What Do YOUR Internet Banking Customers Want?

Back in the Dark Ages of Internet banking, in the late 1990s, I was doing a combat tour as director of technical operations for a large Internet site, where I got to see the Internet up close and personal with all its buggy code, half-baked software, and quality assurance that went MIA on a regular basis. Our Swiss cheese-style security encouraged hackers, and we were attacked hourly. Lousy customer service was standard operating procedure. The way I saw it, the Internet as a retail delivery channel had value only to aspiring nerds. (I’ve always thought that commercial cash management services delivered via the Internet would be a long-term winner.) Furthermore, to my 1999 eyes the Internet banking software market would soon belong to the core providers and their “imbedded” solutions.

Turns out, I was wrong – dead wrong! First, Internet banking (to include mobile banking) is popular and growing more so every day. Second, a dichotomy has developed between the Internet banking systems provided as an extension of core processing and the Internet banking systems provided by “free-standing” vendors such as Q2, S1 and the like. The free-standing systems are generally going strong and in some cases are taking market share away from the “imbedded” core-provider Internet packages. Security issues still exist and customer service is still sometimes spotty (just within the last 60 days a major bill pay provider experienced significant customer disruption), but the security issues are being managed and quality is on the rise. And the major core providers and their “imbedded” systems? Without getting personal or ugly, some of them have gone through more OLB systems than Henry VIII went through wives. Some are still trying to get it right. To a large extent, although they have some advantages, the core-provided Internet banking systems generally do not match the functionality of the free-standing systems.

Why have the free-standing OLB systems not disappeared into obscurity? What are the differences, and why should bankers care?

Differing Mentality
Many core vendors appear to think of electronic banking as an extension of the core, delivered electronically. Most core vendors seemingly focus less on the end-user customer experience than on “efficiency” – to them Internet banking is just another way to serve the bank’s customers. In this view, integrated OLB is more efficient for the bank to provide due to its simpler technical integration and operational maintenance characteristics. And it is unarguably easier to manage integrated Internet banking systems from an operational perspective. Some core vendors have even hard-coded their OLB software to their core, to force clients to buy their OLB software and make it super-simple technologically. Vendors are also well aware that it is harder for a bank to de-convert if an integrated OLB system is in use, leading them to price integrated software aggressively in hopes of retaining the bank’s core processing longer. 

Free-standing OLB vendors, on the other hand, appear to believe the core is there to do the dirty work for online banking. OLB providers are generally more focused on the needs of the end user, and for these providers, it’s all about the end user’s experience. The ability to respond quickly and decisively to market forces trumps all other priorities. Market awareness drives R&D investments, and flexibility and responsiveness are key. It’s not necessary for them to prioritize new feature requests between core and OLB – OLB is all there is so it always takes priority. Responding rapidly to market demands is what keeps the free-standing OLB vendors in business; it’s also what lets them generally charge more for their products.

What follows is an outline of how the offerings of free-standing OLB vendors weigh in against their core counterparts.

	OLB Vendors:
Platform Independence	More likely to integrate products across multiple systems Can offer competitive products beyond that offered by core providers Typically integrate well with non-core and non-transactional partners (mobile banking, bill pay, alerts, etc.) May offer a more robust security and compliance infrastructure
Flexibility	Can provide the opportunity to convert core systems with much less impact on end users Usually offer outsourcing options for banks that prefer to run core processing in house
Market Focus	More likely than core providers to add features and functions based on universal market direction vs. core system “user group” priorities Specialize in end-user satisfaction at the retail level
Business Services	With few exceptions, the OLB systems provided by core vendors do not offer as much in the way of online business services

 

Is there a way to have your cake and eat it, too?
Yes. Several major core providers have acquired what were previously free-standing OLB providers and now market those systems as “the best of both worlds.” Done well, these systems offer strong functionality such as straight-through processing of transactions, a unified administration interface (no need to be trained on and maintain separate “admin portals”), true sharing of data elements, and the possibility of future enhancements to core, business intelligence and enterprise content management solutions designed with online banking in mind.

The jury is still out on the long-term efficacy of these solutions, though. While they may be able to combine the functionality benefits of an OLB-only solution with the efficiencies of core-vendor OLB solutions, only time will tell if they will fall prey to the same elements that have kept free-standing systems alive all these years: competition for R&D and development resources, and core user-driven priorities versus market-driven innovate-or-perish priorities.

So, which approach is best?
If a bank is focused on building its electronic services offerings, creating virtual branches, providing real-time balances, offering leading-edge services in general and differentiating itself via the sophistication of its electronic delivery channels, then a free-standing OLB vendor is most likely to be the best fit. Most core vendors just aren’t putting R&D resources into OLB systems at the expense of core development, and some are neglecting OLB.

Conversely, if a bank is tightly focused on quarterly profitability and annual ROE, many of these premier services are (and will continue to be) loss-leaders for the bank. Near-real time balances are fine for many clients. Even the most rudimentary integrated OLB systems can respond to after-hours balance inquiries. There are many ways to transfer funds without allowing transfers from a cell phone, and many are very cost-effective. And in the typical financial institution, more customers use voice response – the original mobile banking application – than use OLB or new-era smart-phone enabled mobile banking.  

What do your users want?
-bm

 

Looking to change Internet banking providers?

Make sure you:

1. Know the role of OLB in your institution’s strategic plan, and
2. Understand the importance of a carefully considered system selection process

Cornerstone Advisors has assisted hundreds of financial institutions make technology decisions aligned with their strategic vision. Send us an email and we’ll gladly send you a list of satisfied customers.