Zealots of electronic commerce hail it with the kind of overheated rhetoric usually reserved to describe historical events. E-business, they contend, represents nothing less than a "second Industrial Revolution," a veritable "seismic" shift in how buyers and sellers relate, a digital overthrow of the old rules as precursor to a "New Order" of boundless markets, and business at the speed of thought.

And they might well be right. Yes, the Internet economy constitutes a relatively small part of the national economy. True, virtually no dot-coms have yet turned a profit. But the swift growth of e-commerce is undeniably startling. A U.S. Department of Commerce study concluded that the e-economy generates $800 billion a year, or fully 8% of America's gross domestic product. Not Biblical proportions, perhaps, but big enough to give pause.

Count financial institutions among the new e-faithful. Converts range from old-guard banks to vanguard online investment firms to, well, you name it. In this E-commerce Special Report, Bank Technology News profiles First Union Corp., Countrywide Home Loans Inc., and Merrill Lynch & Co. Inc. and their developing e-business capabilities. In our three case studies, we look at how each institution sets goals for Web-enabling its business, chooses systems to reach those goals, puts those systems into play, and evaluates the results.

First Union Corp.

Weakened by a downturn in earnings, First Union Corp., Charlotte, NC, had a year to forget in 1999. In its electronic business capabilities, however, the $235 billion-asset bank made real strides. Not surprisingly, the centerpiece of its e-commerce strategy is the Internet, where First Union has invested big bucks to develop its online banking, e-billing, customer relationship management, and other Web-enabled applications.

"We think the Internet is going to fundamentally change how we do business," says Kellie Scott, senior vice president and director of the bank's recently formed eChannels division. "We're at the beginning of morphing our business model" to accommodate the massive changes in banking wrought by the Internet.


First Union is applying the Web across its retail, corporate, and small-business lines in a bid to offer its more than 16 million customers fast, convenient access to a wide array of products and services. An aggressive timetable calls for a new function to be rolled out every one to three months.

In conjunction with these efforts, the bank wants to tap its CRM and marketing technology to dish up personalized Internet content and service, the name of the game in financial services today. Last year, First Union introduced an enterprisewide data warehouse, SIGMA, that's used to feed historical customer information to different departments and systems throughout the bank.

For example, its Closing Bell service, based on software from Exactis.com, Denver, lets customers receive customized securities information by email, including daily updates on stock prices, index volumes, and any news related to a given stock. Overall, targeted use of personalized marketing data is expected to generate as much as $100 million in revenues per year, bank executives say.


First Union's e-commerce strategy rests on a simple rule-of-thumb. As Scott says: If it's possible to transact banking business by telephone, at the branch, or via another delivery channel, the same level of service must be accessible over the Web. "That's a wholly defensive channel strategy-you've got to do it," she cautions, or face losing market share to banks that offer customers multiple ways of doing business.

It's now an e-commerce truism that succeeding on the Internet requires strong brand equity. For First Union, that means delivering services in a maximum number of places, such as portals and affinity sites, and over a variety of electronic devices, such as personal digital assistants and pagers.

"As a bank, I have to be on the Web wherever the customer wants me to be," Scott says. "We're looking at what customers are saying they want, what products have the potential to make money, and which of these our competition is looking to develop."

Underlying First Union's e-commerce scheme is a concerted effort to educate its own staff on how the Web works. Through the bank's pc home program, employees can buy a computer at substantial discount. As an added inducement, First Union also offers participants free online banking and a cash rebate on trades made through its online brokerage service, as well as paying for three months of free Internet access.


A major plank in First Union's e-commerce agenda is both to ally with and invest in dot-com companies. That helps the bank bring new services to market quickly and saves costs. "Technology and business move so fast that it makes sense to partner, especially since partners can bring a focused attention to IT," Scott says.

Last summer, the bank inked a 10-year contract with Wang Global-a subsidiary of Amsterdam-based Getronics NV-to enhance its computer network, train employees, and offer software support and related IT services. Under a recently signed $100 million deal with Dell Computer Corp., meanwhile, the Round Rock, TX, firm will be First Union's sole computer supplier. The bank, which formerly used three vendors for its nearly 70,000 computers, expects to save roughly $9 million in PC maintenance and administration. Other First Union vendors include Vignette Corp., Austin, TX, for CRM and decision-support software, and Alta Software, Reston, VA, for interactive voice response technology.

Also, to bolster its small-business offerings, First Union in December invested $19.5 million in Brighlane.com, a Charlotte, NC, online start-up that sells discounted office supplies and payroll and other services to small companies.


First Union claims to have 1.2 million retail online banking subscribers, although it declines to specify how many of these are Web-only customers. Industry estimates from Gomez Advisors Inc., Lincoln, MA, and GartnerGroup, Stamford, CT, place the figure at 500,000 to 600,000. According to Gomez, that ranks it fifth in total online customers, behind Wells Fargo & Co., Bank of America Corp., Bank One Corp., and Citibank.

First Union is gaining fast, however, adding 112,500 new customers a month, according to internal bank numbers. Approximately 29,000 commercial, corporate, and small-business clients also conduct some aspect of their banking online with First Union, Scott says, while 20,000 customers have online brokerage accounts. She won't comment on how much money the bank has sunk into its e-commerce technologies, nor on what return-on-investment it projects.

What has elevated First Union into the upper echelon of e-commerce financial services companies is its top-to-bottom conversion to Web technology. "To be successful, you can't just 'Webify' your front-end applications-you also need robust fulfillment capabilities on the back-end," Scott says.

Another strength is the bank's deep package of offerings. The bank bolstered its online retail banking services with electronic billing, brokerage, lending, credit, and private banking products. On the wholesale side, hoping to capitalize on the burgeoning business-to-business sector, it offers or is developing a range of Internet applications, including corporate and investment banking, procurement, e-billing, cash management, foreign exchange, mortgage finance, correspondent banking, and letters-of-credit.

In addition to online and PC-based business banking, meanwhile, merchants can use the Web for order management, digital couponing, tax calculation, payment processing, record-keeping, and customer service. -Alain Sherter

Countrywide Home Loan Inc.

Unlike most industries, the Web-enabled home loan market is a hard nut to crack, with government restrictions on digital signatures and limitations on what mortgage documents can be transmitted online.

But that hasn't stopped the folks at Calabasas, CA-based Countrywide. Founded in 1969, Countrywide Home Loans Inc. is the nation's leading independent residential mortgage lender and servicer. With more than 10,000 employees scattered across 550 offices nationwide, Countrywide has met its commitment made in 1993 to build a Web network that helps customers close their loans faster and more efficiently than ever.


"Back then, our goal was to reduce the cost of account management and customer acquisitions," recalls David Espenschied, CEO of electronic business at the company. "Seven years later, we've been able to do that, plus give our customers great information about our products and services online. We've really come a long way."

So Countrywide has. You can't swing an old mortgage manual these days without hitting a new Web offering from Countrywide. In the last six months alone, the company has unveiled an expanded version of its popular Realtor Advantage section of its Web site at realtors.countrywide.com-the firm's central resource for real estate professionals-and added a new refinancing tool to the home financing portion of its Countrywide.com site.

Countrywide also partnered with Microsoft to appear on the software giant's HomeAdvisor site-the real estate section of the MSN network of online services, which is visited by 44% of Internet users each month, according to Media Metrix. The Web site helps consumers find homes; provides information about schools, crime, and neighborhood demographics; and gives general information about the home buying process. Countrywide will contribute to the home financing section of the Microsoft site and provide a link to its own site. Countrywide also recently offered an online mortgage-rate evaluation tool that allows consumers to evaluate various refinancing options.

The foundation for these glitzy rollouts is Countrywide.com, unveiled in 1996 when the Internet was a yearling. Countrywide's Web site mission, according to company executives, is to use advanced technology to simplify the loan process and offer accurate, straightforward information to customers. The site has been more cash cow than money pit for Countrywide, garnering more than $87 million in online sales in December 1999 alone.

"When we started out, our near-term goal was to give our customers some navigational tools and help them intuitively learn what it was like going online for a home loan," Espenschied explains. "We've graduated to new features like our calculation tools and our Fast and Easy online pre-approval program. Even so, our mission hasn't changed all that much since we started."


According to Richard Jones, chief technology officer of electronic business divisions at Countrywide, each of the company's disparate divisions, like mortgage or insurance, is responsible for developing its own content and ensuring that its portion of the Web site works.

"All of our divisions have their own development servers and manage their own sites, from content to staging," Jones says. "All of our applications are proprietary. We've built a core set of business objects that are accessible to all of our different business units. Our Web site has really become the engine that drives our different endeavors."

Jones adds that the company's Web strategy is formed at the CEO and CIO level, although entire company divisions are included in the decision-making process. Implementation is a challenge.

"We have various groups in the company who are experts in specific areas," Jones explains. "The electronic business division, for example, focuses on building our Web-focused infrastructure and the site's look-and-feel navigation. Other units provide content, like mortgage and insurance divisions. And we bring in the marketing department for advice on building our brand name through the site. It's a shared effort every step of the way."


In developing the site, Countrywide wanted to maintain a process blend that left room for centralization and decentralization-but not too much of either. "Since we needed to centralize the look and feel, the navigational aspects, and the brand strategy for the site," Jones adds, "we actually decentralized development functions so the best people in each division could have input." Jones claims that bringing in "the experts" was the best way to make sure every component of the site's planning the company leadership's high expectations.

Long term, Countrywide wants to achieve full site integration, which would enable company staffers to move data among sites to put that information to work where it's needed most. "If a customer wants to see information on a mortgage loan, we want that information available no matter which department the customer is speaking to," Jones says.

In addition, distribution strategies with companies like Homestore.com and Homeseekers.com are helping the company attract more customers than it ever thought possible. "The primary focus of these relationships is to identify customers who want to buy homes," Espenschied says.

Espenschied adds that the primary focus of these relationships is to provide listings to consumers who are looking for home insurance. "It's the first opportunity we get to identify the customer in their home shopping process," he says.


For a company that already covers 85% of the country with its brick-and-mortar offices, that customer connection is a home run.

Jones believes the company's Web efforts have paid off in the form of technology that saves consumers time and money by offering end-to-end online loan features, from application through servicing.

"Our site now has competitive rates for a full range of home loan products, as well as access to Countrywide's state-of-the-art underwriting systems and electronic business integration systems," he says. "We can also now provide clients the option of electronic payment online, the convenience of reviewing their loan status through a secure connection, and the ease of electronic communication on service issues. It's a whole new way of doing business for us."

-Brian O'Connell

Merrill Lynch & Co. Inc.

Critics of Merrill Lynch & Co. say the company had to be dragged and pulled into the Internet trading area. True, the Wall Street behemoth was late to the 'Net trading game, but its new Merrill Lynch Direct online trading site may silence the naysayers. The Web endeavor serves 400,000 clients with $320 billion in combined household assets (of a total 5 million company accounts representing $1.5 trillion in assets). With trades executed for $29.95 each, ML Direct is going head-to-head with discount brokerage giant Charles Schwab & Co.

Why the early push on the customer Web site, called Merrill Lynch Online (MLOL), but the slow hand on the new Internet trading site? Clearly, Merrill Lynch's e-strategy contains some contradictions.


Entering 1999, Merrill Lynch's Internet mission was to create, by the end of the year, an online stock-trading infrastructure that could handle millions of customers and billions of dollars in transactions. In addition, it also wanted to beef up its retail online efforts, which included only basics like account access, limited investment research, and access to some financial planning tools.

Says Jerome Kenney, Merrill's chief strategist, "We concluded that the firm has to be converted to an Internet-based firm." The company was well-suited to fund its new Web endeavors, with an IT budget of $2 billion annually, and 8,000 IT staffers and contractors on-hand to call on.

But it was not a matter of whether Merrill Lynch, with $870 billion in assets and 66,000 employees, could build a better Web strategy. The question was could it do so before losing more ground to arch-rival Schwab and the host of other brokerages stepping up their online services.


Merrill executives bristle at the notion that the company had a scattershot Web outlook. Phillip Gilligan, who runs the brokerage firm's distributed technologies group, says the company has dedicated itself to upgrading the Merrill Lynch Online site since it was launched in 1996.

Merrill sees the original Merrill Lynch Online as a cornerstone of its entire Web enterprise (it averages 2 million hits daily), and it used the service as a foundation to build ML Direct. Ironically, MLOL is a derivative of an earlier Merrill technology program, the Trusted Global Advisor (TGA) project, which provided content and analytical tools that helped Merrill sales representatives develop, implement, and monitor financial plans.

The company also went outside for help in building its new online trading site. In February 1999, Merrill acquired the assets of D.E. Shaw Financial Technology (DESofT), a subsidiary of D.E. Shaw that develops Internet technology for financial institutions. DESofT allowed Merrill to take a timely shortcut in implementing its online trading platform, saving the company "months" in the process, according to one company insider.

Then, in March 1999, Merrill introduced a pilot fee-based online trading program that provided an unlimited number of trades and access to a Merrill financial consultant for a minimum annual fee of $1,500 (The program has since been made available to any investor.) Finally, in December, Merrill unveiled ML Direct.


Using the technology tools and experience gained from MLOL, TGA, and the new online trading software it received in the DESofT deal, Merrill put the pieces in place to build the kind of Internet trading mechanism it wanted to build. "I would say that 30% to 40% [of the online trading platform porting work] is leveraging or borrowing from TGA," Gilligan says.

While Merrill is building most of its Web-based systems in-house, it outsources some of its Internet programs. One example of that is a partnership between Merrill's institutional trading group and Exodus/ ATT. Exodus, which manages Yahoo's Web site, will maintain all of MLOL's servers. In addition, Merrill has stakes in online trading firms like Archipelago and Bloomberg.


While Merrill Lynch Direct has been up and running for only a few months, it's easy to see why Merrill is confident about its Web prospects down the road. For the first time ever, the company's mammoth research library, its arsenal of 15,000 financial advisors, and its state-of-the-art portfolio management and analysis tools are under one platform.

The new site also offers same-order entry for equities-long and short positions, fixed income, and mutual funds. The site also has what the company calls "near-institutional quality" financial calculators, what-if calculators, and equity trackers.

To competewith the scores of other trading sites, it offers a host of market information and data, including news, charts, email alerts, real-time quotes, positions, and balances. Merrill will retain both real-time and daily pricing, the latter residing in the TGA database.

-Brian O'Connell

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