Report: Banking on E-Commerce Success

With the recent explosion of online shopping, U.S. banks are rapidly claiming their place as major e-commerce winners. So much so that, according to Internet consultancy International Data Corporation (IDC), Internet banking applications are quickly becoming “the panacea for banks hoping to increase their market share and retain customers.”

A new bulletin from IDC shows that sales of these applications topped $93 million in 1998 and will jump to over $326 million in 1999.

Why Now?

IDC explained the strong growth to be the result of growing consumer acceptance of the Internet as a shopping venue. “Not only can banks use these applications and services to quickly set up an Internet branch, they can also rely on the medium to up-sell and cross-sell products previously unimaginable in the banking world,” said Albert Pang, research manager with IDC’s eCommerce software applications program.

Challenges Remain

However, it seems that while banks and financial institutions are certainly interested in competing online, the technological complexity has been an impediment to more extensive deployment.

For example, at the 16th annual NationsBanc Montgomery Securities Technology Week ’99 Conference, where more than 1,600 professional money managers and company executives are in attendance, Paul Dravis, an enterprise software analyst for NationsBanc, summarized the issue. “Hopefully, the story line will simplify, because the confusion is delaying purchase decisions,” he said.

Nonetheless, according to the IDC report, more than 1,200 banks and credit unions in the United States signed with online banking applications vendors and providers to build fully transactional Web sites in 1998. In 1999, 7,200 more are expected to move into this arena.

Outsourcing as a Solution

The biggest competition for outsource companies that provide online banking applications comes from in-house development efforts. “Conservative financial institutions have long considered internal technology development a sacred part of their operations because of its strategic importance. However, the need to compress time to market, the shortage of skilled programmers, and the trend toward outsourcing are all making internal development an increasingly unattractive option for banks,” Pang said.

IDC concludes that ultimately, the key to success for online banking will lie in the ability to offer real-time data to their customers, who will be able to log onto the site and conduct simple or complex transactions online.

The IDC report, titled “Seismic Changes in Financial Services Industry Spur Strong Demand for Internet Banking Applications” (IDC #B18187) includes brief profiles on Internet banking applications vendors and Internet banking service providers. To order a copy, contact Cheryl Toffel at 1-800-343-4952, ext. 4389 or at ctoffel@idc.com.

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