BOSTON – No one expects credit unions to spend particularly freely on technology this year, and especially not in a crowded space like Internet banking. So, a leading analyst says, vendors of Internet solutions to credit unions and banks are trying to beat a stagnant market by stretching to meet client demands for return on investment. According to a recent Celent Communications report by analyst Alenka Grealish, top vendors are fast redefining themselves just to hold market share. Vendors seeking momentum are latching onto IT trends such as multi-channel integration, Grealish says. "Few have stayed their original course," she says. "While staying competitive in the features-and-functionality race continues to be paramount, other competitive levers are increasingly weighing in." The 60-page study – "Internet Banking Vendors: Escaping the Doldrums" – focuses on 11 big names: Corillian, Digital Insight, Fidelity Information Services, Financial Fusion, Fiserv, FundsXpress, Metavante, Online Resources, Open Solutions Inc., S1, and Sanchez Computer Associates. On the horizon in the next two years, Grealish says, are several "certainties": * Internet banking implementation and adoption will continue to grow, but slowly. * Vendors will continue to offer new features and functionalities, based on better understanding of consumer types. * Vendors will find almost no new clients among mid-size to large institutions, where most of the demand will be for scalability and upgrades. * Among vendors, the most likely mergers will cross business and channel applications. On the client side, among smaller financial institutions, "there continues to be a `green field' as well as a replacement opportunity," Grealish observes, adding that vendors catering to small FIs, such as credit unions, face stiff price competition. And, she says, application providers will be concentrating on developing self-service and customer-support features and new functionalities such as platform consolidation as they look to hold and attract institutions now focused on ROI. "During the late 1990s," Grealish says, "Internet banking was viewed as `build it and they will come in droves.' Diverting consumer interactions and transactions would mean a lower cost-to-serve. But the droves did not come and the cost-to-serve did not decrease." However, end-user adoption of Internet banking continues to edge upwards, and the Celent forecast is for a gain of 16 percentage points by 2010. Overall improvements in the online experience, including growth in high-speed connections, account for 60% of the projected increase. Still, growth has failed to meet expectations, and Grealish calls attracting new consumers (and new institutional clients) to online banking solutions an "uphill struggle." As a result, as financial institutions have shifted their ROI expectations over the last three years, application vendors have followed. From a marketing standpoint, the key words in punching up ROI are user-friendliness, utility, and customer satisfaction. Only recently have FIs begun acting on the realization that not all customers appreciate all Internet financial features. For example, Grealish said, "Internet banking vendors and banks are starting to understand that consumers like self-service. The only hitch is it has to be easy." Among the hottest features are check image access and e-statements, now offered by almost all major vendors. If enough users choose self service, an institution can substantially cut its cost-to-serve. Even an application that shifts service from telephone to online chat is a "productivity multiplier," the Celent report says. Chat buttons on a credit union Web page could also work as a cross-selling tool (For example: "Ask me about home equity lines.") Although such amenities as bill payment warehouses are currently practical only for FIs with at least 100,000 bill-pay users, Internet solution vendors now offer three major advances within reach of smaller institutions: * A single platform for many, if not all, applications. New industry standards such as JPEE, Web services, XML, and OFX make it feasible. Grealish calls the single-platform approach a "Holy Grail for many." * Dedicated small-business banking services that vendors, over the past three years, have developed beyond the mere tweaking of retail account services. * Multi-channel integration. "Not even five years ago, MCI was merely a vision on the drawing board of a few banks," Grealish says. "Today, banks are grappling with the challenges of how to provide comparable customer service and how to manage transaction data across all channels while minimizing redundancy in data storage. "The future will play out unevenly," the Celent analyst says. "For solution providers to survive, they must adapt to demands for solutions that extend beyond retail Internet banking." -

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