Financial institutions are not moving their operations on to the Web quickly enough. And they know it, reports John Riley.
Although the impact of the Internet is far more profound on the financial services industry than other sectors, too many firms are moving too slowly.
A straw poll of 450 senior finance sector IT and e-business managers at last month's CityIT 2000 and e.forum revealed that virtually all attendees believe they are not moving fast enough towards the e-business. And none expect to have all their current customer services available over the Internet within 12 months.
Speaking at the conference, Mark Tennant, senior vice president, Chase Manhattan Bank's Global Fund Services in Europe, said: "Although the Internet changes the relationship with the customer in the hard goods industries, the Web there is merely a massive mail order catalogue. But for financial services, where the products are data, knowledge and transactions, it changes the paradigm forever."
Many board directors have still not grasped the impact of the Web, which brings transparency to financial services and commoditisation to financial products. On top of that, straight-through processing reduces costs and margins. The Internet strikes at the heart of financial services by attacking its role as a middle-man and empowering customers, who, far from being owned by their banks any longer, need merely to click to switch to a new account.
"I hear excuses such as: 'it doesn't affect my niche because my customer doesn't use the Internet'," said Tennant, "and they say to me: 'Mark, you've got [Internet] religion', but I can recognise a revolution when I see it. The Web has transformed the transportation of data in the same way that the US railways transformed the business paradigm by transporting goods."
He added that even if some of the e-banks go bust, they have changed the way the financials services industry does business for ever. Friends Provident IT manager Richard Pugh was responsible for implementing a Web-based stakeholder pension product at the company last year. He said that e-business is was helping Friends Provident make profits despite the restrictive 1% administration costs imposed by stakeholder pensions.
"[E-business] is fundamental to living in the 1% margin environment," he said. "The 1% world is coming, not just for stakeholders' pensions, but for everything that we do."
Listening to the customer, said Pugh, is key. "Thinking customer process for everything was a struggle for us. A successful e-channel puts the customer in control - a nerve-racking thought. Instead of you selling to the customer, the customer wants to buy from you - his way," he told the conference.
Chase Manhattan's Tennant warned that the importance of trust online cannot be underestimated. "Financial services are built on trust - customers don't discard trust lightly."