Personal banking's brave new world has already arrived



Personal banking's brave new world has already arrived



Personal banking's brave new world has already arrived


So it’s 3:30—in the morning, that is—and an insomniac is stirring fitfully. In the old days, just four years ago, Kathleen Kilburn might have read a book at this grim hour, tackled her work backlog or paced the Redbridge, Ont., home she shares with her husband, Dr. Ken Peters, and six cats. Today, braced with a cup of herbal tea, she often settles at her desk, picks up her telephone—and pays her bills. The procedure is simple: the addictions consultant dials a number provided by her local credit union branch, enters her password and her bank account and then punches in the last few digits of each billing account, ranging from the telephone to the hydro company, that she has previously put on file. The convenience works: she has not been near the branch building for months. “I actually can’t remember when,” muses Kilburn, 50.

“The advantage is that I drive the process now. I am not bound by their hours— they have adjusted to mine.”

It was perhaps inevitable that technology would finally start to turn the tables on Canada’s imperious financial institutions: as the century wanes, as electronic options multiply, it is the consumers who are becoming kings of that formerly hidebound world. Forget the lineup at the counter. Consumers can now use automated teller machines. They can make payments by telephone. They can access their bank’s site on the Internet to settle their bills, juggle accounts, check balances, apply for mortgages and trade stocks through the bank’s brokerage service.

In less than a generation, the world has been transformed. Twenty years ago, when David Cyr started as a teller at the Canadian Imperial Bank of Commerce, he carefully handwrote deposits on a ledger card—and then initialled the record of those deposits in customers’ bank books. Now, as CIBC senior vice-president of electronic banking, he visualizes a day when Internet clients who need immediate help will actually be able to hold a live telephone conversation with bank employees—while they remain on the Internet. “We never thought that change would happen this fast or to this degree,” Cyr marvels. ‘What happens next? If we can move this fast, we must live with that open question”—he pauses for emphasis—“all the time.”

Within five years, banking experts predict, the choices will be even greater—and consumers may be scrambling to keep up.

Personal computers may be sold with a small camera inside the screen. Internet customers who need assistance at any time could hit the “Help” button on the bank’s site, reach a bank employee who would


Phone banking Internet banking Banking machines



Expected growth in banking transactions over the next three years

appear in a small corner of the screen—and then hold a face-to-face televised conversation as the two proceed, step by step, through the transaction. Customers could put their television set to similar use. Even the kitchen microwave could be wired into the Internet, sending signals over hydro lines. Already, Ohio-based NCR Corp. has devised a prototype oven that allows customers to do their banking tasks by

touching a screen on the door. “Doing banking anywhere, anytime, using any means, is very much becoming a reality,” says David Bolton, a Toronto partner at the accounting firm Ernst & Young.

In the near future, customers may carry multipurpose cards from financial institutions. Mondex Canada, which is working with a consortium of Canadian banks, recently called off a pilot project in Guelph, Ont., which equipped consumers with a card that carried electronic cash on a microchip. Faced with apparent consumer reluctance to add a single-purpose card to their wallets—which many viewed as an inconvenience —the banks are now moving towards a single card that will permit multiple usages: that is, consumers may use the card to debit their bank accounts when they make a purchase, charge it to their credit card account or, if the purchase is relatively small, pay with electronic cash via the Mondex application. Computers will soon carry card-readers that will allow customers to download cash from their accounts to the Mondex chip—and to pay for purchases over the Internet using electronic cash. “It will relieve us from the mundane tasks of going to a machine or a branch for cash,” says Mondex president Joanne De Laurentiis.

Such developments suit Canada’s Big Banks because they shift customers away from expensive in-branch transactions, which can cost the banks as much as $2 apiece. Although the banks still levy hefty user charges for their services, they shrink their own costs when they put further room between customers and tellers. ATM tasks such as deposit-taking are one-third of the cost of branch transactions; telephone tasks are about one-quarter; and, astonishingly, the Internet costs less than one per cent of a branch visit. But this trend also suits growing num-

bers of consumers. As the recent MacKay Task Force on the Future of the Canadian Financial Services Sector reports, telephone banking has grown by 50 per cent a year since 1994, personal computer banking by 10 per cent annually and the use of debit cards by 91 per cent a year. So far, the total number of users is still relatively modest. In a poll for Maclean’s, Northstar Research Partners discovered that only 20 per cent of the 821 respondents now bank by telephone—and only 10 per cent use the Internet. But electronic banking may be on the threshold of explosive growth: in a market research survey of 12,000 consumers last September, ACNielsen discovered that fully 37.5 per cent were connected to the Internet—and almost 17 per cent of those users were already doing online banking. “We think that all of this will lead to a higher customer retention rate—because as people move across the country, nothing changes in their banking relationship,” observes Bank of Montreal executive vice-president Marnie Kinsley. “Customers don’t have to close their account.”

The banks need all the loyalty they can muster. Since the 1980s, the lines separating banks, insurance companies, brokerage firms and trust companies have been almost eliminated. Everyone is muscling onto everyone else’s turf. Customers at the mutual fund firm Trimark Investments, for example, can write cheques on their money market fund. The MacKay report advocated the removal of most remaining barriers: banks would be able to market insurance and lease light vehicles through their branches. More ominous from the banks’ point of view, life insurance companies and securities dealers would maintain cash accounts for customers—which could be accessed directly through ATMs, cheques, direct debits, telephone or the Internet.

The big banks also have highly focused competitors nipping at their heels. Want a nofrills electronic bank? ING Direct, the Canadian subsidiary of the giant Netherlands banking and insurance conglomerate, offers 4.2 per cent on savings accounts—and no fees, service charges or minimum balance requirements. ‘Who convinced you that if you have $1,000 in your account, you get this rate—but if you have $10,000 you get a higher one?” asks Arkadi Kuhlmann, president of the Toronto-based bank.

Against that backdrop, it is perhaps no wonder that the banks are falling over themselves to make technological advances: they are struggling to keep themselves in the centre of each customer’s financial life. The future they fear most is what they call “dis-intermediation”—that is, the prospect that they will be relegated to afterthought roles as mere transaction processors. In this nightmare world for the banks, third parties would manage the relationship with the customer, providing vital financial services such as the electronic delivery of bills to individual customers on their

Internet site. The banks have reason to worry. In the near future, consumers will be able to install a new software tool, a so-called intelligence agent, that will customize their financial data. Consumers will program their desired level of financial risk—and their preferred balance of holdings. The agent might then identify excess funds in a bank account, search the Internet to find a better investment outside of the bank—and then transfer those funds.

In response, the banks are aggressively fighting to bond with their customers. The CIBC, for one, has worked with Loblaw Cos. Ltd. to create President’s Choice Financial, which has stationed ATMs and in-store pavilions in grocery stores. The CIBC gets access to an enormous pool of prospective customers. Loblaw gets to build customer loyalty: every time consumers use their President’s Choice debit card to buy groceries, they get points they can use to buy more groceries. The Bank of Montreal has created its electronic mbanx, which even provides access to the mortgage rates of other institutions so that customers can comparison-shop. The goal is to remain the customer’s primary contact for all financial services—even if the mortgage is borrowed from another institution.

Other institutions, though, are vying for their affections. Edmonton-based Intuit Canada Ltd. sells a software program called Quicken that does everything from calculating capital gains to tracking accounts payable for small businesses. In the United States, users can click on a single button—and Quicken will log onto the Internet, gather data from different banks and brokerage firms with a single request and present that information within the Quicken software. In Canada, the banks have insisted that Quicken alter its software, thwarting that convenience. Instead, Quicken’s more than 750,000 customers must access each bank, one by one, enter their password—and view the information on each bank’s home page before downloading it. “The banks in Canada are really powerful compared to the banks in the United States,” says Intuit’s senior product manager Eric Gauthier. “Quicken will tell you how to make more money. In Canada, that process can still be done—but it is a bit of a nuisance because the banks want to keep in contact with their customer.”

Perhaps the only certainty about tomorrow’s banking is that nothing will be the way it was—very soon. Last spring, in Britain, NCR unveiled ATMs that no longer rely on personal identification codes. Instead, customers of the Nationwide Building Society in Swindon have a digital picture of their iris stored in a central data base. On future visits, they can access cash—in the blink of an eye. And that is perhaps the best analogy for the pace of change in the entire industry.