InformationWeek
Defining The Business Value Of Technology
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September 18, 2000 |
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A Game Of Choice
Online financial companies are testing offline services for a mass market
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hen online financial institutions arrived with round-the-clock account access, better rates, and cheaper stock trades, traditional banks and brokerages rushed to create online services that could compete. Now, it's the online-only banks that are scrambling, with many looking for a foothold in the brick-and-mortar world.Online brokerages such as Datek, DLJDirect, and E-Trade are building information centers where customers can learn about investing through face-to-face conversations, rather than relying on a Web chat, E-learning, or a call center. Even VirtualBank--a startup that targets technology workers who would seem most open to banking entirely through the Internet--has decided to open banking centers for services such as starting loans and consolidating debts.
The finance industry is learning a lesson that's becoming apparent in many consumer industries: The Web alone may not be a big enough channel for mass-market success. "Money is a very emotional commodity," says Bill Decker, president of VirtualBank, in North Palm Beach, Fla., which is establishing an office in the headquarters of information storage company EMC Corp. and hopes to do more such on-site deals. "We should understand that people need to reach out and physically touch the person that's holding their money from time to time."
At the same time, traditional financial institutions are investing in better electronic banking, trying to borrow the best elements of online banking. Bank of America Corp., for example, said in late July that while it was laying off as many as 10,000 employees, it was pumping an additional $70 million into E-commerce efforts in the next six months. "It's just as problematic to ignore the necessity of an online presence as it is to ignore the need for a physical presence," says Jamie Punishill, an analyst at Forrester Research. "You need to have both."
DLJDirect, the online brokerage service of Donaldson, Lufkin & Jenrette Inc., this summer opened its first investor center near Boca Raton, Fla., as an experiment. The reason, says DLJ CEO Blake Darcy, is that the target market for an Internet-based financial-services company has changed. "The market has gone from technophiles who embrace technology and have no need for a physical presence, to a mass market that likes the idea of doing business through multiple channels," he says. Yet financial institutions that do business on the Web don't want to give up the lower cost structure that comes from not having a network of branches to staff and maintain. So rather than build a branch network to reach people, several are establishing their physical presence where the people already are--in retail stores.
E-Trade is partnering with discount retailer Target Corp. to test a financial center at a SuperTarget store in Roswell, Ga. Bearing E-Trade's and Target's brands, its staff will help customers open new brokerage and bank accounts and conduct transactions. E-Trade also agreed in March to buy Card Capture Services Inc.'s network of 8,500 automated teller machines, allowing it to outfit the centers with machines that offer free cash transactions to E-Trade accounts.
Juniper Financial is an online financial-services company that's scheduled to launch in the fall. It's led by industry heavyweights Richard Vague, who co-founded credit-card powerhouse First USA Bank N.A., and Jim Stewart, former CEO of Web-based WingspanBank.
One of the first public moves by the company, which has $20 million in backing from the venture-capital firm Benchmark Capital, was a partnership with the postal service franchiser Mail Boxes Etc. Juniper's customers will be able to walk into almost any one of Mail Boxes Etc.'s 4,200 U.S. locations and mail deposits to their Juniper accounts via United Parcel Service at no cost.
Vague, Juniper's chairman and CEO, says online banking has struggled because of that difficult first step in making a deposit. While he doesn't believe every financial company doing business on the Web needs a physical presence to survive, Vague says he's looking at additional retail partners with three main qualities: national reach, good customer service, and convenient locations. Paul Jamieson, a banking analyst at the research firm Gomez Advisors, says the Mail Boxes Etc. partnership looks like a good first step, but to evolve the customer relationship, Juniper needs to let people do more than mail deposits for free.
E-Trade is trying to broaden its services by expanding its advice offering--forming a new company with the consulting and accounting firm Cap Gemini Ernst & Young to provide online and offline financial advice. Investors can talk with advisers by E-mail or telephone about buying a home, preparing taxes, or funding college and retirement. "Brokerages should establish relationships with people in complex emotional moments," Forrester's Punishill says.
Building this kind of trust can be more difficult for online organizations, since they must do so without the smile, handshake, and signature of traditional banking. But some online banks are holding out against the trend toward brick-and-mortar ties.
Jim Jacobson, VP and CIO of Principal Bank, says his online-only bank does that by marketing to existing Principal financial-services customers who already know the company. The Des Moines, Iowa, company offers financial-management services such as mutual funds, insurance, and mortgage lending, and in 1998 it started offering online banking. Its goal was to do so without creating a physical presence--with cost savings the main reason. "We want to grow our business without having to incrementally grow infrastructure," Jacobson says.
By selling banking primarily to Principal Financial Group's existing customers, Jacobson accepts that Principal Bank is restricting its mass-market appeal. "We're not the bank for everybody. There is a segment of the market that will not bank somewhere without seeing a vault or knowing that someone is there," he says. "But the market is still saturated enough with people who will bank on the Web for the right interest rates."
CompuBank N.A. chairman and CEO Frank Goldberg is also sticking to an online strategy. "The more you allow people to do for themselves at their own pace on your site, the less likely they are to need a branch," he says.
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Illustration by Allen Crawford
Photograph of Jacobson by Stacie Dorste/Friedland Studio
Photograph of Decker by Tony Arruza
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