The online financial service industry is a technology driven industry. The development of the Internet technology determines the processing of online banking service and the speed of access and design of the site as well as the convenience and simplicity that a site can provide to its visitors. The legal issue associated with the security concern is also a driving force because of the concern of consumer privacy. Government regulation is also playing an important role, for example, the Federal government further spurred competition with the repeal of the Glass-Steagall Act, removing barriers among banks, brokerages, and insurance companies.
Characteristics of Customers
Being a service industry, to address the characteristics of customers is very important. In the online banking industry, consumers?main concern is trustworthiness followed closely by price. Because Internet-only banks have lower overhead costs, they can pass saving on to consumers, and because transactions are electronic, they can be done faster and provide great convenience to customers. However, as trust and safety are concerned, consumers want a proven brand and/or local presence in addition to the low cost, convenience and speed of online sales and service.
2.3 Industry Analysis at Micro Level
Threat of new entrants
The threat of new entrants of the online financial service industry is moderate. First of all, a recognized brand name and reputation are required to attract customers. Secondly, security issue is another barrier to entry because of the associated legal issue and government regulation. For example, Yahoo and AOLs face a barrier to entry in being unable to secure charters. Moreover, the heavy marketing expense required to market a website also create a high barrier to entry. However, the wide availability of web technology reduces the barrier.
Rivalry among existing competitors
As addressed earlier, by November 1999, there were more than 500 online banks and another 1000 were predicted to launch in year 2000. Besides Bank One, other giant banks such as Citibank, American Express were planning to launch their Internet-only divisions. Online customers are easily switch from this site to others; therefore the low switching cost increases rivalry among competitors.
Threat of substitutes
The substitutes of online banking include all of the following: traditional banking, phone banking, wireless banking and financial service providers. With traditional banking, there are brick-and-mortar locations for customers to handle routine banking transactions. A consumer survey, conducted by Newton, MA-based TowerGroup, drives home the point: more than half of consumers surveyed (51%) still prefer to handle transactions at traditional bank branch. Phone banking is a way by which customers can handle transaction by phoning an automotive response system or a service representative. Wireless banking is growing with the use of wireless device such as mobile phones and PDAs. The wireless service providers offer trading and related account services to their customers. Other financial information service providers are also taking customers from online banks. Therefore, the threat of substitutes is relatively high.
Powers of suppliers
The suppliers of Wingspanbank include its technology and service providers that have helped get it off the ground. The power of these suppliers is very big because they control the core technology operation of Wingspan, for example, IBM, Charlotte, N.C., helped define the technical architecture and supported testing of key information technology systems, as well as many of the technical activities for Wingspan's launch. The cost associated with switching among these technology providers is very high. Moreover, First USA and Bank One were also suppliers with high power to Wingspan because they controlled the expertise and kinds of resource. Finally, customers were also suppliers to Wingspan because they deposited money to it. Since customers are also buyers in this industry, the power of this kind of suppliers will be described in the following session.
Powers of buyers
The power of buyers in this industry is high because of the wide selection of service providers and the low switching cost. Price or service fee is a major concern of consumers in this industry. Moreover, the speed of information flow on the Internet is extremely fast. For example, any negative comment of one customer posted on the web will be known by thousands of other customers in seconds. Therefore, because of the fast information transition across the Internet, the power of buyer becomes very high.
Conclusion to Industry Analysis
According to the analysis about the online financial service industry, the attractiveness of this industry is not that high. On the positive side, this industry is taking advantage from the economic expansion in the United State and the explosion of the Internet. The development of technology and the change in life style also contribute to the development of this industry. However, the fierce competition, wide range of substitutes and high power of suppliers and buyers reduce the attractiveness of this industry.
2.4: SWOT Analysis
Strength
?Wingspanbank had a strong supporter ?Bank One whose more than $250 billion in assets made it one of the country’s top five banks.
?Marketing and technology know-how. First USA brought significant e-commerce expertise in the form of its Internet Marketing Group.
?An easy-to-remember and cool brand name: Wingspan. “Wingspan symbolized the breadth of new products and emphasized the fresh start.?
?Wingspan was the first mover to the Internet–only divisions of established banks.
?Wingspan had strong customer base ?First USA provided a 70 million-cardholders database to pull from.
?Low overhead cost ?operational efficiency
?Strong partners. The partners of Wingspan were the best service providers for each product area. And the alliance with Lycos represents the future direction.
Weakness
?Incomplete separation from Bank One. The unclear role of Wingspan in Bank One might lead to weak structure.
?Frequent system failure. The technical failure such as unavailability of server led to unsatisfied customers who were disillusioned by technical glitches in handling transaction. The system failure might also generate the worry about security and privacy.
Opportunity
?The explosion of Internet made more and more people feel more comfortable with this technology and e-commerce.
?The change in life style to simplicity and convenience.
?Technology progress in terms of payment processing, authentication, network accessing, database capacity and flexibility, online marketing technology.
Threat
?Entry of other giant traditional banks and non-bank into Internet banking industry.
?The growing of wireless banking and other substitutes.
?Reputation risk result from concerns of security and system failure.
?The speed of negative information flow over the Internet might result in loss of reputation and customers.
2.5: Financial Analysis
Being a pure online Internet bank, the overhead cost of Wingspanbank.com was low. This is why pure online bank can provide customers with better price and higher interest rate. However, Bank One, which didn’t break out revenues and expenses from Wingspan in its financial fillings, was believed to have spent at least $150 million promoting the Wingspan brand. Moreover, the collection of account receivable was not efficient as First USA division suffered $70 billion in outstanding receivables. In addition, shares of Bank One had fallen more than 40 percent since May 1999.
2.6: Wingspanbank.com’s Strategy
In its advertisement, Wingspan declared: “If your bank could start over, this is what it would be.? The strategy of Wingspan included all of the following:
?Wingspan was Bank One’s standalone online banking effort. It was a “one-stop-shop?for financial services. It was a pure-play Internet banking without a physical presence. Wingspan had to contend with the limitations of this model. As addressed earlier, there were 51% customers were still prefer handle transition at brick-and-motor branch. The lack of customer’s confidence to the banks without physical presence was a major reason led to failure. Moreover, the ineffective operation of online banking such as technical failure also contributed to the failure of this model. The problems of this model also included the difficulties of deposits, attracting balances beyond the amount that was used to open an account, etc.
?Wingspan was launched under the auspices of the First USA division of Bank One. Bank One was a strong supporter to Wingspan who could provide cash resources and technology and marketing expertise. However, led by a team from Bank One’s First USA division, Wingspan was created completely outside the Bank One structure. From a consumer’s point of view, there was no visible relationship between the two banks. They were, in fact, in direct competition with each other.
?Wingspan was launched in 90 days. This made Wingspan to be the first mover in the industry. However, the fast launch resulted in lack of planning.
?The market scope was national rather than regional. The primary market was a segment that bankone.com could not reach. To minimize cannibalization, strong marketing efforts would be put in markets where Bank One did no have a presence
?National marketing campaign in all kinds of medias with $100 million budget. The high cost to marketing was a key problem associated with the financial difficulty later on. .
?The essence of Wingspan was comprehensive and objective solutions to customers?problems at competitive prices. It offered customers better price than competitors with faster and better service.
?To ensure the best quality, the selected partners comprised the best service providers for each product area. The using of multiple vendors also made customers feel more secure.
?To generate higher profit margin, Wingspan permitted targeted products such as loans to be “pushed?to consumers who were using the customized PFM.
?To increase switching cost, Wingspan provided the “stickiest?products with which customers spent a great deal of time and provided specific information to the bank. However, this strategy didn’t fit with customers?need for simplicity and convenience.
3.0: Alternative Options
According to the analysis of the industry and the success and failures in Wingspan’s strategy, several alternative options are provided as possible strategies for Wingspan.
Alternative #1
Merge Wingspanbank.com and bankone.com in order to provide only one web-presence for Bank One. Bankone.com should be used as brand name. This is an alternative for Bank One, the brick-and-mortar bank, to take advantage from the development of Internet, while at the same time, utilizing a feasible model, which combine with “bricks?(a physical presence? and “clicks?(a web site).
Pros:
?This can help to leverage traditional brand names and the Internet to provide multi-channel sales and service.
?Financial consumers?need of wanting a proven brand and/or local presence can be satisfied.
?Still being able to capture the consumers who are looking for low cost, convenience, and speed of sales and service.
?Simplified structure and funding system.
?The competition between Bank One and Wingspan can be avoided.
?The management turmoil within the two companies can be avoided.
Cons:
?Unsatisfied customers due to the transition from Wingspanbank.com to Bankone.com.
?The expense in marketing campaign is lost.
?There is reputation risk associated.
Alternative #2
Increase the “bricks?impression of Wingspansbank by opening physical presence, such as customer service centers.
Pros:
?Remain the well-recognized brand name.
?Retain the 50,000 customer accounts.
?This also can enhance customers?trust and confidence to the bank with the physical presence.
?Provide multi-channel delivery to customers.
Cons:
?Increased overhead cost.
?The national scope of Wingspanbank may lead to difficulties in building customer service centers because of the high expense associated.
?The competition between Wingspanbank and Bank One is going to increase.
Alternative #3
Enhance the Wingspan’s current operation by enhancing technology to increase efficiency and security level. At the same time, increase customer services by focusing on multi-faceted service and planning and advising tools solution for consumers?goals and life events. This strategy will change Wingspan from product- to relationship-focus.
Pros:
?Enhance customers?trust and confidence by providing more efficient transaction service with enhanced technology.
?The relationship-focus can help to implement the CRM approach in order to deepen the relationship between Wingspan and customers.
Cons:
?The cost for enhancing technology and service will increase.
?The enhanced Wingspanbank.com will take more customers from bankone.com. Therefore, competition between two banks will increase.
Alternative #4
Focusing on transaction only. Reach success by using the cutting-edge technology, depth of self-service and account access flexibility. This strategy is to change the “one-stop-shop?strategy that Wingspan was using by focusing on transaction only.
Pros:
?This can satisfy a niche of customers who want to have convenience and simplicity in their banking activity very well.
?Reduce cost associated with other consulting or planning services.
?This also can provide instant transaction execution by cutting-edge technology. The instant product delivery and transaction execution remains largely unfulfilled by the majority of financial services companies.
Cons:
?Lost of customers who are looking for multiple services.
?Offering similar features with Bankone.com. This will increase the cannibalization.
4.0: Recommendation and Plan of Action
4.1: Recommendation
The first alternative of merging Wingspanbank.com and bankone.com in order to provide only one web-presence for the Bank One is the recommendation. The reasons for this recommendation include all of the following:
1) Pure online bank is not a feasible model. Pure online bank lack the necessary market breadth. In banking industry, consumer’s trust and confidence are the most important concerns. However, pure online banks that lack of assets and suffer from technical failure more likely destroy the trustworthiness.
2) However, there is still a place for online banking because of the development of Internet and the low overhead cost and the convenience that the consumers can get from online banking. Therefore, Bank One should have a web presence that utilizes Wingspan’s idea and resource to increase the depth and breadth of its own online product offerings.
3) Bankone.com, instead of Wingspanbank, should be the web presence of Bank One. This is because of the stronger brand name awareness and the consistent customer experience.
4) Being able to avoid the competition between Bank one and Wingspan
5) The structure and funding system can be simplified. Resource can be more focused on one online presence rather than two.
6) The management turmoil can be eliminated.
4.2: Plan of Action
4.21: Short-term plan:
This short-term plan will cover the tasks to do in the coming 6 months.
Task #1: Increase the services and capacity in Bankone.com to make the “one-stop-shop?for financial service available in Bankone.com.
Task duration: 2 months.
Task description: The services available in Wingspanbank.com but not in Bankone.com should be added such as financial planning, CDs, mortgages, insurance, and more. The selection of service should base on customers?needs and preference. To enhance the capacity and performance of the website and to meet the requirement of the increased customer base, technology with better capacity should be applied. The new technology will include a database with large capacity, a database management system with more flexibility and functionality, such as the newly introduced SQL server 2000. The program must be well tested before opening to public in order to insure the quality and security. Also, to provide a better impression and increase the convenience, the layout of the website should be redesigned.
Task #2: Transfer expertise and resource from Wingspanbank.com to Bankone.com.
Task duration: 1 month
Task description: The technical and marketing expertise in Wingspan was a great resource. The experienced professionals should be reallocated in Bankone.com according to their profession and the needs of Bankone.com. Other resources such as the equipments should be utilized in full capacity in the development of Bankone.com. Marketing budget should be used to introduce the new Bankone.com nationally.
Task #3: Convert customers from Wingspanbank.com to Bankone.com
Task duration: 3 months
Task description: This is the most important task in the six months. It should be done after the two tasks above are implemented successfully. How to convert customers from Wingspan to Bankone.com is very critical. If the customers are converted effectively, they will be happy and loyal to the site; otherwise, the reputation and trust of the bank will be destroyed. There are some subtasks should be done in these three months:
?Official announcement of the transformation
?Official announcement should be posted in Wingspanbank.com and Bankone.com
?Official letter about the transformation and detailed description should be sent to each customer
?Toll-free telephone lines should be open for customers?concerns
?Customer service centers should be open in the physical locations of the Bank One branches to allow customers asking for information.
4.22: Long-term plan:
The long-term plan will cover the tasks to accomplish in the coming 18 months.
Task #1: Make Bankone.com an integrated part of a multi-channel delivery strategy. The online capabilities of Bank One that gained from the operation of Bankone.com should complement other channels without sacrificing speed and simplicity. As customers interact with Bank One online or off-line, they should be presented with a consistent customer experience.
Task #2: Continuously improve the site with new technologies. Security level should be increased continuously and the structure and design of the site should be improved to increase speed and convenience. The site should be able to provide the same level of service or better than that is offered through traditional channels. And online self-service capabilities should leverage new technologies such as wireless account access.
Task #3: Implement the CRM approach to the overall operation of the bank. The online presence should utilize technology such as log files, data mining, intelligent agents etc to track the activities and preference of customers in order to provide more personalized services. It should also go beyond the basics to differentiate overall product offerings. A board range of well designed and implemented value-added services and tailored solutions should be provided according to customers?needs and wants.
5.0: Conclusion
While the Internet is a potentially profitable delivery channel, bank ventures cannot ignore the Internet. Wingspan’s story should not deter bankers from pursuing Internet strategy. It should, however, offer a valuable lesson today’s fast-changing economy: multi-channel and customer-focus is the way to go.
