A Future It Would Be Nice to Bank On

Some unsolicited advice for Boston's Citizens Bank about the direction in which online banking should be heading

By Geoffrey Smith

TO: Larry Fish, CEO, Citizens Bank

RE: Your online strategy

As the head of New England's second-largest bank, you're in the catbird seat. Bigger banks are struggling with bad loans, diverse business lines, and poor customer service. It's no wonder consumers are flocking to smaller players such as Citizens. But you could be doing better than your 11% retail deposit growth last year. How? By becoming a leader, not a follower, in online banking.

If you doubt that online banking is a priority for consumers, consider this statistic. Your archrival down the street, FleetBoston Financial, signed up about 80,000 customers a month last year for online banking. With more than 2 million customers banking online, Fleet has one of the highest penetration rates of any bank in the country -- 44% of its customers as of October, 2001.

Why? Because it's good at online banking. It's also the case that New Englanders are among the heaviest computer users in the country.


  True, your online service handles most basic banking functions, but your penetration rate with customers is only about 5%. Raising this number will help you take market share away from Fleet, and give you a competitive edge over smaller foes.

As you know, online consumers are good customers. They're less likely to switch banks. They tend to have large balances. And they use more banking services than most consumers. Fleet customers use online banking for another reason. It keeps them out of the long lines in Fleet's branch offices. You don't have the same customer-service problems as Fleet -- but you are targeting many of the same tech-savvy New England customers.

Sure, your bank's focus is customer service. Sending employees into supermarket aisles to sell equity loans may be good, old-fashioned banking. But you should still do more online. Here's a list of things to consider:

• Bolster your online bill-payment service with a pay-anyone, anytime service. This makes it easy for a customer to write a check online.

• Allow billers to deliver their bills online to customers who choose to get them that way. This is cutting-edge stuff.

• Allow online payments via e-mail. This is a handy service for tech-savvy consumers. If you add the ability to send e-mail abroad, you provide a great service to the immigrants who have been opening Citizens accounts in droves in recent years. Plus, it's a new source of fees.

• Allow simple ACH (automated clearinghouse) transfers between Citizens and other financial institutions.

• Offer online forms that let people close accounts at other banks or credit-card companies and transfer their money to Citizens.


  If your Web site is correct, you may already have some of these services planned. These are all steps in the right direction. In fact, the e-billing, and e-mail payment services may actually let you leapfrog Fleet and give you an opportunity to raz your rival.

But your big opportunity comes in April. That's when Citizens begins letting customers download their data into Quicken or Microsoft Money, and you start advertising online banking with your $80 million ad budget. With all these new features in place, you could claim to have online banking services that rival anything offered by Fleet. Your rival is good. But it's also slow, and it may have trouble catching up.

Fleet's customers are looking for alternatives. I'm sure you have some idea just how many frustrated Fleet customers would jump at the opportunity to switch to a local bank with top-flight service, great online technology, and lower fees. Sure, online banking is a big expense for Citizens. But as Fleet has proven, it's also a good way to compete.


Geoffrey Smith

Smith covers online banking and finance in BusinessWeek's Boston bureau

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