A funny thing happened on the way to delivering online financial services: The customer changed, but few financial institutions got the message.

That is not to say the sector has been lazy. On the contrary, major institutions are racing to outdo one another by offering new capabilities and features - to seize first-mover advantage.

This arms race has put a priority on feature-rich complexity, leaving by the wayside such crucial elements as usability, navigation, and customer satisfaction. Financial institutions - banks in particular - must get a handle on the ways their customer base is changing and return to the basics of Web site design in order to drive customer participation and return on investment.

CHANGING CUSTOMER BASE

Financial institutions are targeting transaction-driven customers and emphasizing lower transaction rates and fees. But adoption rates for Web financial services are growing rapidly in a segment of new customers who are:

• Younger, with lower incomes than traditional online financial services customers, less transaction-driven, and more conservative with their assets. To save time, they generally take care of their financial affairs outside the workplace and on the weekends, avoiding walk-in branches at all costs.

• Interested in the ability to access information quickly and get real-time help from customer representatives.

• More focused on functionality than on the quantity of features and tools.

This new audience initiates online relationships with financial services companies at a much younger age. Their priority is not short-term cost savings through lower transaction rates, but long-term asset accumulation and financial planning. Financial institutions are no longer dealing with affluent and aggressive early adopters, but with "mainstreamers" - people who are less affluent and more conservative.

These people's numbers will only get bigger, and the industry must prepare itself accordingly.

ONLINE BANKING TENETS

Online assets rose from $400 billion in 1998 to $1.5 trillion in 2000, even though the number of banking households remained pretty much the same. It is imperative that banks monitor and adapt online offerings to suit the dynamic needs and preferences of their customer base, keeping the following fundamentals in mind:

The new, younger customers will use simple features first. Again, these people do not want to spend much time on the mundane - for example, checking account balances or reconciling accounts. In a recent study by Jupiter Research, customers said easy access to information and time-saving functions - functions that enable them to manage their finances on nights and weekends - were the primary benefits of Internet banking; saving money on rates was secondary.

Customers will often use these features as a test before they try something more involved, like bill payment, and, ultimately, functions such as downloading files for personal financial management.

Customers have to be eased into online offerings. On one hand, banks must position themselves and market their products as the ingredients of long-term partnerships with customers. On the other hand, they must have a good idea of people's e-banking comfort level and how much general Internet experience they have.

As people become more accustomed to online offerings, banks must design services to maintain the relationship and keep all of the customer's assets within one institution.

BUILDING RELATIONSHIPS

The older people get, the more they use financial services as they go to college, become homeowners, marry, have kids, retire, etc. Only 15% of online financial services consumers in the 18-to-24 age range have relationships with more than two financial institutions; 39% of online financial users over the age of 65 have relationships with more than two such institutions.

If a bank want to keep all of a customer's assets under its roof, it must accommodate its Internet products to people's life stages and the way they use electronic access. As customers get older and wiser, their financial needs become more complex. This will give rise to the need for advice features, discretionary services, and integrated financial planning over Internet channels.

As customer behavior starts to gravitate to wealth management activities, advisory and discretionary services will emerge as a key online differentiator. It is more important for financial institutions to invest in advisory services, because the complexity of wealth management activities tends to overwhelm people, and they tend to delegate this decision-making responsibility to experts.

Financial firms have to see themselves as the interface between customers and their wealth. They must make the complexity of wealth management as transparent as possible. The paramount goal must continue to be build lasting relationships through trust, service, and convenience.

Many banks try to build customer transaction volume through fees, promotions, and flashy appearance. While this may succeed in getting customers to do one or two transactions with a given institution, it will not foster repeat business or build relationships. In presenting customers with an overwhelming array of financial products, content and messages that require extensive navigation and user effort, financial institutions' Web sites can intimidate people and cause them to take their business elsewhere.

BACK TO BASICS

If they are to build lasting relationships with customers, financial institutions must return to the basic tenets of Internet design.

• First, sites must be inviting and otherwise user-friendly. This means winning the user initially with simple-to-use features and then migrating them to functions that are more complex.

Interface quality is crucial. The user interface must reflect the institution's core brand values and invite customers to do transactions again and again. Well-designed user interfaces present products and information in a standardized manner across all delivery channels.

• Sites must be integrated on the back end to allow customers comprehensive and consolidated data access, and they must load quickly.

No matter how minimalist or complex the approach, it is imperative that banks match their Web site navigation to their customers' maturity level. Customers must be given the option to customize their Web interface and to pick the features they find most useful.

• To drive convenience, site navigation must be tailored as much as possible to what individual users need and prefer. This personalization is also essential to back-end integration.

To date, banks mostly have limited Web site customization. Real personalization - the dynamic display of content informed by predictive modeling - has yet to be adopted en masse. Such personalization must be supported by an advanced database infrastructure.

Many of the principles discussed here - relationship building, asset accumulation, customer segmentation, and the like - are, of course, well understood by financial services marketers. But implementing them online is still relatively new, and the sooner a financial institution implements them, the better its chances of differentiating itself and winning the online arms race.

Mr. Matta is director of strategic services at CCG.XM, a New York e-business arm of Cordiant Communications Group and a sister agency of Bates Worldwide Advertising. Neel Mehta, a CCG.XM stategy consultant, contributed to this article.

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