Executives in virtually every industry are understandably concerned about how on-line marketing will affect their competitive dynamics. Few, however, have more reason to focus on these issues than bankers.

Having come through a decade of increasingly intense competition during which insurance giants, brokerage firms, mutual fund companies - and even retailing conglomerates - laid claim to their customers, many banks are finding that the virtual financial marketplace is perhaps the most compelling challenger yet.

No longer limited by the constraints of geography or time, bank customers can use the World Wide Web to visit competitors to gather information, compare products and services, and communicate with numerous advisers - in short, to take advantage of everything in cyberspace and very possibly overlook the players that aren't there.

To compete in this environment, banks must be prepared to enter it aggressively. To do so effectively will take a substantial investment in resources and a clear sense of purpose and direction.

As information has increasingly come to be regarded as a commodity, the ability to successfully differentiate among products, services, and even providers is increasingly hard-won. This blurring of differences can be blamed not only on the growing expectation of consumers that products and services be improved, be more personalized, and be more accessible than ever, but on the rush to meet these consumer expectations.

However, juxtaposed to this phenomenon is financial reality. Unwieldy institutions resulting from mergers, acquisitions, and even bad habits handed down from prior decades have been delivered an ultimatum by managements and shareholders: Clean up internally and operate profitably. The challenge of reducing the costs of serving customers while delivering enhanced value to them is considerable.

One of the resulting developments has been an increase in electronic service offerings, beginning with automated teller machines and now well into the next generation of electronic commerce, in which common banking transactions can be handled from home computers.

But if electronic commerce is not delivered in a way that meets or exceeds the growing expectations of customers, then one offering will surely be no better, nor more widely utilized, than the next.

The objective of an on-line banking solution should be to enable the institution to shift its focus from traditional mass-marketing to highly targeted, needs-based service and selling.

Cyberspace is well suited for this shift. Although a digitized medium would seem to decrease mutually satisfying customer connections, the almost endless possibilities for interactivity - if harnessed to mutual advantage - actually greatly enhance relationship opportunities.

At what other time has it been possible, for example, for customers to obtain information and personalized advice from their banking institutions, regardless of their work schedules or other constraints?

And when have the opportunities to gather real-time market data, which can be translated into immediate opportunities to tailor product and service offerings to specified needs (even to customize them to the individual's needs) been so readily at hand?

Though banks have been going on-line in record numbers, many treat the Internet as a mere repository for static marketing material. But their most successful, mainly nonbank, competitors continue to make headway with elaborate programs that allow customers to download prospectuses, compile portfolios, and even make investment decisions.

Along with such customer "captivity" comes increased opportunities for cementing relationships through value-added services and cross-selling, much of it at lower cost to the institution.

A multitude of options face banks preparing to launch or reinvent their Web sites. Meanwhile, banks need to be prepared to compete with the largest among their brethren, some of them teaming up to create powerful joint ventures.

What is in a bank's best interest? We believe it is to partner or develop alliances with software organizations that are committed to helping the institution establish and defend its on-line brand.

Here are some questions to ask in evaluating potential software partners:

*Do they share the institution's objectives? The bank - and its customers - must know that information is provided in a spirit of mutual interest. Bank-sponsored promotions must not be confused or diluted by other influences. With software companies beginning to compete with their clients for customer dollars - witness Intuit Inc.'s venture into credit cards and mutual funds - banks must screen software providers carefully and must protect themselves and their customers from arrangements that have the potential to divert assets and potential assets to the vendor.

*Do they provide interactive, value-added applications that give customers compelling information? The best software capitalizes on the opportunity to support customer decision-making in an engaging way, with plenty of room for interactivity and personalization. The key is superior education and advisory capabilities, so that the customer comes to rely upon your site and your institution for assistance with financial product and service needs.

*Are the applications effective in automating the sales process? A customer should be able to assess his or her own situation or goal, then come back for a revised plan when life or market events occur. Today's technology makes it possible for a program to "re-contact" consumers when certain changes occur. The steady stream of relevant information and appropriate solutions increases sales opportunities while enhancing the bank's image as a knowledgeable and committed service provider.

*Are the applications flexible enough to lead to profit-enhancing opportunities? Banks must continually move customers toward higher-margin offerings. As consumers become more likely to consult the site on a regular basis, the bank may wish to provide content that encourages cross-selling and upgrading to more profitable products and services.

*Has the provider established a reputation for quality and reliability? Prospective partners should show evidence of a loyal and growing customer base, consistent service and support, and a reputation for meeting each client's unique requirements. It is also important to establish that the provider understands the financial marketplace and customer needs; provides current, accurate, and reliable information; and has a proven track record in promoting client sales.

*Will the bank's technological infrastructure be supported with a system that promotes operational excellence? If there is a Web site already in place, the software should enhance it and increase functionality without reinventing the wheel. Further, banks with or without existing sites should seek out developers who can integrate their products with back-end and middleware systems, and who have the power to extract customer information from existing mainframes, proprietary home banking products, and other financial planning and budgeting software already available to the bank's customers.

The greater the data integration capability, the more successful banks will be at developing the type of one-to-one customer relationships that lead to cross-selling and up-selling while lowering costs. Look for partners whose products encourage data-sharing across departments, a vital step toward a comprehensive, strategic marketing program.

As with all emerging developments, their implications have the potential to preoccupy us in such a way that we lose sight of the factors actually driving the multitude of opportunities within our grasp.

It is important to remember that the new technology most essentially creates these opportunities for improvement - to better interact with customers, tend to their needs, and obtain essential market data and feedback.

It is also important to recognize that the new technology doesn't really change the nature of what it takes to succeed. Brand differentiation and loyalty will continue to drive success and will continue to result from products and services that add value. By staying focused on the institutional purposes for being on-line, bankers will go a long way toward making the necessary adjustments in this exciting new world.

Mr. Rosen is founder and chief executive of Vertigo Development Group Inc., a Cambridge, Mass., developer of on-line financial planning products.

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