Looking for inspiration on how to justify new, or continued investment in your Internet banking services? With fees for simple online account access (not including bill pay) expected to fall to zero, you must consider, and quantify, the many side-benefits, or “soft dollar” benefits of online banking.

Because it’s a five-part business case (see previous page), “running the numbers” through standard product profitability models will likely produce negative returns. Viewed simply as a product, online banking probably doesn’t make the grade, financially anyway. But viewed as a combination product, customer service tool, customer retention program, market research tool, and new sales channel, you may be able to justify sizable investments. Here are some other ideas:

1. Customer Retention: With more than 20,000 financial institutions to choose from, U.S. consumers have a phenomenal level of choice in purchasing financial services. Already 20% of the U.S. population is online, and experts predict the percentage to more than double to 40-50% by year 2000. What do you think would happen if you ignored the needs of that group for another 12 months? or 24 months? As consumers become accustomed to pushed information services (e-mail, voice message, Webcast), financial institutions failing to deliver digital banking information will lose some fraction of their customer base and fail to attract some percentage of new business. Only time will tell whether that sum of somes will be material at your company. But given the number of cost-effective entry strategies available, why take the risk?

2. Reach New Markets: The Web allows you to reach prospects that otherwise would never have heard of you. For example, someone moving to your area from out-of-state. Depending on the size of your market and the number of incoming new residents, that factor alone could justify a Web presence. Other ways to reach prospects online:

• Joint marketing with computer retailers (on or off line): Offer computer financing in a package that includes online loan payments and other online banking services.
• Joint marketing with online Realtors: Offer home financing information services such as mortgage calculators and rate-update e-mail subscriptions, along with mortgage loan preapprovals, home improvement loans, home buyer lines of credit, first-time buyer educational services, etc.
• Online sponsorships/advertisements at local information sites: In order to tap the banking needs of users moving across country or across town, make sure your name is prominent on Web sites that cater to users seeking local information, especially real estate and rental property listings.
• Company banking programs: Online banking may have special appeal to certain companies, especially in the high-tech sector or those with employees scattered all over the world. Create special banking programs with online banking as the centerpiece. Some credit unions have even been able to get their online banking programs installed on company LANs.
• On-site Web banking kiosks: Place kiosks in branches to showcase your Web, and attract attention from prospects. For less than $1,000, you could equip each branch with a 16 MB Pentium computer and modem. Browsers can be configured to run your Web offline, with the modem automatically dialing out each night to download the latest version.
• Off-site Web banking kiosks: To prospect for new business, place kiosks in other retail locations. Pay rent, or better, partner with the company hosting your kiosk and include their Web site(s) as well. For instance: team with a local mailbox provider and put a Web kiosk in their shop that includes a menu of business services:
  • - Federal Express package tracking
  • - UPS package tracking
  • - US Postal Service for ordering stamps and free shipping boxes
  • - outbound e-mail (which the mail center could charge for to pay for the space)
  • - banking/bill pay through your bank

3. Customer Service Improvement: Like your automated phone center, online banking provides 24-hour information far more conveniently and cost effectively than through a branch. But unlike call centers, Internet services can be expanded far beyond balance and transaction look-up. Web users can find their own answers to routine questions (e.g., what’s your rate on six-month CDs?) or you can deliver answers before they even ask (e.g., six months after someone looked up your six-month CD rate, you could e-mail them your latest rates, along with an online transfer form).

How much self is in the service provided by your Web will be determined by how well you deliver information to users in a common-sense, straightforward manner. Must haves for a state-of-the-art Web, circa July 1997: site map, search function, drop-down boxes with links to major areas, and customer service e-forms with drop-down boxes to assist users in formulating their queries to customer service (a few hours spent in forms design could save hundreds of hours of staff time answering incomplete questions).

The problem with justifying a Web site investment based on customer service improvements is the difficulty in quantifying the benefits. You might try comparing the cost per user of delivering information over the phone vs. online. If the number is lower for the online option, or will become lower if your usage projections hold, you have a “quantifiable” benefit.

4. Cross Sales Generator: It seems every new program with a weak business case is justified using cross sales from other products. But with online banking, this assumption may be valid due to the unique sales opportunities from the online connection, such as:

• Checking account consolidation: Most households have multiple financial relationships. Often there is little incentive to consolidate accounts. But online connectivity offers new hope for marketers. Users may find it convenient to have all their financial accounts and transaction archives in one central database. If you’re the first to market with this type of broad-based offering, you may find a significant amount of account consolidation headed your way.
• Overdraft protection: Customers who enjoy auto-mating their finances with online banking are the same ones who buy overdraft protection services. This should be an easy online sale.
• Credit products: The typical online user, younger with above-average income, is also inclined to be a heavy user of credit products.
• Savings/investment plans: Baby boomers are interested in saving for college and retirement. Forced savings plans delivered online and reinforced with outbound messaging could be a strong sales tool for your deposit/investment products.

5. Bank Image: While the media no longer jumps on every online story, new online initiatives still generate consumer interest and build a positive image. With the right angle, you can still expect good play in the media when you launch your program or create your Net banking first. Your advertising or public relations agency can quantify this PR value.

6. Cost Savings: Long-term (10-15 years), online banking will reduce industry costs dramatically as paper checks disappear and branches are downsized into sales-oriented nooks in high-traffic retail locations. But even short-term there are potential savings worth quantifying for your business case:

• Customer Service: Reduce staff expense by answering customer e-mails during slack time.
• Telecommunications: In-bound 800-number expenses can be reduced through less expensive Web access to information and help.
• Check processing: By 1999, electronic bill payment/presentment will begin to have a measurable impact on the number of paper checks processed in the United States
• Data entry: Every form your customers complete should be mounted on your Web, from credit applications to change-of-address forms. Not only does this save you the expense of reentering the data from a paper form, it can dramatically reduce the number of errors and customer call-backs. Web-based forms can be programmed to check the data entered and prompt the user for additional information, or verify questionable entries.

7. Checking/Credit Card Account Enhancement: What have you done lately to distinguish your checking account from the competition? ATMs, POS, overdraft protection and 24-hour touchtone access are now standard fare. Online access, e-mail customer service, and other services geared towards computer users can spruce up your checking brochure and energize sales at the new accounts desk.

8. Market Research Tool: The value of your Web as a market research tool hasn’t received much attention in the banking press. But consider the benefits of posting a survey on your Web:

• immediate results
• little cost to post
• no data entry expense/errors
• no irritating telephone calling
• easy to change the questions quickly
• can be interactive
• can be presented only to target customer types

9. New Fee-Based Revenue Streams: Being wired to your customers creates a whole new category of fee income, what we have called “alert services,” or better, the name coined by Signet Bank “notification” services. This is a “push” information service that sends an e-mail notification whenever your balance hits user-defined trigger points. While the two banks that currently offer these services, Signet and Britton and Koontz , have elected to offer them free-of-charge, this is a value-add that could support fees, especially since they are completely optional for your customers.

We think consumers will accept a small fee, say $0.10 to $0.15 per message with a cap of $5/mo (see p.8), each time their “personal electronic banker” sends an e-mail alert regarding account balance or activity, maybe more if the alert service offered automatic escalation (e.g., if the user doesn’t reply back confirming the e-mail alert within 24 hours, a second alert would be issued via voice message).

10. Component of Total Household Profitability: With the free-fall in information storage and processing costs, it can be cost effective to track total profitability at the individual household level. One use of that information is to make better decisions about delivery channels and customer service required by high-profit households. If Pareto’s Law holds in your company and 20% of your households provide 80% of profits, you will want to provide the channels these folks want. Even if only a quarter of those top 20% are Internet users, you are risking 20% of your company’s profits by under investing in the Internet channel.

The value of the wired connection isn’t limited to data delivery either. You can leverage e-mail and Web-based messaging to increase “share of wallet.” By tracking user preferences and Web usage, your electronic personal bankers can make appropriate product pitches in a helpful, unobtrusive manner. For example, a day or two after a user used your mortgage refi calculator, the e-banker could send an e-mail offering advice on refinancing mortgages.

11. Improving the Level of Personal Service: We covered this in detail in the last two issues. Consider the Web and e-mail as a way to create an ongoing dialogue with users so that you can enhance the level of personal service delivered, thus improving overall satisfaction levels. To quantify this benefit, multiply the average profitability of online households and times the estimated number of incremental households retained.

12. Platform for the Future: With an estimated 80 million worldwide users of e-mail today, growing to 200 million in three years (Source: Morgan Stanley, 2/97), does anyone doubt that the Internet has arrived as an important communications channel? With a global market of 200 million, hardware, software, and connectivity vendors will continue to innovate at a rapid pace. It won’t be long before Web access is imbedded in televisions, phones, public kiosks, ATMs, and video game players. And don’t forget the potential for Web-based smart card services, downloading cash, updating databases contained on the card, etc. You may want to boost usage forecasts in year 2000 and beyond to account for the expected growth in Internet connectivity and usage