By failing to make suitable sales pitches to consumers visiting banking Web sites, banks are fumbling away marketing opportunities-or so says Atlanta-based Speer & Associates, which assessed the sites of 25 financial institutions.

"If you want to find leading-edge Web sites in terms of marketing, you have to look outside of financial services, with a few exceptions," says Catherine Corby, senior vice president of Speer & Associates. Among financial institutions, American Express Co.'s online marketing prowess was rated the most advanced. "The Amex site is without question the most highly developed in the survey group," Speer says.

In general, though, banks are letting this potentially valuable resource-their Web sites-go to waste. What's missing are sophisticated marketing strategies, according to the research firm, which plans to do the survey quarterly. Financial institutions have been preoccupied with getting transactions done online, and their marketing has been "product-focused" as opposed to "customer-focused."

"Product-driven navigation" has had too much influence-it's easy and obvious, but not the most efficient, Corby declares. That's been the starting point for many banks. As they came online, they just fell into it, rather than it being something that was well thought out.

"Good television advertising, for instance, is not product-oriented," Corby notes. "A good advertiser sells the benefit of the product, rather than the product itself."

Speer recommends that banks talk up financial needs on the Web, and that way help the consumer better understand how they can use the Internet to explore options. "Event-driven is better," Corby says. For instance, a Web site could "show a picture of a baby with the message, 'it's not too soon to start thinking about college'."

Offering customers access to their accounts is a highly effective way to draw them to a bank's site, she notes, adding that the trick is to make use of those repeat visits. Nevertheless, as Corby concedes, it will take more than willpower to transform a Web site into the powerful selling medium it potentially can be. And banks, it seems, know this as well as anyone.

"What we found out through our interviews is that though banks may see the light, see what they need to do to improve the marketing aspect of their Web sites, there are tremendous infrastructure issues and resource issues they need to address," Corby says.

According to Chris Musto, an analyst at Gomez Advisors Inc., Lincoln, MA, banks are well aware of their deficiencies regarding marketing over the sites, but this process, he says, can go only so fast and no faster.

As an example, he cites Vertigo, "a company that went under in the process of trying to sell banks one-to-one marketing solutions to integrate with their Web banking offerings. This was before the banks had gotten very far with their Web sites. In other words, they were trying to teach them to run before they could walk."

Marketing by banks can't be effective without certain other factors in place. Data requirements, for instance, are huge, Musto notes.

But this information about customers, Corby says, exists "in tremendous quantities, though it's sitting in the data warehouses that banks have been investing in for the past decade." Banks must migrate that information online for it to be of any use in Internet marketing, she insists.

But beyond this information, a bank needs products to offer, says Musto. "You need, for instance, a range of credit cards with different rates. If you as a bank lack a broad array of products, there's not much to be gained in one-to-one marketing."

What's required to encourage product development, though, is "critical mass in the customer base," Musto adds. "You need enough of a variety and number of customers that will cluster around different types of products."

In any case, "life event changes" are what prompt people to make changes in their financial products or institutions, Musto declares. "It's not like someone wakes up one morning and all of a sudden decides to open up a brokerage account or a checking account," he says. "It's more like 'I've come into some money, I think I'll open a brokerage account,' or 'I've moved to a new city, I think I'll open a new checking account'."

The job of the financial institution is to be attuned to "latent demand for a product," Musto says. If someone is borrowing on credit cards, the bank may predict that that customer may soon be in the market for a home equity loan to consolidate debt.

Much has to be in place before even the most brilliant marketing is going to be effective, Musto adds. Corby agrees that getting the technical component in place is a task, and a significant expense. Marketing information systems are needed to do the one-to-one selling, and these have to be purchased, she says.

But she also insists that "the Internet is the best one-to-one marketing medium ever, and its potential is going unexploited." Technology capabilities of the Internet are almost limitless if the architecture has been designed with that in mind.

"It's not cheap to make these changes," Corby concludes. "But compared with money spent on distribution channels and traditional marketing, it's not huge. In the greater scheme of things, it's not that much." -John Hackett

Auction Action Comes To Financial Services

Financial institutions that perform online auctions enter a world defined by eBay Inc. and It's a departure from tradition, certainly, and pitfalls await, but the Internet seems to be putting business into an experimental frame of mind.

PNC Bank Corp., Pittsburgh, has held nine auctions over the Internet since last September, selling between 25 and 50 certificates of deposit at each auction in denominations of $2,500 to $10,000. According to Andrew Clem, vice president of online marketing at the $75 billion-asset bank, "We really just wanted to test the waters."

PNC initiated the auctions to sell product, in this case CDs, and to "get some traffic onto the PNC Web site in order to sell other products we have out there." The auctions have succeeded on both counts, according to the bank. "We're pleased with the results," Clem declares.

He brushes off as "highly premature" criticisms by some that such activity will make the public too rate conscious. He notes that the channel is "still in its infancy," and says the auctions are "certainly not altering our retail strategy. We're in experimental mode."

As Ian Rubin, senior analyst in the retail banking practice at TowerGroup, Needham, MA, says, "You capture new customers by offering whatever they're looking for. Then, over time, you hope to migrate some of them to full-service status."

Retaining customers is another aim of banks making forays into the Internet. So the banks offer them what they want, even if the profit margins are thin and the future, at best, uncertain.

Regarding Bank One Corp.'s decision to set up the Internet-only unit WingspanBank, Rubin notes, "Many questioned the wisdom of the move. Predictions were that the bank would cannibalize its traditional business." Chicago-based Bank One defends the strategy, saying, according to Rubin, "If we don't offer our customers this channel, we'll lose them to a competitor on the Internet."

The auction period at PNC runs from Thursday to the following Monday. The company announces a pending auction on the Web and invites anyone interested, customers and non-customers alike, to register and get a bidding ID.

"We start the auction at 10% APY and participants bid downward from there," Clem says. The lowest 25 or 50 bids, depending on the number of CDs being sold, at the end of the auction are the winners. Though PNC has limited the auction to relatively small batches, the paid rates have been "pretty good," ranging from about 6% to a little over that.

Each auction has generated "thousands of bids," with the typical bidder placing four different bids over the course of an auction. PNC will email participants whose bids have "fallen out" to give them a chance to enter a lower bid.

"The bidders seem to know the going rates for the various terms and put appropriate bids out," Clem says. "Someone from New York City called just recently to suggest we offer CDs of $50,000 or more."

The PNC executive adds, "We're taking a look at expanding. PNC already deals with LendingTree and We're considering additional deposit products, whether it be from a rate side or a fee side.

"It's a fun thing," he says, adding that PNC sees the Internet auction activity as a way of generating publicity for the company. "That we have an auction might in itself bring us to the attention of a consumer who otherwise would not have heard of us." In fact, PNC has online mechanisms that allow it to follow-up with people who have participated in the auctions.

Other financial institutions engaged in auction activity include, which holds daily auctions for CDs. The Philadelphia-based online bank runs the auction process similarly to how PNC Bank plays its bidding game.

Meanwhile, PrimeStreet, with $10 million in funding from Royal Bank of Canada, is developing a system that will enable participating banks to view and then bid on small-business loan applications.

The thinking by the financial institutions is, in part, defensive. As with so many Internet inspired initiatives, banks engaged in online auctions work on the assumption that such uses of the Internet are inevitable.

The question is, can the banking industry successfully play the eBay way?

For instance, Rubin says, if someone with $10,000 offers it to a bank for 6% return, might the bank now be inclined to agree, even though it would rather pay 5%, but figures it won't get anything if it insists on its figure?

This latest phenomenon, he notes, represents a "real shift in who does the pricing." With the auction it becomes what are you willing to pay, rather than what does it cost.

"The answer may be to offer two kinds of products," Rubin says, "those Internet-based and those from the traditional channels, to two kinds of consumers."

-John Hackett

Digital Wallets Build Bridges

While most banks have already taken steps to form online banking relationships with their customers, an increasing number of banks are adding technology to help their customers with online shopping as well.

The flurry of digital wallets cropping up on bank Web sites-including those of Bank One Corp., Citigroup, and Wells Fargo & Co.-help customers fill out billing information at merchant sites quickly and easily. For banks, these tools not only help their customers shop, but help gain valuable data about customers' online shopping patterns and increase the likelihood that customers will turn to their bank's cards for online shopping.

"Obviously we want to encourage more use of our cards-our credit cards and our One Card," says Bruce Luecke, executive vice president of the retail group with Bank One, Chicago, which worked with Visa to create the bankonewallet. "For our customers, we are always looking for ways to make it easier to buy, and for us it gives us top of mind of when we are making it easier to buy."

The most basic wallets serve as information repositories that speed Internet transactions by allowing consumers to transfer billing and shipping information from a wallet to online forms with a couple of clicks. However, as excitement over the technology grows, these basic functions may no longer be enough.

"The concept of the checkout in a few clicks is becoming commodity-like at this point," says Chris Musto, director of financial services with Gomez Advisors Inc., Lincoln, MA. "The companies that stand out go beyond that."

Citigroup, New York, whose citiwallet was created by Globeset, Austin, TX, incorporated the comparative shopping service mySimon into its wallet. "That was part of our version 1.0 and there will be more features coming out during the course of the year," says Gail Hoffman, vice president of consumer e-commerce for the company's e-Citi division.

San Francisco-based Wells Fargo, whose wallet is in the pilot phase, also embedded a comparison shopping service and plans to include site password management as well, notes Pamela Reed, vice president of strategic alliances in the online financial services group. The wallet was created by Brodia, San Francisco, and will be fully launched this spring.

Royal Bank of Canada, Montreal, chose Qpass, Seattle, for its Royalpass wallet in part because the Qpass wallet was set up for micropayments.

"If you buy the Wall Street Journal every day or buy an article online every day, rather than running each small purchase through, it will wait until the end of the month and charge them all," says Al McGale, Royal Bank's vice president of ecommerce cards.

Brodia CEO Ron Martinez notes that one banking client is testing a wallet that links automatically to a customer's credit card information. When a customer signs up online for the wallet, billing information that is already a part of the customer's credit card file will input automatically into the wallet.

"It's part of our card 2.0," Martinez says. "We are creating a bank-grade scalable service with links from the wallet to the bank and its services. We're spending a lot of time on developing that type of product." Brodia wallets also include the RealNames tool to help customers locate products by brand name and will soon include a gift registry feature.

At this stage, most bank wallets are ECML-compliant, meaning they adhere to a standard Web protocol called electronic commerce modeling language. The system uses uniform field names to help wallets recognize where information should be placed on Web forms. Up until now, sites may have used slightly different methods to identify the address field, for example, on their billing page; but sites that use ECML now identify their address field with the same name.

Most industry observers expect ECML will need to evolve further as wallet technology becomes more complicated. And while wallet vendors have been quick to adopt the new system of standards, its continued success will depend on whether most Web merchants employ the code in their sites as well.

While banks and wallet technology vendors rapidly add new features to their wallets, many see tomorrow's wallets having much broader uses.

"I envision wallets turning into a more encompassing tool for the consumer," says Hoffman of Citigroup. "Wallets might include checking account information, e-cash, and foreign currency, so that customers can pay any way they want, any where they want."

Wells Fargo's Reed sees among the future possibilities a permission-based wallet for families. "Children might have access to the wallet with a password on a limited basis that would allow them access to a certain allowance they could spend on certain sites," she says.

Similarly, a procurement card for businesses could be created that would allow employees access to limited budgets, Martinez notes. -Ren?e Wijnen

Open The 'Net To

New Accounts

The Internet might look like a natural channel for opening bank accounts, but the process has by and large been a non-starter.

The biggest hurdle, according to Whitney Stewart, head of the emerging markets division at eFunds Corp., Milwaukee, is consumers "abandoning" the sign-up process midway or failing to follow-up with a check to fund an account they've opened.

EFunds, a unit of St. Paul, MN-based Deluxe Corp., has developed Integreat, a software product that eases the opening of demand deposit accounts by consumers by allowing for an electronic funds transfer into the newly opened account.

Bank One Corp. will be the first customer for the product with plans to be "up and running this quarter," Stewart says, adding that eFunds has several other customers in line for Integreat, which will go into general release in March. The Chicago-based mega-bank has been beta testing the system since November.

The account-transfer feature is particularly important, Stewart says, given that "Banks were finding that 70% to 80% of the time, consumers were failing to send in the check to put cash in the account." As a result, what should have been an efficient and cost-effective channel for account openings was failing to deliver.

This is understandable, observers say, given the high expectations of consumers dealing in a medium that, above all else, is supposed to be fast. "The Internet has gotten people accustomed to instant gratification. Immediate results are what consumers want," says Brook Newcomb, senior analyst at Forrester Research, Cambridge, MA.

Stewart characterizes the abandonment rate by customers opening accounts online as "pretty natural behavior. When consumers get to a point where they're prompted to 'print out these seven pages and send in a check,' they lose interest."

The Integreat system consists of two parts, the QualiFile service and FraudFinder. QualiFile verifies the information provided by the consumer, looks for fraudulent attributes, and then attempts to cross-sell to the consumer products that fit that person's demographic profile. The cross-sell feature is especially valuable, according to a survey sponsored by eFunds that found that consumers are highly receptive to offers of additional products and services when opening an account.

"The new account opening is the best opportunity for financial services companies to establish a long-term relationship with customers and present cross-sell opportunities," says Kim Anderson, head of market strategy at eFunds.

After these initial steps, the Integreat system then requests that the consumer make an electronic funds transfer, which is done through the Automated Clearing House system.

But one of the things eFunds struggled with was making it easy for the consumer to figure out where on their checks they would find the information a bank needs for an ACH transfer-namely, the routing, transit, and account numbers.

"We asked ourselves how can we easily get the consumer to give us the required information," Stewart says. What eFunds came up with was a piece of Java script that looks like a check, "so consumers can look at their own checks as they keypunch the information for an ACH into the Integreat system."

At this stage, the software uses its FraudFinder feature to run several risk and fraud checks to ensure the payment is valid. The whole process takes 24 to 72 hours, Stewart maintains, compared with the old way of opening an account, which takes from seven to ten days.

Products such as Integreat will help pave the way for what promises to be the burgeoning use of the Internet by bank customers. "We estimate there are 4.7 million U.S. households banking online today. These are people actually moving money online, and does not count those who are simply going online to check a balance or to see if a check has cleared. We expect in four years that that number will be about 18.5 million," says Newcomb of Forrester.

He ranks going after accounts via the Internet as only third in importance to banks, behind service and cross-selling. Newcomb also argues that in automating, "Banks need to integrate the process across the channels. Customers should be able to start online and finish offline on the phone or in a branch."

Customers sometimes still want to be able to deal with a real person, Newcomb insists. "Ideally, they want to be able to drive to a nearby branch." Nevertheless, according to Stewart, banks are embracing the Internet as a new acquisition channel.

She cites a poll of 444 Internet users that was paid for by eFunds and conducted by Frederick Schneiders Research, Washington. Of respondents, "80% said they enjoyed their online banking experience more than their traditional banking outings," Stewart says.

In the third quarter of last year, she further notes, the chief executives of First Union Corp. and Bank One each said publicly that their companies would be buying no more branches and that they would instead rely on the Internet to bring in new accounts.

This, Stewart says, is a sure indication that the Internet as an acquisition channel "is here to stay." -John Hackett

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