The evolution of online banking

An Ask the Expert feature with Jozsef Nyiri of IND Group

Online and mobile banking are once again hot topics as new business concepts like P2P lending, online personal finance and internet-ready phones hit the market. Jozsef Nyiri of IND Group explains further.

There are no single big players who want to change it, but the internet has become the place where Generation Y live. They read blogs instead of newspapers, watch YouTube instead of TV and listen to podcasts instead of the radio. They simply use all the tools available on the internet and they heavily utilize them. They have grown up in this era and they require every piece of information or activity to be available online.

Any of the other social networking sites are extremely popular, not only among the young but even elder people. Financial institutions have not really used this media before and are learning how to utilize this further. Some banks have created a profile page for themselves, done networking with customers and published bank advertisements, but it is not a successful model. People are looking for personal voice, opinions and explanations and this is where banks can get a jump-start in the social media: have some responsible employees create blogs that really help customers with their finances, make text or even video blogs to explain how a complex mortgage works, how to save money in the economic crisis, register for the mobile banking service or let the customers comment on these blogs and have their questions answered by experts.

Other channels that Generation Y are using include instant messaging as a substitution for email. It can be Windows Messenger, ICQ or Skype, but Generation Y reach for it much sooner than opening an email program. The messages are delivered even if their friend is offline and there is a wide range of emoticons available to express feelings in short forms.

There is a huge advantage of instant messaging: it is silent. Anyone can use it in an open-office without being heard. This characteristic makes this channel an excellent way of banking customer service, an extension of contact or call centres. The customer authentication and simple transactions can even be made automatically (like the IVR on phones), and when it comes to explanations or complex transactions then a contact centre operator can take over the conversation.

Of course there are challenges. Online financial sites are popular nowadays and could threaten banks. Financial product comparison services, for example, like moneyaisle.com or filife.com are more an opportunity than a threat to the banks, and if a bank has good products or conditions the customers will choose it by browsing on an independent site. This means a minimal investment of listing from the bank and, of course, the presence can be boosted with more ads or other online marketing tools.

On the other hand, account aggregation and personal finance management sites like mint.com, wesabe.com or yodlee.com can be a replacement for online banking, and this possibility is dangerous for the banks. Today, customers can watch their aggregated account balances and analyse their spending at these providers. They might visit these sites more often than online banking, especially when paying bills and making other transactions becomes available. 

Bank of America, Wells Fargo, BBVA and other banks have already recognised that the aggregation service and spending reports are customer needs, so they launched their own personal finance management tools within the online banking, and this way they do not loose the online customer contact.

Personal finance management

The main goal of personal finance management is to consciously spend money. All the customer's transactions are categorized automatically or manually to tags like 'food', 'travel', or 'cycling', and for any past period the client can see and nail down how much money was spent on a category or subcategory. The spending is compared to the income each month, so the customer will realise if they are overspending. Knowing the amount spent on the different categories monthly, quarterly or annual budgets can be set up. If a budget is about to be exceeded, the bank can alert the customer in an email or SMS regarding this situation.

While it seems very helpful for the customers, it is an investment for the bank. But knowing what the customers are spending money on is a powerful sales opportunity. Hundred percent matching of financial products can be offered to customers with a pre-calculated configuration. And let's not forget, in these troubled times financial awareness is even more important. Using tools like this, banks can teach their customers how to stay in a healthy financial position.

Furthermore, mobile banking is in its renaissance. It started with the handsets and over the last two years the phones on the market have become very smart. They are fast, have built-in memory, a good CPU and internet connection. The color-screens have good resolution and the navigation buttons are highly usable. All of this has provided the possibility to create really enjoyable applications on the phone.

Inevitably, mobile banking popped up as clients need to have access to their banking accounts anywhere. SMS alerts worked before but today the browser-based mobile internet banking is the trend. The same security schemata can be used on the mobile as in internet banking. Unfortunately, the same internet banking does not work on mobile devices because of the limited screen size and the lack of the full keyboard. So banks launched phone-optimized versions of internet banking, where the 'on-the-go' functionality is emphasised, like checking account balance, making one-off payments and looking for the nearest branch or ATM.

I can imagine more real use-cases of mobile banking, like changing purchase limit of my bankcard before buying an LCD TV, or topping up a pre-paid phone, or even paying my utility bills when my bank alerts me in an SMS.

During the credit crunch it has become extremely important to watch the value of one's investments in real-time. Most customers are simply unable to watch tickers and charts in front of their computers all day long. They need quick alerts on market changes and their portfolio value and ability to easily react.

The problem is that the market information and order screens of current online trading sites are too complex, therefore, putting the information on a mobile device screen it is much more difficult than it was with the mobile banking. Some providers managed to do that though, for example E*trade and IG Index made good efforts to create a usable mobile application.

József NYÍRI is the CTO of IND Group, delivering The Banking Front-Office Technology to banks in the EMEA region. He is 30 years old, he leads the Innovation Lab of IND Group and he is an evangelist in the online banking innovation topic. His interests include sports, nu jazz, good wine.

Read his fintech blog here: www.bankfutura.com