More customers want to take more control of their financial assets.

They want all their account data to be current and accessible, and they want the freedom to execute virtually any transaction from anywhere at any time.

A year ago most financial executives dismissed this concept as technologically remote, untenably expensive, and even a bit brash. In recent months, though, we've seen a dramatic change. Many executives are searching for and learning about technologies that can deliver a more seamless way for customers to manage their wealth immediately, flexibly, and with sophistication.

Consider these recent developments:

  • A midsize regional bank plans to give customers with Internet accounts the ability to manage their financial assets via wireless connections, such as cell phones, pagers, and personal digital assistants.
  • Three Internet-only banks plan to open brick-and-mortar branches for the first time.
  • A superregional bank plans to link most of its automated teller machines to the Internet during the next two years. Customers will be able to use ATMs or the bank's Web site to pay bills, view canceled checks, send and receive messages, check stock quotes, view updated portfolios, and buy or sell stocks, goods, and services.
  • A diversified global financial services company soon will give 401(k) investors access to their accounts through any service channel, with passwords derived from their Social Security number, date of birth, and ZIP code.

The popularity of online account aggregators also is rising. Aggregators gather data from any customer's accounts regardless of which sites originally posted them. Alarmed at first by this seeming breach of privacy, customers now see aggregators as offering a convenient way to assess a diverse financial portfolio.More than three million people will use aggregation programs by the end of 2003, up from 550,000 at the end of this year, Meridien Research estimates. Many banks are rushing to create and promote their own aggregating programs.
These steps toward anyplace, anytime access to personal financial services are perceptive but limited. Yet collectively they point toward the emergence of an important marketing segment: the transactional customer.

Like an online customer, a transactional customer increasingly has real-time access to bank or brokerage accounts and is looking for more.

The transactional customer might use the Internet as an online-only customer does but does not necessarily favor it over other channels, whether old tech or new tech. This customer wants not only to view account information but also to act on it, whether transferring funds across banking and brokerage accounts, opening new accounts, or getting loan requests approved.

The transactional customer judges an overall banking experience by the quality of each interaction. Loyalty to any institution rises or falls accordingly. This person expects the same level of service, information, and ease of use regardless of which channel is selected. For example, the customer should get the same account balance regardless of whether the information is retrieved through an ATM, the Web, a cell phone, or a visit to a teller in a supermarket branch.

Transactional customers are a significant market opportunity. Online customers alone are expected to have more than $1 trillion of financial assets by 2002, more than twice last year's total. Recent online initiatives have captured only 5% of these customers' total assets.

Financial institutions that add services such as account aggregation, sweeps from checking to mutual funds, and convenient transfers across accounts probably will improve their prospects of gaining share in this high-margin, high-growth market. Their broad focus should be on offering products and services that are fully integrated with real-time data and accessible across all delivery channels.

They really have no choice. Nonbank competitors have been the innovators. Online brokerages, insurers, and aggregators are attracting many retail banking customers, with online brokers setting the standard for keeping transactional customers happy in a narrow niche.

About one of every three online banking customers is likely to shift funds to brokerage accounts if offered things like bill payment, check writing, and money market funds.

The main technological obstacle for most financial institutions is linking the multiple delivery channels favored by transactional customers to account information stored in various "data islands" in legacy systems.

This is not possible now in most financial organizations. ATM data typically are stored on one set of servers, branch account activity on another, online transactions on a third, and telephone activity on yet another. Transactional customers often are left to wonder in frustration about the current status of their accounts, especially when something goes awry in a channel.

Moreover, channel-centric and product-centric information technology architecture limits the options these organizations have to innovate with products and services. Only a handful of institutions have taken the right steps to develop the appropriate information technology and marketing capabilities.

Even so, more senior executives are allocating a rising percentage of their information technology budgets to projects that help employees on the front lines get rapid access to all real-time customer data, regardless of where it is stored.

As CEOs of more financial institutions increasingly understand these challenges and opportunities, they should keep two imperatives in mind.

First, they should organize large, multiyear business initiatives into smaller, near-term projects. Priorities for these projects should be set according to their potential to affect key business activities quickly.

Second, CEOs should choose relatively simple, incremental solutions to assemble, organize, and sequence customer information and systems. The "big bang" approach rarely, if ever, succeeds.

Mr. Brenner and Mr. Tinaikar are consultants in New York at McKinsey & Co., a management consulting firm. Mr. Sanchez is chief executive officer of Sanchez Computer Associates Inc., a Malvern, Pa., financial services software system developer.

Note to Readers

"Viewpoints" is a regular feature in American Banker, appearing every Friday. It serves as a forum for discussion and debate on a wide range of issues in the financial services industry, including management approaches and strategies, legislative and regulatory matters, and public policy in general.
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