InformationWeek

Many mark Chase's Internet rebirth with Bill Harrison's appointment nearly a year ago as CEO. A 33-year Chase veteran, Harrison brought with him a fervor for the networked economy. The outspoken and visible chief began accelerating the company's online efforts by propelling Chase into technology-driven financial-services markets. To that end, he's met with industry leaders such as Microsoft's Bill Gates and Sun Microsystems' Scott McNealy. He oversees strategic alliances with technology giants such as Microsoft as well with as promising Internet startups such as ShowNow.com for retail sales, eCredit.com for issuing credit, and Financial Engines for investment advisory services. Harrison is also bent on driving innovation at all levels and business units of the bank by extending existing services to the Web. These efforts culminated last June in the launch of Chase.com, which was chartered to Internet-enable Chase's old-line business units and incubate and invest in promising Web-related business ventures.

Though Chase.com is housed in a separate building several blocks from Chase's Park Avenue headquarters in Manhattan, vestiges of traditional banking attire, notably neckties, are scarce in both organizations these days. Clearly, these people want to shed the conservative banker's image and mentality. But for Chase, the dot-com unit is about more than creating an Internet-savvy image. "We're not trying to be a winner on the Internet," says Denis O'Leary, executive VP in charge of Chase.com. "We're trying to be one of the best-positioned companies to take advantage of opportunities in the new economy. It's a much bigger battle we're trying to win, and a massive opportunity to change the way business is done."

It's not a trivial endeavor. Chase expects the new unit to help boost revenue, which grew just 4% last year to $33.7 billion, though profits leaped 44% to $5.4 billion. Chase.com employs 120 people, and it expects to spend more than $400 million on Web-based ventures this year.

Already, Chase.com boasts dozens of deals and projects that involve new business models, including multibank consortia for online bill presentment, online payment trust services, and online mortgage brokering. "We're not placing a single bet on the future," says O'Leary, Chase Manhattan's CIO from 1993 to 1997 and InformationWeek's 1996 Chief of the Year. "We're making a diversity of investments that will at times overlap and compete."

Observers like what they see. "They've gotten Internet religion over the last year and view the challenges and opportunities very broadly," says Christopher Musto, director of financial services at Gomez Advisors, an E-commerce consulting firm. "They believe their brand, relationships, and access to payment infrastructure have value on the Internet. They view their assets beyond facilitating banking."

Chase sees many avenues for extending all parts of its franchise, from retail banking to corporate cash management and global investment banking. Partnerships and investment have been the bank's strategy for entering new markets. In February, it disclosed a joint venture with the consulting firm Deloitte & Touche to offer Internet procurement services based on procurement software from Intelisys Electronic Commerce, in which Chase has a majority stake. That includes consulting services from Deloitte and integrated E-payment capabilities through Chase.

The procurement venture, scheduled to begin operation later this year, is one example of Chase's new way of thinking. It combines two of Chase's strengths: established relationships with thousands of small-business and retail customers, and a payment infrastructure. Chase will try to link them to form a trading network that the bank will then orchestrate. "If you have a critical mass of small-business customers that lend themselves to community activities such as trading networks, buying clubs, and knowledge-sharing communities, you begin to wonder if you can make introductions between them and create a network," Musto says.

Chase.com also struck a deal this year with TradeOut .com, an online marketplace where businesses can buy and sell excess inventory and idle assets. Chase will bring venture capital, cash-management services, and marketing muscle to the exchange for a share of TradeOut's revenue. Chase views the alliance as a complementary extension of its treasury-management services by helping customers raise capital through selling excess inventory. In a similar vein, Chase .com has partnered with ShopNow.com, a Web retailer, in a joint venture called ChaseShop .com, which offers Chase's credit-card holders special discounts on ShopNow merchandise. That encourages more credit-card transactions--from which Chase profits.

In this dot-com era, partnering has become a national pastime. "Everybody's partnering with everyone else," says Rajeev Agarwal, a senior analyst at Tower Group, a technology consulting firm for the financial-services industry. "The question is how they harvest these partnerships. Sometimes partnering is about trying to understand the market itself."

While Chase.com has entered into many partnerships, some new ones are reactions to growing competitive threats from recent Internet ventures. At stake for companies like Chase: customer loyalty and retention.

A case in point is Chase's investment in an electronic bill presentment and payments venture called Spectrum EBP LLC. The venture, backed by Chase, First Union, and Wells Fargo, is building a network to let businesses send bills and receive payments from consumers via the Web. The venture appears to be growing, having signed on on 18 participating banks last month.

However, Spectrum is viewed as something of an underdog compared with CheckFree Holdings Corp., the leader in the bill-presentment market with 3 million consumers as well as 1,000 business and 350 financial institutional customers. The challenge took on grander proportions in February when CheckFree merged with TransPoint LLC, a competing electronic-bill-presentment venture owned by Microsoft and First Data, the largest processor of credit-card payments. CheckFree also gained ground in an alliance with Bank of America, which took a 16% stake in the company in April.

CheckFree is a threat to Chase and other traditional banking institutions because it could subsume their relationships with business customers and consumers who become more dependent on CheckFree and less dependent on Chase. "Banks aren't terribly excited about this," says Gomez Advisors' Musto. "They're attacked by a single company with a single focus that has taken measures to create economies of scale and become the 800-pound gorilla in their space. They own such a large piece of the value chain that they threaten to push banks out of the picture."

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