Online Financial Services: Major Sectors

1
Online Financial Services Major Sectors

• Banking e.g., personal asset storage
• Finance e.g., loan services
• Brokerage e.g., asset investment
• Insurance e.g., auto asset protection
• Real estate e.g., market research

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Online Financial Services Online Consumers
Financial Activities
Source Jupiter Media Metrix - 2000
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Online Financial Services

• Most people do research or get advice online
• But perform the activity with their mortar
  bank, loan company, insurance company, etc.
• For example fewer than 5 of online consumers
  have purchased any kind of insurance online

4
Online Financial Services
Source Jupiter Media Metrix - 2000
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Online Financial Services
Source Jupiter Media Metrix - 2000
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Online Financial Services Trends

• Prior to 1998 Glass-Steagall Act (1934)
  segregated banking, brokerages, and insurance to
  preclude unsafe consolidation
• Financial Reform Act (1998) amended
  Glass-Steagall to permit merging of services
• Consequently the trend is now toward
  consolidation of these services
• Example in 1999 CitiBank purchased Travelers
  insurance
• Implications One-stop financial supermarket
  services likely
• e.g., Bank of Hawaii
• e.g., Microsoft MSNs MoneyCentral

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Online Financial Services Trend Toward
Consolidation

• Banking
• Checking, savings
• Loans, credit
• ATM, mortgages
• Safe deposit boxes

Brokerage Financial planning Trading Advice Loans
and margin
SINGLE CUSTOMER ACCOUNT
Insurance Auto, home, life Commercial real
estate Retirement
Payment Digital wallets Electronic bill
payment Credit card services
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Online Financial Services

• Pioneers
• Banking
• NetBank (1996)
• WingspanBank (1997)
• Brokerage
• ETrade
• Ameritrade
• Current leaders
• Banking
• Wells Fargo
• Bank of America
• Brokerage
• Fidelity
• Schwab

9
Online Financial Services Pure Internet vs.
Multi-channel Firms

• Customer acquisition
• Internet-only firms pay 500 per customer in
  advertising
• Multi-channel firms (i.e., click and mortar) pay
  only 50 per customer
• Sites for multi-channel firms draw four times as
  many visitors as internet-only ones
• And 86 of those visitors open a secure channel
  indicating transaction interest, compared to
  only 50 for pure online firms
• Conclusion For now at least, cross-channel
  exposure adds strategic value

10
Online Financial Services Trends

• Financial portals
• Provide comparison shopping, independent
  financial advice, financial planning
• e.g., Credit card purchase tracking, market
  overviews, real-time stock quotes, news, digital
  wallet
• Dont do it themselves they
• Offer information and
• Steer / refer you to service providers
• Generate revenues from advertising, referrals,
  subscriptions
• Quite a few people like and use them
• e.g., 30 of Wells Fargo visitors start session
  at a financial portal
• Kind of the opposite of account supermarket
  consolidation
• e.g., Quicken
• e.g., MSNs MoneyCentral

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Online Financial Services Trends

• Account aggregation
• All account balance and transaction data seen at
  one site
• e.g., Airline miles, Amazon book orders, savings
  account, stock portfolio
• Release login information for all online accounts
• Pulls from web pages of all major financial sites
• Usually no transactions permitted just viewing
• Increased risk of information exposure since all
  in one place
• e.g., over 800,000 people have accounts at Yodlee
• Personal financial planning
• e.g., http//www.ihatefinancialplanning.com/
• e.g., The Motley Fool

12
Online Financial Services Brokerages

• Offer services like
• Flat-rate discount commissions on stock trades
• Free online price feeds and stock quotes
• Online order entry
• Free stock research and market analysis
• Revenues based on trade commissions and fees
• Have reduced trade costs
• A 100-share, 10,000 traditional broker trade at
  3 is 300
• At typical online brokerage (e.g., Schwab or
  Merrill Lynch) the cost is a flat 29

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Online Financial Services Brokerages

• More quality information is available to traders
  and instrument search costs have fallen (Bakos et
  al., 2000)
• Nearly 30 of all stock market trades are
  internet transacted
• Typical business model ETrade offers retail
  trading accounts, FDIC insured banking,
  institutional investing, and asset gathering
  (401Ks, 529s, mutual funds, etc)

14
Online Financial Services Mortgage Lending

• In 2001, 3 of all mortgages were initiated
  online
• Only about one third of those completed due to
• Interaction with entities like governments
• Requirement for physical signatures and documents
  
• Complex financing details like closing costs /
  points
• Initiations expected to rise to 12 by 2004

Source Reuters, 2001
15
Online Financial Services Real Estate

• Estimated 100,000 real estate web sites
• 50 of home seekers (including apartment renters)
  consult web sites
• Forecast to grow to 80 by 2005
• Only 2 out of 65 sites viewed permitted online
  bids
• Typically agents dont display addresses
• Conclusion good for research
• Internet-informed customers look at 6 units
  before renting
• Non-internet clients view 22 units before
  deciding
• Network of sites by National Association of
  Realtors
• Microsoft sponsored listing from 120 MLSs
• For sale by owners listings

Source Jupiter Media Metrix - 2000