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Electronic
delivery of existing products is the most
immediately obvious application. Several financial institutions
have launched Internet banking
services (see "financial futures" website) which
enable customers to carry out a range of on-line financial
transactions such as checking account balances, making payments
and purchasing new products, conveniently and securely. Almost
all banks are apparently planning to launch similar services,
which means that this new delivery channel will rapidly become
a commodity. The challenge is to create an innovative and
compelling context component of the value
chain (see "financial futures"
website), which adds value relative to other delivery channels
and differentiates the service from other competitive offerings,
for example:
- The facility to download content such as
account details, share prices, or interest rates, directly
into a financial planning package such as Quicken or Microsoft
Money.
- Packaging together content from a variety
of related sources. For example a mortgage provider could
present information about available houses (with pictures),
neighbourhoods (schools etc.), related services (solicitors,
surveyors etc.), and so on.
- Hosting a virtual community of customers
who share some common interest. For example corporate treasurers
would probably value a banking site with articles on treasury
technology trends, or best practice, or comparative benchmarking,
or a bulletin board for exchanging ideas and making contacts.
Facilitating retail e-commerce
is a natural opportunity for banks given their trusted status.
Although goods such as software, books, CDs, travel and indeed
almost everything else are now bought routinely over the Internet
by a small number of early adopters, the mass market remains
acutely nervous about the perceived insecurity of cyberspace
(see "financial futures" website).
- The first opportunity is therefore for banks
to leverage their expertise of encryption technologies and
provide a secure trading environment where sensitive financial
data such as credit card numbers are encrypted, and buyers
and sellers are authenticated using digital certificates
(of which more below).
- Expanding on this, banks could provide a
useful service by handling transactional complexities such
as VAT, customs duties, currency conversions or refunds.
- This role becomes more valuable as the transaction
becomes more complex, with several counterparties. For example
we can envisage a financial institution adding significant
value by providing a simple, secure, on-line means of approving
and paying for medical services under a company private
insurance scheme.
- There is a major opportunity for banks to
expand their payments franchise. The conventional bank credit
or debit card is an excellent payment method for the Internet,
and will become even more so when security is improved (although
the jury is out on whether the SET standard is the answer,
or whether there is scope for a simpler, cheaper scheme).
- But there is also a terrific opportunity
to establish a global micropayments system
to handle very small payment amounts of a few pence, or
fractions of a pence, which cannot be economically handled
by the credit card system. This is probably some way off
(although there are several pilot schemes in existence)
but could form the basis of a completely new digital economy
in the long term.
- Finally, there is undoubtedly a huge demand
for some sort of trusted guide to the Internet, which helps
users to navigate through the web and deal only with reputable,
value-for-money suppliers. This seems a natural role for
banks, but attempts to establish electronic malls,
by, for example, Barclays (with Barclaysquare) and NatWest
(with Buckingham Gate), have not been particularly successful
to date. It seems that the demand is currently being met,
either by strongly branded electronic traders such as Amazon
or CD-Now, or by "portals" such as AOL or Cendant.
Facilitating
corporate e-commerce is in many respects an
even better opportunity for banks since the volume of business-to-business
trade is so huge and since the transactions are so complex.
Of course electronic trading in the form of EDI has been around
for at least a decade, and many banks have attempted to launch
EDI services, most without much success. What has changed
is that the Internet has made possible a much cheaper and
simpler form of EDI – sometimes called "EDI Lite"
– which even the smallest business can use to improve
productivity, often dramatically. The banking community could
come to dominate this new way of working by providing, not
just electronic payments, but also secure transmission of
trade documentation, and a host of other value added services
such as on-line insurance, factoring, letters of credit, accounting,
inventory control, and all the other logistics of corporate
trade. For SME's in particular, it is possible to envisage
banks at the centre of a "value web" of trading
partners. The best way of thinking of this type of opportunity
is by analogy with a good old fashioned branch manager who
would act as a pillar of the local business community, helping
local traders to meet and do business together. The electronic
equivalent would perform essentially the same services, but
in a global, virtual community.
Providing
e-commerce infrastructure services is the
final area of opportunity for banks, and the most obvious
such service is security. Underpinning secure trading over
the Internet is a new breed of technology based on public
key encryption, which enables trading partners to validate
each other, maintain the confidentiality of information, and
ensure that messages are delivered intact and unchanged to
the right destinations. A global infrastructure of "Trusted
Third Parties" is needed to manage this technology, issuing
cryptographic keys and digital certificates, and enabling
customers to authenticate their identities using digital signatures.
This will be a massive new business and banks are the obvious
candidates for administering it, by virtue of their familiarity
with the technology, their global networks, and, most importantly,
their trusted status. Recently, a consortium of eight of the
world's leading banks has announced just such an initiaitive
based on Certco's technology. In many respects, what we are
witnessing here is a return to the very beginnings of banking
when trusted individuals began to make a living by providing
a secure financial environment within which merchants could
trade. The more innovative bankers are doing the same thing
today, but using space-age technology, in cyberspace. |
