On the Box. Retail banking and digital TV

Transcription

1 On the Box Retail banking and digital TV by Dave Birch Consult Hyperion < Box Shifters The take up of digital TV is strong: almost 10% of UK homes (2.2 million) have signed up for digital TV. Stimulated by the subsidised price of set top boxes ( 0.00), some 1.8m households have chosen Sky Digital (satellite), some 400,000+ have taken ON Digital (terrestrial) and there are 30,000 Cable & Wireless (cable) subscribers (Fletcher Research, 10/99). More cable services are set to come on line soon. All in all, the number of consumers with digital TV and therefore the potential to access financial services via interactive digital television (idtv) set top boxes is rising rapidly (see Figure 1). Digital is a big money play: Sky will be switching off its analogue services in 2002, and between now and then will spend 155 per analogue subscriber to convert them to digital [1]. A recent survey (NOP Research, 10/99) indicates that another 25% of the population will sign up for digital television over the next 12 months, implying that the installed base will more than double to almost five million households in the next year. For retail banks, in particular, this channel is crucial. Some projections indicate that, as an example, a third of bank call centre seats will be replaced by idtv by Even if more pessimistic projections are realised (in the sense that while digital set top boxes roll out in volume, the take up of idtv services is limited) there will still be a couple of million idtv households. What s more, early research tends to confirm the suspicion that the most valuable customers (AB households) are more likely to be users of the idtv services [2]. 60% All Digital 40% Interactive Digital 20% Source: AIT Group, 10/99 Figure 1. idtv Penetration in the UK. Hyperion Systems Limited (1999) Page 1 of 6 (This version September 29, 1999)

2 Of course, a clear requirement for financial institutions is to make the idtv channel an integrated part of an overall customer relationship management (CRM) strategy. A driver for the transition to real CRM, instead of traditional customer care, is to segment and understand customers to increase the value of customer interactions. Given that (for a typical bank) 20% of customers deliver 160% of profits, and half of all customers actually destroy the bank s capital (KPMG Studies, 10/99) this naturally attracts attention. Developing an idtv strategy is not straightforward, and even the question of immediate tactics is complex. For one thing there is no universal idtv platform. Different operators have gone different ways. Canalsatellite use Mediahighway. Microsoft hopes to make WindowsCE dominant. The Open consortium (which includes BT and HSBC) is using the OpenTV platform on Sky Digital. Open launched on October 12th to more than 1 million households in the UK [3]. It featured WH Smith, Dixons, Manchester United FC, Domino s Pizza and others. Somerfield s 24/7 grocery service will be available across the country in a few days time and HSBC is offering financial services. HSBC received 50,000 registrations for home banking (15,000 from new customers) on the first day. Open also offers (through BT s Talk21) and had 200,000 people register for e mail in the first month. Carpohone Warehouse sold more mobile phones through the online shopping service than through their flagship Oxford Street store [4]. By Christmas, E*trade will provide stocks and shares information and Abbey National will begin its interactive financial service. Woolwich is launching its Open Plan services on Open in the first quarter of next year. Customer will initially be able to carry out a range of banking transactions with interactive financial planning services being launched in the future [5]. So, to summarise, consumers don t know or care anything about OpenTV or WindowsCE, but they certainly seem interested in the services that the idtv platform can provide. Consumers seem to like using the TV in this fashion, so banks have to find a way to build CRM on TV effectively. Banks must find some way to make themselves part of the idtv experience and not try and simulate internet banking on the television. This is especially true since recent figures from the US indicate that a third of the people who sign up for internet banking give it up and two thirds of them say that they ll never bother with it again. Switching On The first indications of the likely directions for idtv banking are already coming from the marketplace. In France, for example, Credit Agricole launched their service with TPS (almost a third of TPS customers pay their subscription from a Credit Agricole account) on the OpenTV platform. The crucial statistics surrounding the launch of the service were that more than four fifths of users are new to home banking and more than two thirds of users said that the service improved the quality of their relationship with Credit Agricole [6]. In Norway, the idtv operator plans to issue a multi application smart card and to support services such as the national lottery it will have to have an electronic purse. In the UK, operators are looking at new interactive entertainment and other services that will depend on consumers having purses and smart payment cards. It seems to me that, for the average person, idtv is looking like much more of a revolution Hyperion Systems Limited (1999) Page 2 of 6 (This version September 29, 1999)

3 that than internet. One area of particular interest in Europe is the use of electronic purse cards for pre paid services, hoping to repeat the success of pre paid mobile telephony in the idtv field. The NOP research (commissioned by Mondex International) shows that more than half the people signing up for digital TV would use pay as you go if given the choice. One of the more obvious things that one might expect from this revolution is that the purchasing goods and services via idtv becomes vastly simpler than purchasing from web pages on a PC. A consumer watching QVC via Sky Digital ought to be able to purchase the item shown onscreen by simply inserting their credit card in the set top box (or, better still, either their remote control or their Bluetooth mobile phone) and punching in their PIN code. This is how, for example, the 1.4m Canal+ satellite customers in France buy things using their Carte Bancaire. This transforms purchasing from the internet/moto card not present (CNP) world to the card present world, with all the attendant benefits to merchants and issuers. From the bank s point of view, one play for being indispensable is to ensure that your bank issued smart card is integral to set top box transactions. Sadly, however, this happy synergy between bank cards and TV looks some way off in the UK. UK banks have already issued more than a million smart payment cards, but they use the UK variant of the Europay Mastercard Visa standard (known as UKIS) that doesn t implement a cardholder verification method (CVM), not even a PIN. As a spokesperson for Egg, Prudential s online bank, said the chip is on the card but it doesn t do anything [7]. With the idtv box being one of the more important smart card access devices in Europe (Figure 2), it would obviously be useful if the chip did do something. At the end of 1998 there were around 3.5 million smart card enabled boxes in Europe and although few of them were being used for e commerce, this will be a significant use of the 29 million boxes that will be in place in In the US, General Instrument are developing boxes for digital cable operators capable of accepting multi application smart cards complying with Visa s Open Platform specifications [8] and web based e commerce there could lose ground to idtv, even though digital TV developments in the US lag behind Europe. US companies expect to install around 5 million idtv boxes by 2002 [9]. Hyperion Systems Limited (1999) Page 3 of 6 (This version September 29, 1999)

4 PC TV Mobile Source: Datamonitor (9/99). Figure 2. Smart Card enabled Access Devices in Europe. If idtv is to become one of the dominant channels for online financial services, and retail e commerce in general, and the bank issed smart payment card offers nothing to that sector, is it reasonable to assume that bank issued cards have a key role to play? The bank branded smart card ought to be the pivot of the multi channel CRM strategy: the consumers single (and simple) access method across all channels, whether ATMs, PCs, kiosks, mobile phones or whatever else. But can UK banks current strategies accommodate this? What could be more likely to happen is best illustrated with the example of the American Express Blue credit card, launched in the US last month and generally seen as being a landmark in the evolution of the mass market smart card for financial services [10]. Blue doesn t use EMV: instead it uses a standard public key infrastructure (PKI) application on a standard multi application smart card to secure access to a server side wallet. US consumers who get one of the cards are sent a smart card reader for their PC free of charge. Server side wallets are steadily gaining momentum. Microsoft recently abandoned it s client side wallet in favour of integrating a server side wallet into their Electronic Commerce Markup Language (ECML) Passport service [11]. Visa and MasterCard have been pushing server side versions of Secure Electronic Transactions (SET) to get around the problem of distributing client side SET wallets and certificates. If server side wallets are the way to go, then securing access to the server side wallet becomes the focus of activity. The software only password based approach (as used in idtv services at present) isn t really secure enough for a rich transactional environment, so the use of hardware to protect access is highly desirable. This is why the Blue approach looks good. There s no reason why the idtv operator couldn t issue a similar PIN protected smart card to secure access to a server side wallet (containing, say, my Visa card number) that they hold for me. They could then negotiate a lower merchant service charge for transactions made that way. There s no reason why they couldn t then Hyperion Systems Limited (1999) Page 4 of 6 (This version September 29, 1999)

5 cut a deal with a mobile operator so that I could use the same card in a two slot mobile phone, and so on. If banks don t get into the transaction loop quickly, they may be left out. The revenues for idtv operators are expected to come largely from the so called walled garden (ie, digital ghetto) services rather than from access to the open internet (where credit cards dominate). As Ovum put it [12] A walled garden is a means of ensuring that all the revenue from advertising and transactions relating to interactive service will pass through the broadcaster This allows the broadcaster to regulate access to Internet services and websites Broadcasters that do not create a walled garden will earn little or no money from interactive services. The point here is that the owner of the idtv box the gateway to the home will not only mediate the consumer s relationships with entertainment services, but also with financial services. If I were providing retail financial services, I d want to be seen a Premier League Soccer rather than L!ve TV but it s hard to imagine how something as boring as looking up my account balance (well, last night s closing account balance) can be imagined as compelling content. It just isn t. On the other hand, paying my telephone bill is just a boring but I have to do it. Therefore, financial institutions need transactional services, and transactional services need a CRM context and a secure platform. Who will provide these? The banks? The UK banking sector is behind it s European neighbours in adopting e commerce technologies in general (according to Forrester Research, it s pitiful [13]), so let s hope that it s shot at digital TV is more successful. References 1. White, J. UK Digital Platforms in Price War in TV Express. 2(9): p. 1 ( 7th May 1999). 2. Bottomley, A. Digital TV and Financial Services in Financial Times Virtual Finance Report. 4(2): p (February 1999). 3. Open launches to over 1 million UK households in Electronic Payments International. (12th October 1999). 4. Barrie, C. Digital TV pulls its finger out in The Guardian Online : p.2 3 (18th November 1999). 5. Woolwich to roll out Open Plan in Retail Finance Direct. 99(20): p. 1 (19th October 1999). 6. Sonolet, S. Banking and Interactive TV in proc. of Technology for Retail Banking, IBC (London: 1999) 7. Egg takes the smart route in Financial Technology Bulletin. 17(7): p. 2 (12th October 1999). 8. Balaban, D. Digital Television Brightens The Chip Card Picture in Card Technology. : p (May 1999). Hyperion Systems Limited (1999) Page 5 of 6 (This version September 29, 1999)

6 9. Teleshopping on its way in Retail Solutions. : p. 5 (May 1999). 10. Blue blockbuster in European Card Review. 6(5): p. 4 5 (October 1999). 11. Microsoft adds wallet to Passport in The Online Reporter. (168): p. 6 (18th October 1999). 12. Telecoms, the Internet and Digital TV. Ovum, report (London: 1999). 13. Euro inhibits growth of e commerce in Europe in CNNews. 1999(8th July 1999) (8th July 1999). Hyperion Systems Limited (1999) Page 6 of 6 (This version September 29, 1999)