Two prominent retail banking executives presented evidence that supports widely held assumptions about the superior profitability of Internet services.

Speaking to an American Banker conference Monday, First Union Corp. executive vice president Jack M. Antonini said the company's Internet banking customers are significantly more profitable and loyal than average, bringing a 35% to 40% "share of wallet" -- or their total financial services portfolios -- to First Union.

The average wallet share, Mr. Antonini said, is 25%. It rises to 50% to 60% among on-line customers who use electronic bill payment.

The Internet brings "a dramatic shift in the amount of business that customers do with you," Mr. Antonini told an audience of 1,000 at the newspaper's Online '99 meeting.

Robert B. Hedges Jr., managing director of retail banking services at Fleet Boston Corp., made a slightly different disclosure to make a similar point. The average customer categorized as "Web-only" produces $690 of revenue, versus $1,018 from one who uses both the Web and branches.

But a customer who uses both channels is almost twice as costly in transaction-processing expense, he said, so the Web-only customer's profit is $22 better, at $113.

Such analyses have been making the rounds on the conference circuit, more often with Mr. Antonini's relative percentages than with Mr. Hedges' dollar precision. But there have been few reliable benchmarks, given the early stage of the Internet channel, bankers' reluctance to divulge competitive information, and perhaps even a lack of analytical rigor.

Such words coming from executives of this rank suggest that the industry is making progress at what Mr. Hedges termed "working the economics." He said the ability to arrive at a "common view" of profit and loss "makes it a lot easier within our organizations to get the money we need because we can see the payback."

Among other points made by Mr. Antonini were that First Union's on-line households -- like at the merged Fleet and BankBoston organizations, their number recently passed the million mark -- maintain 6.43 accounts with the company, versus a 2.75 cross-sell average on the whole.

The consumer on-line households have half the normal attrition rate and twice the profitability; the last indicator rises to three times when customers are hooked into electronic bill payment and presentment.

When small businesses go on-line they are four times as profitable as average, and for corporate relationships it is three times, Mr. Antonini said.

He said First Union is making progress toward its goal of serving as "an on-line hub or portal for it clients, assuring safe, secure, and convenient access to services, with strategies that encourage movement of wallet share."

Mr. Antonini said it is critical that customers have "ease of navigation" and that all service-delivery modes, electronic and person-to-person, be synchronized. He and Mr. Hedges both leaned away from the idea of setting up separate "dot-com" ventures within banks. Mr. Hedges said it is up to existing corporate leadership to bring in the necessary competencies, and an entirely new organization may amount to an admission of failure.

Mr. Hedges agreed with Mr. Antonini and earlier speakers at the meeting -- including Chase Manhattan Corp. vice chairman Joseph Sponholz and technology consultant Patricia Seybold -- on the need for "dot-com-like" speed in recognizing and responding to on-line business opportunities and challenges.

But Mr. Hedges also emphasized that bankers should take a long view, recognizing that they are faced with "long-term business transformation, not getting the next IPO out."

There is a risk of getting caught up in the kind of hype surrounding new Internet ventures that make lofty initial public offerings of stock and thereby losing sight of the need to "maintain persistence," Mr. Hedges said.

"We have to get at the facts that actually matter to the economics and profit-and-loss," he said. "We need our own mechanisms for tracking the market dynamics, consumer attitudes. ... Never make the mistake of confusing marketing factoids with what the effect is going to be on the P&L. There is great opportunity, but also real reason for trepidation."

Mr. Hedges said one of the important forces that the industry must come to grips with is consolidation, which has brought some organizations the power and scale to make the necessary investments in brand-building and geographical and product expansion.

He pointed out that several institutions that were early innovators in on-line technology -- including First Chicago Corp., the old U.S. Bancorp of Oregon, and CoreStates Financial Corp., which First Union acquired -- no longer exist. He said on-line economics and "the logic of industry consolidation," as well as consumer demand, were not well aligned in the past.

"In the long run this is about momentum and staying power," Mr. Hedges said. "Can you build a national brand and sustain it over time? By definition, that is a long-run enterprise."

He gave several examples of Fleet's on-line progress in such areas as credit cards, mortgages, home equity, and its institutional private equity investments in the high-tech sector. In two weeks, he said, on-line banking and brokerage services will be integrated into a single access point for customers.

A sign of its branding power is that unaided consumer awareness of Fleet in the New York metropolitan area rose to 40% in 1998, from 7% in 1996, and total awareness jumped to 90%, from 36%, Mr. Hedges said.

"A quick six-month payback won't happen," he said. "But if you work at building a brand and being competitive, that can absolutely happen.

This article previously appeared in American Banker Online.

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