona-driven, goal-directed analysis would have made this outcome obvious.

This approach can reveal other unserved customer goals as well. For example, deregulation has led to a dizzying array of services from a multitude of competitors, and advice on doing the right thing is extremely valuable. This is obviously important for wealthier, older customers, who have complex situations that involve deposit and savings accounts, investments, loans, insurance, and retirement accounts. But it is also true for people who have comparatively simple situations. Unfortunately, a typical online customer today with a checking account, credit card, and a bill-payment service with the same institution typically has to navigate across many pages and accounts, and make mental calculations to find out if she has enough money to make her car payment this month. And she has to do this while being bombarded with upsells for home equity loans and pleas to open a brokerage account. This is hardly an experience that leads her to believe that her financial institution knows what is important to her.

For all customers, banks have tremendous opportunity to be the trusted advisor, the one who cuts the growing complexity and creates a coherent, unified understanding of their financial lives. People want a seamless experience when it comes to their money, but it is important for banks to remember that their customers don't necessarily see their money as organized by accounts and "financial products."

Banks are well positioned for the future

Nonetheless, retail banks are in a great position to lead the way to the online banking future. They already have a large base of existing deposit account customers, and people are reluctant to switch providers, even when they know better deals are out there. According to a TowerGroup survey, 60% of U.S. households want all their needs met by a single institution, 50% want one main advisor, and 66% want consolidated views of their accounts.

Plus, it is clear that people want their banks to provide a physical presence, even though it isn't the most convenient channel. Given the fact that cash, checks, and other paper artifacts aren't going away any time soon, retail banks have a tremendous advantage with their existing branch and ATM infrastructure.

Most importantly, banks already have a more elusive quality on their side—trust. According to a recent Gartner survey, 47% of the American public says it trusts banks to manage its online information, compared to 12% for Microsoft, and less than 6% for companies like AOL or Yahoo. The brand equity that these banks have built over the last several decades is still incredibly valuable.

However, the question remains: can retail banks figure out how to leverage their current advantages, and combine them with the tremendous amounts of financial data they have, to provide customers personalized and custom services that actually simplify their financial lives? With a thorough understanding of their customers, expressed through personas and goals, and a strong methodology for turning this understanding into actionable designs, the answer can be a resounding "yes." If you are facing issues similar to these in your company—whether it be in the old economy or new—you can learn a lot by studying the failures, and opportunities, of Internet banks.