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George Tubin, Senior Analyst, Delivery Channels, TowerGroup
George Tubin, Senior Analyst, Delivery Channels, TowerGroup
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Why Online Banking Is Like a Box of Chocolates

While most top banking sites offer the core features associated with online banking like account history and bill payment, there are significant variations in what these institutions offer to consumers in terms of actual functionality and usability.

Even if you missed the movie, you've probably heard title character Forrest Gump's famous line: "Life is like a box of chocolates. You never know what you're gonna get."

Recent research conducted by TowerGroup found that the same can be said of consumer online banking sites. As with most blind purchases, consumers seldom get a chance to try out an Internet banking service before they enroll. Once enrolled, they have no way of comparing the site's capabilities with those of other Internet banking sites. While some banks offer helpful online banking demonstrations, the user only truly experiences the site's capabilities through actual use. Most consumers do not know if their provider is ahead of the curve or behind it with respect to features, ease of use, and service.

A new review by TowerGroup of the top 10 US e-banking Web sites (ranked by number of consumers using the service) evaluated several aspects of core online banking components. These included electronic bill presentment and payment (EBPP), historical account information, account aggregation, account alerts, document image archive, customer self-service functionality and more. TowerGroup found that while most top banking sites offer the core features associated with online banking like account history and bill payment, there are significant variations in what these institutions offer to consumers in terms of actual functionality and usability.

Exhibit 1 provides an overview of the top US online banking sites, ranked by the number of online banking customers each institution claims to serve. This table includes the TowerGroup estimate of Internet banking usage across each institution's core customer base and indicates whether the online banking application was developed in-house or by a vendor. According to the top 10 institutions, almost 23 million consumers use their services to bank online.


The diversity of online banking capabilities offered by the leading financial services institutions illustrates the confusion that continues to exist. Based on breadth of online banking features and ease of use, TowerGroup classified the top 10 providers into three distinct groupings. The top-tier Internet banking providers (Bank of America, Citibank, and Wells Fargo) not only provide a higher level of features and functions than their peers, but also seem to have a knack for providing highly usable and intuitive user interfaces. While the mid-tier providers (Bank One, Chase, Fleet, and Wachovia) provide capable online banking Web sites, each lacks certain functionality that the leaders offer. The bottom-tier sites (Fifth Third, US Bank, and Washington Mutual) deliver the basics but discernibly lack the comprehensiveness of the other top providers. See Exhibit 2 for the relative positioning of these banks based on breadth of features and ease of use.

The range and quality of online banking offerings by these large, consumer-focused institutions is actually quite surprising given the relative maturity of Internet banking and the wealth of features provided by the leading consumer Internet banking vendors. The institutions reviewed provide only a fraction of the capabilities offered by the leading vendors of Internet banking applications. This, of course, frustrates the vendors that invested significant time and capital developing these capabilities in response to claims of the institutions and industry analysts that these features were essential to capture and retain business with online banking users.

While most online providers constantly strive to improve their sites, some seem to believe that offering the bare basics is good enough. Many banks feel misled by the so-called Internet prophets who convinced the institutions to spend millions of dollars developing throwaway capabilities during the boom years. After introducing a plethora of haphazardly planned, underutilized online banking capabilities during the Internet boom, banks turned their attention to rationalizing their Internet banking infrastructure and reducing support costs. The pendulum of US banks' IT investment in their online banking sites, which swung from overly zealous in the mid-'90s to overly conservative in the early-'00s, is now swinging back to the middle. Banks are cautiously implementing Internet banking features that have a very high likelihood of increasing direct revenues, reducing costs, or improving customer profitability.

Of course, institutions realize that consumers are unlikely to switch banks merely because certain capabilities are lacking in the bank's Internet banking site. Consumers use multiple channels and evaluate a bank in its totality, not based on the lack of a feature or two in one specific channel. This fact, coupled with the fact that consumers cannot see a competitor bank's online banking site unless they open an account and sign up for online banking, has caused some banks to move slowly in providing some of the intermediate and advanced features available today.

However, banks must beware. As online banking becomes more mainstream, word-of-mouth is on the rise, and consumers both praise and complain about their banks' online banking services. Meanwhile, the wide array of functionality that consumers experience at the popular nonbank Web sites (like Amazon, Yahoo, and eBay) has raised their expectations of online banking offerings. Many banks report receiving numerous customer complaints regarding site performance and feature availability. Just as US automakers were able to get away with shoddy products until the quality of Japanese imports raised consumer expectations and forced drastic improvements, online banking providers will be forced to improve as consumers begin to realize the capabilities of the premier sites and demand more from their current providers.

Principles for Improving Online Banking

The battle over functionality continues. Banks must continue to implement online features, simplify their Web sites, and focus on customer needs. TowerGroup recommends the following guiding principles for financial institutions to use when selecting online banking projects going forward over the next 12 months.

* Enhancements need not be expensive. Simple changes to the site's layout and navigation greatly improve ease of use, and hence, customer satisfaction. Ensuring that needed information is available on each page so the user can complete tasks in fewer keystrokes requires more creativity and insight than investment dollars. The leading Internet banking sites provide many of the same features as their competitors, but they do it more elegantly.

* Be selective in choosing new features. The jury is still out on the efficacy of several emerging online banking features, including account aggregation, bill presentment, online chat, and others. As banks learned with bill payment, the worth of a feature may not come from direct revenues, but from other sources. For example, bill payment users may require more up-front costs, but they tend to have deeper, longer lasting relationships with the bank, which leads to higher profitability. Investment analysis for new online features may be complicated, but must continue nonetheless.

* Underlying technology must support future development. Many banks simply cannot implement desired new features due to limitations of their current platforms. While Internet technology is relatively new, it has been constantly changing and evolving. Additionally, the tangled technology infrastructure typical of retail banks adds to the complexity of implementing new online features. Banks must constantly work toward simplifying their systems architecture to support the needs of all delivery channels.

George Tubin is a senior analyst in the delivery channels practice at TowerGroup, a research and consulting firm focused exclusively on the global financial services industry,

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