Online Banking a Necessity for All

Overview

Internet technology is the basis for many treasury applications today but to what extent are financial institutions taking advantage of web technology that enables access to real-time financial positions anytime and anywhere or improved communication and enhanced reporting functionality? In July 2007, almost 600 gtnews readers responded to the Online Banking Services Poll, providing insight into their attitudes to Internet banking. The poll aimed to analyse current and future levels of financial services online usage. Thirty-nine per cent of the respondents were corporates, 28% were banks, one third were western European and about one quarter each were domiciled in Asia Pacific and North America.

Attitudes to Multi-bank Online Platforms

The first question was:

Which of the following banking services do you manage online? Please could you indicate if this is via a single or multi-bank online platform, and how is it likely to be managed in the future.

Overall, the poll results show that a large proportion of banking is now done online. Only 7% of the respondents indicated that they do not manage any of the banking services listed above online. The respondents show interest in using multi-bank rather than single-bank platforms in future. The corporate respondents in particular are more inclined to use multi-bank online services in future than other respondents and this applies across all services. According to Heijmert Rijken, senior vice president, product management for Financial Logistics at Rabobank, this is not surprising as few banks offer global coverage, forcing customers to depend on several banks to get the services they require. He says: “As a customer, it’s time-consuming and not user friendly to log-on to different portals with many security layers, structures and authorisation procedures. So I’m not surprised that corporates ask for multi-bank platforms. It provides them with one environment to address all of their issues.”

The table below shows that, although a higher percentage of corporates are currently using single-bank platforms, they expect to move to multi-bank platforms in future. Current multi-bank platform usage is quite high, ranging from 23-39% for all respondents and 21-45% for corporate respondents. Partner banking is very common so it is important for a bank’s online portal to offer information from their partner banks in a structured and organised way. According to Rijken, corporates wish to optimise their efficiency and maintain their relationships with a number of banks, and a multi-bank portal allows them to do this.

Figure 1: Corporates’ Response to Question 1

Banking Services/Platform: Current (%) Future (%)
Single Multi Single Multi
Individual Payments/Balance Reporting 54 45 24 47
Treasury/Trade Transactions 49 32 27 36
AR/AP Connectivity 33 22 20 27
Customer Services 31 21 19 25
None of the above 2

Corporate Attitude to Online Banking

The data reveals that 98% of the corporate respondents manage their banking services online to some degree. Corporates have been wary of conducting business online due to security issues including the storage of all data on banking servers rather than on their company server. However, this poll shows that corporate attitudes towards online technology and portals is now very positive and their concerns about data security have been somewhat appeased.

The first priority for corporates is getting good information from their banks through their banking portals. Efficient payments are their second priority. However, the figures for accounts receivable (AR) and accounts payable (AP) connectivity and customer services are slightly lower. This is probably due to the fact that a corporate’s main priority is access to its bank accounts.

Customer services are rated lower, indicating that corporates prefer person-to-person contact, rather than online customer support. Rijken says: “Some corporates are not used to using the Internet for bank-corporate communication and still appreciate the face-to-face approach. However, I think that customer services in a multi-bank environment is a mission impossible!”

The use of online portals and particularly multi-banking for AR and AP connectivity and customer services is growing. Rijken says: “Corporates first have to get used to using portals for account statements and payment initiation, then they will look at customer services and AR and AP connectivity. I think that’s the logical order in which things will develop.”

Regional Variations in Online Expectations

Forty per cent of corporate respondents in western Europe currently use a single-bank online platform for treasury and trade transactions, while the same figure in Asia Pacific is 60% and in North America it is 56%. Trade transactions in particular are quite a manual process and these results could indicate that companies in western Europe are more used to having contact with their bank relationship manager regarding those transactions. North America and Asia Pacific, on the other hand, are more used to doing those type of transactions online.

The figures for customer services online also vary by region and again show that in western Europe treasurers are more used to direct contact, while in North America and Asia they are accustomed to communicating through the Internet or primary channels.

At 60%, the percentage of corporates in Asia Pacific who intend to move to a multi-banking platform for individual payments and balance reporting is significantly higher than their North American counterparts, only 38% of which foresee moving to multi-bank platforms for those services. This could be a sign of a drive towards greater efficiency in Asia and also a higher level of dependence among North American corporates on specific banking solutions. According to Rijken, it might be the case that European banks are more used to deliver multi-bank solutions.

Does Size Affect Corporate Requirements?

For companies that have revenues of less than US$10m turnover, one figure that stands out is that for treasury and trade transactions only 6% currently use multi-bank platforms, probably because companies of that size tend to have a limited number of bank relationships. The need for more bank relationships starts with companies with a revenue greater than US$500m. However, only 8% of companies with revenue of US$500m-$1bn indicated that they will use multi-bank platforms for AR and AP connectivity in future. This is still an opportunity to explore.

In terms of AR/AP connectivity and customer services, the single-bank figure is much higher for companies who have revenue less than US$10m compared to the companies in the US$10m-$500m and the US$500m-$1bn brackets. According to Rijken: “Smaller companies don’t have the burden of a complex back-office set-up so it could be easier for them to achieve connectivity with their banking software.” Another factor behind this could be that smaller companies more easily adopt new (Internet) technology.

Online Banking Services are an Absolute Necessity

The second question in the poll asked if online banking services are a commodity or an optional extra. The poll results reveal a strong consensus that online banking services should be seen as a commodity, rather than an optional extra.

However, the response of this question showed an interesting difference between the corporates and banks, as shown below. A far greater percentage of corporates (82%) view online banking services as a necessary commodity compared to bank respondents (68%). This could indicate that not all banks are yet convinced that more corporates will move towards portal technology. Rijken says: “Banks should not worry about customer reactions. Corporates are definitely in favour of online banking services.” However, some banks may still have reservations due to security issues while others have legacy electronic banking systems in place, making it a huge investment for them to implement new technology.

Figure 2: How do Corporates and Banks View the Necessity of Online Banking?
Corporate respondents

Commodity (%) 82
Optional Extra (%) 9

Bank respondents

Commodity (%) 68
Optional Extra (%) 21

The vast majority of companies from all regions consider online banking services to be necessary. This is most apparent in western Europe, where 87% of corporate respondents viewed online banking as a commodity. Rijken says: “I think in the area of payments this has always been at the top of the agenda and maybe that influenced this figure. I don’t know any corporate who doesn’t use any form of electronic banking.”

Of the 15% of (all) respondents who feel that the provision of online banking services is an optional extra – 54% are service providers, while 42% are banks, 10% are consultants and 6% are financial technology providers. The high percentage of banks in this category suggests that some banks are lagging behind in their philosophy towards online banking services when in reality it is very important for banks to view online payments and information as a necessary service for their corporate clients. Banks need to start thinking about the real value-add services they can offer on top of their existing services. Rijken adds: “Maybe it’s time for banks to think about the next level of online banking, which should be in the area of connectivity and customer services where there is much to gain.”

The poll gave respondents the opportunity to add their own comments and questions. Many of these reiterated the opinion that online banking is now an essential service and is no longer the ‘added extra’ it was once considered to be.

Online Banking Fees – Are They Too High?

One North American corporate poll respondent commented that banks should lower their fees for online banking services, since it has lowered the banks’ cost of doing business. The corporate was referring to the migration from manual payment services towards electronically initiated payments. If the corporate initiates its own payments, this means less work for the bank. Banks should have different price strategies for online services and traditionally initiated transactions. Online banking services also make more efficiency possible within the bank, which might have an influence on pricing. Rijken comments: “I think there’s a lot of price differentiation between regions. It makes sense that transactions delivered through electronic channels should be priced more favourably then manual transactions.”

Future Development of Internet Banking

Another corporate respondent complained that some Internet banking services are too simple. Online banking services for corporates are set to become a lot more sophisticated than they currently are and banks will offer their customers value-added information services such as tools for cash flow forecasting. For payment initiation, banks could improve their service by building checks and controls into the system to ensure that a payment for a certain country is done in the correct way. It is also possible to increase efficiency in the way that banks connect to a customer’s back-office for AP or AR functionality. Furthermore, there are manual steps that could be taken out of the process so that it is more automated. Payment information could be improved so that payment reconciliation is easier for the corporate, which is important for e-invoicing.

Another poll respondent pointed out that online banking meant that banks are missing out on lending opportunities. According to Rijken, there is little lending functionality in online services. This tends to be done manually, which makes sense for most corporates, however, he adds: “I think that there’s definitely an opportunity there. A lot of smaller companies would like to do all their banking services online.”

Conclusion

The large response to the 2007 Online Banking Services Poll suggests that this is a topic close to the heart of many treasury practitioners. While corporates are eager to use multi-bank portals in future, banks need to develop their online capabilities to ensure they are meeting corporate demand for one efficient, secure portal for all of their online banking needs, no matter how many banking relationships they have. Banks should also be sensitive to corporates demands for efficient online customer services, improved AR and AP connectivity and appropriate tiered online banking fees. Meanwhile, the strong customer demand should leave banks with no doubt that their investment in online banking technology is money well spent!

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