Despite considerable investments in e-commerce by banking and financial services institutions, many lack a clear business strategy to maximise their return. A new report published by management consultant Ernst and Young, Electronic Commerce and Connecting to the Customer, says that most institutions lack a defined business case for e-commerce, as they remain uncertain whether customers will adopt the new technology. There is also a very low level of awareness about competitors' e-commerce activities.
More than 100 of the world's largest banks in 26 countries took part in the seventh annual report on technology in banking and financial services and only 34 per cent of European banks surveyed said they felt the Internet would help them retain customers. In keeping with international online trends, the US figures were higher, with over half saying the Internet would help retain business.
Accepting the inevitability of e-commerce is reflected in the prediction that by 2001, banks will spend proportionately the same amount of money on Internet technology as they currently spend on their high street branches. However, only 6 per cent of those surveyed had actually implemented complete online transaction processing at this stage.
Over 96 per cent of the respondents admitted they did not expect to increase sales of their products over the Internet, nor would it improve their range and delivery of financial products.
According to Mr Pat Talbot, partner in charge of management consultancy at Ernst & Young: "Clearly many banks regard the Internet as simply another technology. Most have no idea which customers, if any, want to use it, but many of the banks surveyed seem compelled to invest now without a definable strategy. For example, 70 per cent of US banks admit they do not have pricing strategies in place."
This claim is reinforced in the survey by a finding that 54 per cent said processing of Internet queries usually only started more than 24 hours from the time they were originated.
Despite the poor practical application of the Internet to improving business processes, the report found a startling increase in institutions' project spending. Annual IT spending increases, historically in the range of 5 to 7 per cent, look set to more than double over the coming two to three years, largely driven by the Year 2000 problem and the introduction of EMU. This is impacting on spending on discretionary projects and e-commerce implementations.
Fears over online security also remain prevalent - ranking as the top concern for most companies. This is expected to worsen as electronic business-to-business, and business-to-customer relationships spread over more channels. The second most prevalent area of concern was the viability of e-commerce, followed by customer acceptance.
The Ernst & Young report also highlighted the very real threat of traditionally non-financial organisations winning market share in the electronic banking and financial services arena. Indirect competitors can now compete by offering a portfolio of online products and services. These might include insurance companies that see opportunities in banking and choose to enter that space online. One of the biggest threats, however, was identified as non-financials, including Yahoo, Microsoft and Disney, which possess unparalleled technical and operational skills and resources which enable them to compete aggressively.
