Banks, already trailing their discount brokerage rivals in the bid to provide value-added services to attract and retain on-line customers, will soon face new competition from nonbank information providers, according to a new study by Killen & Associates, Inc., a consulting firm based in Palo Alto, CA.
Major brokerages and nonbank information providers like Bloomberg, Dun & Bradstreet and Reuters threaten to co-opt the consumer market for database services, according to the study.
The Killen study suggests that the worldwide market for on-line banking will grow at an average annual rate of 47 percent through 2000. Issuing and processing of credit cards will grow about five percent, while credit authorization and electronic data capture will grow about eight percent annually. Investment services are likely to grow 10 percent each year.
Nonbank information providers are "working like mad" to find a way to bypass banks and deliver their services to mass-market consumers, says Michael Killen, the firm's president. "Banks must develop a new mentality. Instead of just thinking about cutting costs, they must focus on the services that their customers say they need."
This translates into on-line mortgages, auto financing, insurance, stock trading and money management services. It also means providing speedy fax and e-mail transmissions as well as deploying emerging smart, credit and debit card applications. "Banks need to form alliances with information providers and high-tech companies to give their customers the seamless service they want," says Killen.
Killen notes that Charles Schwab, for example, has optimized the on- line financial services medium through arrangements with suppliers of on- line financial data, enabling the discount broker to deliver extensive product information and analysis from multiple databases to customers via e-mail or fax on demand. About a dozen other brokerages, investment banks and mutual fund companies now allow customers to manage their accounts, buy and sell securities, and get investment information on-line.
The good news for banks, Killen says, is that they can leverage their trustworthy reputations and existing payment infrastructures to lure customers away from discount brokerages-if they start thinking like Schwab.