Entering the next millennium, it is imperative that financial services organizations adopt a comprehensive relationship management strategy to support their customers.
In recent years, traditional financial institutions have been concerned about competitive threats from organizations such as Charles Schwab, E-Trade, NextCard, and Microsoft. The opinion that the Internet search engines (Yahoo, Excite, Lycos, etc.) will eventually own the consumer might be hyperbole, but it cannot be totally dismissed. Indeed, financial services firms have ramped up their investments in consumer e-business areas. Meanwhile they have conspicuously ignored one of their most profitable market segments - small business. Large companies have dedicated staff and resources to support finance and administrative functions. Small businesses tend to be strapped for time, and they look for convenience and efficient customer service from their primary financial services provider.
If traditional financial services organizations don't take proactive steps to get reacquainted and networked with small-business customers, they run the risk of being "Amazoned," losing partial or entire segments of their business. Waiting in the wings to absorb this segment are companies such as Schwab, e-business specialists such as allbusiness.com, or vertical portals such as VerticalNet, Business Here, eSTEEL, and Chemdex.
The economic potential of business-to-business (B2B) e-business is compelling. According to Forrester Research forecasts, B2B trading of goods over the Internet will double every year over the next five years, surging from $43 billion last year to $1.3 trillion in 2003.
A similar growth forecast for business-to-consumer (B2C) commerce over the same period is a relatively modest $8 billion to $108 billion. In light of these statistics, the electronic commerce strategies employed by financial services firms in the small-business and corporate area remain rather underwhelming.
In small-business banking, some of the products (loans, credit lines) tend to be about as complex as corporate, wholesale products. Hence the sales and service aspects in small business tend to be rather involved. Yet even though this segment tends to be very profitable and have a lower attrition rate than the consumer or corporate segments, banks under-invest in it. Unlike consumer banking where the trend is increasingly toward remote channels (call center and Internet), and corporate banking where personalized service is still predominant, small-business relationship management requires careful balancing of cross-channel efficiencies (call center, Web, branch, relationship managers).
The adoption of Internet technology among small businesses tends to be rather high; 70% have computers and 40% Internet access. Hence the Web represents a very compelling avenue for developing sustainable relationships. However, this requires a well-thought-out strategic framework and a far more significant initiative than the static Web sites that most financial companies have now.
To become a financial services vendor of choice, a company must establish itself as the Web site of choice. That can happen with dynamic, one-to-one personalization, which raises a barrier to entry by competitors. This is effectively accomplished by an e-portal. An e-portal is more than just a function-specific informational or a transactional site. It is a destination or a community where customers and partners can interact. That is what Yahoo is in the consumer space.
Developing the vision for an equivalent place in financial services involves defining a set of product, brand, and customer interaction objectives. It is important that the vision be neither too grandiose nor overly limiting. The e-portal should be a strategic part of the organization rather than a tactical project.
Executing the vision requires executive commitment to ensuring that all phases of the project - strategy, product definition, marketing, and technical implementation - are coordinated and supported.
Implementing the e-portal strategy involves business initiatives such as using direct mail and cobranding to attract traffic, and creating a compelling experience for visitors. Technical initiatives of security and scalability must also be implemented to avoid the downtime problems major brokerage sites and the eBay auction house have experienced. The strategy should also use customer feedback and access problems to effect continuous improvements.
It is becoming increasingly difficult for organizations to gain a strategic advantage through products alone. Product features, functions, benefits, and price rarely provide long-term barriers to entry, especially in the highly intangible realm of financial services. A comprehensive strategy that is focused on relationship issues is very important to gain sustainable competitive advantage.
The benefits of a successful e-portal strategy are compelling in terms of product differentiation, cost savings, time-to-market benefits, strategic advantage, and shareholder returns. E-Trade's agreement to purchase Telebanc Financial, a virtual bank, for $1.8 billion amounted to a market value of roughly $30,000 per customer. Equivalent numbers in small-business banking are likely to be five to 10 times higher.
Organizations that have leveraged the e-business paradigm have benefited from significant "early mover" advantages. It would be a fair postulation to say that not launching such a strategy leaves a business significantly exposed to hazard. Mr. Natraj is the chief executive officer of eForce Inc. in Hayward, Calif.