Banking on the phone

Northwestern Financial Review, Sep 1-Sep 14, 2003 by Dullum, Justin

Remember when the Internet was poised to single-handedly destroy all forms of human interaction - not to mention branch banking, checking and telephone banking? As it's turned out, people still enjoy seeing each other at the bank, branch banking is thriving, millions of people continue to write checks, and telephone banking remains a cornerstone of customer service.

During the go-go decade of the 1990s, telephone banking sat quietly by while the Internet got all the attention. Now that the dust has settled, it's becoming clear that the proliferation of online banking hardly made a dent in telephone banking usage. And while it may have been sitting quietly, telephone banking wasn't sitting idle. It too evolved technologically. Today's automated telephone banking systems are more powerful, efficient and user friendly than ever.

"Speech recognition is taking over traditional touchtone technology," said Charles Cayce of Grayco Bank Products, Inc., which offers a phone banking system called Voice Access. "It's now affordable for the community bank market. Speech recognition has been around for 10 years, but like technology in general, the prices drop over time." Cayce said community banks are increasingly updating to get in the benefits of feature-rich systems.

One common customer service gripe - in and outside of banking - is the lack of real people available to answer questions and resolve problems. Most community banks strive to add a human element to their service. Believe it or not, telephone banking helps bankers accomplish this goal, said Cayce, because when customers use the automated phone system a real live person remains available to serve others.

"What we see is about half of the people who call the telephone systems do so during the bank's operating hours. They are choosing to use the automated system instead of dealing with a real person. Customers sometimes don't want to talk to a real person. This is most common for things like balance requests or simple transactions between related accounts," Cayce said.

The reason Internet banking has not replaced telephone banking, Cayce said, is that the two methods attract different groups of customers. "The number of phone customers hasn't declined at all," he added.

Coincidentally, a correlation exists between the number of demand deposit accounts a bank services and the number of phone calls its telephone banking service handles, Cayce said. Twenty percent of the bank's demand deposit account customers will use the bank's telephone system. On average, each of those customers will make five calls a month. Therefore, the number of DDA accounts roughly equals the number of calls handled per month. "We see that being true at banks across the country," Cayce said.

The sales staff at Precision Computer Systems, which sells the Voice Access product, has drawn the same conclusions as Cayce. "We don't think Internet banking is displacing telephone banking," said Anne Fuehrer, PCS marketing vice president. "There is still a large portion of the population that utilizes telephone banking. After all, everyone has access to a telephone."

Everyone knows how to operate a telephone as well. The introduction of voice recognition into telephone banking theoretically makes the process even easier. Brett Scholder of Brookfield, Wis.-based Fiserv said more banks are upgrading existing telephone systems to accommodate voice recognition. "In addition to voice recognition, some of the older systems don't allow you to transfer funds or make loan payments," Scholder said. "We're seeing a good number of banks making moves to improve their systems." Fiserv owns Precision Computer Systems, which is a division of Lincoln, Neb.-based Information Technologies, Inc.

As an added bonus, high-tech, voice activated phone systems are inherently secure, as account information used by the system is not accessible through an open public channel such as the Internet. Systems that are connected to a bank's larger network via the Internet, however, are protected by encryption and the bank's firewall. Even if a customer's account number and PIN are stolen, the damage potential is minimal. Most phone systems don't allow the transfer of funds between unrelated accounts.

The proliferation of cell phones raised concerns over the interception of wireless signals, but these are more difficult to intercept than signals from cordless home phones. Only the most high-tech of criminals has the wherewithal to crack a phone banking system by intercepting wireless signals. "It's a lot of trouble to go to just to check someone's balance or pay their electricity bill for them," said Scholder.

New entries leveling off

Telephone banking remains a popular consumer outlet, but companies that sell and manage telephone systems have seen declining sales. System upgrades constitute the majority of their business. "That's an indication that the delivery channel has become common in the market place," said Fuehrer.

The 2003 Community Bank Competitiveness survey, conducted by the American Bankers Association, found 66.5 percent of 760 banks across the country offer telephone banking and only 3.9 percent plan on introducing the service in the future. How are the remaining 30 percent perceiving the service?