Online Banking Strategies: Best Practice from Europe

CHAPTER 1 INTRODUCTION 11

Who is the target reader?

Scope of the report

Defining an Internet bank

Structure of report

CHAPTER 2 INTRODUCTION TO ONLINE BANKING

Introduction

The number of customers banking online has continued to increase over the years

Germany has the highest number of customers banking online

A number of factors are behind the growth of online banking

However, online banking penetration varies between countries

In terms of Internet banking penetration rate, the Nordics remains far ahead

A number of factors are behind the varying penetration of online banking

Despite the increased popularity of the online channel, expansion is hindered by a number of issues

Internet usage is directly affected by fraud issues

A number of other factors are negatively impacting on the development of online banking services

However, there is now more willingness by banks to integrate the online channel within their multi-channel strategy

Depending on their priorities, banks can choose to provide a basic online service or to invest in their online channel as a key differentiator

Indeed, the importance of the Internet in the distribution channel mix is contantly being reviewed

IT investment spend further reveals that the development of the online channel is a priority for financial services providers

Datamonitor identifies three types of online banking model followed by banks

The majority of European banks follow a strategy where the Internet is seen as complementary to the other channels

Branch-focused banks with an online presence have a larger number of customers banking online than that of standalone Internet banks

Key strategic priorities and challenges vary according to the business model chosen

CHAPTER 3 BEST PRACTICE STRATEGIES IN ONLINE BANKING IN EUROPE

Introduction

Egg: personalized customer experience and innovation is at the heart of its success

Egg offers a range of products with specific focus on credit cards

Cross-selling and significant marketing investment are Egg’s main strategies to increase its customer base

The launch of Egg Money has further strengthened the innovative values of Egg and further raised brand awareness

Collaboration with its customers and regular customer satisfaction surveys ensure that Egg enhances customer experience

Fineco: a niche player aiming at becoming the bank of choice for digital customers

Online banking services are viewed as complementary services by banks in Italy

Fineco is the leading online player in Italy

Fineco’s aim is to be the bank of choice for the ‘digital customer’

Fineco has a number of competitive strengths

Going forward

Alliance & Leicester: an online bank with a high street presence

The lender is enjoying significant success in terms of Internet sales and servicing

A number of critical success factors are behind Alliance & Leicester ’s online success

OP Bank Group: focusing on encouraging customers to use online self-service functionalities

Finland has one of the highest online banking penetrations in Europe

OP Bank Group is the leading online banking player in Finland

The Internet is fully integrated within OP Bank Group’s multi-channel strategy

Providing excellent and advanced banking services has contributed in establishing

OP Bank Group as the leading online player in the Finnish banking industry

OP Bank Group has switched to an integrated infrastructure to enhance customer experience

Going forward, sales will be the focus for OP Bank Group

Best practice in encouraging usage of online banking and maximizing cross-selling and sales opportunities

Players need to look at how to increase returns from the online channel

Initiatives in maximizing cross-selling to online customers

Initiatives in encouraging dormant registered online customers to use eBanking

Initiatives in acquiring new customers

CHAPTER 4 THE FUTURE OF ONLINE BANKING

Introduction

Online banking penetration will continue to increase over the years

Online banking penetration will remain the highest for the Nordics but growth will slow considerably

A few key trends will shape the future of online banking over the next five years

There are a number of measures that financial providers can take to promote and encourage customers to bank online

Financial providers should continue to work toward a seamless consumer experience

Financial providers should make use of Internet blogs to attract customers

Promotional incentives remain the quickest way to acquire online customers

Financial providers should add testimonials or success stories to boost confidence about online banking

CHAPTER 5 APPENDIX

Supplementary data

Chapter 2: Introduction to online banking

Definitions

Current readings

Relevant links

Datamonitor’s custom research capabilities

Retail Banking team contact details

LIST OF TABLES

Table 1: Online banking IT spend by country, 2005-2009

Table 2: Branch IT spend by country, 2005-2009

Table 3: Examples of standalone online banks and recent closures for a sample of European countries, September 2006

Table 4: Number of customers banking online with standalone Internet banks and major banks for a sample of providers, 2005 (Table 1 of 2)

Table 5: Number of customers banking online with standalone Internet banks and major banks for a sample of providers, 2005 (Table 2 of 3)

Table 6: Number of customers banking online with standalone Internet banks and major banks for a sample of providers, 2005 (Table 3 of 3)

Table 7: Advertising expenditure for leading standalone online banks in the UK, 2003-2005

Table 8: Fineco’s key statistics, 2004 and 2005

Table 9: OP Bank Group’s service network, 30 June 2006

Table 10: OP Bank Group is a pioneer in online innovation

Table 11: Percentage of motor insurance consumers who changed their insurer at last renewal, split by how arranged insurance, 2005

Table 12: Number of online banking customers, 2002 and 2005

Table 13: Internet banking penetration among retail customers, 2005

Table 14: Number of active home Internet users for a sample of European countries, February 2005 and December 2005

LIST OF FIGURES

Figure 1: Germany has the highest number of online banking customers in 2005, 2002 and 2005

Figure 2: The Nordic region has the highest Internet banking penetration, 2005

Figure 3: Among the sample of countries displayed, Sweden has the highest population penetration of active Internet users, February 2005 and December 2005

Figure 4: Bankinter in Spain has introduced co-ordinates from the customer’s code card each time they sign an operation to decrease the risk of customers falling victims to ‘Trojans’

Figure 5: Alliance & Leicester two-factor authentication process: We know it’s you…You know it’s us….

Figure 6: Percentage of UK consumers who have arranged financial products via the Internet, by product sector, 2004

Figure 7: Egg and First Direct are examples of standalone online players offering account aggregation to encourage usage from customers, September

2006

Figure 8: Rating of retail banking channel options with respect to various banking transactions and services

Figure 9: Alliance & Leicester uses its online channel to generate leads for its call center and branches, August 2006

Figure 10: Alliance & Leicester is able to reduce application process time by providing useful information online, August 2006

Figure 11: European retail banks’ distribution channel project priorities

Figure 12: The Nordics are the only countries where IT spend for the online channel exceeds IT spend for the branch network, 2005

Figure 13: Examples of European banks split by online banking model, 2006

Figure 14: European online banking business models and strategic priorities

Figure 15: Egg invests significantly in raising brand and product awareness, Q3 2004 - Q3 2005

Figure 16: Egg is the biggest advertising spender among standalone Internet banks in the UK, 2003-2005

Figure 17: Fineco executed nearly 10 million retail orders in 2005, 2001-2005

Figure 18: Alliance & Leicester appeared twice in Moneyfact’s current ‘Best Buys’ table for discounted variable mortgage products targeted at first-time buyers, September 2006

Figure 19: Alliance & Leicester uses demonstrations to introduce customers to Internet banking, September 2006

Figure 20: High penetration of online banking has led to a significant fall in the number of branches and personnel in Finland, 1970-2004

Figure 21: 41 per cent of eBanking users in Finland use OP Bank Group eBanking services, 2005

Figure 22: More than 90 per cent of OP Bank Group’s basic retail banking transactions are conducted via the electronic channels

Figure 23: OP Bank Group has been focusing on encouraging its retail customers to self-serve via the Internet

Figure 24: ”My economy” service for retail banking customers helps them create their own budgets and analyze their money flows

Figure 25: Easy access to daily banking operations via portable devices

Figure 26: Advanced interactive tools for stock trading and analyzing the markets, 1 of 2

Figure 27: Advanced interactive tools for stock trading and analyzing the markets, 2 of 2

Figure 28: Catering for the visually handicapped via a separate ‘easy to use’ service

Figure 29: OP Bank Group has a single integrated customer portal

Figure 30: OP Bank Group has reached the third stage of the development of its online banking channel

Figure 31: HSBC promotes products inside the online customer’s secured site

Figure 32: Cahoot is encouraging uptake of other products by displaying all products as if the customer already had them

Figure 33: Barclays Bank is using a substantial amount of the screen to promote products

Figure 34: In the UK, Lloyds TSB probably has one of the most advanced online marketing strategies to logged in customers

Figure 35: Barclays has introduced ‘instant access’ in the UK

Figure 36: Lloyds TSB uses customer information to encourage use of accounts

Figure 37: Major high street banks in the UK are wooing students via promotional incentives, September 2006

Figure 38: Crédit Lyonnais in France is encouraging existing customers to introduce their friends, September 2006

Figure 40: The Nordics will continue to dominate in terms of eBanking penetration in 2010

Figure 40: e.LCL, the eBanking website of French bank Crédit Lyonnais, provides a number of articles for its online customers, September 2006

Figure 41: Alliance & Leicester uses pop-ups in the mortgage section of its website to offer the services of an online agent, September 2006

Figure 42: Datamonitor’s core consulting capabilities