The wheels are turning as Malaysian banks begin consolidating their multi-faceted personas and disparate computing systems now that the mergers and acquisitions are done with. Combining strengths and shedding duplicity are uphill tasks as the 55 banks are confederated to six major players in the market.

This, noted analysts, had distracted bankers from truly promoting Internet banking - a large opportunity as demonstrated by research findings. A study by IT research firm IDC released last November stated that the local online banking market will reach 1.1 million home users by year 2004. This, according to IDC Malaysia Research Manager Linus Lai, is about 23% of the total number of Internet users forecasted for 2004.

The potential growth is attributed to the proliferation of online shoppers that is set to hit 1.9 million by 2004. "Other contributing factors include convenience, real-time response, ease of online financial management and planning through 3G (third generation) mobile networks."

The number of Internet users in Malaysia crossed the two million mark, or about 9% of the population, at the end of last year. The PC penetration rate was estimated at 11% last year.

Furthermore, foreign banks are not allowed to introduce online banking until the end of this year - a move Bank Negara hopes, will allow local banks, which were given the green light to start last June, to get their act together and compete effectively when the playing field is levelled.

What online service?

A joint research project by PricewaterhouseCoopers (PWC) and the Economist Intelligence Unit entitled ,Creating Tomorrow's Leading Retail Bank revealed that Internet banking is the predominant model for many major banks. However the study indicated a huge disparity among bankers on the quality, functionality, and investment emphasis towards 'Net banking.

The majority of local banks do own dedicated Internet sites. Yet much of the activity is limited to posting brochure-like information and basic contact details online, with few providing transactional facilities. The feedback button is as interactive as it gets.

Although local banks are given a great deal of leeway, only three local players - Malayan Banking, Southern Bank and Arab Malaysian Merchant Bankers - have introduced actual online banking services.

Among the services are funds transfer, checking balances and transaction summaries. Transactional activities include bills payment, stock trading, stop cheque payment requests, online loan applications and financial planning tools.

But the limited range of financial services instead becomes a barrier, slowing down user adoption, as users will still have to visit the bank to complete tasks that cannot be done online.

Other financial institutions such as OUB Bank, Hong Leong Bank, MBF Cards and Financial Link have also begun offering third-party payment gateway to users in a move to increase customer base. Foreign banks such as Standard Chartered and Hongkong Bank are waiting in the wings. Pundits believe that these banks would have no problem catching up with local banks in terms of the range of 'Net banking services offered.

Other side of the bank

Though much of limelight on online banking is focused on services offered to home users, Lai said that local banks should look into facilitating end-to-end e-commerce transactions in the B2B arena.

He added that by understanding customers' planned online purchases, banks will be able to choose their online merchant partners better and target top quality online brands here.

"The banks should also use their online banking services to cross-sell other financial and non-financial services such as insurance and investment products," he added.

Globally, the B2B side of Internet banking is projected to experience the most growth in the next five years. This is driven by corporations' adoption of B2B tools such as payment systems for B2B transactions, credit facilities to one or more parties and usage of the Internet instead of traditional private networks.

This is expected to widen trading opportunities among banks. For instance, Maybank, RHB Bank and Public Bank tied up with Visa to facilitate paperless B2B transaction services through the 'Net.

See you online

E-business services provider Silicon Communications' CEO Kho Han Mien believes that with the completion of the merger exercise in Malaysia, the enlarged entities are looking to leverage technology to provide better
services to clients.

"Most, if not all, of these local banks are ready to move into online services. Then, of course there is the less glamorous part-the back-end [integration] of the information systems. Anchor banks, universal brokers and the likes are grappling with integrating multiple systems, multiple platforms and delivery channels now," he pointed out.

And it is the pace of integration that will determine the speed of the online services brought to market. The merger will force banks to keep legacy systems to a minimum and switch to a Web-based architecture where possible, Kho added.

At the same time, local banks will still have to continue educating and creating awareness among its corporate and individual customers on the security of their online transactional systems. In fact, only two banking sites have high recall among Malaysians - Malayan Banking's maybank2u.com and Southern Bank's sbbdirect.com.my.

And given Bank Negara's ruling, local banks must start providing online financial services quickly. Otherwise, they will lose the protection offered by regulators that prevents foreign banks operating in the country from offering online banking services until next year.

Kho added that even though some banks have spent significant amount of money advertising their online services, the majority of the public is not quite aware of what exactly they can do or what the services means.

"Secondly, [the barrier banks face] is the fear of the unknown. For example - 'What happens if the telephone connection drops halfway through the transaction?' and 'What happens if there is any dispute?' - are commonly-asked questions in our experience talking to clients about our e-payment system. People need to be assured that they are not exposed to unnecessary or high risks," he added.

"There is a need to gain customers' trust and confidence. Banks need to put their fears to rest. To do that, first and foremost, a reliable and secured infrastructure and user-friendly front-end system are needed," reiterated Kho, adding that the public can be better informed through aggressive site promotions, service options and assurance.

Observers pointed out that the take-up rate is slow as the Internet penetration rate does not provide enough critical mass for bankers to harness the Internet as a delivery channel even though the infrastructure is now firmly in place.

Despite this, local banks are well aware that they need to push online banking. "It is in the journey where they will learn the shortcomings," pointed out a banker who declined to be quoted.

Local bankers will need to boost the service levels online apart from making it simple to transact online in order to ensure customer loyalty. This is going to be all the more difficult because of the lack of a personal touch in online banking, he added.

IDC's Lai agreed, adding that extending online banking services into community portals can go a long way in shaping customer loyalty while keeping operational costs low.

At the end of the day, the winners in the online banking scene would be bankers who complement their 'Net banking strategy with the human touch.