UK banks fail e-financial services test

Not one UK bank correctly identified the proportion of IT budgets that should be spent on e-financial services (eFS), according to recent research from Datamonitor.

The report was compiled by a team of 60 analysts who interviewed 17,000 consumers in the US and Europe, and the IT directors of the 100 largest banks.

At stake are two new markets worth a combined $96bn in the US and Europe by 2005, according to Datamonitor.

The first of these is managing wealth online, with the researcher pointing out that there are 20 million Europeans with a minimum 100,000 euros (£60,000) in liquid assets. The second is managing everyday accountancy services online for Europe's 1.3 million businesses with less than 500 staff.

Doug Wilson, a director at Datamonitor, told vnunet.com: "Repeating your services online doesn't generate new business, it just increases competition on fees and interest margins - the way banks make money."

"The greatest revenue opportunities will emerge in wealth management, where a $70bn opportunity has opened up, or servicing small to medium sized enterprises where a new $26bn market could develop within five years," he added.

While eFS promises rich prizes, the required scale of capital investment seems to have made many firms apprehensive.

"Despite the vast sums poured into ebusiness projects by banks, the eFS technology component of overall technology spending remained relatively low at just four per cent in 1999," said Wilson.

Datamonitor defines spending on eFS as that covering website development, software running on the website (e.g. electronic customer relationship management products) and the cost of integrating web-based services with a company's existing systems. It does not include marketing costs and expenses incurred through integrating with other methods of delivering services.

The firm's analysts suggest that banks should allocate nine to 19 per cent of total operating expenses to their IT budget, and that eight to 12 per cent of this should be spent on eFS technology.

"Where the ideal balance lies is not necessarily clear. However, banks located in the 'ideal cost balance' zone all exhibit three key characteristics," the report stated.

"First, the internet was very much at the centre of their overall strategy; second, initial eFS startup costs had been absorbed thus enabling new investments to be made step-by-step rather than all at once; and third, a relatively efficient overall spend suggests the bank should have a more streamlined IT architecture allowing them to easily integrate new products and bring them to market more quickly."

Datamonitor said that only 11 of the 100 US and European banks interviewed fitted into this zone, and that none of them were UK banks.