Evolution of Internet Banking Solutions, The

Evolution of Internet Banking Solutions, The

Shank, Clint

During the first wave of Internet banking implementations, most smaller financial institutions decided to outsource the development, management and maintenance of their online banking presence, figuring that outsourcers could provide more technically advanced solutions, and better handle the service’s upkeep, particularly customer sign-up, and transaction processing.

Now the momentum is swinging toward on-site Internet banking solutions. What’s driving the revolt against outsourced services? For starters, Internet-based technologies now are commonplace, and smaller banks are less fearful than they were five years ago about issues of security and online system management. But as banks invested in e-mail, internal Internet connections, Web browsers, and beefed-up network communications, they had to address online security threats anyhow, removing a key barrier to in-house Internet banking.

For many banks, rising online banking penetration rates mean a corresponding rise in the fees they pay their outsourcer. This creates a dilemma for banks. On one hand, it’s in the bank’s best interest to encourage online banking penetration. On the other hand, higher penetration rates mean higher costs for the bank. As a result, until outsourcers start to reduce their fees, banks will seriously look at bringing Internet banking in-house to reduce these expenses.

Another factor is that more and more banks recognize that by outsourcing their Internet banking, they are missing an opportunity to capture valuable segmentation data on their online customers – information that could be used to help attract, retain and sell to lucrative target customers. And since studies show that Internet banking tends to attract a financial institution’s highest-valued customers, the bank’s future profitability may be at stake.

What’s more, banks are overcoming an intangible obstacle to in sourcing – the fear that on-site Internet banking solutions are complicated, putting banks at risk of bungling their brand image and key support services. What banks are learning is that such risk can be hedged with careful selection of the in-house solution and the way services are presented to customers.

Better, Faster, Cheaper

Saving money is a prime motivator, of course, to small banks bringing their Internet banking solutions in-house. But strategy also enters the equation. There is definitely strategic value to on-site Internet banking, particularly in four key areas:

Cost. On-site Internet banking solutions typically cost less than services offered by major outsourcers. This is especially true for institutions that have high customer enrollment rates. Moreover, outsourcers may “nickel and dime” banks for things like Web hosting. More institutions are offering Internet banking for free, making it a commodity service.

Control and Flexibility. Internet banking service bureaus, by nature, are set-up to handle many financial institutions at one time. This usually results in a lack of flexibility in configuring a customized system.

Performance. Proximity to the host and image archive impacts network performance. To compensate for the distance between them and the banks they service, outsourcers typically depend on real-time interfaces, rather than batch interfaces, to reduce the amount of information transferred. On-site Internet banking solutions, which use a batch process to move information from the host, don’t have the same bandwidth constraints, and can deliver data much more quickly.

Security. While outsourcers no doubt respect the privacy of a bank’s information, the data is still exposed to risks of being offsite, and of having the data mined by the third-party for their own purposes. Customer data never leaves the bank’s premises with an on-site Internet banking solution. It is delivered directly to bank customers.

Indications are strong that on-site Internet banking solutions are set to takeoff as banks look to gain greater cost, performance and security control over an increasingly strategic part of their business. What’s more, the Check 21-driven interest in check imaging, and the online delivery platform provided by Internet banking, will stoke interest in the technology.

Clint Shank is president of Omni-Soft, Inc. He can be reached at 972-423-2344, ext. 103, or via e-mail at: cshank@sort/ogic.com.

Copyright Association for Work Process Improvement Dec 2004

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