Electronic commerce has failed to reduce costs in line with forecasts originally made by financial services organisations, a special report on the Financial Services Industry from Cap Gemini Ernst & Young
The report, now in its 10th year, concludes that the failure of e-commerce in banking is due to the fact that customers have failed to embrace the online experience.
As a result, expectations of cost reductions from electronic commerce initiatives have halved since last year, with 40 per cent of respondents in the Irish and UK banking sector citing the main reason for this being 'a failure to migrate clients' and 40 per cent saying that 'customer usage was lower than expected.'
Not only do banks appear to have over estimated customer use of the Internet, but also bad experiences online have made customers unwilling to use this mode of transaction, the report says.
"People power has forced banks to rethink their strategy, as increased competition and diversity in the market is making customers more discerning," Pat Talbot, vice president of Cap Gemini Ernst & Young said.
"While, in the past, e-commerce may have been seen as the answer in terms of cost saving, if the customer is not satisfied with the online channel, it will not be used.
"Financial services organisations have reached a crucial turning point, they must broaden their offerings and raise standards of customer service or risk customers becoming disillusioned. . ."
The increasing popularity of the bank branch - the failure to drive customers online, coupled with poor online customer experiences - may have saved it from extinction.
The vast majority of sales (80 per cent) are still made through branch outlets, and this trend is set to continue, with banks stating that 60 per cent of sales will still be made over the counter in 2004.
This, the report says, has led to the cancellation of branch closure programmes and many financial institutions are borrowing retail concepts to create a comfortable environment where customers are more likely to drop in and spend money.
This has included putting coffee shops in branches, and even opening up branches in petrol stations.
In Ireland and the UK, only 15 per cent of the survey's respondents either offer or intend to offer competing products, while 70 per cent offer complementary products, which can be from alternative suppliers, but do not compete with the own brand range.
E-initiatives are now treated the same as any other strategic option and 42 per cent of respondents said that other non e-commerce initiatives had taken priority.
"A mere eighteen months ago any initiative that had the 'e' word in the title was waved through by the boards of many companies," Mr Talbot added.
"There has been a definite change in attitude over the last year as companies realise that making money from e-commerce is not easy. The question is whether the big banks have the courage to fundamentally change their core business models and put the customer right at the centre of their organisation. "