Internet Changes Everything

April 24, 2007

mbanx - Pioneering the Virtual Bank

By: Heather Smith
CIO Canada  (26 Oct 2000)

mbanx is a division of the Bank of Montreal, Canada's oldest bank and one of the largest on the continent. Essentially a bank within a bank, mbanx is the first North America-wide virtual, full-service bank. Opened in October, 1996, it offers customers anytime, anywhere, anyhow banking through a wide choice of electronic channels, including telephone, fax, computer, bank machine, courier and mail.

Several years ago, Bank of Montreal executives realized that the banking world was changing. Four powerful social and economic forces - globalization, technology convergence, restructuring, and rising consumer expectations - were rapidly changing the shape of the financial services industry. Furthermore, market research had identified a growing group of customers who were hard-pressed to find time to visit a bank, but were financially active and comfortable using technology. Bank executives wanted to find a way to develop banking services to address the evolving needs of their industry and their customer base.

The Bank of Montreal had been involved with electronic banking for some years, but only with other businesses. But business executives were convinced that the time was right to bring electronic banking directly to consumers. At the same time, the bank's IS organization, Emfisys, had been doing research on PC and Internet banking. Together, business and IS leaders developed a proposal for a pilot project that would marry high technology with 'high touch' relationship banking. IT would be used in this way to differentiate mbanx from its competitors.

This proposal was presented to Bank of Montreal's Chairman, Matthew Barrett. He loved the idea. In fact, he loved it so much that he told them to dispense with the pilot and proceed with developing a full scale operation - within ten weeks!

THE I.S. CHALLENGE

The IS challenge was obvious. In a mere ten weeks the systems had to be created for a full-service direct bank. IS had to work cross-functionally with a variety of users who were reengineering 250 of the bank's staid, siloed business processes to develop a form of banking that didn't exist as yet. Clearly, traditional approaches to systems development were not going to be effective. Building a new kind of team was fundamental to getting the job done.

About 500 employees - both business and IS - participated in mbanx's development. In addition, many external groups, especially vendors, were also involved. The key to the exceptional collaboration on this project, according David Revell, Senior Vice President of Emfisys, was aligning everyone towards a single goal.

The main theme of the development period was "make it work". Both business and IS groups realized that with technology and business requirements so closely intertwined, and the time frames so short, they had to work together. Management fostered this attitude by supporting new values and not adhering to traditional ground rules. The feeling that they were participating in something new and different, where they could make a real difference, was a morale booster for everyone on the team. Marnie Kinsley, mbanx's Chief Operating Officer, explained: "One of the worst things you could say was 'This is the way we've always done it'." In fact, collaboration was so effective that IS people and users were indistinguishable from one another. They became simply 'mbanx people'.

PUTTING IT ALL TOGETHER

Clearly, IS staff would not be able to develop systems from scratch. Instead, their strategy was to reuse as much as possible. Fortunately, much of the analysis of the different kinds of transactions the bank would be performing had already been done. Technologies were also available within the bank, such as telephone banking, branch automation, and call centre technology, which could do back-end processing. Adding a user-friendly front end would tie them together. As well, Emfisys' research on the web was already done, although its in-house skills were not yet adequate for the job and external consultants had to be brought in for this part of the development.

A major hurdle to be overcome was security. No one thought the standard Internet 40-bit encryption was adequate for financial transactions. Emfisys had to research newer encryption methods and eventually adopted a 128-bit encryption standard which is 309 septillion times more secure. It also acquired Customer Telephone Interface (CTI) technology which enables an mbanx manager to greet each customer personally as soon as he/she calls. In this way, IS 'kludged' together a variety of technologies using rapid prototyping techniques to create a common desktop for mbanx managers to use.

mbanx was launched in October, 1996 offering seven day a week, twenty-four hour service, 365 days a year. Today, the company serves 153,000 customers through a variety of channels, about half of them over the Internet. Unlike telephone banking, which averages three minutes per call, mbanx calls average fifteen minutes each. Customers need only one mbanx account to cover all their banking needs and one low, flat fee covers all transactions.

FINE TUNING

Since its start-up, IS has concentrated on improving the system to make it more production-quality and enable it to handle increasing numbers of clients. In its first year of operation, people were more tolerant of mistakes; today, the system is expected to operate without glitches. mbanx is becoming more organized and less ad hoc about its work. It has established an infrastructure, proper planning, and more formal processes for such things as communication and prioritization. Major new software includes: automation of outbound calls, workflow software, document imaging, and an improved manager's desktop. mbanx is now also fully Y2K compliant.

It has, however, maintained the values and culture that make it distinct from the rest of the bank. This includes a mutual trust between IS and business, valuing change, and maintaining a customer focus. These foster a clarity of alignment that is unique in the bank. As a result, mbanx is considered a great place to work, and turnover is the lowest in the company.

mbanx has quickly emerged as a profitable division. It now has over $50 million in revenue and 20 percent of its clients have been attracted from other banks. More importantly, customer loyalty is extremely high. 96 percent of clients report satisfaction with mbanx service. In addition, 51 percent of customers report that they would also recommend the bank to family and friends. This is 150 percent higher than similar ratings for competitor banks.

SERVICING THE INDIVIDUAL

mbanx is aiming at marketing to a segment of one, i.e. the individual client. It wants to be a person-to-person bank through the use of IT. By 2005, mbanx expects to be the largest segment of the Bank of Montreal's business and is rapidly working to expand its services to provide even more personalization and benefits than it already offers at present.

The concept of tailoring the market to the individual using virtual technology has made new levels of service possible in the bank. Making banking available to customers worldwide and all day, every day, has been a massive change that has extended all aspects of what has been traditionally perceived as the banking business. In the process of developing mbanx, virtually all areas of the business have been touched and redesigned for the future. By marrying technology and the real needs of people, mbanx has created a new approach to banking which sets a high standard for financial services in the new millennium.

The three ITX Award winners for 1998 are the vanguard of things to come. They are setting new standards for quality, excellence, and innovation in systems. More importantly, they demonstrate the great value for the organization that can be achieved through true collaboration between business and IS. It is clear that when an effective partnership is formed, technology can be used to create new products and services which could not even have been imagined a few short years ago. These winners demonstrate that IT can be a potent and creative force in our organizations, but only when it is married with business to ensure that it is truly meeting the needs of real people.

Heather A. Smith is a Senior Research Associate at the School of Business, Queen's University. She is a co-founder of the Queen's IT Management Forum and The CIO Brief, which explore IT management issues, and the author of Management Challenges in IS. She can be reached at Smithhas@qsilver.queensu.ca.

April 24, 2007 at 08:53 PM in | Permalink | Top of page | Blog Home

Pressure For Better Privacy

June 22, 1998

Pressure For Better Privacy
Business moves to fend off regulation of Internet data
By Gregory Dalton
ost companies seek more intimate relationships with their customers, and many are turning to the Internet to facilitate them. But customers' concerns about data privacy on the Internet are rising, and the federal government is looking hard at what it should do in response.
The Department of Commerce is holding a two-day fact-finding session on Internet privacy this week. The government's interest has mobilized vendors: In anticipation of the Commerce session, several leading computer and data companies will unveil a strategy for self-regulating Internet data privacy.
The heightened sensitivity to privacy has even the most ambitious businesses treading lightly. "Privacy is clearly at the forefront of our minds in the online arena," says Sandy Herndon, manager of online marketing at American Airlines, which this week is unveiling a major overhaul of its Web site for frequent fliers. American is using the latest version of BroadVision Inc.'s One-To-One, which generates personalized Web pages by monitoring and responding to customers' activities while on the Web site. That process is known as personalization.
The American site represents one of the most aggressive uses of personalization to date. Each time a person visits the site, he or she will see Web pages driven by data from three sources: American's existing database, a detailed questionnaire submitted by customers, and observation of what they do while they're on the site.
American's cross-marketing partners--Citibank, Hertz, and Hilton--will also participate in the site. A person who requests a quote for a flight to Boston will receive extra information on the same Web page as the ticket price, such as for a Hertz car and a Hilton hotel room during that same period.
To head off customer worries about the new site, American says it has made its privacy policy more explicit in terms of what data the company is collecting and whom they're sharing it with. But the policy is still vague. It states, for example, that American "may provide customer lists or prospective customer lists" to its cross-marketing partners--but it doesn't name those companies, nor does it specify what type of personal information will be included in the lists. The policy is posted on American's Web site.
American is aware of the need to be sensitive to customers' concerns. "We're going to test the waters to decide how much we should infer from what we know and how much we should get users' permission," says Herndon. "It could be quite damaging if we go too far."
Step By Step
That's why some companies are taking personalization one step at a time. "You simply can't ignore the fact that people on the Web have strong privacy concerns," says Ken Hittel, an assistant VP at New York Life, which plans to ease into personalization by letting its sales agents create personal folders for visitors to the insurance company's Web site. The idea is to store information in those Web folders over time as customers research insurance options. Agents can put documents into folders but can't view the entire contents of folders.
First Chicago NBD is planning to introduce personalized service to its site when it upgrades later this year to Story Server 4, the latest version of Vignette Corp.'s content-management server that adds features for developing personalized relationships with customers. Mindy Kall, an assistant VP at First Chicago, says the bank is interested in "implicit" personalization, which tracks user behavior, rather than asking customers to complete online forms.
But other companies say it's too early for that. "Customers are a little bit leery about having too much information and power in the hands of banks," says Colin Henderson, senior marketing manager at Mbanx, a division of Bank of Montreal. Mbanx is using forms to gather information to be used for generating personalized Web pages.
Internet companies have dealt with customer concerns over data privacy for a while. "If you're a little too explicit about what you know about a person, and that comes across, you can turn that person off and he or she may never come back to that site," says George Campbell, senior VP of interactive services at Brierley & Partners, a direct-marketing firm that has helped customers such as United Airlines do personalization using Brierley's proprietary technology. "We are in a big learning curve in finding out where the limits are."
Proof Of Privacy
A handful of Internet companies want to show their customers how serious they are about privacy. Those companies, such as MatchLogic, a database marketing firm owned by Excite Inc., have hired accounting firms to conduct audits to ensure they're complying with internal privacy policies. "It's an extremely expensive proposition," says MatchLogic CIO Steve Lucas. "But if you raise the bar, consumers have a higher level of confidence."
Lucas is a board member ofTrustE, an Internet industry association promoting the audit strategy. "I'm seeing more and more companies dedicating resources to privacy," Lucas says. Those companies realize that beefing up their privacy policies will enhance, not hinder, electronic commerce.
In all, 72% of people who buy products on the Web say it's "very important" to have a policy explaining how personal information is used, according to a survey of 1,011 adults conducted by Louis Harris and Associates and Dr. Alan Westin of Columbia University. Dave Pearson, director of IT infrastructure at the Boston Globe, says his company is in the process of formulating its policy. "We have to have a policy statement that people will feel comfortable with and that is extremely clear in terms of what information we collect and what we will or won't do with that," he says. However, the Federal Trade Commission found privacy policies were posted at only 14% of the 1,400 Web sites it recently surveyed.
That lack of explicitness has privacy advocates worried. "Privacy law as it relates to technology is significantly behind the technology itself," says Barry Steinhardt, president of the Electronic Frontier Foundation. And industry self-regulation has been inadequate, he says.
The Commerce Department meeting will probe that question and gather input from industry observers and privacy advocates for a July report on how the government might regulate privacy matters. The FTC is also considering action, and there are about 70 laws before Congress regarding various aspects of Internet privacy, according to Thomas Martin, an associate professor at Syracuse University's School of Information Studies in Syracuse, N.Y.
The European Union has already passed a data-protection directive that, beginning in October, will require firms transporting data across national borders to have certain privacy procedures in place. That would affect virtually any company doing business in Europe; the directive is driving much of the attention being given to privacy in the United States.
Most user companies and computer vendors are wary of the federal government's dictating Internet privacy standards. A group calling itself the Online Privacy Alliance will announce this week a voluntary code of conduct backed by companies such as AT&T, Dun & Bradstreet, the Lexis-Nexis division of Reed Elsevier Inc., Microsoft, and Netscape. The alliance's guidelines will call on companies to notify users when they are collecting data at Web sites, to gain consent for all uses of that data, to provide for the enforcement of privacy policies, and to have a clear process in place for receiving and addressing user complaints.
The Online Privacy Alliance's aim is to convince U.S. and European regulators that government moves aren't necessary because industry is capable of regulating itself. Says Tess Koleczek, Netscape's Web-site data-protection manager--a new position created to handle data privacy--"Everyone fears legislation because you never know what they're going to come up with until it happens."
--with additional reporting by Justin Hibbard, Beth Davis, and Clinton Wilder

April 24, 2007 at 08:52 PM in | Permalink | Top of page | Blog Home

Personalizing Online Data Raises Privacy Concerns

June 15, 1998

Personalizing Online Data Raises Privacy Concerns
As the technology matures, companies mull user reactions
By Gregory Dalton
inancial services firms see technology for creating customized content on the Web as a way to get closer to customers. But those firms are proceeding cautiously due to concerns about privacy.
Next week, the Bank of Montreal will introduce a redesigned Web site using the ME! Relationship System from Bowne & Co. Inc. that willoffer customized Web sites for clients who fill out a brief profile.Colin Henderson, senior marketing manager at mbanx, a division of the Bank of Montreal, says technology exists to do more aggressive "personalization," but it is "so new that we don't want to get ahead of our customers."
Personalization technology typically relies on demographic data voluntarily entered by online customers or gleaned by monitoring browsing and buying patterns. Both types of data are stored in databases and used to create Web pages catering to specific interests. Bowne's product, for instance, dynamically generates Web pages based on user profiles. Last week, Bowne moved further into the data collection business by purchasing Open Sesame, which develops technology for monitoring user behavior.
Quick & Reilly, a discount brokerage, plans later this year to offer online customers the option of having personalized pages that change dynamically according to what type of investments they make on the company's Web site. Quick & Reilly will probably seek customers' prior consent before personalizing investment data. "We may wish to give customers veto power over changing things around," says Charles Salmans, VP of corporate communications. Quick & Reilly won't comment on the particular technology it plans to implement.
One of the most aggressive products in this area is Client Monitoring 1.0, an add-on tool for Web sites from Reality Online, a subsidiary of Reuters Ltd. It lets brokers view which stock quotes or news stories clients have accessed on the brokerage's Web site, so the broker can recommend investments in those areas.
Officials at Fleet Financial Services believe that personalization is promising in the long term. But they're not convinced it represents the best use of the company's marketing resources right now, mainly because only 3% of customers are online. The firm is also wary of seeming to snoop online. Says Blaise Heltai, director of online financial services: "Because of privacy concerns, I doubt we would implement [monitoring] technology."

April 24, 2007 at 08:49 PM in | Permalink | Top of page | Blog Home