| BUSINESSWEEK ONLINE : NOVEMBER 1, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| BUSINESS WEEK E.BIZ -- PERSPECTIVE
Online Financial Supermarkets? Don't Bet on 'Em Big brokers would love nothing better, but consumers aren't likely to bite At E*Trade's (EGRP) Web site, you can buy shares in initial public offerings, do your banking, and get a 5% discount on a bottle of Le Parfum de Golf. At the American Express Co. (AXP) site, you can pay your charge-card bill, trade stock, and book a flight to Kiev or Kuala Lumpur. Merrill Lynch & Co.'s (MER) ML.com will soon have $29.95 stock trades, videos featuring Merrill market mavens, and an auction for diamond earrings. The Web sure is hip. But does anyone really want all this from a stockbroker? Financial-services companies have long wanted to create giant financial supermarkets. And financial-services companies on the Web are no different. The goal has been to offer consumers banking, investments, insurance, loans, and financial planning in one convenient place. The strategy has failed for decades, and it will fail again online unless financial-services firms radically change the way they sell their products and learn to compete on price. The core difficulty for such would-be supermarkets is that they face a constant barrage of competition from companies pitching better products or services at lower prices. Just as online brokers squeeze commissions down to an average of $15 a trade, American Express offers free buy orders for customers with balances of at least $25,000. Just as portal Yahoo! Inc. (YHOO) popularizes a Visa card featuring 5% discounts for online purchases, startup NextCard Inc. (NXCD) offers similar shopping bargains plus a choice of cards with various rates and terms. And you can design the picture on your card yourself. For free. FUNNELING. The truth is, it probably doesn't hurt to offer sideshows such as earring auctions and perfume discounts. The problem for the one-stop shops comes when they try to funnel online customers into high-priced, proprietary products, which may well alienate Netizens accustomed to saving money online. Those potential customers will click through and be on their way, and it's not hard for them to find a better deal. At E-Loan Inc. (EELN), you can compare low-rate mortgages from countless lenders. At least a dozen sites offer insurance shopping services. And new firms such as VerticalOne Corp. and a host of others let you maintain multiple online financial accounts from different companies at one Web site. Internet or not, people don't want to be tied down--something online brokers know all too well. Many customers use online trading as a mere adjunct to their primary accounts at full-service brokers. And if they aren't satisfied with one online broker, they'll switch to another--and complain about their problems on message boards for all to see. A Forrester Research study found that only 16% of consumers are willing to keep their assets in a single institution. And they're not eager to give up choice, especially when new financial products and services pop up online all the time. ''The Web is a world where consumers are in charge, and they can move money in an almost frictionless environment,'' says Forrester analyst James Punishill. It's easy to understand why the financial industry is rushing to develop large-scale financial Web sites. Consumers want to consolidate their financial lives on the Web--but not with just one firm. Successful online companies won't try to pigeonhole customers into the same old proprietary products they sold pre-Internet. They'll offer a broad selection, use the power of the Web to facilitate comparison shopping, and explain why a premium is justified for higher-priced products. In financial services, the Net has changed the rules. BY GEOFFREY SMITH Have a question or a comment for Geoffrey Smith? Let him know at geoff_smith@ebiz.businessweek.com. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
INTERACT E-Mail to Business Week Online | |||
