Alenka Grealish, and Madhavi Mantha of Celent produce a clear picture (for Celent clients:  Direct Bankings Third Act: Brick-n-Click Wins the Day) of the state of the nation in Direct Banking.  I have come across articles from Alenka before and they are clear depictions of the latest issues.

This one is close to home for me, having been involved in direct banking since the beginning, and learning from this article, I was instrumental in Act 2.  That’s ok, but i would rather be in Act 3 given the title, however we will get there 🙂

As is my policy with proprietary information, I will paraphrase only here, and not steal the thunder, but I recommend this one.

The first shock for the believers is that the RAROC (risk adjusted return on capital) is higher for traditional retail banks, slightly less for brick and clicks (defined as a traditional retail bank with “bricks” [aka brick bank], which has developed and launched Internet-only deposit accounts ), and way lower for direct (non branch) banks.

Some highlights:

• the click only model has performed well for only two players
• high interest rates as a ‘click only” incentive is temporary and not affordable
• success will be defined across several strategies, including channels, marketing, functionality and security

Act 3 is defined as we did here, mentioning the competition between Citi, ING, HSBC, etc., and their ability to raise deposits rapidly.  One key issue which we recognised in that June pos, is the cost of those deposits, being much higher than those gathered through a branch.

Going back to Acts 1 and 2, some illustrative points which we support based on direct experience. In fact the first is old hat now, but the others are not clearly understood or implemented by many/ most large banks:

• The Internet is a channel, not a market segment
• Building trust and conveying security is paramount to customer
  acquisition
• Call center support is vital to successful fulfillment and customer
  confidence
• User-friendly technology and online applications are key to
  boosting conversion rates
• Branch and call center employees should be galvanized to promote
  Internet initiatives

The article continues with a lengthy and detailed assessment of the keys to online account opening, and online lending.

A key statement that predicts the future is this

The second statement is based on the fact that the retail banking market is mature and the belief that competitive success depends upon innovative deposit gathering strategies.

Its just to easy to fall into the trap that assumes building branches always used to be the most attractive deposit gathering scheme, so lets keep doing it.  This view ignores the demographic shifts that are underway.  A detailed analysis of the behaviour patterns of GenX and certainly Gen Y, establishes that full online serviceability is essential, with personal support being the exception.

Success factors for the future complete the article, including channel integration, marketing, and features and security, and the pieces to consider.

Well worth the read.