By Balph Heuwing, Rohit Bhagat & James Abraham

In the US last year, financial services generated on-line revenues of $5.8 billion. That alone is over 2,000 times larger than India's entire b2c market. In the US, it is one of the Top Three on-line e-Commerce services; in India, it's overshadowed by many others. But all that is about to change.

From no one to everyone, the mad rush to occupy the financial services space on the Web is heating up. A host of ''bricks-and-mortar'' financial institutions, such as the Industrial Development Bank of India, ICICI, and the Housing Development Finance Corporation, and pure-plays, such as sharekhan.com, investsmart. com, and personalfn.com have introduced-or are introducing-on-line services. And there is a pot of gold at the end of this rainbow. In the UK, the cost of servicing an on-line consumer is one-tenth that of servicing an off-line consumer. Similar ratios in India could net the banks significant profits.

Thanks to this mad rush, financial services will, finally, take their rightful place at the top of the b2c heap in India. But the choices along the way are at once daunting in their scope and challenging in their vision.

The first choice is simply whether to Net or not to Net. Most financial service companies have decided to take the plunge-or have already taken the plunge. These initial forays are little more than glorified corporate brochures which have been adapted for the Net. Once upon a time (last year), that was enough to lay claim to being e-nabled.

No longer. Now, banks are bringing their personal and corporate services on-line. We, as consumers, can check our accounts, transfer funds, and even apply for a credit-card...all on-line. Soon, as regulations are finalised, we will also be able to open accounts, apply for loans and insurance, as well as trade securities... all on-line. Take a look at www. wingspanbank.com, Bank One's virtual bank, to glimpse at the future of the virtual bank.

Future choices may take our banks in very interesting directions, perhaps no longer bound by the geography of the branch, the city, or even the country. Parallels abroad may provide clues of the choices that lie ahead. Take a look at Security First Network Bank (www.sfnb.com), which is owned by the Royal Bank Financial Group of Canada. It has been rated the Number One on-line bank, offering a simple set of consumer services such as deposit, bill payment, and credit cards. The bank offers services in the US to its US and Canadian customers, and is also planning to offer services to consumers anywhere in the world. Competition is, suddenly, not just down the street.

Not just that, competition is also fragmenting. One of the largest financial services companies in the US has no standing as a financial institution. The company takes no deposits, offers no loans, or brokers no transactions. It is Intuit. With its Quicken product, the company provides a single gateway to a host of financial service-providers, freeing the consumer to choose different providers for each product. The analogy in India could be the State Bank of India for account services, ICICI Direct for brokerage services, the General Insurance Corporation for insurance products, and HDFC Bank for loans and mortgages-all managed through a single window on the desktop.

Navigators such as Quicken change the market in two fundamental ways. First, they demand that each product be competitive on its own merits. Once upon a time, institutions could offer very competitive and feature-rich products in one segment (for instance, chequing) and mediocre services in others (for instance, loans) with little fear of losing customers. The convenience of consolidating everything with one institution was enough to keep customers. When that convenience is no longer compelling, mediocrity in services will no longer be tolerated.

Second, and more threatening, is the fact that navigators insert themselves between the customer and the institution. A customer's entire experience and data sifts through the navigator, and the end-products become commodities. For example, the navigator now controls the criteria of comparison and the richness of consumer information that promotes one product over another.

Traditional institutions are not allowing this to happen unchallenged. They still have an advantage lost to the navigator, the ability to aggregate a set of products and offer an integrated financial portfolio.

They go one step further by customising the financial services to the customer's profile. Financial institutions have, traditionally, been very good at mining customer data, predominantly to profile risk. This capability is being extended to determine a customer's profile of needs, which allows an institution to customise its products and also to develop new targeted products.

For example, consider the on-line malls that are run by financial institutions, such as ICICI's on-line mall. This is, at first, an extension of their on-line payment mechanism. The mall could also help the bank collect non-financial information on a customer. As the bank is allowed to increase its scope of products, this data will help them develop and target their products at specific consumer segments... eventually targeting segments of one.

Competitive businesses, navigators, and aggregators. The e-world is setting in place several businesses for financial services. As our institutions embark on the e-road, they will embrace all these businesses. And, in the process, the institutions will become much more profitable. And we, as the customers, will be that much better served. Can't wait to log on.

Rohit Bhagat is the Head of the Boston Consulting Group's Global e-Commerce Practice, Ralph Heuwing is the Managing Director of the Boston Consulting Group's Indian Operations, and James Abrahams is a Consultant with the Boston Consulting Group's Indian Operations.

Issue Contents  Write to us   Subscriptions   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY
TEENS TODAY | NEWS TODAY | MUSIC TODAY | ART TODAY

© Living Media India Ltd