Content provided in partnership with

Business Services Industry

Who "owns" the customer? - changing environment of the financial services industry - Panel Discussion

Chief Executive, The, Sept, 1999 by J.P. Donlon

No one. The Internet has seen to that, but that isn't stopping financial services from tinkering with new business models. What's at stake? $2.7 trillion in assets.

What is the future of financial services? There's a scramble for customers representing a $2.7 trillion asset pie. "The financial services industry has entered a period in which all prior notions about products, delivery, and internal organizations must be re-examined," says David E. Weisman, group director of research at Forrester Research.

Most Popular Articles in Business: Research and Markets : Tesco Plc - SWOT Framework Analysis; Do Us a Flavor - Ben & Jerry's Issues a Call for Euphoric New Flavors; eBay made easy: ready to start an eBay business? These 5 simple steps will ...; Katrina's lawsuit surge: a legal battle to force insurers to pay for flood ...; Wal-Mart's newest distribution center opened last month near the southwest ...; More »

He thinks the Net is changing the rules of the game by exposing the commodity nature of most financial products and shifting the balance of power toward consumers. The industry's future lies in what he terms "open finance," where financial services firms deliver best-of-breed products and services to the mainstream investing public. To prepare for this, Weisman calls for "proactive destruction" - tearing down former channels, products, and organizational structure and reinventing them for open finance.

The industry is transforming itself in unpredictable ways. At the same time that Sears spun off Allstate Insurance and Dean Witter Discover, Sandy Weill was putting together a broad-based financial company that ultimately merged with Citicorp. While NationsBank broadened its product line and merged with BankAmerica, State Street Bank narrowed its focus to servicing financial assets as a custodian and investment manager. Internet firms such as Wingspan and E-Loan are positioning themselves as the future of consumer finance. In March 1999, more than half a million people - 60 percent of whom are Internet users - used on-line banking, a gain of a third in only three months. As for on-line households, International Data Corp. projects a 500 percent increase by 2003.

What is the market telling us? What does it suggest might be the most efficient functional architecture for the customer? Rather than taking the existing structure of the industry as a given, how might the forces of choice, technology, and an aging population getting ready for the biggest retirement event in the nation's history alter the competitive landscape? Competition coming from non-traditional players is already shaking up the sector. The largest originator of mortgages in the U.S. is no longer a bank but Countrywide Credit Industries, a mortgage banking company. Last year, banks feared Microsoft's attempt to buy Intuit and sighed in relief when the DoJ scorched the deal on antitrust grounds. Recently Visa International and Microsoft agreed to work together to offer a complete bill payment and home banking system; this means Microsoft Money might ultimately have a much stronger presence in the personal finance software market than Intuit's Quicken. Banks and insurance companies will not disappear but many will find themselves disintermediated and may have to reaggregate themselves to yield a different value proposition to customers.

To understand the new battleground, Chief Executive, in partnership with KPMG, gathered a cross section of business leaders in financial services and real estate in order to probe the following:

* How does one measure customer profitability?

* Is everyone chasing the same customer?

* To what degree does cross-selling work - if at all?

* How do affinity groups play a role?

* What new players in the market most affect you?

* How does one refocus one's organization in such a way as to retain existing customers while attracting new ones?

The answers were not always what one might suppose, but there is agreement on one point: In this new environment, all prior notions about products, delivery, and internal organization must be re-examined, because now, more than ever, the customer has the whip hand. If anyone "owns" anything in the next century, it will be the customer - not the industry.

- J.P. Donlon

KEEPING HOLD OF THE RELATIONSHIP

Jane Jelenko (KPMG): The financial services industry is being challenged to deal with a trend I call the "defrocking of the priesthood," or the transfer of authority from all of you, the credentialed advisors, to other entities. And I'm not necessarily talking about the Internet as a disintermediator, because that's happening too, but about people wanting information and advice, seeking it from non-traditional sources.

We've seen the introduction of new entrants over the past 10 years or so really taking a major foothold in the financial services marketplace - and these are companies you would not expect to be taking market share. And what they've been able to do is really reformat the whole definition of financial services to something completely different, which is putting the customer more in the center and saying what we're all about is enabling customer behavior or facilitating customer lifestyle.

Robert Devlin (American General): We have to recognize who has access to the customer, and partner with those various entities to generate the business. We've done quite a bit of that. Our largest writer of annuities is First Union; they did $1 billion and a half of annuities with us last year - probably more than what most life insurance companies write.

Business Services Industry

Who "owns" the customer? - changing environment of the financial services industry - Panel Discussion

Chief Executive, The, Sept, 1999 by J.P. Donlon

Find Research Guides for:

Find Featured Titles for: Business

Most Popular Articles in Business

Most Popular Publications in Business