Virtual Customers

The Internet has promised a lot to the banking community — it would make the delivery of financial services and products both pervasive and cheap for customers and banks alike. But the prevailing ‘build it and they will come,’ attitude has proven to be speculative at best.

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By  Greg Wilson Published  April 29, 2001

Introduction|~||~||~|The Internet has promised a lot to the banking community — it would make the delivery of financial services and products both pervasive and cheap for customers and banks alike. But the prevailing ‘build it and they will come,’ attitude has proven to be speculative at best. Local banks wanting to generate online momentum have had to overcome significant hurdles such as high Internet access charges, low PC penetration, poor infrastructure and multiple social/cultural barriers. As a result many of the region’s larger banks have gone online offering limited services to their user base, designed more to retain rather than acquire customers from rival banks.

But as the banking community becomes more familiar with the Internet channel and its unique challenges, the region’s financial houses have to reassess their Internet expectations. For many this means enhancing online services, offering a greater degree of sophistication, personalisation and channel integration.

For the last three years the National Bank of Kuwait (NBK) has been riding the e-banking hype cycle, understanding the barriers to greater adoption among its own customer base and what functionality would drive its future e-customer relationships.

From the start of 2000, NBK realised the need to reassess its e-banking strategy. Within the first two years of operation it had become clear that ‘e-relationship’ alone wouldn’t deliver the massive cost saving benefits initially anticipated.

When the bank initially went online, alongside typically functional online banking services it offered a number of unique services based around its virtual shopping mall; Souk Al Watani. Some of NBK’s unique operations included the world’s first Internet shopping card and agreements with B2C giants, such as Amazon.com and Cdnow.com. When Internet cardholders shop in the Souk Al Watani at sites like these they are entitled to discounts on purchases. However, these early services didn’t offer enough value to overcome the significant barriers to adoption, such as high cost of Internet subscription within Kuwait, which when the bank went live with Souk Al Watani was still around $120 per month. Although the price has dropped to around $70 per month, there is still little real competition amongst the country’s two ISPs. Combine the high Internet access costs with low PC penetration and poor infrastructure, and “there were significant barriers to adoption… there wasn’t a compelling reason to go online. People need to be comfortable with the Internet itself before they will bank online” says NBK’s general manager of its e-business group, Simon Clements.

Towards the end of 1999, NBK’s Internet service had 9000 subscribers and did around 3500 financial transactions per month — approximately 1% of the bank’s total financial transactions. Although NBK hadn’t managed to generate the volume of transactions that it had first imagined, two years of Internet banking experience has provided some vital insights into the customer’s user profile and mindset.

For example, the users of NBK’s online banking services had a different user profile to the US. “The users were younger and with less assets and so less profitable. However, the customers had a greater future value to the bank,” explained Clements. “Hence the emphasis on retention rather than acquisition, these customers represent the future for NBK.”

“It was also clear the Internet wasn’t going to be the only channel used by the customer, initially they used the Web for inquiries rather than to transact with the bank,” he adds.

NBK’s experiences in the first two years of Internet banking generated an urgent, “call to arms within the bank,” says Clements. “The bank felt the need to return to basics and provide real focus in order to deliver its second generation Internet banking strategy.”

To drive forward the bank’s galvanised Internet strategy, the bank formed an ‘e-organisation,’ — an e-business group of 12 people, drawn from different areas of the bank, which would take responsibility for the bank’s future Internet initiatives. The e-business group initially addressed certain basics, such as the addition of Arabic language [support], improved site navigation and content. “We strongly believe that we need to focus in this way, but at the same time we must always work very closely with the various lines of business. [The] group enables the business vision of the bank in the Internet space to be realised in a co-ordinated and integrated approach,” explains Clements.

The e-business group deployed a time box approach for its development projects. The time box methodology demanded that each project be completed within 60 days from initiation to delivery. If the project is going to overrun, then it’s broken down into manageable components and delivered in stages. “It’s a very tough discipline to do but we have managed to achieve it in a number of our projects,” comments Clements. The time box approach “enables [us] to deliver projects very quickly and it also motivates [us] to improve our offerings.”

Using the time box methodology the e-business team recently rapidly integrated WAP services into its web site. To deliver the WAP functionality the e-business group relied heavily on the bank’s existing middleware layer of internally developed COM objects. The COM objects ensured the integration between the Internet presentation side and the backend host legacy systems. With the COM objects in place all the NBK team had to do was change the presentation layer from HTML to WTML and integrate a WAP server into the existing infrastructure. “We’re using WAPlite [WAP application server] software application at the server. Then it was a case of integrating that into our infrastructure… we did this whole project in 60 days and it was very cheap. The reason that we could do this was due to the object architecture that we had put in place two years earlier,” explains Clements.

||**||Page 2|~||~||~|NBK is also making channel neutrality a cornerstone of its revitalised approach to Internet banking. The bank has learnt that although the Internet channel offers certain benefits, customers still want to walk into branch offices and talk to somebody or use other channels. “We’re becoming neutral to which channel customers use,” says Clements. “We are changing our opinion of how the Internet is going to impact our business. We are not going to see major costs savings from our Internet infrastructure; it just doesn’t work like that. The Internet compliments our other channels and represents an integral part of our integrated delivery strategy,” he comments.

Up until now NBK hasn’t charged its customers for using its online services, but this may change in the coming months. The move will bring NBK in line with US banks, which have realised that the return on investment (ROI) from Internet banking won’t come from the lower cost of transactions alone, but rather from the integration of e-banking services with other customer delivery channels.

With channel neutrality in mind the bank is currently working on delivering a singular customer experience, no matter how the customer comes to the bank; either through the Internet, the branch or the call centre. Work to integrate the different channels includes the establishment of a single security layer, and one customer PIN for all access points to the bank. Furthermore, the bank is working to integrate its customer call centre tightly with its Internet services. By the end of the year, NBK hopes to have an icon on its web page, which enables visitors to talk to a call centre agent or product specialist. “We are indifferent to which channel that [customers] use, but we do recognise that we have to integrate the channels across the platforms. The integration of the physical and virtual worlds — click and mortar — is absolutely key,” says Clements. “The moment the customer touches the bank we want to offer them the same customer experience, no matter how they reach the bank, or through which device they use,” he explains.

Behind efforts to integrate the different customer channels resides NBK’s four year old data warehouse. The data warehouse forms the core of the bank’s customer relationship management (CRM) system. The CRM system will enable NBK to identify customer needs more effectively and then target products and services accordingly. “We are delivering information through our customer relationship system — based around our data warehouse — down to all our customer touch points to make sure that that experience is common through all the channels,” says Clements.

The data warehouse holds basic demographic information on a customer, and a comprehensive record of their relationships with NBK, such as which channels they use and what transactions they make. The customer data is then analysed and such calculations as ‘propensity to buy scores,’ are calculated. “Based on a customer’s behaviour we develop an algorithm, and it tells us whether [a customer is] likely to buy a credit card and if they’re within a certain percentage score, then that is the product the [relationship officer] will try and sell to the customer,” explains Clements.
The data warehouse has already proved its worth in marketing campaigns. For example, a targeted campaign based on customer segmentation by the warehouse delivered a 25% success ratio.

Going forward greater customer segmentation from analysis of the information in the data warehouse is going to play an increasingly important role in the bank’s quest for customers. In the future, continuous analysis of customer information will enable the bank to target its marketing towards a customer segment of one. According to Clements, this will be tough and will take at least another year before NBK is able to target its campaigns so accurately, but it is possible.

The Internet site is also generating a continuous flow of customer information. The bank is currently using a package called Web Trends to monitor customer behaviour on its web site. “On the Internet it is to some extent even easier because now what we’re doing is taking information from the web site and [the customer’s] activity, what [they’re] looking at, what are the things [they] find interesting. We’re integrating this data back to the warehouse,” explains Clements. “By the end of this year we’re aiming to have personalisation on the web site so [customers] can do one of two things; [they] can have myNBK.com, but more importantly we will know who they are, what their profile is and what products/services they are most likely to be interested in. These products will be offered to them when they access certain parts of our web-site,” he adds.

NBK has already seen a strong response to restructuring of its Internet services. The addition of Arabic language support and online brokerage has proven very popular.

The volume of online banking subscribers has risen to 28,000 and the number of financial transactions has risen dramatically to 15,000 per month and over 100,000 non-financial transactions. “Online brokerage has been quite a tough project in terms of technology… [but] its been very successful. When combined with online banking it allows you to transfer funds from an account in Kuwait to a trading account in the US within minutes. It will provide Arabic support for customers trading on the New York stock exchange during market hours,” says Clements. “We have over a 1000 subscribers and even if there has been low trading volumes it is already showing positive revenue month-by-month. We have attracted customers from both other banks and [even] Schwab and e-Trade.”

The recent addition of WAP services to the site is another attempt to overcome the hurdles of low PC penetration, poor infrastructure and the high cost of Internet subscription.

With NBK witnessing accelerated online registrations over the last two months in particular, Clements is confident that by the end of the year the bank could have as many as 15 to 20% of its customer base online.

However, he cautions the Internet has to remain integrated with the other delivery channels and form part of an overall banking strategy if it is to bring value.
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