Internet banking rules, OK!

Call it what you will--Internet banking, virtual banking, online banking, electronic banking or just plain e-banking is still relatively new in Singapore.

Marketed as another means of servicing clients, Internet banking allows customers to do some of their banking online--whether it's an account enquiry, a fund transfer, a bill payment or a loan application.

The catch-cry is convenience (beyond the banks' branches, automatic teller machines or ATMs, Internet kiosks and phone banking services) and the promise of lower cost. Its niche: Net-savvy customers who prefer to conduct their banking with a click of a mouse, whether it's during banking hours or at 3 o'clock in the morning.

So why are banks still finding it a challenge to move customers online two years after the introduction of this innovative banking service? The Straits Times recently cited figures showing that among the Big Four banks here (DBS, OCBC, OUB and UOB), online retail customers--300,000 altogether—-form just 3 to 4 percent of their total number of customers.

According to Citibank and Oversea-Chinese Banking Corp (OCBC), the bulk of Internet banking transactions are enquiries about account balances and recent account activities, followed by fund transfers and bill payments.

See table below for some of the major Internet banking players in Singapore, and the services offered.

* Note: The services listed above are a consolidated list of services offered by the banks.
Source: Companies, Companies’ Internet banking Web sites

LO Wang, who has been a user and proponent of Internet banking since 1998, explains: "I use my bank's Internet banking service because it allows me to bank from my desktop or laptop 24-hours a day. It’s easy and quick...practically all my everyday transactions can be done via the Internet."

There are also some services that may not be offered offline. The Development Bank of Singapore (DBS), for example, allows its Internet banking customers to program future-dated transactions, such as post-dated bills payments online. In the past, customers who required printouts of past account statements had to pay S$5 per statement over the counter. These days, it can be done via the bank’s Internet kiosks or its Web site for free (at least for the last two months).

But the best thing about Internet banking is that it's still free.

Of course, how long this free-as-air service will last is another story. "At some point in time, these Internet banks will have to start to charge customers for using the Internet channel, whether by transaction or on a fixed fee basis," says Deloitte Consulting e-business leader Brett King. The National Australia Bank, for example, just announced that it would be charging customers for each transaction made through its online channel.

“It's likely this trend will continue with existing brick-and-mortar banks that are trying to recover the big budgets they've spent on their online services," King says. Ultimately, banks will have to consider whether customers are willing to pay to use Internet banking. "(That) will depend entirely on the level of customer service and satisfaction that they receive through the specific channel.”

In the meantime, a number of financial institutions are offering additional incentives to attract customers online.

DBS, for example, offers customers S$1.50 off its normal commission charge (of S$5 over the counter) when buying cashiers' orders, demand drafts (subject to a minimum commission charge of S$8.50), and travelers' checks (if the commission is S$10 or above) through the Internet.

For Citibank, customers who log on to CitiDirect (part of its Internet banking site) before November 15 with their 16-digit card account number and ATM personal identification number (PIN) stand a chance to win S$10,000 in cash. Customers who apply online for a Citibank credit card get a welcome gift in the form of “CitiDollars” (the bank’s version of loyalty points) plus “a funky mouse/phone” upon approval.

On the Keppel TatLee Web site, we found a promotion “for a limited period only,” offering customers who register online for Internet banking “a free Kenny Rogers Roasters Set Meal.”

The answer seems to center around security, technical glitches, privacy and trust, as evidenced by the questions addressed in the banks' FAQ sections: How can I be sure that my information and account data sent through Internet banking is safe? What if my computer crashes or if I get disconnected from the Internet by accident? How will I know if my transfers or payments have been effected?" How is my privacy protected?

"Through our research, we know that customers consider the most important aspects (of Internet banking) to be ease of use, privacy and security, and the ability to see and understand what they are doing online," a Citibank spokesperson replied to an email query.

Take security for example. Most banks, like Keppel TatLee Bank, "use the latest technology firewalls, checkpoint, gauntlet, and intrusion detection systems," to prevent unauthorized hacking into its Internet banking Web site. They require double-authentication to login (a user ID and a PIN number 6 to 9 digits long) and have automatic log-out features after a period of inactivity.

But is all this enough to ease customers’ concerns?

Deloitte Consulting's King believes that without employing digital certificate or digital signature technology, Internet banking may still carry some risks for customers. "Unfortunately, customers have been slow to take up on this technology, so banks are still limited to traditional Secured Socket Layer (SSL) or Secured Electronic Transaction (SET) security."

The 128-bit SSL encryption, which is used by most large-scale online merchants, banks and brokerages worldwide, is a technology that “scrambles” information sent and received, and requires a “key” to decode the information. With a 128-bit encryption, this means that there are 340 trillion possible combinations of keys.

"Making the switch to 128-bit SSL or SET is one step that is quite simple for both the bank and the customer," explains King.

Then, there is the question of the lack of "human touch" or face-to-face interaction--favorite arguments as to why Internet banking, and pure Internet banks in particular, will never replace traditional banking.

Wang, for one, believes that while Internet banking has provided him with “instant bank access and better money management capabilities," he tends not to buy new products via the Internet. "I’d rather speak to a real person to understand the product first."

Another regular Internet banking customer, Michael Tan, observes: "What I don't like about the sites is that they're too marketing-oriented--they’re always trying to sell me something. I think the sites could be more informative without all the fluff."

The bottom line: "There is big value in pushing customers to cheaper channels, but some banks forget about what this means in terms of customer service, and the customers may end up feeling they aren’t getting a personalized service," King says.

According to him, "Internet banking sites in Singapore need to think about personalizing their services to each customer across a range of channels. This is what e-customer relationship management (CRM) is really all about--an integrated and personalized approach to CRM across many channels".

Apart from the various Internet banking services offered by the major banks here, Singaporean customers also have the option of turning to virtual or standalone Internet banks (or bank, as the case may be).

In April this year, standalone Internet bank finatiQ was launched under the auspices of OCBC's Bank of Singapore unit with a war chest of S$260 million.

"finatiQ is unique as we are solely an Internet bank operating as a buyer-advocate representing the interests of the customer…. We offer our customers a wide range of top financial products including those from other banks and financial institutions," said finatiQ general manager David Tan in response to an email query.

On how finatiQ differs from other Internet banking sites, he said: "We're independent in our views. We aim to be the comprehensive one point of research, comparison and transaction. From this standpoint, we do not regard the Internet banking Web sites offered by banks in Singapore as competing in the same arena."

OCBC also announced in July a US$100 million Internet bank joint venture with the Australia and New Zealand Banking Group (ANZ).

Slated for launch by year end, the yet-to-be-named pan-Asian Internet bank will operate as a Singapore-based standalone business, with its own board and management, OCBC said in a statement.

In April, OUB announced it was teaming with Enba Plc, a Dublin-based Internet investment company, to form a jointly-owned Internet bank in Singapore. OUB has yet to formally announce the launch of its Internet bank.

According to Deloitte Consulting's King, "pure Internet or Internet-only banks are going to be much better at recognizing and dealing with individual customer needs" than click and brick banks. "Systems (should be) better integrated, and Internet-only banks don't have the problems of integrating with decades old batch-based systems."

Lower cost to consumers is expected, as banks pass on their cost savings to customers. According to finatiQ’s chief of brand and marketing Lynette Ang, finatiQ currently pays interest of about 3 percent per annum for six-month Singapore-dollar fixed deposit accounts, which she says is still the highest in town.

"We have embarked on audio Webcasting to allow surfers to listen to fund managers first-hand and in a timely manner," she added.

Nevertheless, the lack of physical branches may remain an important issue for customers who merely want more options and greater flexibility. A few pure virtual-play financial institutions in the US are starting to build physical branches, and this trend may be "indicating the benefit of having ‘click & brick’ rather than be a pure click only" model, says King.

He believes that an Internet-only bank that partners a brick-and-mortar bank would give customers the best of both worlds. "Internet-only banks are going to be more competitive on individual products and are going to be much more agile…. For these reasons alone, they should represent a real threat to existing brick-and-mortar banks in the region."

For banks to gain a market share in Internet banking, they should address their targeted segments and partners, said King. "(The banks) need to figure out who their customers are and which of these they wish to service in the new e-economy.

"Internet Banks need to be more than 'banks'. They need to be a financial portal for customers--offering a whole suite of financial solutions to meet an individual's lifestyle requirements. Not everyone is going to be able to provide every product or service required, so partnerships and alliances will be very important."

Besides more Internet banking sites in the works--by ABN Amro Bank, HSBC and Standard Chartered Bank, among others--what are some of the retail services that Singapore banks may offer to provide customers both tangible and practical reasons for wanting to migrate to the Internet?

By the looks of it, not too much more than is already offered, at least for the retail market. (Note: Banks here are also offering business-to-business services. However, these are beyond the scope of this article.)

According to DBS, "we will be focusing on customers' needs (such as more content, more personalization, more mobile & convenient features, etc) and giving them the choice and the ability to control their finances better." An OCBC spokesperson said the bank was "aggressively working to roll out new online products in the next 12 months, including revamping our Web site." Just what those new products would be was not elaborated on. For its part, Keppel TatLee Bank, said that on its "business-to-consumer (B2C) front, we plan to introduce more e-initiatives like eMortgage and eMargin financing”.

Deloitte Consulting’s King predicts that the next six months to 12 months will see online banking beefing up on the convenience factor and aiming to add the “personalized touch” across cyberspace. “Stronger personalization, WAP integration and a move to offering non-financial products (or other financial non-banking products) in a lifestyle approach" are some of the offerings customers could reasonably expect.