European Banks Not Branching Out to the Web

Despite Forrester Research predictions that 42 million Europeans already bank on the Net, and by 2005, 110 million Europeans are expected to use Internet banking, almost three-quarters (73 percent) of European banks believe the Internet has had little or no impact on branch distribution.

A Forrester study, based on interviews with executives at 33 leading European banks, revealed that 61 percent believe that branches will remain the dominant channel in 2007. However, nearly half of the respondents have begun to connect their branches to online banking applications as part of a multi-channel integration strategy, and another 24 percent plan to do so. Furthermore, 39 percent believe they can cut costs by upward of 15 percent – mainly in application development and maintenance – all while improving customer service.

Forrester believes that banks will not meet their key objectives of improving customer service and reducing operating costs by simply Web-enabling branches as they are today, but by focusing their investment at the future role of branches as collaborative networked service centers, giving agents real-time customer profiles, empowering staff with guided sales tools, and collaborating to match human specialist advisors with customers.

“Our strong growth forecast for Net banking over the next four years rests on the assumption that Net offerings will continue to improve. Why? Because these customers are simply too good to lose,” said Dr. Therese Torris, group director at Forrester’s European Research Center in Amsterdam.

To remain profitable, banks must sustain their investment in Net banking and Forrester believes that Europe’s financial firms will retreat from expensive non-core Net investments, such as independent online brokerage arms. Other methods that Europe’s banks will use to reduce costs are outsourcing, self-service and automation, and driving customer loyalty online.

“To maximize their return on online banking investments, we advise Europe’s banks to encourage customer migration to reach critical mass by clearly communicating the benefits of Net banking – highlighting the availability of information, analysis, advice, and real-time transactions,” said Forrester Analyst Charlotte Hamilton.

Hamilton encourages European banks to improve online offerings and make efforts to drive customers to the Web. “…when customers have a query that isn’t answered at the site, banks should encourage customers to email rather than phone the call center and then automate routine customer-service queries.”

Hamilton continues, “Equally, banks must use their Internet services to cross-sell more profitable products like life insurance, thus justifying promotional offerings like high-interest savings accounts or low-rate loans. Finally, online banking must be made easier for tomorrow’s less patient users. Simple Web design improvements, such as letting users know in advance how much data entry an application requires or reducing the number of clicks necessary to perform a transaction, will improve sales by up to 30 percent in one design overhaul.”