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  1. 1. Online Financial Services: Major Sectors <ul><li>Banking – e.g., personal asset storage </li></ul><ul><li>Finance – e.g., loan services </li></ul><ul><li>Brokerage – e.g., asset investment </li></ul><ul><li>Insurance – e.g., auto asset protection </li></ul><ul><li>Real estate – e.g., market research </li></ul>
  2. 2. Online Financial Services: Online Consumers’ Financial Activities Source: Jupiter Media Metrix - 2000
  3. 3. Online Financial Services <ul><li>Most people do research or get advice online </li></ul><ul><li>But perform the activity with their “mortar” bank, loan company, insurance company, etc. </li></ul><ul><li>For example – fewer than 5% of online consumers have purchased any kind of insurance online </li></ul>
  4. 4. Online Financial Services Source: Jupiter Media Metrix - 2000
  5. 5. Online Financial Services Source: Jupiter Media Metrix - 2000
  6. 6. Online Financial Services: Trends <ul><li>Prior to 1998 – Glass-Steagall Act (1934) segregated banking, brokerages, and insurance to preclude “unsafe” consolidation </li></ul><ul><li>Financial Reform Act (1998) amended Glass-Steagall to permit merging of services </li></ul><ul><li>Consequently the trend is now toward consolidation of these services </li></ul><ul><li>Example: in 1999 CitiBank purchased Travelers insurance </li></ul><ul><li>Implications: One-stop “financial supermarket” services likely </li></ul><ul><ul><li>e.g., Bank of Hawaii </li></ul></ul><ul><ul><li>e.g., Microsoft MSN’s MoneyCentral </li></ul></ul>
  7. 7. Online Financial Services: Trend Toward Consolidation <ul><li>Banking </li></ul><ul><ul><li>Checking, savings </li></ul></ul><ul><ul><li>Loans, credit </li></ul></ul><ul><ul><li>ATM, mortgages </li></ul></ul><ul><ul><li>Safe deposit boxes </li></ul></ul><ul><li>Insurance </li></ul><ul><ul><li>Auto, home, life </li></ul></ul><ul><ul><li>Commercial real estate </li></ul></ul><ul><ul><li>Retirement </li></ul></ul><ul><li>Payment </li></ul><ul><ul><li>Digital wallets </li></ul></ul><ul><ul><li>Electronic bill payment </li></ul></ul><ul><ul><li>Credit card services </li></ul></ul><ul><li>Brokerage </li></ul><ul><ul><li>Financial planning </li></ul></ul><ul><ul><li>Trading </li></ul></ul><ul><ul><li>Advice </li></ul></ul><ul><ul><li>Loans and margin </li></ul></ul>SINGLE CUSTOMER ACCOUNT
  8. 8. Online Financial Services <ul><li>Pioneers </li></ul><ul><ul><li>Banking: </li></ul></ul><ul><ul><ul><li>NetBank (1996) </li></ul></ul></ul><ul><ul><ul><li>WingspanBank (1997) </li></ul></ul></ul><ul><ul><li>Brokerage </li></ul></ul><ul><ul><ul><li>E*Trade </li></ul></ul></ul><ul><ul><ul><li>Ameritrade </li></ul></ul></ul><ul><li>Current leaders </li></ul><ul><ul><li>Banking </li></ul></ul><ul><ul><ul><li>Wells Fargo </li></ul></ul></ul><ul><ul><ul><li>Bank of America </li></ul></ul></ul><ul><ul><li>Brokerage </li></ul></ul><ul><ul><ul><li>Fidelity </li></ul></ul></ul><ul><ul><ul><li>Schwab </li></ul></ul></ul>
  9. 9. Online Financial Services: Pure Internet vs. Multi-channel Firms <ul><li>Customer acquisition </li></ul><ul><ul><li>Internet-only firms pay $500 per customer in advertising </li></ul></ul><ul><ul><li>Multi-channel firms (i.e., click and mortar) pay only $50 per customer </li></ul></ul><ul><li>Sites for multi-channel firms draw four times as many visitors as internet-only ones </li></ul><ul><li>And 86% of those visitors open a “secure channel” indicating transaction interest, compared to only 50% for pure online firms </li></ul><ul><li>Conclusion: For now at least, cross-channel exposure adds strategic value </li></ul>
  10. 10. Online Financial Services: Trends <ul><li>Financial portals </li></ul><ul><ul><li>Provide comparison shopping, independent financial advice, financial planning </li></ul></ul><ul><ul><ul><li>e.g., Credit card purchase tracking, market overviews, real-time stock quotes, news, digital wallet </li></ul></ul></ul><ul><ul><li>Don’t do it themselves – they: </li></ul></ul><ul><ul><ul><li>Offer information and </li></ul></ul></ul><ul><ul><ul><li>Steer / refer you to service providers </li></ul></ul></ul><ul><ul><li>Generate revenues from advertising, referrals, subscriptions </li></ul></ul><ul><ul><li>Quite a few people like and use them </li></ul></ul><ul><ul><ul><li>e.g., 30% of Wells Fargo visitors start session at a financial portal </li></ul></ul></ul><ul><ul><li>Kind of the opposite of account “supermarket” consolidation </li></ul></ul><ul><ul><li>e.g., Quicken </li></ul></ul><ul><ul><li>e.g., MSN’s MoneyCentral </li></ul></ul>
  11. 11. Online Financial Services: Trends <ul><li>Account aggregation </li></ul><ul><ul><li>All account balance and transaction data seen at one site </li></ul></ul><ul><ul><ul><li>e.g., Airline miles, Amazon book orders, savings account, stock portfolio </li></ul></ul></ul><ul><ul><li>Release login information for all online accounts </li></ul></ul><ul><ul><li>Pulls from web pages of all major financial sites </li></ul></ul><ul><ul><li>Usually no transactions permitted – just viewing </li></ul></ul><ul><ul><li>Increased risk of information exposure since all in one place </li></ul></ul><ul><ul><li>e.g., over 800,000 people have accounts at Yodlee </li></ul></ul><ul><li>Personal financial planning </li></ul><ul><ul><li>e.g., http://www. ihatefinancialplanning .com/ </li></ul></ul><ul><ul><li>e.g., The Motley Fool </li></ul></ul>
  12. 12. Online Financial Services: Brokerages <ul><li>Offer services like: </li></ul><ul><ul><li>Flat-rate discount commissions on stock trades </li></ul></ul><ul><ul><li>Free online price feeds and stock quotes </li></ul></ul><ul><ul><li>Online order entry </li></ul></ul><ul><ul><li>Free stock research and market analysis </li></ul></ul><ul><li>Revenues based on trade commissions and fees </li></ul><ul><li>Have reduced trade costs </li></ul><ul><ul><li>A 100-share, $10,000 traditional broker trade at 3% is $300 </li></ul></ul><ul><ul><li>At typical online brokerage (e.g., Schwab or Merrill Lynch) the cost is a flat $29 </li></ul></ul>
  13. 13. Online Financial Services: Brokerages <ul><li>More quality information is available to traders and instrument search costs have fallen (Bakos et al., 2000) </li></ul><ul><li>Nearly 30% of all stock market trades are internet transacted </li></ul><ul><li>Typical business model: E*Trade offers retail trading accounts, FDIC insured banking, institutional investing, and asset gathering (401Ks, 529s, mutual funds, etc) </li></ul>
  14. 14. Online Financial Services: Mortgage Lending <ul><li>In 2001, 3% of all mortgages were initiated online </li></ul><ul><li>Only about one third of those completed due to: </li></ul><ul><ul><li>Interaction with entities like governments </li></ul></ul><ul><ul><li>Requirement for physical signatures and documents </li></ul></ul><ul><ul><li>Complex financing details like closing costs / points </li></ul></ul><ul><li>Initiations expected to rise to 12% by 2004 </li></ul>Source: Reuters, 2001
  15. 15. Online Financial Services: Real Estate <ul><li>Estimated 100,000 real estate web sites </li></ul><ul><li>50% of home seekers (including apartment renters) consult web sites </li></ul><ul><li>Forecast to grow to 80% by 2005 </li></ul><ul><li>Only 2 out of 65 sites viewed permitted online bids </li></ul><ul><li>Typically agents don’t display addresses </li></ul><ul><li>Conclusion: good for research </li></ul><ul><ul><li>Internet-informed customers look at 6 units before renting </li></ul></ul><ul><ul><li>Non-internet clients view 22 units before deciding </li></ul></ul><ul><ul><li>Network of sites by National Association of Realtors </li></ul></ul><ul><ul><li>Microsoft sponsored listing from 120 MLSs </li></ul></ul><ul><ul><li>For sale by owners listings </li></ul></ul>Source: Jupiter Media Metrix - 2000