Wells Fargo: Blazing a Trail Online


By Louise Lee Working 60-hour weeks, Ronald Pimentel has plenty on his mind without worrying about making it to the bank before closing. "I just don't have time to go to the ATMs and the branch all the time," says the 25-year-old San Francisco computer-systems manager. So Pimentel has shifted almost all his banking from Wells Fargo's real-world facilities to its cyberspace service, where he logs on up to four times a week to check balances, pay bills, and transfer funds. "It's great for its convenience," he says. "I do it whenever, and it sure beats standing in line."

That's just what Clyde Ostler, Wells Fargo's chief of Internet operations, wants to hear. In the last few years, Wells (WFC) has become a prime example of how a 150-year-old institution can build a round-the-clock cyberbank running alongside an old-fashioned traditional bank. "We've built a delivery system that uses ATMs, branches, phones, and now the Net," says Ostler. "The customers we're going after want all those, but the fact that the Net is available to them carries tremendous weight."

Among major U.S. banks, San Francisco-based Wells is the online standout. The company's 3 million active Net customers do nearly half their banking transactions online, compared with 31% at archrival Bank of America (BAC), according to research firm Gomez Advisors. What's more, almost a third of Wells's existing checking-account customers have moved online, compared with 26% at BofA.

TIGHT INTEGRATION. The company doesn't break out profits for its online operations, on which it has spent nearly $900 million since 1999. But it sees the unit as a key to boosting the performance of its consumer business, where net income excluding charges rose 16%, to $3.6 billion, in 2001, from $3.1 billion in the prior year. Strengthening the consumer business in turn could help shore up the bank's overall bottom line, which saw profits fall 15% during 2001, to $3.4 billion, on a 14% increase in average assets, to $285.4 billion.

Wells's online bank isn't alone at the top -- Bank of America also has about 3 million active online customers. And other major banks offer the same basic online services, letting customers transfer money among accounts, pay bills to everyone from the phone company to the gardener, and check balances.

Wells tops its rivals in other ways, though. Analysts say the bank has done the best job of melding its offline operations with its online service, which doesn't cost customers any extra to use. Customers interested in home equity loans can chat online with a service representative and often get a follow-up phone call from the bank. And customers who open a checking account will automatically be signed up for online service. "Wells has done extremely well in integrating its online and offline businesses," says Deutsche Bank analyst George Bicher. "Customers don't say they want to be online or offline. They want to be both."

WEB LURES. That dovetails neatly with Wells's acquisitive real-world strategy. It has bought 20 banks since it completed its megamerger with Norwest Corp. in 1998. Today, it runs a network of more than 5,400 branches, and they're crucial to Wells's success on the Web. Four out of five customers who research a product online buy it in a branch, not online. "When it's time to close the deal, people want to sit face-to-face with a banker," says Catherine Graeber, senior analyst at Forrester Research.

With the Web service in place, branch employees spend less time filling out paperwork and answering customers' basic questions and more time selling products. "The value of the branch goes up, since customers show up at the branch already informed and prequalified," says Ostler.

Still, Wells has plenty of financial incentive to lure customers online. It's cheaper for the company to process transactions that come in over the Web. Executing wire transfers initiated online, for one, costs about 30% less than processing transfers ordered offline. And the typical Wells online customer makes 17% fewer calls to the bank's phone centers than an offline customer does. That generates a 14% savings in call-center costs, since the bank doesn't need as many phone reps.

ONLINE MONITORS. Those savings, though, aren't the only reason Wells wants to lure customers to the Web. In fact, even though it saves money when customers move online, the bank doesn't make it any cheaper for customers to, say, order new checks on the Net instead of over the phone. "Getting them to buy this or that product online is not critically important to us," says Ostler. Nor is the primary objective of the Web to cut marketing and advertising costs, the growth of which Wells says hasn't changed since its online service caught on.

Rather, the Web's key benefit is helping the bank retain customers and sell them multiple products. Because online customers invest time getting their account set up on the Web and then get accustomed to logging on, they're more likely to stay put. At Wells, online customers have an annual attrition rate of just 7%, half the offline rate of 14%. Among customers who pay bills online, attrition falls to 4%. Wells's online banking customers are nearly twice as likely to purchase an additional product than an offline customer, the bank says.

That's partly because the Web makes it especially easy for the bank to pitch products. For instance, it monitors customers who start but don't complete online applications, signaling the bank to e-mail the customer to rekindle interest. The site also tailors its ads to the individual, so the customer who already pays bills online won't see an ad for that service but instead might see one for a home loan. "Because you're logged in, we know exactly who you are, so the messages can be highly personalized," says Martha Smolen, senior vice-president for Internet marketing.

Wells's challenge is to keep snaring new customers and enhance its online service to stay ahead of the competition, which is constantly trying to overtake it. Bank of America plans to let online customers view images of canceled checks, a service that Wells doesn't offer. "We have huge plans for further integration," says John Rosenfeld, BofA's head of consumer e-commerce. With resolve like that from its rivals, Wells will have to keep moving to stay ahead of the pack. Lee covers financial services for BusinessWeek from the San Mateo bureau


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