It was, Janey Place recalls, a moment of reckoning. Place, 55, heads up e-commerce strategy for Mellon Financial Corp., the Pittsburgh-based parent of subsidiaries such as Dreyfus Corp. and Newton Investment Management Ltd. Four months after she joined Mellon in May 1999, she walked onto a stage before 150 executives and unveiled the company's hotly anticipated e-commerce strategy. It was greeted with near-total silence.
"One man actually stood up and said, 'That doesn't sound very aggressive,' " Place recalls. "These are bankers. You don't often get a comment like that."
When Place signed on with Mellon, the financial-services powerhouse essentially had no e-commerce strategy. Mellon was way behind big banks and brokerage firms like Bank One and Citigroup, both of which had already launched their own separate online-banking ventures. Many Mellon executives were desperate to launch a Web channel at least. And they expected Place to lead the charge into cyberspace. Instead, she threw cold water on all that Internet euphoria.
Place had already led many major-league online initiatives. Within the banking industry, she was widely regarded as an e-commerce and business-technology futurist with extensive experience in developing technology-enabled business strategies at Bank of America and Wells Fargo Bank in California. And while she was determined to make Mellon a player in the digital economy, she would do so without forsaking the historical strengths that Internet pundits had rushed to write off — things like bank-office infrastructures, branch networks, and customer-service staffs.
Place firmly believed that, while the Internet changes everything, it would never abolish customers' desires for trusted (read: human) sources of financial advice and expertise. So her plan for Mellon's e-commerce strategy was decidedly simple and sober: Instead of spinning off a separate, headline-grabbing Web channel, she would integrate the Web into all of Mellon's existing lines of business. Mellon would use the Web for the basic business of pleasing customers and continuing to create value for them.
"We felt we could add more value to the market by bringing such capabilities as our asset management, asset servicing, and employee-benefits consulting to the Internet," says Place. "Eventually, our large clients and institutional investors will be able to access all of this on the Web, using a channel that looks the same to everyone and that is navigated in the same way. We're just using the Web to let customers get information and services easily and quickly."
It's not a radical plan — and that's exactly the point. But Place and her team are moving aggressively to leverage the Web: They have deployed 12 major applications; they are launching a new online application or enhancement every six weeks; and currently, they have 42 applications in development. In an interview with Fast Company, Place highlighted five rules for Webifying finance — click by painful click.
Rule #1: The Internet changes everything — but it doesn't change everything overnight
I am a big believer in technology, simply because technology has driven so much big change. The Internet changes everything: how we get information, how we learn, how we conduct business. But I was alarmed by the hype of the late 1990s, when the mind-set was "Fire, then aim" — you didn't ever have to be ready.
Back in 1999, when I joined Mellon, quite a few people hoped that I would come in with great ideas for building e-marketplaces and communities of interest and self-service on the Web. I guess I disappointed a few folks. While all of that stuff is very exciting, none of it by itself will amount to anything. Other processes need to come into play.
For example, there's a lot of excitement over EBPP [electronic bill presentment and payment]. But we still haven't worked out the basic business model for EBPP. Who should pay for it? And who should be the beneficiary?
If I'm a merchant, I incur an added cost if I send you an electronic bill when all of my other customers want paper bills. So I'm going to pass on EBPP until most of my customers want to receive their bills electronically. Then it's in my interest to use it, because EBPP will lower my cost.
Yes, the Internet will fundamentally change the way we handle things like bill paying. But it's not going to happen overnight. We still need to lurch our way toward critical mass.
Rule #2: There is no such thing as first-mover advantage. It's a mistake to build your business strategy around the Web.
I take the opposite tack: The Web needs to be a servant to your overall strategy. You've got to integrate your Web channel into all of your other business channels.
When I joined Mellon, my colleagues and I set about creating a company-wide e-commerce framework that assists all lines of business without constricting them. We were very deliberate in the way that we went about leveraging the Web — very strategic and very unexciting, especially at a time when the major events in the banking world were Bank One launching WingspanBank.com and Citigroup Inc. launching Citi f/i. Bank One and Citigroup bet that the Internet would lower costs, raise customer retention, and make it easier to cross-sell additional products. Nothing wrong with those goals, but no investment that I know of in Internet banking has a measurable positive ROI. Wingspan and Citi f/i were aimed solely at attaining first-mover advantage. But where was the advantage? Being first doesn't mean that you claim an unlimited amount of cyberspace — not when your competition is just one click away. As Wingspan and Citi f/i fell back to earth, we realized that second place is a good place to be. We could learn from others' mistakes.
Rule #3: Some of the old rules still rule.
Technology, in and of itself, isn't enough of a reason to invest in the Internet. There has to be a reasonable, logical business model. Either you're saving money or you're making money.
It sounds so obvious. But in all that Internet hype, we neglected the principle that to succeed in the virtual world, you've got to meet the requirements of the real world. We're seeing this reality come into play with digital signatures.
Right now, there are many technological solutions for securing digital signatures for, say, online transactions. The technology exists to make you feel secure when you transfer $100,000. And the electronic-signature legislation that has been passed by most countries lays the necessary legal foundation. But that's just a start. The legal infrastructure that keeps commerce running in the real world still needs to be developed for the virtual world. So if your $100,000 disappears into a black hole, someone is legally liable for it.
Rule #4: Your choice: dotcom, dotcorp, or both?
Right now, every single financial-services institution is reckoning with a do-or-die choice: Go dotcom, go dotcorp, or blend the two strategies.
A dotcom strategy is one where you take an existing expertise, put it on the Internet, and try to build a new line of business around it. Forrester Research coined the term "dotcorp." In a dotcorp, you drive the benefits of e-commerce through your existing products for the benefits of your existing customers. Sure, you want to acquire new customers. But dotcorp is basically about adding value to the business you do today, whereas dotcom is all about trying to do entirely new things.
If you're smart, you would never do a dotcom that doesn't leverage your existing expertise. Sure, we need to stay ahead of the competition. We just have to innovate in a way that works with our business strategy.
We could have dotcommed the investment methodology that we use with Mellon Private Asset Management, our high-net-worth application that we launched in August 2000. We could have standardized and commoditized it, and sold it to third-party investment advisers. Instead, we followed a dotcorp strategy: We focused on our large institutional clients and our very wealthy individual clients at the retail level.
We asked those customers what they needed most in a Web channel. And what they really wanted was support for their various advisers. In other words, they may not want the guy who does their estate planning to have access to as much information as the guy who does their tax planning. They wanted to define and control each adviser's access. What we're really doing is customizing the Web.
Rule #5: First we overestimated the Internet; don't underestimate it now.
These days, with all of this doom and gloom in the tech sector, we may be making the next big mistake: We are underestimating the Internet's impact — which is ironic when you consider how the Internet is driving so much change in the financial-services industry.
Where in financial services is technology exceeding our expectations? One area is foreign-exchange trading, which is a pretty big business: The turnover is about $1.5 trillion a day. And a good chunk of the simpler FX transactions is going into Web channels where the distribution costs are low. The financial institution posts its prices, and the orders are filled automatically. Prices are going down, and the costs of offering and servicing these trades are also going down. But the big thing here is that the Internet is taking cost and waste out of the FX system. That kind of efficiency drove the huge productivity gains of the 1990s.
Technology is also driving profound changes in the trade-finance area, which is incredibly paper intensive and isn't standardized. But as trade finance begins to move online, the paper documentation will be digitized, making it easier to move, store, and access documents. And as trade-finance documents, risk calculations, and credit instruments are standardized, commercial banks will securitize these complex transactions. So instead of carrying a letter of credit on a balance sheet, a creditor will securitize it and sell it on the open market. That's pretty revolutionary, because it makes the trade-finance market incredibly liquid and incredibly robust.
Looking ahead, I am convinced that the Internet will exceed our expectations. The dotcom explosion proved that technology matters — big time. But the fallout proves that old-economy rules haven't been completely repealed — that depth of knowledge and experience still matter.
I guess you could say that we're entering a new phase. This isn't the new economy. This isn't the old economy. It is a combination of the two. This is the hybrid economy. And the challenge for every e-commerce strategist is to meld hybrid strategies from both economies that will thrive in this new era.