Forrester Research Inc., a firm known for framing its messages in terminology of its own coinage, introduced some choice new words to a financial services audience last week.
Two were in the title of the seminar Forrester sponsored at the Pierre Hotel in New York: "open finance."
A few select institutions are on their way to becoming a new breed of "open finance provider," said the Forrester experts.
These companies will be the ones with the capital, brand, and technology strengths to be at the center of interactive financial activity. They are the ones that other, more specialized or niche companies will be renting space from or cooperating with.
The open finance providers are, or soon will be, building the necessary bridges between old computer systems and the emerging Internet realm with the help of "legacy wrappers" that propel them in the direction of "transactive content."
Transactive content, as defined by Forrester, is the "seamless blending of transactions and interactivity with content on the Web."
In common with other consultants and researchers, those at Forrester speak with great urgency about technological change. But behind the newspeak is a highly detailed, clearly laid out scenario of how open finance will unfold-not overnight, but over eight or nine years.
The first piece of advice from Cliff Condon, a former NationsBank officer who is a Forrester senior analyst in money and technology strategies, was "get organized."
The 1997-2000 period is the era of "simple self-service," he said, and when it is over the field will still be wide open. There will as yet be no open finance providers.
"The focus is on organizational structure," he said. Traditional banking, brokerage, and credit activities remain separate, and steps must be taken to create a "single front door" into the open financial enterprise. Among a company's first moves, he said, should be creation of an Internet commerce group.
The scenario calls for two further evolutionary phases-consolidated finances, 2001-02; and open finance, 2003-06-before all the technology transitions and content elements are in place.
By 2002, Forrester projects, 62 million U.S. households will be on-line, one-third of them doing electronic banking, brokerage, or both.
In 2006, there would be just 10 organizations that fill the bill as open finance providers.
"Financial services companies are already technology companies," Mr. Condon said. In the ultimate open finance phase they must "turn that expertise outward to face the customers ... personalize the experience, and provide the content that helps them make financial decisions."
One outside speaker on the Cambridge, Mass., firm's program was William H. Harris Jr., executive vice president of Intuit Inc., which is acting in many ways like an open finance provider.
Its Quicken software helps consumers manage their finances and make decisions. Its Web strategy, revolving around the quicken.com site and alliances with on-line service companies like America Online and Excite Inc., makes Intuit a potential "aggregator" of the on-line population and a force for financial institutions to reckon with. A growing number have seen fit to enter into alliances with Intuit, not all of them yet publicly disclosed, Mr. Harris said.
"Partner or perish (is) not far from the truth for our company," he said. "We made a big transformation as we hit the Web," he said, contrasting Intuit's current strategy with its original dependence on selling off-the-shelf software.
He urged financial institutions to "make sure their Web sites are world- class and integrated with other distribution channels." With the right partners, they "can go prospecting for new customers."
One member of the audience of more than 300 raised a question about the cost of partnering and how big one has to be to play the game.
"Size matters in this business," said Mr. Harris. Contrary to early assumptions about the Internet's tendencies to fragment and disintermediate, he said the new medium "turned out to be the single most consolidating force" in such on-line niches as search engines, news, sports, and bookselling.
"Content gateway deals can be expensive," Mr. Condon said. It takes "capital-rich companies" like Intuit to afford tens of millions of dollars to lock up places of prominence with AOL, Excite, CNNfn, and other Web headliners.
"Technographics," another Forrester word, describes the demographic and behavioral studies for understanding an increasingly technologically sophisticated market. The data point inexorably toward opportunities in the "emerging affluent" part of the market.
Four out of 10 of these people are on-line, compared with just 19% of the general population.
The best way to reach the wired consumer is via the personal computer, which may be complemented by mobile devices and broadband networks, said Christopher Mines, director, people and technology strategies at Forrester.
"Only the PC can provide the whole spectrum of open finance," said Mr. Mines. He dismissed ideas like WebTV and Internet telephony that "aim to be alternatives to the PC" and therefore "miss the sweet spot of high-income, high-tech consumers."
Bill Doyle, director of money and technology strategies, said the 36% of the under-45 consumers who are considered emerging affluent are likely or very likely to use the Internet to gather information on financial services. They relish the chance to open accounts and apply for credit cards, mortgages, and insurance products from a variety of providers at one site, he said.
If banks don't offer easy access to the full complement of products and services, "rogues" like Charles Schwab & Co. and "aggregators" like Intuit will, Mr. Doyle said.
Another type of threat may be posed by affinity groups like Women's Connection, which serves career-oriented women and can offer access to wide a variety of financial services via their Web sites."Any organization can do this," said Mr. Doyle.
An open finance service should be able to answer simple questions like "What do I own?" Because consumers have relationships with multiple financial institutions, a complete answer is anything but easy.
Mr. Doyle said a second element of open finance, "How am I doing?" would put the holdings into perspective.
The third question, "What should I do?" addresses the advisory aspect- especially important to the Internet-friendly emerging affluents.
Finally, consumers want to be able to "do it"-on-line and in real time. If not, the result is "commerce interruptus," joked Mr. Doyle.
No institution has all the ingredients of open finance, but banks have an advantage in that 99% of emerging affluents have a demand deposit account, compared with 47% who own stock.
Mr. Doyle said, "That puts banks in a terrific position in the open finance world. It's banks' game to lose."
If open finance implies offering products from a wide variety of service providers, "institutions must be willing to sacrifice revenue from homegrown products," said Michael E. Gazala, another senior analyst in money and technology strategies. Revenue would flow instead from being a primary source of service and advice.
"The best way to hold on to customers-and gather information about them and sell more to them-is to be the conduit by which you sell your competitors' products," Mr. Gazala said.
Barry X. Lynn, executive vice president and chief information officer of Internet banking pioneer Wells Fargo & Co., said one problem for banks approaching the World Wide Web is that they are boring.
Rather than looking in vain for a "killer app," Mr. Lynn suggested they find ways to "get people to come to your sites. Make it interesting and fun and people will go to them."
Mr. Lynn also provided some comic relief. With Wells Fargo ranked 10th in U.S. banking and larger institutions merging, he said, "pretty soon we'll be No. 8 and we won't have spent a dime."
"Besides being CIO," he said, "I also run the biggest telephone bank in the country. So I get to hate myself."
When David Weisman, the Forrester conference emcee and group director of new media research, asked how to manage through turbulence, Mr. Lynn replied, "Make sure you have a good severance package."
"You may have a future in stand-up," said Mr. Weisman.
"I hope I do," said Mr. Lynn, "the way banks are consolidating."
