2000 – The financial services industry is one of the most advanced in
e-commerce expertise and potential, snaring a larger portion of its market through the
Internet than any other business besides telecommunications. That’s according to “The
E-Business Value Chain: Winning Strategies in Seven Global Industries,” a new report
written by KPMG and Economist Intelligence Unit. The report also says that financial
services is second only to the electronics sector in readiness for e-business growth. In
addition to interviewing 42 senior executives at major companies in seven industries, the
authors conducted a written survey of 331 industry executives in North America, Europe and Asia.
Below is an executive summary of the report.
Every industry faces specific challenges as it moves
into e-commerce. First, companies must decide whether to make their e-business a separate
structure or integrate it into their traditional line of business. They also must select a
customer focus and product strategy.
Executives are evenly divided on making the e-business a
separate unit. Splitting e-commerce into a separate unit allows companies to move faster
at a time when speed-to-market is crucial. It also allows companies to better attract and
retain employees with Internet skills.
But separating the e-commerce unit has a downside,
according to executives. The company loses an opportunity to use e-business to transform
every aspect of the business, from sales and marketing to internal knowledge management.
In fact, companies may lose out on the opportunity to create a
“clicks-and-mortar” synergy between the units.
The Internet can also alter a customer base and redefine
the relationship between company and customers. Companies have three options in this area,
which are not mutually exclusive: they can sell to a broader range of customers; focus on
a niche segment; or skip an intermediary and sell to end-users directly. E-commerce has
proven particularly helpful in helping companies reach overseas markets. At the same time,
Internet technology gives companies the opportunity not only to reach a bigger pool of
customers, but to zero in on a specific subset.
When selecting a product strategy, companies must decide
whether to expand their products and services; this can be done by creating new ones or by
adding value to existing ones. Another approach is to bundle related products. For
example, a customer who buys a mutual fund from Charles Schwab gets access to investment
research from various Wall Street firms and investment counseling from affiliated
financial advisers. Also, companies can use the Internet to customize their products, in
order to offset the “commodification” that characterizes many online businesses.
While all the above issues concern how businesses relate to
their customers, e-commerce is also changing how businesses deal with other businesses.
The rise of business-to-business (B2B) marketplaces can improve efficiency and reduce
costs in a company’s supply chain. Moreover, to speed their move into B2B e-commerce,
businesses are forming alliances with competitors or technological partners. Typically,
these are designed to increase a business’s access to technology or ease its entry into new markets.
Already, financial services firms receive 13 percent of
their revenues from online sales, and this is expected to reach 28 percent in 18 months.
Since financial services companies’ products are “virtual,” they can easily
deliver bank loans, securities and insurance policies online. But with this potential
comes a threat: disintermediation. Via the Internet, consumers can perform many tasks,
such as stock trades, that they used to hand over to an intermediary. In fact, 44 percent
of the financial services company executives surveyed said they were “very
concerned” about disintermediation and the loss of business it could cause.
Despite those concerns, e-business presents major
opportunities for banks, brokers and insurers. Using the Internet, companies can develop a
fuller picture of customers’ current financial situations and use that information for
precise, targeted marketing. In addition, by offering more convenience and a full
complement of services in one location–from bill-paying to investment research–financial
services firms have the potential to build strong customer loyalty. Finally, in the huge
and rapidly growing B2B area, financial services companies can offer payment credit and
other services that facilitate online business transactions.
To succeed in the e-marketplace, financial services firms
will have to rethink their approaches in several areas. These include product integration,
online distribution management, and the use of alliances and outsourcing.
Among financial services executives, 80 percent said that
providing new value-added products and services is an important part of their online
strategy. For some companies, this means creating entirely new products outside their
traditional core businesses, while others are looking for ways to integrate their
offerings. By bundling product offerings, these companies may bind their customers more
closely, making them less likely to switch providers.
The e-marketplace also has made financial services
companies rethink their traditional approach to branding and distribution. Initially,
there was hesitancy among financial services executives about offering their products in a
“supermarket” or portal that featured competitors’ products as well. But most
companies have come to the conclusion that they must have a presence in these
marketplaces. Customers are less likely to go to a site where their choice is limited;
providing customers with as much choice as possible is perhaps the only way to keep them
happy in the e-marketplace.
Financial services companies are finding that alliances
with other types of businesses are an important way to offer new products and services in
the e-marketplace. That is why, for example, many banks have joined up with payment
technology companies to provide online payment technology to other businesses. For the
same reason, companies are outsourcing the parts of their business that are more distant
from the company’s core technology. This allows them to get to the market faster and
provide customers with a wider range of services.
The financial services marketplace has already changed in
just a few years of e-commerce activity: banks are entering new businesses, while insurers
and brokers are redesigning the way they sell products. But the transformation is only
partly complete. For financial services firms, the hardest part of e-business still lies ahead.
Article reprinted from the Insurance Insider, Copyright © 2000 KPMG LLP.
Reprinted with permission of KPMG LLP. All Rights Reserved.
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