Financial Institutions Lack Net Strategy

Financial institutions across the board are struggling to identify a clear business strategy and a business case for electronic commerce, according to the “Electronic Commerce & Connecting to the Customer” survey by Ernst & Young. This has not stopped financial institutions from pouring money into e-commerce, however.

According to Ernst & Young, 70 percent of financial institutions do not have a pricing strategy for e-commerce, and globally more than 40 percent do not have e-commerce integrated into other delivery channels. Nonetheless, the financial institutions surveyed plan to spend 14 percent of their technology budgets, the same amount they currently spend to support their branch networks, on e-commerce by the year 2001.

One reason for the increase in spending may be that executives feel e-commerce will save them money in the long run. Survey respondents projected that e-commerce will double their savings on operating costs in the next three years. The respondents also predicted that the number of transactions processed over the Internet would grow by more than 300 percent this year.

The executives polled are not without concerns over e-commerce, the survey found. Excluding the issue of security, customer acceptance, business case viability, and competition lead the list of e-commerce worries.

“Financial services organizations on a global basis are at a crossroads with regard to their electronic commerce strategies,” said Phil Lawrence, director of e-commerce initiatives for the Financial Services Group of Ernst & Young. “They appear caught in a dilemma in which many have great expectations and are spending money and committing resources without having a clearly defined business plan.

The majority of financial institutions ranked retaining customers and operational cost savings as top e-commerce goals. Only one percent of the respondents ranked selling more products or services as the most important goal, while 14 percent ranked obtaining new customers as an objective.

The report was conducted in collaboration with Mainspring , a Boston, MA-based Internet advisory firm. More than 100 financial institutions, including banks, brokerage firms, mutual funds, and insurance companies from 26 countries were surveyed.

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