Online Personal Finance Services: High-Tech, High-Touch
Madanmohan Rao reports from the Online Financial Services summit in New York
The Internet is not only emerging as a powerful interactive channel for banks and financial institutions to serve their customers better -- it is also spawning entirely new methods of bill payment, boosting market opportunities for technology players, re-defining the very concept of money, and throwing up contentious issues on matters of international taxation for e-commerce transactions.
50 speakers, 60 exhibitors, and over 1,000 delegates from 30 countries gathered in New York city recently for the annual Online Financial Services summit, hosted by Jupiter Media Metrix (www.jmm.com).
"If the 1980s represented the rise of the corporate investors, the 1990s represent the rise of the individual investor. Today, the Internet allows us to offer not just high-tech but also high-touch ways of doing our jobs better and exploring new products and relationships with the investing community," said Donald Marron, chairman and CEO of Paine Webber.
As vast quantities of information and resources become accessible for free on the Web, banking and financial institutions (BFIs) should focus on advisory, judgement and Discretionary services, Marron recommended.
U.S. consumers are expected to move one-third of their investment dollars online by 2005, according to Jupiter Research (formerly Jupiter Communications). This amounts to a figure of US$5.4 trillion, up from US$1.5 trillion this year.
Younger consumers, itinerant workers, and wealthier investors each demand different market segmentation approaches and services; one size will no longer fit all users. Increasing emphasis will therefore be placed on the Five S's of effective online delivery of financial offerings: solutions, service, simplicity, security and speed.
In other words, users expect not just a wide array of financial information but specific solutions to personal needs; this should be backed up by good customer support and delivered via simple, customisable interfaces and high-speed secure Web sites.
13.1 million U.S. households will use the Internet for banking transactions by the end of 2000, with that number growing to 43.5 million by 2005. Approximately 40 percent of all U.S. households will use Web banking to check bank balances, pay bills, and research credit options - as casually as they use ATM banking today, according to Jupiter Research.
By 2005, more than 30 million U.S. households will be engaged in online brokerage as well. Thus the traditional investor will soon come from all walks of life, and not just older professional tech-savvy males.
Retirement planning, accessing stock quotes, tax services, and risk management are some other activities in wealth management which will migrate to a large extent to Web-based services. And even in the "Internet winter" of the aftermath of the Black Friday tech market crash in April, numerous players are leaping into and expanding their presence in the world of online finance.
CashEdge. StockPoint. NetDecide. myMoneyPro. OpenFund. FinancialCafe. Telescan. TheBeast.com. ZonaFinanceria. Multex. mPower. StockSmart. MarketPlayer. SmartMoney. myCFO. VisualCalc. Financenter. BigCharts.com. InfoGate. eCount. Netfolio. PayTrust. Fundscape. DoughNet. CyberMoola.
Most of these companies fall into one of five categories: content/customisation players, data aggregators/comparators, financial planning tools, payment gateways, and customer-centric solutions like CRM and email campaign management.
E-mail is becoming the leading preferred channel for customer service in the financial sector, and more than half of online users expect complete resolution of their queries within 6 hours, according to Jupiter Research.
Companies like Yodlee and VerticalOne offer a wide range of data aggregation services across multiple sites, leveraging newsfeeds, "screen scraping" technologies, and structuring languages like XML. Scalability, accuracy, and privacy stipulations are key concerns here for the gathering, normalisation and rendering of data.
One of the more exciting emerging market opportunities is in electronic bill presentment and payment (EBPP). "This is about much more than saving paper - it's about reducing error rates and growing deeper and longer-term relationships with consumers," said Randy McCoy, VP at CheckFree.
Portals, billing agencies, BFIs and technology companies are leaping into the fray here, led by Checkfree; the Spectrum coalition (formed by Wells Fargo, First Union, and Chase Manhattan) is a potential major player here as well.
EBPP is expected to be a particularly "sticky" online application; U.S. consumers spend about two hours a month to pay 12-18 recurring bills.
In the hot emerging arena of consumer-to-consumer transactions (as on auction sites), X.com's PayPal service has quickly garnered over 3.2 million users in less than a year since launch last November. Funds are transferred via email or wireless device.
"We tend to lose money on the C2C transactions, but not on C2B and B2B transactions - we thus view C2C overheads as customer acquisition costs for more lucrative long-term relationships," said Elon Musk, CEO and founder of X.com, which competes with BillPoint, eCount, PayPlace and eMoneyMail.
Among credit card companies, Visa is used in 45 per cent of online orders in the U.S., followed by MasterCard (23 per cent). Europeans tend to prefer postal orders or invoices.
Since financial customers will gain access to essentially the same products through a limitless number of institutions, financial institutions will have to channel their resources into cultivating better relationships with their existing customers to secure market share. Certain product categories, such as financial planning, discretionary money management, and life insurance, are particularly important because they represent not just products but relationships.
In their rush to increase product awareness, attract users, and reduce attrition of existing users, BFIs are spending heavily on effective Internet advertising strategies. In fact, BFIs account for 14 per cent of all Internet advertising, more than any other sector, according to Charles Buchwalter, VP at AdRelevance.
Almost 64 per cent of this ad spend goes to the leading portals, followed by community sites and search engines. Cross-promotion and cross-selling of products reportedly works much better in finance than other sectors like retail and travel.
Chase offers discounts for those who shop on its site using Chase credit/debit cards; Merrill Lynch has a similar feature. First Union offers online brokerage and retirement services alongside its regular online banking features.
"The Net is an exponentially better way to serve and satisfy banking and finance customers," said Frank Goldberg, chairman and CEO of CompuBank. The bank refines its banner ad campaigns every few days to target potential users more and more effectively.
Recently compiled research by Media Metrix lists the most popular BFI sites in the month of July by various categories: banking sites (Wells Fargo, CitiBank, Bank of America), mutual funds (Vanguard), taxes (IRS, TurboTax), insurance (InsWeb), loans (eLoan), and trading (eTrade, Fidelity, Schwab).
As for mobile financial services, numerous opportunities are opening up for the existing 400 million users of cellphones around the world, expected to increase at a rate of almost 250,000 new users a day to a total of one billion users by 2003. By then, the number of wireless Net connections is expected to exceed the number of online PCs.
"You just can't beat the cellphone for convenience, price, immediacy, and permanence," said Bank of Montreal CEO Tony Camper.
"Tell me what" and "tell me when" services are already being offered via cellphone by BFIs like Merrill Lynch and Fidelity, featuring stock tracking, branch locator, bank balance, headline news, and research alert information.
"Soon you will be to order pizza via cellphone - and pay for it via cellphone as well," said Greg Wolfond, chairman and CEO of 724 Solutions. Security and interconnection for celltrading will also be important issues for traders who travel abroad and want to trade from abroad as well.
Education of the next wave of customers entering investorspace will be a key requisite for financial services players, said Margaret Iannuzzi, VP at Morgan Stanley Dean Witter. "We leverage our network of physical branch centres for educating new customers; we also have branch locator information on our Web site for online users who feel more comfortable actually meeting advisors face-to-face," she said.
Indeed, such hybrid "clicks-and-bricks" strategies are expected to be a major success factor in the coming years.
"The Net is not just about 'stickier' applications - it is also a platform for rapid globalisation of financial services," Paine Webber CEO Donald Marron said.
U.S. companies are rapidly entering the online financial services space in markets around the world, and other players are moving into the U.S. market as well.
"The Bank of Montreal was the first bank to launch mobile banking services in the U.S.," claimed Tony Comper, CEO of Canada's oldest bank, the Bank of Montreal, which has acquired U.S. banks like Harris Bank.
"We have also tied up with Canada's post office to offer ePost services for online bill payment," said Comper.
"We want to create a global online financial services powerhouse. We have picked markets where we can scale well, such as the U.S., U.K., Canada, Japan, Australia and Hong Kong. We have tied up with Tata Finance for the Indian market," said Frank Petrilli, president of TD Waterhouse.
Numerous technology players are also moving into the growing worldwide demand for back-end Web-enabled integration of banking networks. Huge challenges also arise in re-configuration of some systems which are as much as 30 years old, gearing up organisational cultures for 24-by-7 operation, and dealing with complex regulatory environments in countries around the world.
"We are in 50 countries around the world; in Asia we also cover Singapore, China and India. Many developing countries still have no liquid markets, and the wheels of the legal system turn very slowly in countries like India," said Kamal Mustafa, chairman of Trade.com, which develops inter-bank solutions for Web-enabled trading.
In many developing nations, organisational cultural change for re-structuring and experimentation is desperately needed in BFIs to increase the bar of performance via leveraging new technologies.
"One interesting development is that because of the Asian economic crisis, Asian banks got burnt so badly that the fear of not having networked operations and data access has made them upgrade much faster than many other banks in Europe," observed Mustafa.
Among content providers, leading site MarketWatch.com is forming alliances to create branded sites for audiences in Japan, South Korea, China, southeast Asia, and India, in English and Asian languages.
Other upcoming developments with far-reaching impact include the proliferation of broadband Internet access, which will allow higher bandwidth and persistent connections for investors. 28.8 million U.S. households - or 36 per cent of the total - are expected to have broadband Internet access in 2005 (up from 4.8 million households today), allowing for more powerful services like videconferencing with analysts and immediate alert notifications.
Broadband access is also spreading rapidly in Scandinavian countries, South Korea and Singapore. "We are just seeing the beginning of a sea-change in the world of online finance," said Jack McDonnell, CEO of Ameritrade.
The writer can be reached at firstname.lastname@example.org
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