UK: The High Street Banks Will Win Handsomely As Europe Outpaces US In E-Banking Race

Last Updated: 16 May 2000

Internet banking is upon us, but perhaps surprisingly, established High Street banks across Europe are better placed to exploit this new channel than new entrants and stand-alone e-banks, according to a research report from KPMG, the business advisory firm. The report identifies how the internet will drive change in European retail financial services and pinpoints the key success factors that will mark out the winners. "Europe's future leading retail financial institutions will not be built in a garage in Helsinki," argues Philip Middleton, Head of Financial Services Strategy at KPMG.

Awakening Giants : How Europe's big banks will win in the e-commerce revolution, reveals that financial institutions, have invested up to Euro 15 billion in e-banking technology and building awareness through advertising. Although new e-banks have the speed, agility and ability to adjust to new demands, free from legacy IT issues, the incumbent major European banks have three crucial competitive advantages that will help them win. Put simply - traffic, trust and multi-channel access.

Established banks already have large customer bases which generate a large amount of daily banking traffic. New Internet banks are having to attract and retain customer bases from scratch - a costly and time-consuming process.

At the same time the established banks have strong and trusted brands. "Customer-trust is clearly vital to banks of any size, and customers trust banking brands rather than technology," comments Chris Gentle, Head of Research within the Financial Services Consulting Practice of KPMG. "This is likely to make a critical difference because while newcomers may have the technology, if not the brand strength, established banks have both."

The third advantage lies in the multi-channel access that customers currently have to established banks. A multi-channel proposition is critical in building an on-line customer base. Wells Fargo in the US estimates that up to 90% of its on-line banking customers sign-up at a branch. Branch networks, ATMs, and phone, internet and interactive TV banking will all play a part in a successful multi-channel strategy.

Middleton comments, "Established banks have trusted brands, they also have the resources to develop their e-banking operations. Success will be determined by how well they remodel their entire businesses around e-banking. We expect e-commerce to revolutionise both internal processes and the evolution of consumer channel usage. New entrants have shaken up the game, but they have not made significant inroads in terms of market share. But they have radically altered the playing field and are changing banking from a supplier to a customer orientation."

"It remains to be seen if the new players will stay the course. Over the foreseeable future we believe that it is unlikely that consumers will embrace new players, due to fears about security and lack of expertise, and hence it will be difficult for them to become significant in the mass market."

The report points out that European financial institutions have drawn heavily from the early experiences of American banks in formulating their internet strategies and that the number of online bank accounts opened in Europe will exceed those in the US by the end of this year, 7.25m versus 6.8m.

The US market demonstrates that Internet banking will not sweep all before it in the consumer market; poor functionality and the lack of a 'killer application' have resulted in relatively low adoption rates and high 'churn'. Take-up of e-banking within Europe has been varied with Nordic countries having a far higher penetration than countries in Southern Europe.

"I would expect to see over the next two or three years a rapid increase in PC-based banking across Europe, before it levels out. However I do not expect the Nordic model to be adopted in the rest of Europe," argues Philip Middleton. "Where I would expect to see far greater growth is in the area of mobile technology - so called m-banking. Within Europe, ownership of mobile phones is exceptionally high, and I would expect to see this figure continue to soar with the arrival of WAP technology. The m-commerce market will erupt as we move towards a 'Martini' vision of the future - any time, any place, any where. Combined with Digital Interactive Television this provides a major opportunity to develop low cost e-banking channels. By 2003 more homes in Europe will have digital television than PCs."

While all European banks are putting e-commerce at the heart of their future strategies, two different paths are emerging. One is to set up new and separate 'baby banks', such as IF and Cahoot in the UK, and Banque Direct in France, alongside the traditional brand. The other is making 'e' integral to the entire bank. " In the final analysis the winners will be those who can harness the new technologies effectively to offer customers low cost, personalised and responsive service backed by strong brand values. We believe there is a significant window of opportunity for today's banks to restructure their business to achieve this," concludes Middleton.

For more information please contact: Chris Gentle, Head of Research, KPMG Financial Services or Charles Dalton-Holmes, Marketing Manager, KPMG Financial Services.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.


 

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