Managing for Quality and Performance Excellence 9th Edition by James Evans,William Lindsay

Exercise 33

First Internet Reliable (FIR) Bank was started in 1994 by Mimi Livingstone, the daughter of a prominent banker in Redmond, Washington, and two men. Livingstone had worked for five years at Washington Mutual Bank and then quit to earn her MBA at the University of Washington. She teamed up with two "techies"-Marvin Arbol and Nick Sistemas-who had gone to the same Seattle suburban high school as Bill Gates, who graduated from there some ten years earlier. Arbol and Sistemas worked at Microsoft in the late 1980s after they had graduated from prestigious universities with degrees in software engineering, and had led teams that pioneered in the development of some of Microsoft's most popular products. Having accumulated a substantial amount in Microsoft stock options, they decided to leave Microsoft and do something different by helping Livingstone start her bank.
With their combination of skills and excellent insights into technology, Livingstone, Abol, and Sistemas foresaw that the Internet could be used to deliver innovative banking services, beginning at the local level, and expanding regionally, nationally, and internationally as growth and technological maturity permitted.
The goals of FIR Bank were:
• To pioneer banking over the Internet, locally, nationally, and internationally
• To develop a network to initially provide loan services and stock trading, but later to add additional products such as individual and commercial accounts, as the business growth warranted
• To provide customer service that reached or exceeded service found at a "bricks and mortar" bank at a lower cost than was traditionally expected
• To make financial information about loans, investing and financial services available online through such downloadable materials as a quarterly newsletter, booklets, audio-visual and other "state of the art" media, as web technology permitted
• To avoid the temptation that was becoming evident among other Internet companies to "grow like crazy," burn through the cash of venture capitalists and other investors, take the company public, and sell out
Internet Banking 1995-2000
At the time that Livingstone, Arbol, and Sistemas started FIR, they were both visionary and practical. They understood that, initially, customers of Internet banks come from innovation-minded, busy people who are technologically advanced. They also knew that there were many limitations to this form of enterprise that included:
• Internet banks don't have "bricks and mortar" offices and branches open to customers
• The "product" is intangible, unlike books or flowers
• Security is a major concern
• Customer expectations vary widely
• Regulation is heavy in the banking industry
• Profit margins are narrow
However, many advantages existed for starting an Internet bank in 1995, including:
• There is no direct competition in the banking sector
• The costs of "bricks and mortar" can be avoided
• Many of the transactions that bank clerks and tellers do can be automated
• Electronic infrastructure available at reasonable costs is rapidly being built
• If volumes can be "ramped up" costs per transaction will rapidly decrease
• Reliable operations can be built electronically for high volumes of transactions
FIR Bank grew and prospered in the last years of the twentieth century and survived growing competition from copycat Internet banks and later from the "bricks and mortar" banks that saw the growing threat and promise of Internet banking. Many banks got in too late to make it a profitable business, but it became something that a bank had to do because of competition. FIR Bank stuck to their strategy, and Livingstone, Arbol, and Sistemas matured in their ability to grow with a constant eye on customer and market needs.
Internet Banking 2001-Present
After the September 11, 2001 attack on the World Trade Center and the Dot.Com Internet bust that occurred almost simultaneously, there were fewer banks of every variety, but the Internet banking competition got tougher.
A nationwide survey, done in 2004, showed the team at FIR that some of the key characteristics of online bank customers were: 73 Broadband and online experience. Sixty-three percent of those with broadband Internet capability at home have tried online banking, compared with 32 percent of those with dial-up connections. And 51 percent of those who have more than six years of internet experience have tried banking online, compared to 27 percent of those with three years or less of online experience.
• The rise of GenX. People with Internet connections between the ages of 28 and 39 to have tried online banking. Some 60 percent have done so, compared to 38 percent of wired GenY members (those 18- 27) and 25 percent of those with Internet connections over the age of 60.
• Men. In the past two years, online men are notably more likely to perform online banking activities than online women. Half of men with Internet connections (49 percent) have tried online banking, compared to 39 percent of online women. This is a change from the situation two years ago when internet-connected men and women were equally as likely to be banking online.
• Higher socio-economic status. Online banking, like many other Internet activities, is most likely to be performed by those living in well-off households (households with more than $75,000 in income), those who have college and graduate degrees, and those who live in suburbs. It is important to note, though, that there has been an across-the-board increase in online banking that has brought more of those who are working class, those who don't have college degrees, and those in rural areas into the online banking population.
By 2005, there were fewer than 20 viable autonomous Internet banks (those without traditional bank facilities and operations). FIR found that their Internet customers were more profitable than "ordinary" banking customers, were more likely to remain loyal to their bank if treated well, and provided excellent "wordof- mouth" advertising to friends, family members, and acquaintances. In short, they were worth competing for.
FIR did a customer survey over the Internet in 2010 consisting of a random sample of 1,000 customers. Responses showed that there were a number of things that customers liked about the online banking experience, but a number of things that they did not like. The survey provided for both closed-ended and open-ended responses.
One of the most important questions involved customer service perceptions. Customers were asked to name the dimension of customer service that gave them the most satisfaction. Interestingly, these responses centered around personal contact with customer service representatives. The top responses included: the accessibility provided by FIR to discuss problems with customer service representatives (CSR's) (16 percent); the relatively short time it takes to resolve most problems (15 percent); the quality of the response provided by CSR's (14 percent); and the manner and approach of CSR's (11 percent).
The closed-ended responses, when matched with customer demographics, confirmed that FIR customers were generally "typical" of Internet banking customers, as suggested by the Pew survey. Most had high-speed Internet connections, were men, and were in medium to high socio-economic categories. As might be expected, because of their location in the northwest United States, approximately 50 percent of their customers were in technical occupations.
The open-ended questions showed other areas, some of which were unexpected. Some typical responses included:
• Respondent 13 : I relly luv the convience of being abl to bank online 24/7. The Web page is EZ to use.
• Respondent 889: I can easily check my balance and pay bills from my FIR account. It's a little inconvenient to have to mail my deposits. However, I have recently requested that my company directdeposit my paycheck, so that will make things easier.
• Respondent 557: When I looked around to determine where I could get the best deal on a home equity loan, FIR beat the competition by a mile! Not only did they have the best interest rate, but my CSR, Veena, was really helpful. She used the online application information that I submitted to get preliminary approval the same day. Then she "locked in" the rate. By the end of the week, she had the appraisal done by a local appraiser, and had e-mailed the forms to me to sign. I printed them, signed, and had my signature notarized the same day. All the signed forms were sent and returned in three days, via package express. Total elapsed time was 6 working days. GREAT WORK!!
• Respondent 235: I really like your website, where I frequently pay bills, check my balances, and transfer money between my accounts. Since I do some business overseas, your recent addition of the capability to transfer funds electronically has been a Godsend.
That's why I'm frustrated and puzzled. Why can't you add one OBVIOUS capability-the ability to get my money from an ATM? I have to keep a local account open, just for that!
• Respondent 3 : I've been satisfied with my FIR account, but I'm considering closing my account and opening a traditional account with my local bank. I've received three PHISHING-type e-mails that used the FIR Bank name and looked just like those that you send out, right down to your logo! The first time, I actually went to the website in the e-mail, but when it asked for my social security number, as well as my account number, I got suspicious. I logged off and called your security office. They told me that you'd never send out an e-mail asking for the social security number. They were very nice and took down the information about the PHISH'er. They followed up with an e-mail, saying that they were getting close to finding and "closing down" the crook. Still, I'm very concerned about identity theft. What are you doing to increase security and guard my information against hackers?
• Respondent 137 : I have been delighted with the features and functionality of my commercial FIR account until now. However, I'm forced to close my account and open one with one of the traditional "bricks and mortar" banks that has become more competitive in Internet and commercial customer service. As you know, businesses don't have the protection that retail customers have, when it comes to identity theft/hackers. Individuals are protected, so if anyone steals their credit card, they bear a maximum risk of $50. We businesspeople are open to any kind of bank fraud, and must bear all the risk if someone swipes our card number. However, XYA Bank has now set a policy to protect small businesses in the same way as individual clients. I'm going with them.
After reviewing the survey results, Livingstone, Abol, and Sistemas wondered if their business model simply needed tweaking or a major overhaul, which might even require building brick and mortar offices to meet customer needs.
Discussion Questions
1. Even though the complete survey is not included in the case, summarize how the closed-ended and open-ended questions provided valuable customer insights for FIR.
2. What customer segments are targeted by FIR? On what issues should FIR focus in order to build relationships with its varied customer segments?
3. Can you recommend specific activities and practices in which they might engage, in order to improve customer service quality and retain customers such as Respondents 3 and 137?