A Broader View of What Banks Can Do on The Net

Should consumer e-commerce compare with b2b e-commerce? Growth rates are stellar when you start with zero, just as those for paved roads at the beginning of the century. The commerce types differ in volume and intangibles.

B2b commerce should grow from $19 billion to $499 billion from 1997 to 2001, according to Forrester Research. The consumer side pales in comparison, but will grow from $3 billion to $41 billion during the same period, based on research by Jupiter Communications. B2b commerce should reach $1.3 trillion by 2003, probably well over 10% of our GNP by then.

Intangible factors tell a clearer story. Dot.com consumer firms rely on one approach: pervasive branding. Start-ups plow up to 90% of IPO funding into marketing. They acquire customers with ads or subsidies. Branding takes raw dollars. Branding building is far less critical for b2b commerce. Now look at purchaser behavior. B2b customers use fast networks and fast lines. Value and speed measure one's job performance. Why not consumer e-commerce? Consumers shop together and share. Real shopping is social, ambulatory, and often not driven by price, speed or efficiency. Certain goods and services are uniform and are ripe for on-line channels: tickets, books, toys, CDs (musical and monetary), and PCs. Others are not.

But "look-and-feel" still matter. Certain virtual merchants are moving onto brick-and-mortar sites. Brands benefit. They realize that consumers prefer, at times, detailed private attention, such as for financial products. Also, a real trip means a group experience. Virtual shopping, even if networked, is not "hanging out". Youth will not settle for that type of social life.

What are some lessons for banks? First, personal selling costs a lot, but it does generate fees and revenues. Virgin Direct has built a substantial deposit base with pure telemarketing. A top 10 bank known for superior technical delivery invites customers to come in for personal financial advice at the branch. Meanwhile, Internet-only banks facing expensive brand wars may turn to bricks and mortar.

Second, compare with the ad industry. Annual magazine ad revenue is over $11 billion, but Internet ad revenue is already $4 billion. With these numbers at stake, magazines are now porting their brands into cyberspace. Banks must distinguish between e-commerce at large and e-commerce based core revenues.

A cut of any transaction is nice. But businesses and consumers still insist on value and utility of a payment channel. Like banks do for money, phone firms provide data transmission. Asking for a cut of a deal negotiated with that phone line would be outlandish. Here, other channels would quickly displace the phone. So, few banks can truly profit as portals for ads and e-commerce.

The CEO Footnote . . .

Financial reform draws brokerage firms into the banking arena. Full-service and one-stop beckon. They too stand to lose a well-defined identity. On the cusp of reform, all financial service firms must leverage the vestiges of brand identity. Securities firms raise a high image to their private clients. Just as the luxury auto market has reached horizontally to the middle segment through finance options, perhaps securities firms might do the same. The differences, though, are rather stark. Luxury cars easily put image, comfort and safety within reach. Securities firms can't offer much more than the norm: private banking services on a private platform.

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