European banks have wasted hundreds of millions of pounds on developing multi-channel banking, and they may have to invest £300m in IT over five years before they see a reduction in transaction costs, an analyst has said.
Since the mid-1990s, banks have been investing in new banking channels, such as the internet, Wap and call centres, in a bid to capture and retain increasingly fickle customers. But, according to research by analyst firm Forrester, much of the technical infrastructure underlying these multiple channels is a mess.
"The majority of European banks have spent between €200m and €600m (£140m-£420m) on multi-channel banking over the past five years, and much of this has been flawed," said Remus Brett, senior analyst at Forrester.
Banks overestimated the benefits of the new routes to market and, according to Forrester, spent too much money on IT systems, followed by "arbitrary" budget cuts.
The other main failing was a lack of co-ordination between the business leaders in charge of the different banking channels, with turf wars for resources, including IT spend.
"A lot of these types of projects have gone wrong because of shifting business goals and a lack of dialogue between the IT department and business departments," said Brett.
The result, for many banks, has been that they struggled to co-ordinate technical architecture, platforms, software and hardware. Only a few banks were singled out for praise in Forrester's report (see box).
Although 17 of the 25 executives from European banks surveyed by Forrester said they were close to using synchronised/consistent customer data across each channel, only eight have built a technology platform to support all their channels.
The main technical problem is that the systems involved in the multi-channel banking silos do not talk to each other properly and exchange customer data in a timely fashion.
For the customer, this can mean that when they transfer from filling out a form online to dealing with the bank's contact centre the agent will not have the transaction details the user entered online.
The launch by Citibank and Egg of online account aggregation services over the past few years, which offer customers a single view of all their accounts, has further underlined the importance of having seamless links between banking channels.
But the drive to transfer information instantly across banking channels is about more than just improving customer service. Banks also face a mass of financial regulations, such as anti-money laundering controls and the Basel 2 banking code on risk management, which require IT systems to be joined-up.
Analysts advise IT managers to focus on their most efficient systems when sorting out their multi-channel strategy and upgrade applications, rather buying new ones. Systems can be glued together with middleware software, while customer relationship management technology and datawarehouses could also help harmonise services.
All of this will eat into the IT budget. Over the next three years, Brett estimates that large European banks will have to invest a further £50m to £300m in IT to support multi-channel banking. However, if done properly, this should reduce transaction costs by 30%.
"We are not saying it is about adding some unnecessary complexity, but it will require some upgrading," said Brett. IT departments will also have to work more closely with other departments in the business, such as marketing or finance, he added.
Improving multi-channel banking
Ubiquitous middleware software, used by companies to link disparate systems, will help banks streamline their channel IT infrastructure.
Companies can also use software and hardware to route and analyse customer data between systems using messaging protocols. Banks such as Wells Fargo are also beginning to use instant messaging technology to allow customers to interact with agents in real time when online. Meanwhile, Citibank is trialling voice recognition technology for some markets.
Newer internet and phone-based banks, such as Egg and Intelligent Finance, have successfully used the technology to develop more coherent banking channels from scratch. Forrester also praised Lloyds TSB's and Barclays' multi-channel services.