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.
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.
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.
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.
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