Asian Banker Research

2 3 Ma y 2 0 1 1

Re s e a rc h Rep or t

Executing a Competitive Internet Banking Proposition

Driving Information Integration and Usability

Table of Contents
1. Core Principles and Building Blocks in Executing a Competitive Internet Banking Proposition 2. Key Challenges to be Aware of 3. Key Action Points to Consider in 2011 4. Key Initiatives by Leading Banks in the area of Usability and Functionality in 2010/2011 5. Managing Online Security 6. Creating Revenue Streams 7. Straight Through Processing for Products and Services 8. Cross Selling to Internet Banking Customers 9. Strengthening the Bill Payment Function 10. Achieving Critical Mass 11. Evaluation Criteria and Scorecard 12. Case Studies: HSBC Hong Kong ABSA South Africa

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Asian Banker Research

Executing a Competitive Internet Banking Proposition 23 May 2011 w w w.theasianbanker.com/bankmetrics

Driving Information Integration and Usability

Given the evolution of technology and the equally rapid change in consumer behaviour, the trend is clearly set towards more powerful, interactive and personalized services such as personalized web pages, widgets, real time information on their desktop in order to improve the user experience. Banks aim to generate more revenue from this channel and enhance the stickiness of its customers. Internet banking has gradually moved from the role of an online information brochure to a capable nancial supermarket hub. Yet, despite the advances made in this eld, and 10 years after its introduction in Asia Pacic, internet banking continues to be challenged by poor adoption rates in emerging markets and customer activities limited to information seeking and low value added services. This in turn has forced banks to align functionality and usability better with clients needs over the last 12 months. A major survey by Asian Banker Research indicates that a growing pool of banks have begun to improve the user interface and navigation in order to drive usage, loyalty and revenue opportunities. The new wave of internet banking projects addresses connectivity, control and convenience as an integrated concept in executing a better internet banking proposition.

RESEARCH METHODOLOGY Survey Prole:

Asian Banker Research is pleased to present this research report based on the ndings from the regional Excellence in Retail Financial Services Programme, an evaluation exercise that covers more than 130 commercial banks in Asia Pacic, the Middle East and Africa. The survey covered mature markets such as Australia, Singapore, Hong Kong, Korea, Japan, Taiwan and emerging markets such as China, India, Philippines, Indonesia, Thailand and Malaysia. The respondents represent 17 nancial institutions that were identied as key nominees in the Excellence Programme 2011 in the category internet banking.

Survey Mechanics:
Regional survey of 9 mature and 8 emerging market players across Asia Pacic, the Middle East and Africa Survey Period: January February 2011 In-depth discussions with key executives of rst tier local and international banks In addition, the discussions were combined with a quantitative questionnaire to standardise response sets

EXECUTIVE SUMMARY
Connectivity, convenience, control are core principles in executing a winning online banking proposition. Internet banking adoption rates have stalled in the last two years as banks struggled to create advanced usability. Active internet banking user rates range between 8 and 15% in mature markets. Though small, benchmark banks generate between 2%8% of total retail banking income from internet banking. In 2010, the cost of an online banking transaction in retail nancial services was less than 10% of the cost of a branch transaction. Some banks achieved a relational cost ratio between 12%. Banks increasingly monitor transactions and customer behaviour for fraud prevention, looking to biometrics and out of band verication for additional protection over and above 2FA. Best banks use integration of online banking and analytics to achieve real-time approvals and targeted cross-sell leads.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

1. Core Principles and Building Blocks in Executing a Competitive Internet Banking Proposition

Banks are working toward improving the integration of information with system interface. Today, a fully integrated online environment, where customers can manage both transactional and investment portfolio using a single sign-on log in, is not only necessary but expected. Connectivity, convenience and control are core principles in executing a winning online banking proposition.

Figure 1.0 Core Principles

Connectivity

Convenience

Control

Source: Asian Banker Research

Figure 1.1 Key Operational Building Blocks

New Revenue Streams Relationship Focus

Lower transaction fees for online transactions Chargeable services like e-cheques, payment of any credit card etc Third party earnings through value added services e.g. prepaid airtime

Integrated CRM and Analytics with internet banking Personalized interaction and user interface High product cross holding Consolidated single view across globe, single logon

Internet Banking

Direct Banking

Very few brick and mortar branches More than 50 percent transactions done online

Differentiated Offerings End to end process integration

Product innovation Differentiated asset and money management tools Lifestyle products Customer advisory, budgeting, spending trends Real time offerings

High levels of STP in products except mortgage and life insurance Channel integration for security to achieve STP real time analytics integration , Data upload and imaging technology for process integration

Source: Asian Banker Research

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

2. Key Challenges to Be Aware Of

Figure 2 Current Key Challenges in Internet Banking

Achieving Improved STP levels

Online Security

Migration and Critical Mass

Bandwith and Server Capacity

Real Time Assistance

Manage Speed

Source: Asian Banker Research

Banks added an additional authentication level, besides a sure phrase on its websites as an anti-phishing measure. Best banks have also implemented 24* 7 monitoring systems that analyse the logon and customer behaviour to identify any fraudulent activity. Man in the middle and cross channel thefts, wherein a fraudster could use the weakness of one channel to conduct theft through another channel, has become another security concern for banks. Continuous efforts of customer education have borne fruit for a few. Selected banks expanded their efforts by deploying specic executives in branches to explain, give demos and promote online usage among customers. Internet penetration is an issue in emerging countries like Indonesia, India, South Africa, Malaysia, Thailand. Managing speed, real time transactions and response time particularly during peak trafc hours has been another challenge. These banks have added web acceleration tools and server capacity to manage trafc times. Banks claim that evenings and holidays are the peak period for online and mobile transactions. In many developing countries the lack of ready availability of high speed internet and bandwidth to masses are still an issue that hinders the growth of online banking.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

3. Key Action Points to Consider in 2011

Create superior website response time and loading speed, for example with internal monitoring systems which, when triggered by abnormal readings, will lead to immediate corrective action by a round-theclock technical team. Accelerated website page download and response to provide faster response time to users / visitors webpage requests. Easy customised registration process, for example for rst time users to create a log-in user-id via a simplied registration process (e.g. credit card number) with a maximum of only three data elds and onetime password verication via SMS. Create clear communication hierarchies, for example create clear visual hierarchies pre and post log-on to communicate what matters most and link those with a call to action. They can also be used to minimise time to completion of a task or process, such as rst time registration. Address customer break points, for example straight-through business account and credit card applications, turning off paper statements for credit cards, full STP for conditional credit card and home loan approval, a three-click process for new product applications which pre-populates customer information, etc. Except for transactions where regulatory requirements force face to face interaction or require signatures, leading banks are looking at 100% STP. For example in credit card applications, Citibank allows document upload and end-to-end application online. Real time end-to-end loan application and disbursement for existing online customers for personal loans and approval can be achieved within minutes. Improve customer communication, for example via a consolidated landing page to all banking relationships in transaction, borrowing and investment or a consolidated rewards/loyalty programme page. The introduction of a client inbox, which allows customers to sort bank messages by category and choose which messages they would like to receive via email; implementation of account alerts, including via SMS. Full details of relationship managers and their picture contact details including rating their relationship managers captured by CRM/workow system. Improved communication visually with video material. Global consolidation of accounts is also emerging as a trend in online banking. Leading multinational banks allow customers to view and transact their accounts in any country under a single sign-in to manage transactional and investment portfolios. An advanced key-word based search facility for bank products, services and any other bank information on site. Provide personal planning and budgeting tools, for example expense tracking and budgeting, enhanced payments and transfers, advance search tools, the ability to change home loan repayments, request nancial assistance from the bank, change card withdrawal limits online, etc. Create an integrated payment portal, for example; besides having a comprehensive biller list, the ability to pay other banks credit card bills or cheque issuance online. Open new revenue streams, for example online shopping, third party content and value added services such as proof of payments, notications, interactive alerts, remittances (account to cash).

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

Improve security, for example besides the standard 128 bit encryption, secure sockets layer, extended validation SSL certicates working in conjunction with anti-phishing and malware protection on browsers, the introduction of password strength indicator, a Transaction Signing token that enhances online security by effectively counteracting the man-in-the-middle attack, demilitarised zoning of Internet Banking and Website systems, electronic numeric and qwerty keypads during logon to mitigate keystroke logging. Link online banking with analytical capabilities to achieve contextual marketing and higher cross sell rates. The trend is clearly set towards more powerful, interactive and personalised services such as personalised web page, Widget (real time information on desktop on FX rates, net asset value, investment news) in order to improve the user experience, revenue generation and enhance stickiness of customers The identication of new revenue streams in online banking beyond fund transfer, utility bill payments and a monthly account fee has turned the attention to e-commerce and integrated online portals that have increasingly caught the attention of executives. For example SHB (Vietnam) allows its customers to purchase online goods at popular websites by making non cash payment through online or SMS banking. Another example is Rakuten Bank (Japan) that has introduced a settlement service at a Japans online shopping mall, to enable users to transfer money from their accounts to participating shops when purchasing goods at the mall. ABSA, a South African bank earns a signicant portion of its online revenue through third party content that it provides as one of its online banking value added services. Relationship-centric Internet banking targeted at improving customer satisfaction and retention rates is another key focus for the banks. Leading banks integrate usability with personalised services to achieve a higher migration and retention rate. Live interaction features have been introduced by Australian, Taiwanese and Hong Kong banks in the last two years. While still restricted to premium customer segments, some have enabled mass customers with a real time call back service through integration with call centres. Best banks target end-to-end processing in Internet banking. A large percentage of revenue for most banks continues to come from low value transactions. However best banks are now adding higher value products such as loans and insurance to online banking. ABSA South Africa for example offers end-to-end completion of loans and travel insurance to online banking. To achieve this it has integrated the channel with analytics that can prole customers and process applications for STP.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

4. Key Initiatives by Leading Banks in the area of Usability and Functionality in 2010/2011

Usability
Key issue: How to increase personal interaction? Banks continue to launch live interaction online, even though the service is often restricted to wealth management customers or suffers from low usage rates. HSBC Hong Kong launched live connect and click back facility wherein a customer can directly interact with relationship managers over internet. It also allows customers to give their phone details for immediate call back by a call centre. These executives even complete applications for customers if required. On a smaller scale, banks show details of a customers dedicated relationship manager at the rst page after logon. The information includes name, photo, email and phone number for the customer to get in touch with their relationship manager more easily and conveniently Key issue: How to strengthen nancial management tools? Citibank implemented a new project called Leapfrog which provides calendar view of payments, transfers and personal budgeting options. This allows customers to quickly view their future account activity and differentiate between reoccurring, upcoming and scheduled payments or transfers and also sets out their spending patterns and trends. Key issue: How to improve online navigation? Banks such as Citibank Korea, HSBC and ICICI revamped their websites to reduce the number of clicks required per transaction. The objective of revamp was to achieve better navigation, placement of icons, easier transaction and minimise the steps needed for completion of transactions. Best banks target a high level of interaction and engagement through these measures. One bank utilised business optimisation tools to monitor customer click-through rates through different approaches e.g. copywriting, colour and banner positioning, etc and analysed the click-through rates. This allowed it to develop a website that minimised clicks for any function. This bank also launched a quick navigation menu as well as a context sensitive function displaying the three most likely events the customer will need based on his behaviour patterns.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

Functionality
Several banks took innovative measures to improve online functions in 2010/2011. Key issue: How to manage multiple accounts of a customer in different countries Most multinational banks operating in Asia have implemented complete account consolidation of all products under a single log-in. Banks allow global account aggregation for transactions in any account allowing customers to transact in any country. Most banks in the region allow for real time domestic and cross border transfers online. Key issue: How to enhance service and product offerings in online banking? In 2010 many banks enhanced their functional offerings and nancial tools for customers in online banking. Bank A in Japan periodically collected the usage patterns of internet banking users via relationship managers and decided that trading functions should be enhanced. In 2010 it launched Online FX and plans to launch Online UT and Dual Currency Deposits in 2011. An international bank enhanced its investment services to include investment advisory functions on ideal portfolio weight, given a customers returns expectations and risk tolerance. Bank B enriched its offering by adding the Western Union Money Transfer cross-border remittance service across both online and mobile channels. Bank C (Hong Kong) added online wealth management solutions to their internet banking services. These include stocks, bonds and funds. Along with quick execution features, the bank also provides market news and product comparisons for informed decision making. Bank D (India) revamped its transactional site, launched a global link functionality, Payment Gateway, and credit card as a source of funds for bill payment. Standard Chartered Bank, Singapore initiated its pay any credit card bill facility for its customers and initiated lifestyle products such as restaurant guides, promotion guides, and an ATM and branch locator to product offerings on the net. Key issue: How to improve performance monitoring of online banking? Banks also invested in direct channel monitoring to understand usage and penetration, assess the competitive scenario, and garner customer feedback. These are then used to enhance online banking service to customers. Others have expanded their customer surveys and feedback mechanisms to improve online performance.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

5. Managing Online Security

Figure 3 Key Initiatives to Manage Online Security

XXXXXXXXXXXX

100 90 80 70 60 50 40 30 20 10 0 Biometric usage Fraud loss Login behaviour analysis Deployment of alert features
10% More than 20 alert features 55% More than 10 alert features 52% 62% 12.5% 19%

< 10 alert features

Source: Asian Banker Research, N=17

Countering man in the middle attackFor higher risk transactions like the addition of new payees or transaction values above certain thresholds, banks are adding an additional security layer to the existing 2FA. HSBC initiated a transaction signing token device in 2010 which is a thin device that can be carried in wallet and is used for third party high risk transactions. Shorten time window for tokensTo further tighten security, banks are shortening the window period of one time pins to 100 seconds while being mindful of reasonable time periods. Login and transaction behavior analysis and out-of-band verication for higher risk transactions are currently used among international banks that use out-of-band verication for overseas transfers. Others are planning for out-of-band verication by integration with call centres. Hence if any aberration or abnormal activity is noticed the transaction can be reconrmed by the call centre on a real time basis before it is processed. Biometric applications like mobile device verication (nger printing) and voice biometrics for additional online security are piloted but they are only being used at this point in time in conjunction with call centres. Best banks are forced to develop multilayer security dimensions to stay ahead of fraudsters These features are implemented in less than 50% of our sample banks: virtual keyboard, periodic vulnerability scans and penetration testing, challenge response question, real time fraud monitoring tools, tracking and identifying of brand abuse 24x7, secure beneciary conrmation for fund transfer, verication image, SQL/ JavaScript Injection prevention, authentication using debit card number and pin, IPIN request based on 4 authentication, block overseas IP, register a PC for banking transactions, mouse click enabled number pad, TAC black listing mobile number, disable registration of TAC Mobile number at ATM and Phone Banking, logon alerts.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

Figure 4.1 Advancing Security Features

Advanced security features

Real time messaging Dynamic key boards Regular customer education Channel monitoring systems, monitor logon Firewall, need to know only basis Dynamic policy of double checks Intrusion detection systems 128 bit SSL encryption Behavior monitoring Sure phrase/ secure image on website Daily limits for interbank transfers Transaction limits Account blocked on 3 failure to login SMS and email alerts on transactions Unique pin, auto logout Mandatory alerts on high risk transactions OTP + token Shorter 2FA window to 100 seconds Security token device 2 factor authentication Unique pin at ATM used online Pilot testing of biometrics Out of band verification Cross channel monitoring

Active Protection

Interactive Protection

High Risk Protection

Advanced Protection
Security Roadmap

Source: Asian Banker Research

Figure 4.2 Most Important Security Measures Deployed

Security Features
One-time Authorization Code (OAC)/One Time Password Login Password and Transaction Password Session Time out SMS & Email Alerts on Transactions Daily Limits on Bill Payment Transactions 2 Factor Authentication Firewalls Secured Browser Account Blocking Security Monitoring Systems Enhanced SMS Alerts for Payments Online Security Guides E-monitoring Account 128-bit Secure Socket Layer (SSL) Session Security Online Security Demos Prominent display of Security Risks and preventive Steps/Tips on the Pre-login Pages Anti Phishing Sensitive customer information only with authorized bank personnel and on a need-to-know basis Foreign Telegraphic Transfer (FTT) Filtering Extended Validation VeriSign SSL Certificate and VeriSign Logo Hot Listing of Accounts
Source: Asian Banker Research, N=17

Availability
100% 100% 100% 94% 94% 94% 94% 94% 88% 88% 88% 88% 88% 82% 82% 76% 71% 65% 65% 65% 53% 53%

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

6. Creating Revenue Streams

Figure 6.1 Online Revenue Structure for Banks in Mature Markets

Revenue composition for internet banking in a developed market

100% 90% 80% 70%

Others

60% 50% 40% 30% 20%

Mutual Funds Sales Insurance Sales

Loan Sales

Transactional Services

10% 0% Bank A Bank B Bank C Bank D Bank E Bank F Bank G Bank H

Source: The Asian Banker, N=17
Trading

Trading, transactional services and selective mutual fund sales are the most common revenue sources for banks in mature markets, while in some instances banks are able to generate more than 50% from loan sales. Those banks are characterised by high STP levels, strong data analytics and CRM links.

Figure 6.2 Online Revenue Structure for Banks in Emerging Markets

Revenue composition for internet banking in a developing market

100% 90% 80% 70%

Others

60% 50% 40% 30% 20%

Mutual Funds Sales Insurance Sales

Loan Sales

Transactional Services

10% 0% Bank A
Source: The Asian Banker
Trading

Bank B

Bank C

Bank D

Bank E

Bank F

Bank G

In emerging markets transactions continue to be the biggest contributor of revenue in online banking. Our research shows that for more than half the banks in the region 80% of online revenue is generated by fee income. And for 30% of banks, fee income is the only source of income in online banking, coming primarily from transactions, monthly subscription fees (if applicable), and fee income from investments and trading.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

With transaction still the bread and butter of online banking, banks are strengthening their service and payments applications, such as adding cross border remittance through third party remitters in its transaction services prole. Increasingly, third party services are tapped as new sources of income through third party revenue sharing. Standard Chartered Bank Singapore has further innovated its bill payment service by adding payment of all credit card bills online via its Visa network. A notable innovation has been from ABSA and Permata Bank that allows customers to transfer funds online from their account to anyone, even a person without a bank account. The recipient can retrieve the funds from any ATM using a one-time password without the use of an ATM card. Bill payment solutions have proven to be the most recurrent fee income source and some banks have billers in excess of 1,000.

Figure 7 Annual revenue per registered online banking customer ($, 2010)
Annual revenue per registered internet banking use ($, 2010)

250

200

150

100

50

0 Bank A Bank B Bank C Bank D Bank E Bank A Bank B Bank C Bank D Bank E
Mature Markets Source: Asian Banker Research

Bank F Bank G Bank H

Bank I

Emerging Markets

Rakuten Bank, an internet online bank in Japan, generates $239 per year per registered customer and an active online banking rate (one positive log in within three months) of 41%. The Rakuten Bank case study can be accessed here. A bank in Hong Kong generates close to $174 in online sales per registered customer with an active rate of 48%. The mid segment in retail nancial services in Asia Pacic generates between $15 and $33 revenue per registered online customer.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

7. Straight Through Processing for Products and Services

Figure 8 Straight-Through Processing Levels

Percentage

100 90 80 70 60 50 40 30
22.4% 59.9%

20 10 0

17.7%

Semi STP (Application)

Source: Asian Banker Research, N=17

Semi STP (for leads generation only)

Full STP

Providing higher levels of STP in transactions is increasingly becoming a key competitive factor. Banks integrate analytics and CRM with online product offerings for seamless product sales of loans, credit cards and insurance. For example, ABSA does real time approval of loans for its customers. Other banks offer pre-approved loans online by proling and analysing customer suitability through analytics Only banks in Japan have so far leveraged on full STP due to the regulatory environment. Banks are looking at 100% STP for applications. For example Citibank Hong Kong allows credit card application online with upload of supporting documents and mobile verication to speed up the application process. Best banks have moved more than 40% of transactions (in value) to online banking and achieve greater than 70% STP. This is achieved with increasing application of end-to-end processes. ABSA for example has a simple three-step process for opening savings accounts, checking accounts, mutual funds, personal loan and investment accounts through STP. A customer can log on, apply for a personal loan, get scored and a credit check verication, and if successful, have the approval within minutes. Maybank Malaysia offers home loans, personal accident insurance and travel insurance on a STP basis. HSBC is focusing on investmentstrading, funds and bondsfor future growth of transaction volumes. Besides offering STP in its products, HSBC also provides an interactive service where a representative can ll the forms and submit them for processing. It is online account opening which presents the biggest impact on customer experience. Approval processes and face-to-face interaction requires maximum time and can take between three to ve working days. Some international banks such as Standard Chartered Singapore do not offer in general instant issuance of debit cards which is required to self-administer the opening of an online banking account

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

8. Cross Selling to Internet Banking Customers

Figure 9 Product Holdings for Internet and Non-Internet Banking Customers

Number of Products

6
5.3

2.6

2.4

2
1.5

Internet Banking Customers

0 Top 5 Banks
Source: Asian Banker Research, N=17

Non-internet banking customers

Rest (12)

Cross-sell rates to online customers are signicantly higher than non online banking customers. On the average, for the top ve banks in our survey, online customers hold 5.3 products as compared to 2.6 products by noninternet banking customers. For higher cross-sell rates, leading international banks have integrated their online banking with analytical insight and CRM. For 2011/12 these banks are looking toward real time lead deployment. To drive higher sales online, best banks also ne-tuned its customer value proposition beyond transactional banking to nancial management and analysis. For the top ve banks in the survey, the average product cross-sell ratio was 2.3 times higher than for the rest. We observed that winners in this eld focus on a few key requirements to realise online sales Usability and navigation of website with strong and clearly communicated security levels Comprehensive functionality, including unique propositions through value-added services (e.g. proof of payments, notications with call for action, prepaid airtime, registered billing organisations, pay any credit card, real-time market news for trading, differentiated remittance services) Differentiated pricing packages and online transaction fees High level of STP for products (>90%) CRM and analytics integration for customer-centric cross-selling Dedicated staff in branches to educate/walk customers through its online banking capabilities Banks in emerging countries such as ICICI, ABSA and Maybank have added low value added services like prepaid recharge, purchase of airlines tickets, donations, utilities payments, etc to their product prole. Some banks offer these services to its customers at no cost but earn from the third party revenue share. We believe that higher value added products to online banking such as loans and insurance, in combination with pre-arranged branch visits, is an emerging new eld banks are taking advantage of.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

9. Strengthening the Bill Payment Function

We observed that banks in the Saudi Arabia and the UAE in particular had higher levels of active customers dened by one positive transaction within three monthsthan its peers in Asia Pacic. However there is no direct correlation between the number of billers and the level of active customers. The number of active billers however does inuence the amount of revenue generated to a certain degree. Bill payments have been a steady source of income for most banks in online banking. Leading banks have thus expanded their billing organisations in recent years. Current practice requires customers to complete every bill payment transaction, which is cumbersome. However, the trend is to create a system that can simultaneously synchronise account information and update the most recent payment. High number of billers though is not a signicant driver to build active users rates. Average biller numbers were 592 among 17 banks, the lowest had 9 while the highest had 2,903.

Figure 10 High Numbers of Billers and Active Customers

% of Active Bill Payment Customers

80% 70% 60% 50% 40% 30% 20% 10% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
% of Active Internet Banking Customers Mature Market Average

Bank X Malaysia

Bank X, International Bank Y, International

Bank Z, Internationanl

Emerging Market Average

Source: Asian Banker Research

Three key practices we observed to encourage higher bill payments usage levels include: Intuitive bill payment set upthe fewer instructions needed the better Extensive FAQs which are integrate with help tools High usability with immediate bill payment (e.g. analytics pre-populating a set of frequently used transactions) Rewards schemes (e.g. earned credits that can be redeemed in the retail sector) Banks have predened beneciaries that are often local governments or corporate entities. With pre-registration, payments become streamlined and require a fewer number of elds to be lled in the transaction. In selected banks, customers can request the presentation of the bill before payment is made in certain situations, like trafc nes or tax returns.

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Executing a Competitive Internet Banking Proposition

23 May 2011

10. Achieving Critical Mass

Growth of the registered user base for domestic banks in mature markets (e.g. Hong Kong, South Korea, Singapore, Taiwan, Australia) with a registered user base of above 500,000 ranges between 8% and 15%. On average, the active user base as dened by one positive transaction within three months remains for the best banks at 38%. Notably, the largest retail banks in the region have breached the two million registered internet banking customer mark in 2010.

Figure 11 Growth in Registered Users and % of Active Users in Mature Markets (2010)
Total Registered User Base % YoY change

2,500,000

60%

Highest

52.7%

2,000,000

28%

50%

40% 1,500,000
63%

30%
23%

Average Median

28.7% 25.4%

1,000,000

20% 500,000

41%

30% 32% 48%

10% Lowest 3.9%

0 Bank A Bank B Bank C Bank D Bank E Bank F Bank G

Inactive user base Source: Asian Banker Research Active user base* % YoY Growth

0%

Active Customers per Bank (%)

Growth of the registered user base for domestic banks in emerging markets (e.g. Malaysia, Thailand, Indonesia, China, India) with a registered user base of above 500,000 ranges between 15% and 35%. On average, the active user base as dened by one positive transaction within three months remains for the best banks at 52%. Notably, the largest retail banks in the region have breached the ve million registered internet banking customer mark in 2010. Major cost efciencies can be achieved in migrating customers online. The cost per transaction is less than 10% and the cost of origination is less than 30% of the cost at the branch. To achieve easier migration leading banks introduced simpler registration procedures. Instant registration for online bank during account opening or self-registered online activation with debit/credit cards are examples. Banks provide alternative registration processes which use a combination of card / personal information and a one-time password to register for the internet services. This is supported by a dedicated online helpdesk that can address customer issues in real time and has live chat solution which allows co-browsing for trouble shooting. A few banks have deployed representatives at branches for online banking demos and promotion.

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Asian Banker Research

Executing a Competitive Internet Banking Proposition

23 May 2011

11. Evaluation Criteria and Scorecard

The evaluation scorecard evaluates a banks internet banking platform and its product, process and technology capabilities. It assesses a banks ability to extract revenue, increase stickiness and enhance the customer experience of its customers

Figure 12.1 Internet Banking Evaluation Criteria

Financial Performance
Revenue generated Revenue per registered customer Revenue structure Fee income Fully loaded cost per transaction Cost of an internet banking transaction to branch transaction

Transactional Strength
Value and volume of transaction (annually) % contribution to total value and volume of retail transactions YoY growth of users Number of transactional services deployed

Sales
Number of products offered online Average product holding for internet banking users compared to non internet banking users Internal revenue sharing model

Strength of Usage
Number of registered users Active users (one transaction within < 3 months) Active bill payment customers Number of billing institutions Financial tools Participation rate of real time online support Customer interface Usability
Source: Asian Banker Research

Operations and Technology

Straight through processing of product applications and account opening Level of consolidated view of all customer holdings Analytics and segmentation CRM connectivity

Security
Security standards and systems Security features deployed Authentication model and processes Alert features

Figure 12.2 Internet Banking Scorecard

Financial Transactional Performance Strength
8.0 Hong Kong South Africa Malaysia Japan Australia UAE Taiwan Korea India Saudi Arabia Hong Kong Philippines India Japan India Singapore Taiwan Thailand Indonesia Brunei Jordan 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 HSBC ABSA Bank Maybank Rakuten Bank Citibank Abu Dhabi Commercial Bank Taishin International Bank Citibank Citibank Samba Citibank Bank of the Philippine Islands ICICI Bank HSBC Standard Chartered Bank Standard Chartered Bank Taipei Fubon Bank Citibank HSBC Baiduri Arab Bank 6.8 6.3 3.1 7.8 3.9 2.7 3.7 1.7 3.2 3.9 5.1 1.9 0.3 2.9 0.8 0.0 3.7 1.0 0.8 1.7 0.0 6.0 1.8 2.6 2.9 2.6 0.6 0.9 1.0 0.7 1.9 1.5 1.0 2.1 1.5 0.0 0.8 0.3 0.6 0.6 0.7 0.2 0.4

Country

Rank

Bank

Sales
8.0 5.7 3.8 3.1 2.8 2.6 2.5 2.6 4.3 2.0 2.2 2.2 2.8 2.6 1.8 2.1 2.6 1.9 2.2 1.5 0.9 1.5

Strength of Usage
8.0 3.3 4.3 4.7 1.6 3.4 2.5 3.2 2.7 1.6 4.0 3.1 3.2 3.8 2.7 2.2 0.6 1.1 0.1 1.3 2.4 2.1

Operations & Technology

5.0 4.5 4.4 3.4 2.5 4.5 3.8 2.7 4.3 3.8 2.1 0.5 2.5 2.9 3.6 2.0 3.8 0.7 3.4 2.5 2.1 0.0

Security
5.0 3.1 2.9 1.9 1.7 1.7 3.6 2.4 1.6 2.4 0.9 1.7 0.6 1.5 1.3 2.8 3.0 1.5 1.0 1.2 0.6 1.7

TOTAL SCORE
40.0 25.2 24.3 19.1 19.0 16.7 16.0 15.6 15.3 14.9 14.6 13.6 13.1 12.6 12.3 10.7 10.3 9.5 8.3 8.0 7.9 5.7

Source: Asian Banker Research

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12. Case Study IABSA (South Africa)

Developing strong functional service and product offers

ABSA (South Africa) has 1.2 million registered customers (2010) of which over 70% are active users. Its success comes from its steady investment in product development, enhancement of user interface and security measures in online banking. Its key strengths are its comprehensive product functionality and innovative products. The bank provides a single view of all products and allows real time fund transfers and payments. Further it has added a few innovative products in its online functions. In 2009 it launched Cashsend which enables customers to transfer funds from their account to recipients without bank accounts. The funds can be retrieved from ATMs using a one time password without an ATM card. In 2010, it was one few banks across the globe to offer cross border remittance via Western Union through online banking. Other innovative transaction services include payment of prepaid airtime, payment of trafc nes and load pay pass which allow transfer of money to credit card for low value payments. Strategically there is increasing focus on using online platform for sales of savings and investment products within the bank. ABSA offers an integrated online environment where the customer can seamlessly manage the transactional and investment portfolio using a single sign-in log. It also supports investment decisions with updated nancial news and research. ABSA also has strong end-to-end processing capabilities. It has introduced a three-click process for new product applications that pre-populates customer information enabling real time straight-through application processing. This includes real time personal loan applications where a logged-in customer can apply for a personal loan, get scored and a credit check verication, and if successful, have the approval within minutes. The banks has differentiated pricing model for internet banking. It charges subscription fees which contributes almost one-fourth its online revenue. However it offers transactions at much lower cost (less than half the cost at branch). Effectively therefore online transactions are cheaper for customers, particularly active users. A substantial share of its revenue also comes from third party share in value-added services. These services are offered free to the customers. ABSA has a multi factor authentication process that entails Logon (Access Account, PIN,) and three random characters of customer created alpha-numeric password. Logon alerts are sent to customers. Customers require a one-time password known as the Random Verication Number for user-verication when adding beneciaries or performing prole maintenance. The process also requires OTPs known as the Transaction Verication Number for authorisation of transactions in accordance with congurable risk-based rules. To combat phishing a Sure Phrase customisable logon greeting is used as an anti-phishing measure. The bank has also been educating customers extensively on security measures and prevention of phishing incidents. Additionally it has launched a 24/7 monitoring and response team. This is supported with behaviour analysis to identify fraudulent activities and blocking of transactions in real time.

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13. Case Study IIHSBC (Hong Kong)

Strong user friendly interface and personalised services

HSBC was one of the rst international banks in Asia Pacic that created clear information hierarchies to communicate relevant call-to-action messages at its retail banking website. By integrating its branch and call centre channels with internet banking, it also allowed face-to-face nancial consultation with the relationship manager from the branch network via online banking. This service is being piloted for premium customers only and also allows for end-to-end sales process completion with interactive tools. While a few other banks offer real time interaction online, accessing relationship managers directly is a novelty in the industry. For its mass customers it is offering an instantaneous call back service for product information and queries. It also allows service representatives to complete the application form if required. In 2010, HSBC launched an additional security measure on top of one time passwords through a token device. This security measure known as the transaction signing token enhances online security by counteracting man in the middle attacks. With this additional security feature it obtained approval from HKMA to allow online setting up new registered account and increase in transfer limit. This token is used for high risk third party transactions. The bank also has a strong integrated backend monitoring system, real time monitoring, rules and protocols to manage cross channel fraud. HSBC introduced stock market highlights and trade-in-3-clicks feature for both HK and US stocks. Secondly, it added tools for market and stock analyses and pre-categorised comparison of funds for investment. Thirdly, it introduced bond analyses and pre-categorised bond comparison for customer convenience. HSBC also added investment commentary videos for nancial news and information. Besides these additional measures undertaken recently, the bank also offers end-to-end, straight-through transactions on a wide range of investment and insurance products, including life insurance, unit trusts, bonds and structured products. It offers 100% STP in transactions and 97% in online sales with exceptions being life insurance and mortgage transactions. It has shown double digit growth in online banking customers by integrating internet banking as a key proposition during the account opening process, a feature which is lacking in many other banks. Together with integrated analytics and CRM for cross-selling leads and driving online sales, it considerably strengthened its cross-sell product holding for online customers and achieved an active user rate of above 50%.

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About Us
The Asian Banker is a leading provider of strategic intelligence on the nancial services industry, established since 1996. We are in the business of helping decision makers develop creative solutions around research and intelligence to achieve tangible business goals. We help organisations understand the markets they serve through B2B surveys, eld research, data and forward-looking research and intelligence, benchmark their operations and competitiveness against industry best practices and create communities for the industry to respond to global trends in the most creative ways possible. For more information, please contact: The Asian Banker, Christian Kapfer, Associate Director and Head of Research, ckapfer@theasianbanker.com.

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