Q: How will general industry consolidation affect the eFS space?

Pihl: Consolidation is a bundling AND an unbundling of FS. Even the larger firms are selling off product lines because they are not profitable. Banks sell off mortgage units, credit cards, and the like. Institutions are refocusing on business lines in which they feel they can do better.

For example, many banks feel that traditional deposit/credit and asset management products might do better in the long run. One scenario is that they will retail the service managed by others, only lending their established brand name as a distribution channel. Banks are always asking themselves: is there a better way for us to brand and sell our product?

Banks have traditionally not been good at this; credit card issuers, on the other hand, have been quick to respond by seeking out partnerships and affinity relationships, in order to share the investment in branding and marketing. Take Canadian bank CIBC and Canadian grocer Loblaws. CIBC is installing kiosk-origination units for e-commerce customers, with a Web component, in the grocer’s stores. CIBC is also partnering with Safeway and Winn-Dixie in the states to offer the same service.

Partnerships are the way to go. There are also retailers, one of whom we are working with, who are using their brand to team up with multiple FS providers –- selecting each based on who is best-in-breed in different areas, including mortgages, deposits, and the like -- and then hand-picking each for a partnership. The retailer will plan to merge all in a portal with these brands. Essentially, what we are witnessing now are companies who have little to no experience in traditional FS who are now picking partners to do an enhanced, stronger marketing job.

Q: Acquisition costs for eFS have traditionally been extremely high (in the $400-500 per customer range). Will this continue? How will marketers acquire customers without shouldering huge acquisition costs?

Pihl: Huge acquisition costs do not make sense. Many large financial institutions have realized that right now you can originate some customers in traditional channels cheaper than over the Internet. What’s wrong with this picture? When you get beyond the origination, and people start using traditional delivery channels (i.e., call centers), where are you saving money? If you are spending more on the Internet channel than on the traditional, then where’s the value?

As a testament to this, call center volume has surged. It’s something that eFS players realized a little late. It’s changed the economic picture a bit. It is essentially squeezing the electronic application/account opening process into the traditional process. With the construction of a Web presence, often some companies create additional steps, without taking away steps. EFS companies must re-engineer their interface and user experience in order to gauge efficiency. We always ask: What gets in the user’s way? Is the process too cumbersome? Do the pages take too long to download? What’s wrong with the application? We advise customers on how to modify certain components so as to create a complete, satisfying experience. It involves a lot of detailed work. And we always tell clients that they must deliver on their value proposition.

Q: Will privacy continue to be an issue?

Shear: Customers are taking this seriously as far as safety; we have witnessed this with the adoption of various encryption technologies and the like. EFS providers are addressing concerns, but we have found that consumers in general are still concerned about submitting personal information over the Internet. This will become an even bigger concern as financial services moves into wireless applications. That said, however, privacy issues are not stopping people from using the Internet as a channel.

Pihl: Privacy concerns will make the marketer’s job tougher. They will have to use different, more creative approaches to getting customer information over the Internet. This is one of the top 3 issues for eFS marketers, behind the first two questions they generally ask us, which are “How Do I Get Traffic to My Web Site?” and “How Can I Process Transactions More Quickly?”

Q: What do online financial services customers expect in terms of customer service?

Pihl: For our eFS clients, we regularly conduct blind surveys of their sites and technologies. For example, we conducted an online survey for a well-known retail FS provider, what we call a Buyer Value survey, to study what value propositions they needed to target. If we find that there are particular aspects to the experience that are lacking, we will report this and make recommendations. Many times, it is old-fashioned offline types of experiences that online users most wish to see –- and use to make comparisons to their online offerings.

Q: What if the customer is expecting to receive a toaster for opening an account? Would Arthur Andersen suggest giving away free toasters to the eFS provider?

Pihl: Yes, if that’s what the overwhelming majority of users to that particular site wished to receive, then we would advise the client to send out the toasters. And if we had a number of clients that demonstrated the need for distributing the toasters, then we would outsource the toaster-distribution process.

Contact Pihl and Shear at
waino.h.pihl@us.arthurandersen.com
kathleen.g.shear@us.arthurandersen.com