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Re-Inventing Financial Services

Winning Market Plays

An e-View by Deloitte Consulting and Deloitte & Touche


Executive Snapshot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Breeding Ground: Highest Profits, Lowest Valuations . . . . . . . . . . . . . . . . . .1

Re-Invent or Face the Path to Extinction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Where We Are . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Emerging Short-Term Financial Services Models . . . . . . . . . . . . . . . . . . . . . .5

Chaos and Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Creating Order Out of Chaos: Answering the Call of the e-Customer . . . . . . . . . . .9

Understanding the Customer’s Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Getting Started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13


Deloitte Research – Re-Inventing FS Business Models

These are heady days for the financial services industry. U.S.
commercial banks posted a record US$71.1 billion in earnings for

1999, the eighth straight year of profitability in an industry sector

that spent most of the previous decade awash in red ink. During the

current nine year economic expansion, an estimated US$26 trillion

of new household wealth has been created in the U.S. alone. A large

percentage of these assets have flown into the coffers of investment 0.60

management firms. Assets in mutual funds have grown from less

than US$300 million in 1982 to more than US$6 trillion today. 0.50

Deregulation and the arrival of the European Union have

thrown open the competitive gates. Meanwhile, mergers and 1990 1992 1994 1996 1998 2000

acquisitions involving financial services firms are occurring at a SOURCE: DATASTREAM

frenetic pace, with asset-rich organizations spending significant

sums to expand both globally and electronically. This, against a

backdrop of stratospheric market capitalization driven primarily by FIGURE 2. EUROPEAN BANKS’ P/E RELATIVE TO EUROPEAN
the ambitions of a new genre of business executive – the dot.com
But as surely as the Sun rises each morning in the East and sets
each evening in the West, these good times will not last forever. The 0.90

valuations that financial services firms currently receive from the

capital markets speak to this view. In relation to the overall market, 0.80
price-to-earnings ratios for a large percentage of financial services
companies stand near historic lows.

1990 1992 1994 1996 1998 2000


RE-INVENT OR FACE THE PATH TO EXTINCTION We are witnessing a fundamental shift in customer

We believe that the forces of economics, technology, and customer expectations and behavior in the marketplace today. The era of the

demand are now undermining profit margins and investment "e-Customer" is upon us. This new breed of customer expects

strategies at all but a handful of financial services organizations. seamless, personalized service as they interact with an organization

Those organizations that survive this shakeout will bear little across multiple access channels – whether those channels are

resemblance to the banks, brokerage houses, insurance, and other Internet sites, call centers, brick-and-mortar branches, wireless

companies that have provided financial services in the past. Instead, phones, or any number of as-yet undiscovered channels.

the winners will combine homegrown offerings with the products and

services of strategic partners to create full-service shops serving specific FIGURE 3. PERCENTAGE OF TOP FINANCIAL INSTITUTIONS OFFERING
customer segments through multiple channels. We estimate eight to 100%
ten financial services firms globally will have the brand recognition, Europe
North America
scale, versatility, and vision to succeed as these "solutions providers" 80%

long term.
A slightly larger group, perhaps three to four organizations in
each major product category (i.e., credit cards, bill payment services,
life insurance), will specialize in producing select best-of-breed
offerings that can be distributed through these new "solutions
providers." Being the low-cost provider will be the ante for entry
into the "product specialist" category. To stay in the game, these
product specialists will also need strong core capabilities in 1999 2000 2001 2002 2003

delivering performance, features, and brand. Those product SOURCE: MERIDIEN RESEARCH

2 specialists that offer a superior cost/value proposition to distributors

will obtain the required "shelf space" to survive in this new era.
Successfully serving the e-Customer requires radical changes in
Access to new and emerging technologies is indispensable to
business models. While financial services can serve as a foundation,
this unfolding marketplace scenario. Take the Internet – it is critical
these new business models will need to feature an array of non-
as a delivery channel and as a workflow engine supporting seamless
financial products that meet unique customer needs, establishing
exchanges between specialists, full-service merchandisers, and
trusted relationships between providers and customers. This means
customers. It allows organizations to develop powerful, one-to-one
using the Internet not just as a channel to sell existing products and
relationships with customers. By personalizing services in this way,
services at the lowest possible price and cost to anonymous
an organization can create a shared base of knowledge with
customers. It means using the Internet to design personal resources
customers that engenders greater loyalty, or "stickiness."
that create lifestyle experiences and enable customers to achieve
To compete in this new business environment, organizations
personal goals.
will need to engineer key processes around it. Sharing information
with outside specialists requires an entirely different set of work
processes than the underpinnings for traditional financial service
offerings. The same is true for multi-channel customer access.
Deloitte Research – Re-Inventing FS Business Models
Those institutions that succeed will act from positions of Where We Are
strength rather than in response to diminishing market share. They Financial services is an industry in the process of a radical

will also possess the management confidence to stay the course deconstruction. New economic forces, created and fueled by the

even in the face of losses from traditional lines and market Internet and new wireless communications technologies, such as

segments. The leaders in this market transformation are emerging the wireless access protocol (WAP), are dismantling barriers

now. They are proactively dismantling the barriers between financial historically erected by time, space, and information access. As more

and non-financial services, redefining the parameters of customer businesses and processes exploit the new technologies, time-to-

loyalty, building online market share, and continuously improving market and distances between the buyers and sellers of goods and

customer value propositions. services are collapsing in ways that even the most astute sages

As we enter the 21st Century, traditional providers of financial never imagined.

services confront three alternatives: they can reinvent themselves as

trusted advisors who provide comprehensive portals that offer
• 400 million consumers are expected to be online by 2001, up
solutions to the real-life needs of multiple customer segments, they from 100 million in 1999. – Forrester Research
can become product specialists, or they can go down the path to • 62 percent of investors access the Web for financial services.
– Wall Street Journal
extinction. Now is the time for financial services executives to • Online financial services were US$103 billion in annual
revenues in 1999. – Morgan Stanley Dean Witter
choose the path that best suits their institutions’ strengths.
• Currently eight million households are conducting Internet
banking. – Jupiter Communications
• More than 80 percent of banks plan to sell insurance via
online banking by 2002. – Nextera Interactive
• 80 percent of consumers using online banking rate their
experience as better than brick-and-mortar banking. –
Frederick Schneiders Research
• Online brokerage is expected to capture 25 percent to 30
percent of retail transactions in 2000. – E-Commerce Times
• Schwab’s online mutual fund transactions increased to 45
percent (1999) from 16 percent (1998). – Nextera Interactive


Number of Percent of
e-Finance Users Total Internet
(Millions) Users
200 100%

160 80%

120 60%

80 40%

40 20%

0 0%
1998 1999 2000E 2001E 2002E 2003E


At the same time, companies that have been stalwarts of the Analysts expect the number of households using online

brick-and-mortar world have begun marketing themselves as online banking services to increase by 500 percent globally by 2003, which

experts and vice versa. In less than a year, Merrill Lynch – the suggests that we are just at the beginning of the growth curve in

industry leading full-service brokerage – has become a formidable this sector. By 2003, U.S. retail banks will be serving 40 million online

competitor in the online space. As of the fourth quarter of 1999, customers and generating US$820 million in additional online

Unlimited Advantage (one of the firm’s Internet trading offerings) banking service revenues (IDC estimates). This is a remarkable

has brought in about US$63 billion in assets from a total of 260,000 growth projection, particularly in view of the fact that in 1999, Bank

online accounts. Industry experts expect the firm to garner close to of America (BofA), the most successful online bank in terms of

25 percent of the market in terms of total online assets by 2003 from customer numbers, only had about 1.5 million customers.

virtually nothing a year ago. Commonwealth Securities (the wholly These trends extend globally, particularly in Europe. There are

owned stockbroking subsidiary of Commonwealth Bank of nearly 500 cyberbanks in Europe, twice the number that exists in the

Australia) is the third most visited Web site in Australia (number one U.S. Not only are there more cyberbanks, they offer more advanced

financial services site) in the latest Internet usage study. E*Trade, services than their U.S. counterparts. For example, as of the fourth

which virtually created the market for low-cost online stock trading, quarter of 1999, 55 percent of European banks enabled customer

has purchased an online bank and a large automated teller machine account interactivity, while only 15 percent of U.S. banks offered this

network, suggesting a further blurring of the lines between kind of service (Bluesky International estimates). MeritaNordbanken

traditional and non-traditional product mixes and delivery had one million online banking customers in December 1999, the

strategies. same number reported by Wells Fargo Bank in August 1999 and

e-Customers, meanwhile, are becoming shrewd bargain more than half as many online customers as BofA at year-end 1999.

hunters, seriously undermining profit margins of financial services Also by 2003, an estimated four million credit cards will be

businesses. In the brokerage sector, for example, online trading has issued by online companies. Some of these companies will be
reduced by a factor of 50 percent the average cost of executing a traditional providers of financial services, but many will be new to

securities trade. Forrester Research expects that within two years, the business. Online sales of automobile insurance, meanwhile, will

traditional full-service brokers,such as PaineWebber,will offer US$25 expand to a US$4.1 billion market by 2003, from US$257 million in

stand-alone trades and charge 0.75 percent of assets. Banking 1999, driven primarily by the emergence of Web portals like

cannot be far behind, as this year the number of online banking Autoweb.com that offer customer solutions for the entire lifecycle of

accounts is expected to surpass the number of online brokerage car ownership.

accounts. New online entrants such as Netbank and Telebank

(recently purchased by E*Trade) already offer high interest checking

and free online bill payment services.

Deloitte Research – Re-Inventing FS Business Models
Increasingly, financial services firms are looking outside their These trends will continue globally and we believe will extend

traditional business lines for investment ideas. In February, to cross-industry combinations that can meet a plethora of lifestyle

Deutsche Bank, Germany’s largest bank, announced a far-reaching and business needs. Combinations involving companies in financial

Internet strategy, including a yearly budget of one billion Euros and telecommunications services are most logical. But more unique

(about US$988 million) for e-Commerce initiatives. Deutsche’s combinations also are possible.The focus of these combinations will

planned strategy is to forge alliances with leading software and be to support the complete lifecycle needs of specific customer

Internet firms to capture customers both at home and abroad. segments.

Citigroup and Commerce One, meanwhile have teamed up to

provide online procurement services for clients. Xpedian, Bank of
As financial services firms come to terms with this transformation,
America, and Ariba recently announced plans to launch new
six e-Business models are emerging, forcing intense competition on
business-to-business financial Web sites. American Express has also
multiple levels.These models are being fashioned by groups we call
formed an alliance with Ariba to work on improving payments
the Traditional Providers, Non-Traditional/Cross-Over Companies,
Aggregators, Vertical Portals, Nation Cities, and Communities. We

believe that the staying power of these models will be short-lived

and eclipsed by the solution provider and product specialist models.
There are four levels of adapting to business on the Internet. Most
financial services companies have already passed through the first level Traditional Providers. Many traditional providers of financial
and are now either entrenched in level two or attempting to make the
transition to level three. Many will never make it to level four, which we services have established an Internet presence through which
see as the Holy Grail.
proprietary products and services can be sold.The online market for
"traditional" services is limited, however; consumers are demanding
Features and expect more than just one set of banking products from their
• Company information
• Brochures forays online and off-line.Consider the case of Royal Bank of Canada.
It purchased the first-ever Internet bank, Security First Network
New Features
• Extensive information
• Interactive content Bank, expecting it to provide a springboard into the U.S. consumer
• E-mail support
• Simple search market. Now Royal Bank is purchasing an U.S.-based mortgage
Level 3 – BUSINESS INTEGRATION company with 150 branch offices, because it says it isn’t making
New Features Upgraded Features
• Interactive marketing/sales • Encyclopedia information sufficient inroads in the U.S. with an Internet-only presence.
• Online communities • One-to-one marketing
• Customer profiles • E-mail customer service A success story in the U.K. is the Prudential PLC Internet
• Secure transactions • Advanced search
• Electronic commerce
subsidiary Egg. Egg offers both insurance and banking services and
New Features Upgraded Features attracted US$13 billion in deposits and 600,000 customers in the
• Mission critical applications • New business models
– Supplier integration – Remove brick-and-mortar first 18 months of operation. Egg has taken over 20 percent of net
– Customer integration – Marketplace/auctions
– EDI - Electronic payments – Extending the enterprise new deposits in the U.K.market through offering significantly higher
deposit rates than competitors, strong evidence of the importance


of being a low cost provider in gaining online market share. ConSors
currently controls in excess of 25 percent of the online brokerage
accounts in Germany, generating an estimated five times the

average profit per customer than its U.S. online peer group. Vertical Portals. Vertical Portals, like WingspanBank and
American Express has been aggressive in adding functionality to its Quicken.com, offer online access to a variety of financial products
offerings with online banking, brokerage, and other fee-based and services. Offerings tend to be traditional and opportunities for
products, while leveraging its core strengths, such as customer comparison-shopping are limited, which hampers long-term
service, rewards programs, and other packages of information, to viability. Bank One is already struggling with WingspanBank, which
leverage its value-add to customers. it launched last year as a separately branded Internet unit. One idea
Cross-Overs. These non-traditional competitors already have that has been floated: drop the word "Bank" from its moniker.
strong customer ties as providers of non-financial services and see Speculation also exists that the unit will be placed on the auction
opportunities for strengthening those ties by offering financial block.
services, often in partnership with existing providers. Microsoft X.com has moved aggressively to create an online financial
Canada, for example, has partnered with the Bank of Nova Scotia to services supermarket, attempting to offer consumers the full
provide Internet banking and e-Commerce services; Microsoft spectrum of financial products in one place. The site launched in
operates one of Canada’s leading Internet portals, with about December of last year and has already become home to more than
250,000 users a day. Bell Canada already claims to offer more 200,000 accounts. X.com offers perks and a unique business model

banking services than any other e-Commerce company in Canada. to set it apart from the competition. Perks include giving US$20 to

Meanwhile, the financing subsidiary of General Motors, General each new customer and an additional US$10 for each referral. X.com

Motors Acceptance Corp. has purchased the commercial lending also contributes a small percentage to each customer’s investment

unit of The Bank of New York, which has about 3,000 clients in select mutual funds. The biggest force in its growth has been its

worldwide. Sony signed up Japan's Sakura Bank Ltd. and U.S.-based person-to-person payment system, which allows people to easily

J.P. Morgan & Co. as shareholders in the online bank it hopes to pay and accept payments from others,simply by providing an e-mail

launch next year. address. X.com then mails debit cards for the withdrawal of funds.

6 Aggregators. Aggregators are taking direct aim at traditional Nation Cities. Nation Cities are portals that provide access to a

providers of financial services, usually focusing on one product line, broad range of destinations on the Web, including financial services

such as lending. The purpose is to provide one Internet Web site sites. Examples include AOL and Yahoo!. Nation Cities can be allies of

where customers can search for the lowest prices on commodity traditional providers or their attackers.

products. E-LOAN and Lending Tree are examples of companies in

the online mortgage space that simplify product comparisons for


consumers. Insurance innovators, such as AnnuityNet and PORTAL REGISTERED USERS PARTNER
HealthAxis.com, are forcing carriers to design more simplified Yahoo! 65 Million Bank of America
products that can be sold without agent involvement, eliminating
Excite 34 Million Bank One
the middleman. The long-term viability of this model is Charles Schwab
questionable. One major aggregator, Mortgage.com, recently Lycos 32 Million WingspanBank
Netscape/AOL 25 Million Citibank
announced it is abandoning direct consumer lending in favor of a Ameritrade
business-to-business Internet strategy. Others are likely to follow as DLJ Direct
product branding and customer acquisition costs erode earnings
Deloitte Research – Re-Inventing FS Business Models
7.3 million visitors each month. Telebank has entered into
• AOL has announced that it would let the millions of people who partnerships with the National Association of Realtors, Sam’s Club,
use its services receive and pay their bills online. The timing of
the offering – early 2000 – puts it on the same schedule as
and the National Council of Senior Citizens. Security First Network
Spectrum, the high-profile bill presentment venture of Chase
Bank, which is a member of Royal Bank Financial Group, has agreed
Manhattan Corp., First Union Corp., and Wells Fargo & Co. which
plans to launch its own electronic presentment service early
to provide online banking services to members and guests of
this year.

• AOL will offer Intuit Inc.’s bill presentment and

crosswalk.com, the Christian web community.
payment service, which was made available on the
We do not believe any one of these six models will endure long
company’s Quicken.com financial Web site. The
agreement extends an existing relationship between
term. Instead, we see a morphing together of elements from each to
the two companies, under which Intuit had been the
primary source of content for AOL’s personal finance support a new model that features comprehensive segment solutions
channel on AOL.com.
accessible via multiple channels.Working in partnership with these new
• Yahoo! recently inked a deal with CheckFree –
the largest online bill processor – to offer solutions providers will be a larger universe of product and service
payments directly from its site.
companies that contribute both financial and non-financial offerings

to the product mix.

Communities. These are online destinations for like-minded people The figure below paints a picture of this emerging portal model

to meet, exchange ideas, and shop for products and services. – a full-service financial services play, not just a Web site. Leading

Examples include Motley Fool, TheStreet.com, and iVillage. Like financial services companies in the “solution providers” space will

Nation Cities, Internet Communities are more likely to be allies with design personal resources (i.e., financial planning expertise, lifecycle

online providers of financial services. planning tools, focused content, etc.) to create unique experiences

PNC Bank Corporation paid US$5 million for the exclusive right and help customers meet their goals. “Product specialists” will serve

to sell its consumer and small business banking products for two as the "cogs in the wheel" of this evolving model, providing the

years on iVillage, a women’s interest Web site that attracts around personalized products and services that make the customer

experience come alive.



Web Site Connectivity Provider

.com venture Services Network e-Comparison Shopping

CUSTOMER Portals e-Self-Service

Partner Portals
Partner’s e-Packages
Customer Content e-Lifestyles
Service Staff
Supplier Hotlinks e-Lifecycles
Customer Products and
Channels Services
Processes ASPs,
BSPs and CSPs
for Core Partner’s
Web Sites Operations Financial
Customer Services

Intellectual Core Operations
Capital Partnerships


CHAOS AND ORDER The response of Internet-savvy consumers has been to abandon

search engines and stick with known and trusted providers. In

January, just 47 percent of online transactors said they used search

Information is the currency of financial services, and innovations in engines to find something on the Internet, down from 57 percent six

technology over the past four decades have spawned a revolution in months earlier. This trend reflects the importance of developing

access and information. That, in turn, has spawned a revolution in and maintaining a respected brand in order to achieve success in

financial services. But revolutions can turn to chaos. In financial the online world.

services, chaos has taken form in the cannibalization of customer The upshot of all this is that financial products are becoming

segments.Traditional providers,on the defensive against Internet start- commoditized by new technologies, new entrants, and customers

ups, are developing new online channels that mimic, but don’t supplant who already have begun to establish online brand preferences.

time-honored brick-and-mortar strategies. These companies aren’t

necessarily growing customers, but are serving traditional customer

segments with additional distribution channels.

Meanwhile, Internet attackers vie for a small share of the total

customer universe. Only 20 percent of consumers are expected to

be banking online by next year and most will be comparison

shoppers.This is forcing many newcomers to rethink their strategies.

Mortgage.com has abandoned the consumer marketplace. So has

CompuBank, a one-time consumer bank that now sees its future in

the small business market. One new entrant, Virtual Bank, has

narrowed its focus to the employees of Internet companies,

signaling a trend we believe will continue.

In brokerage, companies that offered online trading only and at

bargain prices, are rethinking their strategy. E *Trade recently

announced it would acquire Card Capture Services, the largest

independent, centrally managed ATM network in the US. This comes

after the recent purchase of Telebank, an online only bank. E*Trade

also has been expanding into investment advice and information

services offerings. TD Waterhouse and Fidelity Investments,

meanwhile, have developed new services that make use of wireless

browser-based technologies. And CIBC Investor’s Edge now offers

automated phone ordering.

On the Internet, chaos is apparent in the dizzying array of

choices to the most basic of queries. Consider, for example, that

Yahoo! responds to the search word "investments" with more than

5,000 hits. "Investment advice" yields over 200 possible providers.

Deloitte Research – Re-Inventing FS Business Models
CREATING ORDER OUT OF CHAOS: financial and non-financial? The more you personalize, the better

ANSWERING THE CALL OF THE e-CUSTOMER your chances of retaining those customers, even if their needs

should suddenly change. An effective financial services portal

strategy is the main requirement for ensuring this exchange in

Profitability in financial services is volume driven. Yet, as
information, allowing the progressive organization to design brand
e-Customers become better informed and more price sensitive,
new customer-centered processes and infrastructure, and launch
margins suffer. To succeed in this environment, financial services
entirely new services in real time.
providers must rethink their traditional market strategies.They must
If information is the currency of financial services, then the
expand globally while focusing on the individual.
value offered by providers is in how information is gathered,
The Internet compresses time and space, making information
managed, and leveraged to create unique customer experiences
available to everyone and anyone. For financial services companies,
one at a time. No matter how competitive the market becomes, or how
the information that is most important is that which relates to the
sophisticated the supporting technologies and delivery channels, only
customer and their individual aspirations. That is why financial
those companies that can successfully manage and act upon
services companies must tailor offerings to individual e-Customers.
knowledge about their customers and partners will prosper long term.
The question you need to ask is how can one person (or company,

for that matter) use your product set to meet their individual needs,




Develop/ Market/ Establish and

Manage Delivery Manage Process and Clear Provide Customer
Manage Promote Manage Customer
Channels Market Activities Transactions Service
Products Products Relationships

Mass Marketing Outflow Processes Deliver Predefined Value Retain

Advertisements and channels Continually present ...react to orders placed Workers solve product
promote product new information to ...deliver predefined products or services and process problems
customers, cross-sell
complementary ...maximize delivery speed and lower cost
products, and up-sell
new generations of


Embed and Inform Advise Transact Exchange

Segment and Package Innovate

New Peer Influence Inflow Processes Continually Create New Value Grow
A trusted advisor shows the Use interactive ... learn from growing knowledge of the customer’s changing goals, results, Workers sustain life-
customer how to use online mediums to empower needs, and wants long relationships by
service to better achieve their customers to assess ... proactively design, test, and demonstrate new total solutions that better continually delivering
personal goals their interests and achieve customer’s target outcomes better customer
goals, to monitor outcomes
progress against those ... maximize ability to deliver a virtual enterprise designed for one:a unique
goals, and to set of virtual partners that deliver lifetime experience
continually improve
their outcomes





Develop/ Market/ Establish and

Manage Delivery Manage Process and Clear Provide Customer
Manage Promote Manage Customer
Channels Market Activities Transactions Service
Products Products Relationships

Product Brands Interaction History Product Quality and Production Efficiencies Quality or Process
Branding promotes products’ Monitor historical Workers focus on quality and continuous process improvement Problems
use or benefits browsing and Workers continually monitor operations benchmarks and best practices Reactive; does not
Company purchase patterns anticipate customer
Technology infrastructure is continually improved to increase speed and issues
... segments customers by Sell and innovate to lower costs
demo/psycho-graphics offer complementary
products or new
... organizes by product line generations of
... innovates by product line products


Embed and Inform Advise Transact Exchange

Segment and Package Innovate

Experience Brands Life Aspirations Solution and Service Reinvention Emerging Shifts
Brand promotes what customers Use empowerment Workers focus on customer outcomes Innovates to satisfy
can be tools to understand Workers continually monitor research and breakthroughs – in traditional and new customer
Company customers’goals and non-traditional industries – to improve outcomes in new and unexpected demands as soon as
results to date ways they appear
... segments customers by life
experience and goals Innovate and Technology infrastructure enables workers to reinvent services – through
recommend brand new digitally partnering – as new products, services, competencies, and
... organizes by customer solutions to achieve
segment infrastructures emerge
better outcomes
... innovates by customer


Dell Computer offers a real-life, current-day illustration. "At Dell, its customers and its partners. The result: sales are increasing nearly

we believe the customer is in control, and our job is to take all the 50 percent a year and profits are growing in excess of 50 percent.

technology that’s out there and apply it in a useful way to meet the No financial services company has yet been able to duplicate

customer’s needs," explains Dell’s founder and chief executive this model. To do so, we believe financial services companies must

officer, Michael Dell. Dell specializes in custom-made computers, partner with organizations that are as good, if not better than they

sold primarily over the Internet. It co-creates and extends products are at managing customer knowledge. Those targeting young

and services through partnerships. Its production is virtually investors, for example, those we refer to as Generation Y, might

integrated along a value chain that emphasizes speed,flexibility,and consider partnering with Abercrombie and Fitch.

profitability. Dell has become adept at managing knowledge about

Deloitte Research – Re-Inventing FS Business Models
Gen Y is the first generation to have grown up with ready access But don’t stop at Generation Y. To be truly successful a financial

to PCs, wireless devices, and the Internet. This new segment of services firm must connect to multiple customer segments, and

investors, just now beginning to graduate into adulthood, has never accommodate its partnerships and its portal offerings to each. The

known a prolonged down stock market. Many already have E*Trade goal is to own high-profit e-Customers for life. You ensure this by

accounts, credit cards, and all the latest gadgets that can facilitate innovating to known customer aspirations and goals.

electronic interaction with friends and services. "Quick" returns on Each portal, while designed for a specific market segment,

investments to finance their latest adventures are what these provides access to best-of-breed products and services, financial

customers value. But many are college students, looking for the and non-financial. In this environment, financial services transforms

complete, real life, "college experience." into a customer experience business. Brand names are created to

Abercrombie and Fitch maintains an obsessive focus on the 18 represent the different requirements of different lifecycle stages,

to 22 year old customer segment, dispatching staffers to college and products and services are accessed and delivered across

campuses each month to find out what’s "in," not just in fashion, but multiple channels.

in music and hobbies. The retailer even publishes a magazine-

catalogue (it calls it a "magalog") that portrays college life – from the

mundane, like what to bring to college, to the rebellious, like trends

in drinking. It’s just like the students it targets: irreverent and


An investment house, or other financial services company could

team with Abercrombie and Fitch to offer an Internet portal

featuring news about college life, fashion, and financial news (to

support their quick-return trading schemes), as well as access to

college loans, cars, and trading accounts. The portal would tie the

real-life college experience with the real-life need for financial

services. The result: the company attracts those college students

who are starting to invest; it grows and changes with them; it

innovates. The reward: it owns the relationship for life.

UNDERSTANDING THE CUSTOMER’S SPACE Innovations will extend beyond the Internet medium, to better

A portal is not another sales channel. It’s a resource that helps support real-life experiences. The group working on the "radical

e-Customers design and achieve their desired lifestyles, workstyles, college experience," for example, might team up with MTV to

and/or playstyles, regardless of how they choose to access the produce a program that profiles 19 year olds who have discovered

organization and its partners. As such, it must be created and what works and what doesn’t work in online trading. The TV spots

maintained by those who understand, first-hand, the desires of a would introduce young people to investing and generate hits for

particular customer segment. the college scene portal. The group creating the experience that

To successfully compete in this environment, the e-Business will appeals to the single mother professional might sponsor seminars

operate as two separate organizations. One organization creates on financial planning, or how to get your children into the best

content, and operates the branded Web site. The other lives in the schools.

customer space; it designs consumer portals and proactively The bottom-line? As customer teams learn from and innovate for

manages customer relationships. new customers, they refine customer segments, discover new segments

The customer organization will be broken down into multiple and pack portals with a plethora of new services that empower

teams, each of which focuses on a unique customer segment. For customers.

example, one team might focus on the radical college experience,

while another creates a portal that caters to adventurous retirees,

another keeps its fingers on the pulse of the professional who’s also

a single mother, and still another might support the lifestyle needs

of new dot.com millionaires. Each customer team, in turn, partners

with a unique set of companies that together deliver the complete

experience for that segment – telecommunications providers, travel

services, day-care networks, and the like.
Deloitte Research – Re-Inventing FS Business Models
GETTING STARTED In order to become full-service merchandisers of

Fundamental shifts in customer loyalty and profitability are personalized solutions, financial services companies must

transforming financial services into a commodity business. As a begin now to refine and attract customer segments. They

result, we believe traditional providers of financial services today must develop the expertise to support customer access to

face three alternatives: they can reinvent themselves as trusted multiple resources through a variety of preferred channels

advisors who provide comprehensive solutions to real-life needs, with the intention of helping customers achieve personal

they can become product specialists, or they can go down the path goals. In addition, they must be willing to:

to extinction. n Provide information that helps customers keep pace

Obviously, no company would deliberately choose the path to with change, even if it means steering them toward
extinction. However, unless a company proactively develops competitors’ products and services
customer loyalty and continuously strives to improve the customer
n Offer advice that combines diverse resources to
value proposition, through traditional and non-traditional access
produce personal solutions to individual goals
channels, it will be eclipsed by the current transformation of the
n Offer one-stop capabilities for financial transactions
n Support the interaction of partners and customers
e-Customers value four things most: a trusted advisor brand,
through a single entry point
information, advice, and the ability to initiate transactions, anytime,

any place. While an Internet strategy is an important starting point n Continually innovate and introduce new customer

for most companies in meeting these demands, success requires a solutions

multi-dimensional approach to customer-centric service. Those that cannot respond to these market requirements must

begin now to assess current offerings and position themselves as

suppliers to the emerging new solutions providers. The only other

remaining alternative is the path to extinction, either through

acquisition by another fish or being forced to exit the business


About Deloitte Research
Deloitte Research is a cutting-edge thought leadership group within Deloitte & Touche and Deloitte Consulting. The group provides ongoing
research and insight into the critical global and industry-specific issues facing business today. Composed of both consulting practitioners and
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For More Information:

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Tel: 212.492.3791, Fax: 212.492.3880, or delresearch@dttus.com.

Recent Financial Services-Related Studies and e-Views







BEYOND THE BOUNDARIES: Enhancing Consumer Value in Multi-Channel Markets

ONLINE B2B EXCHANGES: The New Economics of Markets
THE INTERNET-BASED ASP MARKETPLACE: Renaissance of the Online Value-Added Network
MACHINE TO MACHINE e-BUSINESS: Information Systems Meet Electric Systems
NEW ECONOMIES OF TRANSACTIONS: Evolution of Unique Internet MarketSpaces
DOT.COM AFTERMARKET: Where Does the Value Lie and How Can It Be Captured?
About Deloitte Consulting and Deloitte & Touche

Deloitte Research – Re-Inventing FS Business Models

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