Hardly a day goes by without another announcement of a joint venture, strategic alliance, merger, or acquisition involving companies trying to make the electronic connection to their customers.
The myriad of combinations and permutations for making the electronic link, of course, involves access devices such as personal computers, screen phones, and interactive televisions. But then there are the third party processors, or channel operators, that try to facilitate the connections for the purveyors of products and services.
These twisted, interlocking linkages challenge banks, and other owners of financial content, to evaluate each connection based on its pros, cons, risks, and costs.
Banks struggling to choose from the long list of electronic distribution channels available today for direct banking should consider the following questions:
*Can the financial institution reach the target markets and customer segments you desire?
*Is the bank able to enhance, manipulate, and personalize the informational content for the customer?
*Are there point-of-presence-processing capabilities that help create value when the customer is interacting with the bank's system?
*What is the connection effort, speed of accessing information, and overall ease of use?
*What is the cost of Integration with existing data processing systems?
*Will the bank have security and control of data flows?
The criteria can be used to formulate or update a bank's retail delivery strategy. It can also help simplify the choice between proprietary and nonproprietary electronic connections with customers. When evaluating the PC channel, for example, there are several considerations.
The first concern is what the customer sees on his own screen. That "faceplate" is a bank's product packaging in the electronic world. The branding of that face plate, and the ability to easily maneuver, is extremely important in this environment because it is the basis for the relationship with the customer. Examples of the PC-based faceplates include:
*Personal financial manager software such as Intuit's Quicken, Microsoft's Money, Meca's Managing Your Money, or Computer Associates' Simply Money.
*Information managers supplied by Compuserve, America Online, and Prodigy used to navigate through their service offerings.
*Internet browsers such as Netscape, Spry, and Mosaic.
*Terminal emulation software providing mainframe-to-PC connections.
The second component in the on-line banking world is the network used to make the electronic connection to the faceplate or application software running on the customer's personal computer. The list of providers includes:
*Middleware payment processors such as Intuit Service Corp., Checkfree, Visa Interactive, MasterCard, Servantis, SmartPay, Deluxe Data, Braun, Interactive Transactions Partners, and Interactive Solutions Corp. These providers typically establish proprietary connections over private networks for the electronic connection and exchange of information with the processing and navigational software.
*Commercial on-line services such as America Online, Compuserve, Prodigy, Delphi, Genie, and Microsoft Network. These commercial on-line suppliers typically provide proprietary connections to a bank's processing system or a designated middleware provider.
*Internet providers such as Earthlink, Netcom, PSI, DirectNet and PrimeNet provide consumers with access to the World Wide Web and other Internet connections.
*Private network connections facilitated by regional bell operating companies, AT&T, MCI, and Sprint
Obviously, the best channel combination maximizes access to the greatest number of desired customer segments at the least cost with the greatest brand identity and control of the faceplate. The primary goal, of course, is to maximize access and reach to desired customer segments and markets.
In considering electronic banking options, banks must choose between both proprietary (private) and nonproprietary network (Internet) connections. These connections must be considered in light of their faceplate interfaces: closed and controlled by the faceplate provider versus open and shared user interfaces. Each faceplate provider offers varying degrees of individual bank branding and customization that can be used to distinguish a bank in the seemingly infinite world of cyberspace.
Private network connections using controlled faceplates include personal financial management software that is either bank branded or cobranded with the software supplier. The proprietary network connection is typically unbranded and transparent to the user of the personal financial manager faceplate.
Private network connections that are shared include the commercial on- line service providers such as Compuserve, Prodigy, America Online, and the soon-to-be-released Microsoft Network. Commercial on-line services offer cyberspace to numerous institutions. Banks offering their services are allowed to brand and control their individual "storefront" within the parameters of the on-line supplier's system capabilities and protocols. It is this storefront branding that is the basis for distinguishing yourself on a commercial on-line service.
The Internet offers financial institutions a very compelling value proposition for making the electronic connection to customers. Through the use of the World Wide Web, the Internet's graphical, audio, and video link, banks can achieve the benefits of a proprietary connection over a nonproprietary network.
This is a unique benefit of the Internet, since no single company controls the network and, therefore, there is no one exacting a toll for the access and reach it provides to its storefront operators. The Internet provides the direct access and reach to consumers without the need to collaborate with a private network or controlled faceplate owner such as Intuit. Using the World Wide Web connection, banks can control content and branding without depending on a third party liaison. It's not unlike their existing proprietary distribution outlets - branches and telephone centers, for example - that now serve customers.
And through the use of so-called hypertext, bank World Wide Web pages can be linked together to other nonproprietary information that can be used to enhance the interactive experience of the on-line banking customer.
This on-line, open, and shared form of "linked branding" provides a virtual alliance to those other content providers that can enhance your own service offering over the Internet.
Banks are in an excellent position to leverage their understanding of retail and wholesale distribution strategies by positioning themselves for electronic access. However, because access to electronic channels requires a heavy dependence on nonbanks and outside service providers, banks must develop a cohesive electronic banking strategy in order to know which alternatives, channel and faceplate combinations, third parties, and interweaving alliances will add the most value to their target markets.
Richard K. Crone is a senior manager in KPMG Peat Marwick's financial services consulting practice in Los Angeles. He may be reached at 213-955- 8323 or via the Internet at :rcrone.KPMG.com