Marketing - S4 - Tailieu 5 Online Banking Trends In 2005

Economics Digital Economy

March 2005

E-Banking snapshot

No. 13

Five online banking trends in 2005 1. Security stays of major importance to online consumers. This is understandable but also a very general insight. Firms with online activities will therefore have to deal with the matter in a more differentiated way. Those who are concerned about security have identified as the most dangerous threats, first, the lack of staff awareness and, second, viruses, Trojan horses, and worms. This holds for all sectors. The financial industry, however, is particularly sensitive to the topic. The fear of a lack of security is a higher hurdle to those internet users who do not use online banking than missing monetary incentives or insufficient comfort or functionality. 2. Customer retention becomes ever more important. Research shows that the more services of his or her bank the customer uses, the higher the real and psychological switching costs will be. Also: the more services the customer uses, the greater are the bank’s expected profits. Customer loyalty, therefore, gains importance over customer acquisition, and the value of customer relationship management becomes apparent. 3. Technological progress will give a boost to existing online banking services and devices. Their quality will improve. Ever faster and more powerful chips and the widespread use of broadband internet access make online banking more comfortable for more and more people without necessarily triggering the emergence of completely new devices and inventions.

Editor Antje Stobbe +49 69 910-31847 [email protected] Technical Assistant Martina Ebling +49 69 910-31710 [email protected] Deutsche Bank Research Frankfurt am Main Germany Internet: www.dbresearch.com E-mail: [email protected] Fax: +49 69 910-31877 Managing Director Norbert Walter

4. Some players will take a second stab at mobile banking. Increasingly faster transmission via GPRS or UMTS feed the vision that mobile banking merits another attempt – in spite of the GSM failure. Indeed, many advantages can be thought of. SMS alerts can disburden more expensive channels (e.g. contact centres). Also, useful information can be transmitted to the client, and increase customer loyalty at low cost. Still, a comprehensive business case in transaction banking and brokerage with cost covering revenues is currently not in sight. 5. Online research grows. An increasing number of visitors of bank websites do considerable research before making financial decisions. They shop around for financial products, and make their own investment decisions – in part without consultants. Though the chart shown here refers to US customers, we observe a similar trend in Europe: Researching via the internet is gaining importance in online banking. Author: Jürgen Schaaf, +49 69 910-46830 ([email protected])

March 2005

E-Banking snapshot

To what extent do the following security aspects apply to your company? Lack of security aw areness (staff)

2005

Viruses/Trojan horses/w orms

47% 58%

Unencrypted data storage

37% 26%

Internal unauthorised access

36% 36%

Insufficient evaluation of logs

35% 36%

Lack of security aw areness (management)

32% 35%

Vulnerability of IT systems Remote access/telew orking

1. Security stays of major importance to online consumers. This is understandable but also a very general insight. Firms with online activities will therefore have to deal with the matter in a more differentiated way. Those who are concerned about security have identified as the most dangerous threats, first, the lack of staff awareness and, second, viruses, Trojan horses, and worms.

29% 28%

Wireless access External unauthorised access

57% 56%

2004

23% 44% 18% 39% 18% 31%

Base: n = 84; top-2-box1; Respondents who rank securit y one of t he top 3 IT issues 1

Top-2-box-values " 1" and " 2" on a scale from " agree complety" (1) to " agree not at all " (6)

Source: CapGemini, 2005

Which, if any, of the following would encourage you to bank online? Improved security measures

38

Better interest rates than current a/c Easier to use / better functionality

23

Low er cost of being online

21

Reliable customer service if required More services available online

The importance of security holds for all sectors. The financial industry, however, is particularly sensitive to the topic. The fear of a lack of security is a higher hurdle to those internet users who do not use online banking than missing monetary incentives or insufficient comfort or functionality.

24

19 12

%

Base: All internet users who do not bank online (666) Source: RSA Security / M ORI, M ay 2003

Economics

2

March 2005

E-Banking snapshot

The importance of customer retention 450

25

400 20

Contribution margin (Index) right

350 300

15

250 Number of years w ith the bank (left)

10

200 150 100

5

2. Customer retention becomes ever more important. Research shows that the more services of his or her bank the customer uses, the higher the real and psychological switching costs will be. Also: the more services the customer uses, the greater are the bank’s expected profits. Customer loyalty, therefore, gains importance over customer acquisition, and the value of customer relationship management becomes apparent.

50 0

0 2 or less

3

4

5

6

7

8 or more

Number of services used Source: St aelin, 2005

Chips are becoming more powerful Transistors on one chip1 1.E+10 transitors Itanium 2 CPU

1. E+09

Pentium 4 CPU

1. E+08

Pentium III CPU Pentium II CPU Pentium CPU

1. E+07

3. Technological progress will give a boost to existing online banking services and devices. Their quality will improve. Ever faster and more powerful chips …

486 1. E+06 386 1. E+05

286 8086

1. E+04

1. E+03

1)

8080 8008 4004 1970 1980

1990

2000

2010

1.E+03=1000; 1.E+10=10 000 000 000

Source: Intel, 2005

Economics

3

March 2005

E-Banking snapshot

Broadband households in Germany 100 90 80

Growth in %

Broadband % of households

57

70 60 50

47

40

34 33

… and the widespread use of broadband internet access make online banking more comfortable for more and more people without necessarily triggering the emergence of completely new devices and inventions.

30 24

20 19

9

12

17

2002

2003

2004

10

23

28

34

2005

2006

2007

0

Source: BITKOM , 2005

Potential benefits of mobile banking Leverage

70-90% Sales increase

Benefit

Improved image

n.a.

Fees on mobile services

5-10%

Customer acquisition

15-20%

Customer retention

25-30%

100% Benefit Cross selling

25-30%

4. Some players will take a second stab at mobile banking. Increasingly faster transmission via GPRS or UMTS feed the vision that mobile banking merits another attempt – in spite of the GSM failure. Indeed, many advantages can be thought of. SMS alerts can disburden more expensive channels (e.g. contact centres). Also, useful information can be transmitted to the client, and increase customer loyalty at low cost. Still, a comprehensive business case in transaction banking and brokerage with cost covering revenues is currently not in sight.

10-30% Cost reduction

Process cost reduction

5-15%

Fewer cases of fraud

5-15%

Sources: Georgi, F., Pinkl, J. (2005): Mobile Banking in Deutschland: Der zweite Anlauf: Die Bank, 3/2005.

Economics

4

March 2005

E-Banking snapshot

Online researching is increasing Percentage of online product researching

2003

25%

Home equity loans 40%

2004

32% Mortgages 39%

38% Credit cards

5. Online research grows. An increasing number of visitors of bank websites do considerable research before making financial decisions. They shop around for financial products, and make their own investment decisions – in part without consultants. Though the chart shown here refers to US customers, we observe a similar trend in Europe: Researching via the internet is gaining importance in online banking.

41%

Base: US online households that applied for, or intend to apply for the product. Source: Forrester, 2005

© 2005. Publisher: Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Federal Republic of Germany, editor and publisher, all rights reserved. When quoting please cite “Deutsche Bank Research“. The information contained in this publication is derived from carefully selected public sources we believe are reasonable. We do not guarantee its accuracy or completeness, and nothing in this report shall be construed to be a representation of such a guarantee. Any opinions expressed reflect the current judgement of the author, and do not necessarily reflect the opinion of Deutsche Bank AG or any of its subsidiaries and affiliates. The opinions presented are subject to change without notice. Neither Deutsche Bank AG nor its subsidiaries/affiliates accept any responsibility for liabilities arising from use of this document or its contents. Deutsche Banc Alex Brown Inc. has accepted responsibility for the distribution of this report in the United States under applicable requirements. Deutsche Bank AG London being regulated by the Securities and Futures Authority for the content of its investment banking business in the United Kingdom, and being a member of the London Stock Exchange, has, as designated, accepted responsibility for the distribution of this report in the United Kingdom under applicable requirements. Deutsche Bank AG, Sydney branch, has accepted responsibility for the distribution of this report in Australia under applicable requirements.

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