Banking on a revolution

29 Nov 2007 View Comments
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HSBC is bucking the two-factor trend and pioneering out-of-channel authentication

The thought of waiting to be served by a cashier in a bank may soon evoke feelings of nostalgia rather than frustration, thanks to advancements in financial services technology.

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UK banks are becoming increasingly efficient, streamlined organisations ­ and the changes are being driven chiefly by IT. But if they want to be able to offer cutting-edge technological developments to customers, banks have to get their houses in order, says Andy Muddimer, former head of internet banking at Alliance & Leicester.

The UK’s sixth largest bank recently moved all its legacy operations onto a single platform, including accounts and savings systems.

Such changes will help the bank bring targeted products to market, as well as helping it to comply with the faster payments scheme, the introduction of which has been delayed until June next year.

The scheme aims to bring the present three-day wait for transactions to be completed down to a matter of hours. It has been driven by the Office of Fair Trading (OFT), which notes that quicker timescales already exist in the US and Australia, among other nations, and that the UK’s transaction system is a relic of outdated banking practices.

Muddimer says the advent of online banking has led to customer demands for a better level of service.

“People are comparing prices and looking for best buys. Current accounts used to be dominated by the high street, but now it is easier to change and easier to choose. Whoever responds fastest to customer demands is going to come out on top,” he says.

Benjamin Ensor, analyst at Forrester Research, says the biggest revolution in banking since the cashpoint is that internet banking has helped financial services firms study the behaviour of their customers.

“There are huge implications,” he says. “Customers can obtain a lot more information on banks, and so are more likely to switch, and banks are finding out more about what it is like to be a customer. The focus is switching towards the customer experience.”

Banks are analysing how they interact with their clients and adapting services on demand. But such flexibility is only possible if the technology is available.

HSBC has been moving its online banking systems onto a single platform for the past two years. It will take another two years to transfer systems for 83 countries onto the system, but once that is achieved the benefits will be immense.

The biggest advantage, according to Alison Leonard, head of e-commerce at HSBC, is being able to get new products and services quickly to market.

“We are picking up utilities that HSBC already has and First Direct [a subsidiary of HSBC] is rebadging them. We are also helping countries in eastern Europe with applications from that platform,” she says.

Such flexibility speeds up the decision-making processes at management level. “This platform allows business people to undertake change where historically it has been IT people. Technology is increasingly becoming an enabler within the bank, rather than slowing down decisions,” says Leonard.

HSBC has also just revamped the cosmetics of its UK online banking platform, in line with customer demands.

The bank is one of the few major high-street brands not to have fully deployed two-factor authentication, a security process which uses two forms to allow access to a system.

Security must be important to customers who bank online, so why has HSBC chosen a different approach?

“All the research suggests people don’t know the issues but they want to be safe,” says Leonard. “We offer it for our business customers but we didn’t want to make an overt issue of it for other customers because our fraud figures are so low.”

Most other high-street banks, including Alliance & Leicester, Barclays, Lloyds TSB and Royal Bank of Scotland (RBS), offer some form of two-factor authentication ­ and industry body Apacs has introduced a standard model card reader.

But HSBC is bucking the trend and is instead pioneering a new form of identity checking called out-of-channel authentication.

Nick Staib, personal internet banking manager at HSBC, says that while the two-factor method generates a random PIN from a special device ­ usually a key fob or a card-reader ­ out-of-channel authentication works by calling a previously agreed phone number and stating a password that the customer then types in.

“Two-factor is not bullet-proof,” says Staib. “We struggle with the idea that you feed information into a compromised channel. Our method should hopefully get around the problem of man-in-the-middle attacks.”

HSBC has a team based in India that monitors transactions and looks out for call customers who have performed transactions deemed to be suspicious.

Mobile phones also have an increasingly important role to play in banking. Both HSBC and Alliance & Leicester offer a service which allows customers to check their balance and receive mini-statements on a pre-agreed device.

A recent survey by Alliance & Leicester found that 54 per cent of 16- to 21-year-olds, more than in any other age group, were happy to embrace mobile banking technology.

Both banks view mobility as providing the next level in customer service. By the end of the year, for example, Alliance & Leicester plans to allow customers to perform transactions and transfer money via mobile devices.

The increasing shift towards online and mobile banking makes it reasonable to suppose that online-only banks are ahead of their competitors. According to Robin Young, chief technology officer of Citigroup, which owns Egg, the fact that the internet bank has a simple infrastructure allows it to offer better value for money.

“Our staff levels are much lower than those required to support the same size customer base with bricks and mortar,” he says. “This translates simply into being able to offer great value for money.”

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