Banks urged not to forget their roots

While consumers continue to grow more comfortable with the use of technology, banks and other financial institutions should use the Internet as a tool of convenience and not as a replacement for traditional brick-and-mortar services, according to analysts at a financial services conference.

More than 600 attendees at the TowerGroup 2001 Financial Service Technology Conference here were told that as consumers become more technologically savvy, they will gravitate to banks that offer a fuller range of online products and banking options.

Mark Sievewright, president and CEO of TowerGroup, told a packed auditorium that a slumping economy that has commercial bank profits on the decline for the first time in nine years has created a consumer with a no-risk attitude toward finances. With that in mind, he said, opportunity abounds in savings, checking and insurance services.

Needham, Mass.-based TowerGroup recently released a study showing that despite the Internet's reaching a critical mass among U.S. consumers, the bank branch remains the primary source for delivery of financial services. Also, a survey by TowerGroup showed that 92% of U.S. households have used a bank branch for a financial services transaction within the past month.

Sievewright said banks will continue to form strategic partnerships with technology companies to get the most cost-effective and efficient way of expanding their online services. For example, Sievewright pointed to the deal between New York-based Merrill Lynch & Co. and London-based HSBC Holdings PLC, which last April entered into a partnership to create the first global online banking and investment services company.

Only 17 percent of households perform their banking needs online, according to the TowerGroup. While that number will grow with consumer confidence in online services, many businesses at the conference said they use a carrot-and-stick approach to "change the behavior of our consumers."

"I think the easy way to get them is not to charge for billing and to give some incentive," said Ray Fattell, senior vice president in charge of technology at J.P. Morgan Chase & Co.

Services such as electronic bill presentment and payment as well as account aggregation were hot topics at the conference. Yet, a recent survey by the TowerGroup showed that 67 percent of those in online households weren't aware of the existence of online account aggregation offered by companies such as Yodlee.com Inc. in Sunnyvale, Calif.

Aggregation services was a major concern to Mike Castellana, chief financial and operating officer at the State Employees Federal Credit Union in Albany, N.Y. He said his company is investing in online services to protect its brand name, which has been around since the company was founded in 1934.

"Someone takes that brand away, the customer begins to identify with the aggregator," he said.

Many of the banks and brokerages at the conference said they already offer online billing, bundled with other services such as account aggregation. While electronic bill paying comes at a corporate financial loss, it creates "a stickier offering" that keeps customers from leaving, Fattell said.

Randy Bryan, senior vice president at Hibernia National Bank in New Orleans, said his company's approach "is to increase the level of interaction with customers online" through added services.

Most agreed with the TowerGroup's prediction that wireless online bill payment is still two to three years away from becoming mainstream with the public. The delay is mainly due to users' wariness over presenting financial details on a wireless device.

"Banks are a necessary evil," said Castellana. "I'm not sure how many people are going to want us closer to them."

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