WWW-based Home Banking Services in Switzerland: A Case Study

Richard Dratva

Institute for Information Management, University of St. Gallen

Abstract:

This case study deals with the difficulties of Swiss banks to accept the Internet and the World Wide Web as commercial telematic instruments in their electronic servicing policies for the retail market. In a two year cooperation project with major Swiss banks in the domain of home banking for the retail customer, the Institute for Information Management at the University of St. Gallen carried out promising concepts for home-oriented telematic systems. In spite of an increasing number of Internet success stories even in Swiss newspapers and specialized magazines, this case study reveals the acceptance problems of the Internet and the WWW in Switzerland and indicates possible solutions how to overcome this reluctance.

1. Home Banking in Switzerland: The current situation

2. The requirements for a modern Home Banking System

3. The reluctance to use the Internet and the World Wide Web for Home Banking services in Switzerland

4. Possible strategies for the implementation of WWW-based Home Banking services in Switzerland

5. References

1. Home Banking in Switzerland: The current situation

To show the need for an up-to-date solution for home banking applications for the Swiss market, some important drawbacks of the actual Videotex System are listed in the following two chapters.

1.1. Technical shortcomings:

• Only terminal-communication possible; endusers have very small influence on the presentation-layout at their local client station. Local transformation of received information is difficult.
• Inflexibility because of page-oriented browsing, almost any navigational help tools
• Complicated and non-intuitive interactive processes, mostly combined with the use of special keys.
• Although there is use of graphical protocols, the layout options are very limited; only lowest-resolution graphs or pictures can be transmitted
• The file transfer option is rarely used by providers because of the complicated protocol implementation
• Direct transparent data communication is not possible on the network. The logon procedure is only possible with the use of CEPT-protocol frames
• Inconvenient and limited Mailbox feature (e.g. without Internet-Gateway)

Figure 1: Swiss Videotex Screenshot: the "Start page" of the Service

1.2. Applicational shortcomings:

High-value applications are not easy to find, home banking services together with the Swiss telephone directory are the most used offers.

All major and even smaller Swiss banks are providers of Videotex. Account and deposit transaction and information services are mostly offered. Because of the technical limitations mentioned above, the wide area of possible information or discussion services are not developed at all.

The Institute for Information Management revealed in a survey of the top 6 home banking providers that although they offer almost identical services, every bank has it's own user interface layout, menu structure and uses a different set of banking terms [1] for its payment transaction procedures.

The average Swiss banking customer owns accounts at several or at least two financial institutions. The considerable differences between banking applications confuse the users and lead to a poor use of the originally useful services.

1.3. Swiss Videotex in direct comparison with the World Wide Web

A better positioning of the Swiss Videotex Service can be shown by a direct comparison of the profiles of Videotex and the WWW using a number of critical success factors (figure 2).

Figure 2: Comparison between Videotex and WWW

The comparison reveals clearly the limits of the Videotex service and indicates also that - due to the antiquated technical architecture- it is almost impossible to reach the high scores of the WWW by stepwise improvement.

1.4 Consequences

All these shortcomings result in a user base of only 95'000 members. It would need at least 200'000 to operate the service on a break-even basis and governmental subsidies will stop at the end of 1994. But there is no positive outlook and even with an increased marketing effort during the last year, the Videotex service stagnated and Swiss banks are in the uncomfortable position having to find a solution to this unsatisfactory situation. In a more and more competitive retail market, they are forced to keep their costs low and customers using electronic services help them to do so. Therefore their first aim is to secure the existing customer base.

But new customers can not easily be found for mere banking services. So it is not sufficient to improve the home banking offers, but to create a platform for a whole bundle of services including especially entertainment and shopping. As the internal market is not large enough to meet the high customer claims, the integration to an international information service should be of high priority.

Since the Videotex system is highly integrated (applications are almost inseparably linked with the network services), it is not possible to make the network available to providers which would prefer to offer applications which are not CEPT-based. This closes the doors to all innovative attempts of electronic servicing and the actually well priced network (the basic monthly fee is $ 3.75, the connect charges per minute vary from $ 0.07 to $ 0.20) service remains poorly used.

Software developers try to avoid these shortcomings with sophisticated CEPT-Decoders. The CEPT-based communication is hidden to the enduser and runs in the background. This functions as long as the providers do not change their menu structures. Otherwise, users have to adapt their local software accordingly. This "reverse engineering" method is also used to integrate (to a certain extent) the very dissimilar banking services to a coherent multibank application in a user-friendly graphical interface. Due to regular changes in the Videotex applications, these software packages require a frequent update and did not have the expected success.

Despite of all these shortcomings, the general conditions for successful interactive information systems in Switzerland are very good. The country has one of the highest PC and modem densities worldwide and excellent telecommunication networks.

The large-scale introduction of open and client-server based interactive telematic services could be well absorbed by the existing technical infrastructure and the dynamic growth of commercial on-line-services like CompuServe (100% increase during the last year in the German speaking European countries) underlay this statement.

2. The requirements for a modern Home Banking System

This chapter states the requirements for a modern home-oriented telematic system with the focus on banking. The list of requirements is based on research work by the Institute of Information Management [2] and is also valid for other areas of business.

Since the architecture and the whole bundle of Internet services meet most of these requirements, it is a well-suited alternative for an extensive Home Banking system.

2.1 Basic requirements

As obvious as these requirements may seem, they have been frequently disregarded, not only in Switzerland. A lot of individual or joint attempts to realize new telematic services had to be mothballed due to insufficient user acceptance.

• Multibranch capability (and in this special case also multibanking capability): The enduser must be able to obtain the functionally equal information services of different providers in the same or very similar way. From the enduser's point of view, this is an important prerequisite for transparent offers and easy to use services.
• Openness: The information service must be broadly accessible. Openness also reflects in the endusers' possibilities to easily integrate financial information into other application he uses on his client station.
• Standardization: Using standard message formats and protocols is a necessity for guaranteeing comprehensive and versatile information services.
• Integration in open E-Mail Systems: This is an important requirement particularly concerning the full and seamless support of all of the basic three phases of electronic market transaction which are information, negotiation/contracting and execution [3].
• User-friendly human interface: The man-machine interface is of primary importance for being able to efficiently navigate and maintain an overview within the large variety of services. If the user cannot efficiently obtain the services desired or if he doesn't know how they work, potential benefits will be eliminated or reduced for the user as well as for the provider.
• Security: An appropriate security is considered to be a basic condition for electronic commerce, whereas the requests lie usually higher compared to the comparable, traditional services.

If these requests are largely met, the provider can count on good acceptance in case he can offer an attractive price structure compared to other competitors. Studies in Switzerland showed that banks can influence this process by rewarding telematic customers. The electronic access to services should always be the cheapest way compared to other distribution channels. But it should be the incentive to use an added value service and not compulsion that will induce the customer to an electronically based interaction with his bank.

2.2. How the Internet meets the requirements for home banking services

The following figure (3) shows the main Internet services categorized according to different types of home banking services.

Figure 3: Basic Internet value added services categorized according to possible home banking product lines

The three main categories of home banking services can be shortly summarized as follows:

• Individual banking services contain mainly all information or transaction services which deal with personal account or deposit/portfolio management.
• "Broadcast" banking services: subscribed financial information in form of electronic newspapers magazines, books, quotes, etc. and also the wide area of document libraries or electronic display windows.
• "Marketplace" banking services ask for a high level of interaction between the participants. The main idea is that customers change their role and become information providers. Bulletin Board Systems with banking-related topics, electronic organized workshops to resolve the problems of a specific customer group are only two of the possible products in this category.

2.3. How the WWW meets the requirements for home banking services

The WWW in its actual form and use cannot cover all the areas which are particularly interesting for home banking purposes. But several improvements which either are already on their way or which could be initiated, could adapt the WWW to fit better to banking purposes. This idea is shown in the following figure (4).

Figure 4: How the WWW meets the requirements for home banking services

A different strategy would be to integrate the necessary home banking functions by combining several Internet services - including the WWW and E-mail in a dominant way - under one single user interface.

Some general limits for WWW-based servicing in Switzerland may not be overseen:

Important improvements are still needed particularly in the domain of WWW client-software in order to motivate the average bank customer to start using home banking services.

As bi-directional broad range communication over cable TV networks will not be possible in the near future (legal hurdles in relation with the Swiss PTT monopolistic status in this domain), customers will have to communicate over serial connections, i.e. with the means of a modem. Several demands result from this situation:

• More local coaching capabilities.
• Option for images in preview quality for time/cost-saving.
• More local "intelligence" to shorten on-line time (scripts/macros which are carried out automatically at high speed while the connection is active. The user can take his/her time afterwards to go through the collected information locally). Service providers can also offer functions of so called "intelligent agents", in which case the enduser only has to go in-line to retrieve the information collected by this agent application.
• Adaptation to add-on financial software tools, as they are offered nowadays in a large variety of products (e.g. Quicken, MS Money, etc..). Information can often be much better processed and user-adapted locally than this would be possible by the provider in some restricted and preformatted way. For the bank it certainly is cheaper to "outsource" the account or portfolio handling to the PCs of its customers. On the other hand, the bank will still have to provide this service to its mobile customers which are using public access points.
• Client programs should be developed which can optimally combine browsing features with data base functions. Standardized WWW forms (payment orders, shopping orders, etc..) should be available locally, allowing the enduser to prepare his input before going on-line. Additionally, he should be able - as mentioned previously - to retrieve already processed and stored information from his local database. This would reduce his time expenditure, as he could for example prepare payment orders with the use of prestored beneficiary addresses. Otherwise, if the customer loses less time with traditional payment methods, it will be much more difficult to convince him to use electronic services.

3. The reluctance to use the Internet and the World Wide Web for home banking services in Switzerland

The difficulties can be social, macroeconomical or technical and also related to the specific situation of the Swiss banking sector. The main reasons are:

• The actual Videotex-providers want to protect their investments on this information system and are very reluctant to change.
• There is insufficient knowledge about the Internet and its services in Switzerland. This is equally true as for possible information providers as for potential Internet users. furthermore, the Internet has still a scientific image, associated with terms like "unpredictable", "scientific hackers", etc..
• Anxiety of Swiss banks to base large-scale services on the internationally open and "unsecured" Internet. Especially the international clientele of Swiss banks is attaching importance to the secrecy of the customer relationship. Negative media reports about Internet hackers is not encouraging banks to precipitate themselves into Internet projects. A user survey of the Bank of Ireland (which is offering a statement ordering service with the use of WWW) shows that a major user concern is the security of the transactions [4].
• Inflexibility of the national Swiss PTT Telecom because of its actual monopoly status.
• Lack of governmental guidelines in the form of a National Information Infrastructure strategy.
• Very few commercial Internet providers in Switzerland, mostly without an adequate pricing for home users.
• Many Swiss banks (even with international business focus) do not want or cannot play a leading role in the electronic banking business. They are waiting for standards or systems to be successfully designed and realized before they invest in new technologies. At this moment they choose the appropriate alternative.
• There are also some WWW-related concerns: Until now, no commercial software has been available for both the client and the server. Also there are almost any WWW consulting services in Switzerland.

4. Possible strategies for the implementation of WWW-based home banking services in Switzerland

Very different attempts to resolve the current unsatisfactory situation can be undertaken. The benefits and inconveniences of several possible strategies, e.g. multibank projects or single bank solutions, migration or redesign from scratch, are presented in this chapter.

4. 1. Basic considerations

• To be prepared for change, banks must dispose of internal network and application interfaces to be able to offer Internet based services. They have to build flexible and modular server units which they can use for servicing any possible customer segment or added value network provider. To refine or bundle these basic services (similar to commodities) they can either run intermediary services of their own or simply serve resellers or traders of their basic services in any areas of business.
• A very important user demand is the multibank capability of home banking applications. If the providers of financial services don't offer more or less standardized basic products, intermediaries will interpose themselves between the banks and the end consumers, offering converting and bundling services.

4.2 Migration from the old architecture or completely new design

At present, this is the one of the most important questions for Swiss home banking service providers. After the decision of the Association of Swiss Telematic Providers (SVIPA) to invest in a new commercially- and not state-controlled consortium for a national telematic system (starting to operate in 1995), they have to decide about the changes to the existing Videotex system.

Especially for banks with large Videotex applications and well equipped internal development teams, the choice has far reaching consequences. Latest press releases [5] indicate that the new consortium tends toward a migration solution with very slight changes to the existing system in the first year of operation under the new management. Certainly not all of the existing Swiss home banking providers will follow this strategy and will therefore diversify their interests. As alternative they can use Internet and the WWW or other systems, but they will have to design their new applications from scratch.

To be able to choose the best alternative, big banks may parallely follow both strategies at once. Of course, smaller banks cannot afford this procedure because of insufficient resources.

A combined version of these two alternatives will probably be chosen by most providers, since it will not be possible to proceed to a linear migration without any deviations and on the other hand existing customers cannot be simply neglected after the introduction of a completely new system.

The main effects are summarized in the following figure (5):

Figure 5: Effects of different strategies

4.3. Single bank or multibank-projects

An other important question is to decide whether to proceed alone or to a certain extend together with the competitors. Possible areas of interbank cooperation are shown in the figure below (6).

Figure 6: Possible areas of cooperation or competition from the point of view of banking institutions

Cooperation between banks in the form of outsourcing can of course be beneficial especially in the area of advanced services, but this is a special case of cooperation should therefore be considered separately. In all standardized telematic-driven areas, banks can benefit from the competition between

• Value added network service providers
• Security software developers
• Data converting services providers
• Enduser interface developers
• etc..

If this competition is not taking place, which is the case whenever a financial provider wants to offer a single and completely integrated stand-alone solution, all the joint marketing efforts of each market participant have to be overtaken by the single solution provider.

4.4. Conclusion

A benefit-oriented and realistic strategy has to be chosen from all banks which want to compete in a growing but certainly highly competitive new home banking market. The excellent characteristics and fitting of the WWW for a large number of home banking services should be used, but in combination with other appropriate Internet or telematic services. To be flexible enough in a very fast changing environment, banks will have to modularize their basic services as soon as possible to cope with fast technical developments.

5. References

[1]

Hebendanz Barbara: Schweizerische Telebanking-Systeme im Vergleich. Working Paper IM2000/CCTC/4, St. Gallen, December 1992

[2]

- Zimmermann Hans-Dieter / Kuhn Christoph: Konzept eines interaktiven Telematiksystems für den Heimbereich. Working Paper IM2000/CCTC/9, St. Gallen, June 1994

- Mausberg Paul: Die elektronische Abwicklung des Zahlungsverkehrs privater Kunden aud Basis eines standardisierten Nachrichtenaustausches. Working Paper IM2000/CCTC/11, St. Gallen, June 1994

- Meli Hans: Sicherheitsmanagement in offenen Kommunikationssystemen. Working Paper IM2000/CCTC/13, St. Gallen, June 1994

- Kuhn Christoph: Lösungskonzepte zur Realisierung con Client-Server-Applikationen in einem interaktiven Telematiksystem für den Heimbereich. Working Paper IM2000/CCTC/12, St. Gallen, June 1994

- Dratva Richard: Elektronische Informationsdienste im Bankenbereich. Working Paper IM2000/CCTC/10, St. Gallen, June 1994

The URLs for all of the above mentioned and other (also english) documents:

URL=http://www-iwi.unisg.ch/cc/tc/papers.html

[3]

Schmid Beat: Elektronische Märkte. Wirtschaftsinformatik No 5/93

[4]

Bank of Ireland: Summary of Bank of Ireland Survey.

URL (7-9-1994) = HTTP://www.webnet.ie/cust/boi/survey_summary.webnet.html

[5]

SVIPA: Joint Venture mit Zukunft, Videotex wird privatisiert und ausgebaut. SVIPA NewsletterNr. 97, Juli/August 1994, p. 9.

Richard Dratva

Richard Dratva, 30, is research assistant at the Institute for Information Management (University of St. Gallen, Switzerland). After his studies of Business Administration at the University of Lausanne he worked for three and a half years at the headquarters of Swiss Bank Corporation in the Internal Consulting Department. In 1992 he joined the Institute for Information Management in relation with the setting-up of a competence center in the domain of electronic banking. His major research interests concern the consequences of electronic servicing for banks and financial institutions.