Brand Contamination?

Food contamination draws swift responses from government and industry. What can happen to brands? Earlier this year, a software glitch blocked the online payments for 500,000 online bankers of some 21 banks. Refunds and letters of apology quickly followed. However, dependability of this service and the goodwill of these banks and their vendors were both seriously damaged. Electronic freeze-outs in online auctions may be forgivable for recreational spending. But delayed bill pays squarely hit the pocket book and credit ratings, let alone produce unneeded anxiety for the consumer. These incidents are isolated. However, online bankers tend to be more profitable. The banks were rightfully outraged. But incentives and artificial subsidies can never substitute for convenience, reliability, and speed in transaction processing. Unfortunately, brand awareness took an unforeseen turn.

Falling Barriers to Entry

Banks with an online presence are quickly reaching 5,000, and this figure will grow to 8,000 in just three years. Mergers are not a factor. With relative ease and basic capital to cover IT requirements, an entity can establish a bank on the Web. For achieving critical mass, marketing incentives and strategic alliances follow. Vertical integration and virtual services make banks less traditional. This is precisely the desired image. The consumer, however, still wants full access to the bank's non-virtual channels. Ironically, as virtual banking spreads, customers and consultants warn banks not to discourage use of these other options. Future Bank's experience so far has made this apparent.

The Rising Internet Tide

Historically, banks have not taken the lead position for a new product or service. Almost the first question that arises is whether a competing bank has already introduced a proposed product. This is not necessarily a flaw in marketing strategy. Consumers expect the same from each bank, except for pricing and new cross-selling selections. Innovation is largely back-office driven; the front window is an execution of CRM strategy. One bank executive confides, "our technologies are no different from those of any of our competitors. The only difference that I can find . . . is the service attitude of the people . . . we're using for access." In Internet banking, common strategy is to be a "fast follower." Internet bank offerings might not necessarily return high profit. Instead, it might just follow the ATM's path because everyone follows. The product mix has increased by one.

"Payment processing is the only monopoly that banks have left."
Dave Madeiros, The Tower Group

The CEO Footnote . . .

This week, the congressional banking committee is in conference marking up H.R. 10 (now called S. 900), which is the Financial Services Act. If the conference mark-up version is signed into law, acquisitions of thrifts by non-S&Ls would be curtailed, subject to those grandfathered under a pre-5/4/99 application. Exceptions would require oversight by the Fed, whereas today non-banks get the green light directly from the OTS. Overall, this sounds good for banks and for citizens who might not necessarily get the traditional protections. However, grandfather-able applications include those of Nordstrom, Wal-Mart (with nearly 100 million visitors weekly), and State Farm (with 37 million policyholders nationwide). Once a thrift acquisition is properly grandfathered, it's unclear what type of expansion for these non-banks lies ahead. State Farm asked some of their customers: over two-thirds welcomed the idea of State Farm banking). These non-banks are ready to leverage their deep customer channels and massive data warehouses.

inCYde circulates each Friday via facsimile among bank CEOs and other decision-makers involved in bank marketing, technology, and operations. Copyright ©1999 by Chen-Yu Enterprises LLC. All rights reserved. Since we carry no advertising, subscriptions are complimentary. Comments, questions, or additional subscribers may be faxed or e-mailed to: Chen-Yu Enterprises LLC, 1601 Bayshore Highway, Suite 311, Burlingame, CA 94010 / 888.454.7687 (outside the US call 650.652.6565) / Fax 650.652.6567 / glgroup@inreach.com. Visit us at www.abcye.com. Subscriber list information is never released under any circumstances.