A study of online financial services in the Americas reveals some of the many challenges FIs face online.

By Daniel Joelson

Wells Fargo offers the best financial services Web site in the Western Hemisphere due to its performance in Internet business development practices and transactional capabilities, according to a recent study by the Atlanta-based financial services consulting firm Speer & Associates Inc. (S&A). The study also finds major diversified financial firms to be leading the field over other financial firm segments, and U.S. banks to be more progressive in Internet banking than their Canadian and Latin American counterparts. Of particular note is the study's finding that the top-ranked firms recognize that progressive Internet transactional capabilities alone are insufficient in today's hotly contested online marketplace.

"While extensive transactional capabilities are critical to offering consumers an effective alternative delivery system, that alone does not create a sustainable competitive advantage," says Richard N. Speer Jr., S&A's chief executive officer. "The next opportunity, and much more difficult 'frontier' for financial institutions, is to unleash the power of the Internet by engaging in personalized marketing tactics, channel integration and CRM functionality."

Released in late June, "Internet Banking Survey VII: A Progress Report" examines the business development and transactional capabilities of retail Internet offerings from top financial institutions in the Western Hemisphere. S&A assessed 168 sites of financial services companies, with 94 from North America and 74 from Latin America. Of the North American sample, the report includes 15 major diversified financial firms (US$100 billion or more in assets), 13 large regional financial institutions (US$40 billion to US$100 billion in assets), 50 midsize regional financial institutions (US$9 billion to US$40 billion in assets), nine Internet-only financial institutions and seven major Canadian banks.

In terms of transactional capabilities, sites are ranked in five levels: Level 1, no product capabilities; Level 2, limited retail products; Level 3, core retail products; Level 4, expanded product line; and Level 5, advanced product line. Transactional capabilities focuses on features such as online applications for auto leases, home insurance, student loans and credit cards, bill presentment and online check reordering. In terms of business development practices, sites are ranked in these five levels: Level 1-Basic brochureware, Level 2-Advanced content and interaction, Level 3-Transaction services, Level 4- Site personalization and Level 5-Integrated relationship marketing. This grouping includes features such as whether an institution offers user registration, alerts, online demos, financial calculators and rewards for personal data.

The winners

Edging out all other assessed institutions in the latest survey, Wells Fargo & Co. soared from 80th place in S&A's June 2000 survey and 20th place in its December 2000 report. Chief among its fortes are the addition of new personalization and value-added services, and incentives for opening new accounts. With few financial institutions focusing on such offerings, these now distinguish the leaders in Internet banking, according to S&A.

Just behind Wells is Juniper Bank in second place, followed by American Express Co., Citigroup and Comerica Bank. Juniper finished first in S&A's last survey, but represents the sole Internet-only bank to make S&A's top 25 list this time, with the exception of E*TRADE Bank (or Telebank), which finished 21st. (E*TRADE also replaced WingspanBank as the second-leading Internet-only bank.) S&A attributes this fact to Internet-only banks' inadequate attention to business development practices, since they lag behind major diversified firms in providing clients with the ability to set up recurring transfers between accounts and enhanced phone/e-mail customer support.

"There's some concern with Internet-only banks," says Deborah Ackerman, head of the survey project for S&A. "I don't believe they will bounce back unless something dramatically changes in their business models. The money just isn't there in the margins to continue to spend." Internet-only banks, which are struggling to achieve profitability and gain a critical mass of customers, finished second to major diversified financial firms among Internet banking segments.

Indeed, many other surveyed firms outpaced those Internet-based companies, as eight of the top 25 sites are major diversified financial firms, seven are midsize banks and seven are international banks. Major diversified financial firms host five of the top 10 Web sites, including Fidelity Investments at No. 9 and Charles Schwab at No.10. They enjoy good marks due in part to their concentration on account aggregation, multiple device access and real-time decisioning. They also are developing features such as alerts, multilingual capabilities and customization options, as well as advanced functionality, such as wireless access, bill presentment and recommendation engines. Of the major diversified firms, 47% reached Level 4 in business development practices, far higher than that of Internet-only institutions (20%) and midsize regional ones (10%).

Large regionals proved less adroit, falling behind other institutions in areas such as personalization, value-added content and services, and customer service. Indeed, in S&A's recent survey, only one of the 13 large regionals held steady in the ratings, and Keycorp is the only bank in the top 25, with a ranking of No. 22. As for midsize regional financial institutions, several score well in the S&A study: Comerica, Pacific Century Bank, Peoples Bank (CT) and Northern Trust all showed impressive deployment of highly personalized features. However, one of the major shortcomings of this and other bank segments is that while they are expanding product availability, few are focusing on personalization strategies, such as allowing clients to set up account alerts and rename accounts.

Non-U.S. bank site progress

The U.S. financial institutions are leading both Canadian and Latin American ones in the Internet sphere, according to S&A. Of the top 25 institutions, 18 are based in the United States, four are from Latin America and three are from Canada. U.S. firms surveyed "have had Web sites longer, their Internet product lines are developed better, and I think because of these two factors, the U.S. has evolved faster than has Latin America," Ackerman says.

In some ways, Canada's results are most encouraging, as the country's institutions frequently scored higher than their southern neighbors did. For example, almost all the Canadian firms surveyed provide product and pricing information for all their retail offerings. And Canadian banks are poised to be tomorrow's leaders if they address marketing practices, marketing limitations and security issues.

Canada's frontrunner is Royal Bank of Canada, finishing 13th overall. Following are Toronto Dominion at 18th and Bank of Montreal, rated 24th. The only real laggard among Canadian banks is National Bank of Canada, ranked 115th. This is largely due to its poor showing in transactional capabilities, which usually is a strength of Canadian banks.

While Latin American banks didn't crack the top 10, they, along with midsize banks, showed the strongest progress since S&A's last survey. In the recent survey, 82% of the 74 Latin American firms advanced in the rankings, and 85% provide external bill pay, compared to only 62% in December's survey. Of particular note is the Chilean banks' performance, as they represent three of the top four Latin Internet banks: Banco Edwards (16th), Banco de Credito e Inversiones (23rd) and Banco Santander Chile (25th). Banco de Galicia of Argentina finished in 15th place. All Brazilian banks climbed in rankings in the survey; however, Speer's study found no Brazilian bank in the top 25 overall and only one in the top 10-HSBC Bamerindus at No. 5. This data runs counter to other studies that place Brazilian banks at the forefront of Internet banking in Latin America.

Despite their progress, Latin banks still are largely in the second tier, according to S&A. For example, North American financial institutions generally surpass them in terms of transactional capabilities. "More Latin American institutions were offering insurance products, access to stock brokerage links and automobile financing options, but overall the sites are focused on core offerings of checking, savings, home mortgage and credit cards," according to the S&A report.

As in South America, financial institutions throughout the Americas are showing encouraging signs, yet much work remains for most of the banks assessed. Of the 168 sites surveyed, only 12 achieved a 4.0 or better score in both transactional and business development capabilities, out of a possible 5.0. Banks made strides in the recent S&A survey, but chiefly in terms of transaction features.

Sites reaching transaction capability level 4 increased from 52% in September 2000 to 69% in the most recent survey. Furthermore, as S&A noted, these transactional capabilities must be accompanied by enhanced functionality. One example of an area needing improvement is customer attention. Customer responsiveness and support remains far from stellar, with only about half the sites responding to customer e-mail inquiries in less than 24 hours.

Daniel Joelson is a contributing editor of Bank Technology News who resides in Santiago, Chile.

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