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Täubert, Axel: Future Success Factors of Finance Portals: Dividing the Second Wave of
Customers / Axel Täubert - Hamburg: Diplomica GmbH, 2002
Zugl.: Reutlingen, Fachhochschule, Diplomarbeit, 2002
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I P
REFACE
I
I Preface
The title of this thesis might lead the cursory reader to the assumption that this is another
one of countless academic works whose authors have overestimated the prospects of the
Internet. However, this paper lays claim to be one of the early few that take a more rational
approach to the subject by analyzing the realistic profit potential of online business models.
Furthermore, future success factors for finance portals will be discussed and their respective
value proposition thoroughly examined. Since the fast moving Internet hype has had to give
way to an almost equally swift consolidation of the market, this will prove to be crucial
information for any company of the finance industry. Additionally, when taking into account
that the oncoming `second wave of customers' is to be divided amongst the remaining online
players, the findings of this thesis will be of eminent relevance for any provider of a financial
website.
Towards the end of my internship with AOL I was asked to research the required success
factors for finance portals as a basis for AOL's finance channel content strategy.
Inexperienced Internet-users such as those of the Second Wave are likely to utilize the user-
friendly and convenient service of AOL as an ISP. Therefore, it will be of vital importance for
AOL to incorporate the above mentioned success factors within their service in order to
increase the usage of its finance channel.
At this point I would like to thank AOL, not only for the financial, but especially for the
professional support, which both have simplified my task to a substantial degree as well as
all others who have been kind enough to let me benefit from their knowledge in the field.
Axel Täubert
Boston, 31
st
of March 2002
II E
XECUTIVE
S
UMMARY
II
II Executive
Summary
The executive summary serves the purpose of encapsulating the most important aspects of
this thesis, by shortly broaching its key findings. When appropriate, reference to the
respective chapters will be provided.
The Second Wave of Customers
Up to now, e-Finance was driven by early adopters of the Internet, which mainly consisted of
young, educated, affluent and typically male customers. As the penetration of this segment
draws near to 100 percent, finance portals must look for new target groups and turn towards
customers of the `Second Wave'. As these not only possess less online tenure, but also are
more conservative when confronted with new technologies, they will require higher levels of
advice and guidance than formerly employed by websites.
Especially in Europe, many second wave customers have inherited post-war savings, which
combined represent a tremendous amount of potential investments to be managed online.
Even though, a large portion of this money is still bound in fixed bonds or even deposited in
savings accounts, the recent trend of actively managing one's financial assets will lead these
consumers onto the Web too. Finance portals able to address this segment successfully will
have good chances of survival.
Customer Satisfaction
When looking at current customers' satisfaction with finance portals in general, numerous
opportunities for improvement can be identified. Only 34 percent of existing users are
completely satisfied with those online financial services they are making use of. Online
counseling and customer service meet customers' expectations the least. Consumers in
particular criticize the quality of financial advice and are unhappy with the helpfulness of
email support. If finance portals applied the even higher needs and standards of the
oncoming users, customer ratings would drop even further. Thus, finance portals must tackle
these shortcomings in order to prevent new customers' instant frustration (see Chapter
3.1.3).
Online Finance Value Chain
Today, finance portals do not cover the entire online finance value chain and miss out on
those products and services, which generate the highest margins such as personalized
II E
XECUTIVE
S
UMMARY
III
advice or individual financial management. Even though the Internet seems predestined to
facilitate private investors with speedy and timely information and can enable simple
transactions, its value proposition does not end at this point. Finance portals must embrace
new technologies and business models in order to provide customers with personalized
advice and individual financial management (see Chapter 3.1.1).
Basic Prerequisites for Finance Portals
Former success factors of virtually all Internet start-ups used to be a strong brand, sticky
content and a large member base, which generated lots of traffic. During the stock-market
hype, investors believed traffic to represent an adequate `currency' to refinance operational
costs. This has partially come true, as in fact only well known e-Businesses have survived
the market consolidation after the industries' slump, however, the majority of them still does
not generate profits. It must be asserted that these former success factors have degenerated
into mere prerequisites, which by themselves do not suffice to sustain long-term business
models based solely upon them (see Chapter 3.3).
Future Success Factors
Finance portals that want to stay ahead of the market and effectively address the second
wave of customers must rely on new success factors. Advanced prompt facilities such as
contextual guidance, intelligent transactions and pre-emptive support as well as website
personalization will make allowance to the fact that second wave customers are
inexperienced web users. Thus, these applications - amongst others - can create a suitable
environment for a more pleasant online experience.
Finance portals should carefully examine, whether supposable killer applications like
electronic bill payment and presentment or account aggregation really yield revenues and
profits under their particular circumstances. Even if the underlying business model just aims
at customer retention, today's customers do not seem ready to welcome them sufficiently to
justify high investments. Furthermore, with the postponement of third generation phone
networks, the demand for mobile financial services will also not be as high as projected. Only
finance portals, which have already truly mastered the PC based delivery channel, should go
beyond offering the most basic mobile applications (see Chapter 4).
II E
XECUTIVE
S
UMMARY
IV
Profitable Business Models
Just like in any other industry, an Internet company needs a sustainable business model to
drive its business strategy. Even the first round winners of the `.com-race' will have to show
that they can turn their supposedly first mover advantages into a profitable competitive and
economic edge. To do this, three major business models for the delivery of financial services
are at providers' disposal: Being an online pure-player, a multi-channel operator and as a
variation forming `coopetition-alliances'. Because all of those incur different costs and offer
varying revenue potentials, no categorical advice can be provided as to which should be
adopted. Nonetheless, the option of coopetition offers a favorable opportunity for basically
any market participant, thus it presently enjoys great popularity (see Chapter 5).
In spite of the appeals for cautious business decisions up to now, there undoubtedly is
business to be made on the Internet by financial companies. Even more so, with arrival the
Second Wave, but most likely not enough to sustain all current market participants or even
new ones.
IV T
ABLE OF
A
BBREVIATIONS
V
III Table of Abbreviations
3G Third
Generation
AAP
Account Aggregation Provider
AOL America
Online
ATM
Automated Teller Machine
B2C
Business to Consumer
B2B
Business to Business
BSP
Bill Service Providers
BTX
Bildschirmtext (Translation: Videotext)
CF Confer
CI Corporate
Identity
CLP
Consumer Lock-Box Provider
CPL
Cost Per Lead
CPM
Cost Per Thousand (M is taken from the Roman Numeral System)
CSP
Consumer Service Provider
EBPP
Electronic Bill Payment and Presentment
EDGE
Enhanced Data GSM Environment
FAQ
Frequently Asked Questions
FAZ
Frankfurter Allgemeine Zeitung
GPRS
General Packet Radio Service
GSM
Global System for Mobile Communication
HSCSD
High-Speed Circuit-Switched Data
HTTP
Hyper Text Transfer Protocol
J2EE
Java 2 Platform, Enterprise Edition
IP Internet
Protocol
IPO
Initial Public Offering
ISP
Internet Service Provider
IDTV
Interactive Digital TV
IT Information
Technology
P2P Peer-to-Peer
PDA
Personal Digital Assistant
PC Personal
Computer
ROI
Return On Investment
SMS
Short Message Service
TV Television
UMTS
Universal Mobile Telecommunications Service
US United
States
USA
United States of America
USP
Unique Selling Point
VC Venture
Capital
WWW
World Wide Web / Wild Wild West
ZKA
Zentraler Kreditausschuss (Translation: Central Credit Committee)
IV T
ABLE OF
F
IGURES
VI
IV Table of Figures
Figure 1:
Capital Circle during the Internet Hype ... 1
Figure 2:
The second Generation has begun... 2
Figure 3:
Methodology... 5
Figure 4:
Differentiation of Providers of Finance Portals... 9
Figure 5:
Diminishment of the Target Group due to Technical Prerequisites ... 11
Figure 6:
Usage of online financial Services by Gender ... 13
Figure 7:
Usage of Finance Portals by Types of Customers... 14
Figure 8:
Distribution of Users by Connection Speed ... 15
Figure 9:
Online Finance Value Chain ... 18
Figure 10:
Competitive Situation in the online Finance Market... 20
Figure 11:
Reasons for Complaints about online financial Services ... 21
Figure 12:
Content from the Consumer's Perspective ... 22
Figure 13:
Overlapping of Information and Services ... 23
Figure 14:
Growth of Online Brokerage Assets and Customers until 2005... 25
Figure 15:
Funds' Share of total liquid Assets of online Funds Depositors... 26
Figure 16:
Reasons to trade Funds on the Internet... 27
Figure 17:
Consumers seek out traditional Service Attributes ... 29
Figure 18:
Internet Suitability: Transaction Volume versus Complexity ... 30
Figure 19:
Online Market Potential in Personal Lines ... 31
Figure 20:
Implemented and planned e-Business Applications in online Real Estate ... 32
Figure 21:
Criteria applied to measure Success of Finance Portals ... 35
Figure 22:
Design Priorities of Finance Portals ... 37
Figure 23:
Greatest Challenges of Finance Portals ... 38
Figure 24:
Exemplary financial Services by Need of Advice... 39
Figure 25:
Consumers' Interest in personalized Websites... 44
Figure 26:
Top Media Sources for online Consumers... 45
Figure 27:
Online Experience erodes the Influence of Classic Media... 46
Figure 28:
Consumers' Likelihood to use a wireless Device for selected Functions ... 49
Figure 29:
Financial Service Applications positioned by Immediacy and Simplicity ... 50
Figure 30:
Development of EBPP Household Penetration... 52
Figure 31:
B2C Electronic Bill Payment and Presentment Revenue Streams... 54
Figure 32:
Benefits of Channel Integration... 55
Figure 33:
Integrated Finance defined ... 57
Figure 34:
Breakdown of Affinity Marketing according to Provider Type ... 59
Figure 35:
Commission Types used in Affiliate Marketing Campaigns ... 61
Figure 36:
Share of financial Firms offering Account Aggregation... 63
Figure 37:
Business Models for Account Aggregation ... 64
Figure 38:
An imaginary Start-up's Costs, Revenues and Transactions over Time ... 67
Figure 39:
Company's Reasons for Multi-Channel Services... 71
Figure 40:
The PC becomes the financial Service Hub... 74
Figure 41:
The changing Face of online Finance ... 76
V T
ABLE OF
E
XHIBITS
VII
V Table of Exhibits
Exhibit 1:
Providers of Finance Portals classified by Products and Services ... X
Exhibit 2:
Usage of online Finance Services by Gender... X
Exhibit 3:
Usage of online Finance Services by Marital Status... XI
Exhibit 4:
Usage of online Finance Services by Education... XI
Exhibit 5:
Types of Customers defined by Purchasing Patterns... XII
Exhibit 6:
Usage of online Finance Services by online Tenures... XIII
Exhibit 7:
Evolution of the online Brokerage Value Chain ... XIII
Exhibit 8:
Development of the Competitive Situation in online Finance...XIV
Exhibit 9:
Banks and Brokerages barely meet online Customers' Expectations ...XV
Exhibit 10:
Phase Model for e-Business ...XVI
Exhibit 11:
Privacy Survey on Personalization...XVII
Exhibit 12:
Customers' Requests for Personalization ...XVIII
Exhibit 13:
The Values of Networks and Segmentation...XVIII
Exhibit 14:
Implicit versus explicit Personalization...XIX
Exhibit 15:
Network Evolution of wireless Data...XIX
Exhibit 16:
Today's Market Penetration of EBPP...XX
Exhibit 17:
Stages of Integration Efforts...XX
Exhibit 18:
Consumers' basic financial Needs ...XXI
Exhibit 19:
Forms of Revenue for Finance Portals ...XXI
Exhibit 20:
Historical Development of multi-channel Offers...XXII
Exhibit 21:
Exemplary Combination of complementary Strengths...XXII
Exhibit 22:
Development of Page Impressions ...XXIII
Exhibit
23:
S
INGER
'
S
Scale for Content ...XXIII
VI T
ABLE OF
C
ONTENTS
VIII
VI Table of Contents
1
Incipience ... 1
1.1 Topic
Introduction ... 1
1.2 The
Second
Wave
of Customers ... 3
1.3 Methodology and Scope ... 4
2
Definitions and Background Information... 6
2.1 Definition
of
Finance Portals ... 6
2.2
Types of Finance Portals ... 6
2.2.1 Content Portals ... 7
2.2.2 Corporate Portals of Banks and Insurance Companies ... 7
2.2.3 Neutral Brokers and Intermediaries... 8
2.3 Providers
of
Finance Portals... 8
2.3.1 Providers from the Banking Sector... 9
2.3.2 Providers from the Insurance Sector ... 9
2.3.3 Providers from the Near-Bank Sector... 10
2.3.4 Providers from the Non-Bank Sector... 10
2.4
Usage of Finance Portals... 11
2.4.1 Technical Prerequisites ... 11
2.4.2 General User Information ... 11
2.4.3 Usage based upon Demographic Factors... 12
2.4.4 Usage based upon Consumption Behavior and other Characteristics... 14
3
Analysis ... 17
3.1 Selected
Market
Characteristics ... 17
3.1.1 Online Finance Value Chain... 17
3.1.2 Competitive Situation in Online Finance... 18
3.1.3 Customers' Perception of Services ... 20
3.2
Service Areas of Finance Portals... 22
3.2.1 Information and Content ... 22
3.2.2 Brokerage ... 24
3.2.3 Funds... 26
3.2.4 Direct Banking ... 27
3.2.5 Insurances ... 29
3.2.6 Real Estate ... 32
3.3
Basic Prerequisites for successful Finance Portals ... 33
3.3.1 Branding ... 34
3.3.2 Content ... 34
3.3.3 Member Base and Traffic ... 36
4
Future Success Factors... 37
4.1 Advanced
Prompt Facilities ... 38
4.1.1 Contextual Guidance ... 38
4.1.2 Intelligent Transaction ... 40
4.1.3 Pre-emptive Support... 41
4.1.4 Implications for Finance Portals ... 41
4.2 Personalization... 42
4.2.1 Types of Personalization ... 42
4.2.2 Sources for Customer Information... 42
VI T
ABLE OF
C
ONTENTS
IX
4.2.3 Customers' Demand and Privacy Issues... 43
4.2.4 Implication for Finance Portals ... 44
4.3 Peers' Advice ... 44
4.3.1 Acceptance and Penetration of Peers' Advice ... 45
4.3.2 Types of Peers' Advice... 46
4.3.3 Implications for Finance Portals ... 47
4.4 Mobile
Services... 47
4.4.1 Consumers and Mobile Services... 48
4.4.2 Underlying Business Models ... 49
4.4.3 Barriers to Mobile Services... 50
4.4.4 Implications for Finance Portals ... 51
4.5
Electronic Bill Payment and Presentment... 51
4.5.1 Market Potential and Penetration ... 51
4.5.2 Delivery Models ... 53
4.5.3 Revenue Streams and Potentials ... 53
4.5.4 Implications for Finance Portals ... 54
4.6 Channel
and
Product Integration ... 54
4.6.1 Channel Integration ... 55
4.6.2 Product Integration ... 56
4.6.3 Implications for Finance Portals ... 57
4.7 New
Marketing Ideas ... 58
4.7.1 Affinity Marketing ... 58
4.7.2 Affiliate Marketing ... 59
4.7.3 Performance based Deals ... 60
4.7.4 Implications for Finance Portals ... 61
4.8 Account
Aggregation... 61
4.8.1 Technology and Legal Issues... 62
4.8.2 Current Market and Forecasts... 62
4.8.3 Business Models and Returns on Investment ... 63
4.8.4 Requirements for Success in Account Aggregation ... 65
4.8.5 Implications for Finance Portals ... 65
5
Profitable Business Models... 66
5.1
Fundamentals of Internet Business Models... 66
5.2 Pure-Play Portals ... 68
5.2.1 Revenue Potentials... 68
5.2.2 Incurred Costs ... 69
5.2.3 Implications for Finance Portals ... 69
5.3 Multi-Channel Providers... 70
5.3.1 Different Approaches and their Reasoning ... 70
5.3.2 Potentials and Incurred Costs ... 72
5.3.3 Implications for Finance Portals ... 73
5.4 Coopetition ... 74
5.4.1 Structure of Coopetition Partnerships... 75
5.4.2 Potential of Coopetition for Finance Portals ... 76
5.4.3 Implications for Finance Portals ... 77
6
Conclusion ... 79
1 I
NCIPIENCE
1
1 Incipience
1.1 Topic
Introduction
Not too long ago the adoption of a revolutionary `connection technology' was reshaping
society and driving the stock markets. 150 years ago, a WWW business model seemed to
fulfill investors' fantasies by achieving astronomical growth rates and projecting enormous
profits - railroads heading towards the Wild Wild West. The similarities between the railroads
and the World Wide Web are striking and can be employed to deduce forecasts for the
development of Internet business.
1
In the late 1860s, railroad construction almost became an article of faith for investors and it
did not really matter where the tracks were built as long as they were put down fast and
headed towards the west. Recently, investors showed the same attitude towards Internet
start-ups, as their only concern was, whether they had a first mover advantage rather than a
plausible business model as a basis. Since IPOs in new technology stock markets readily
provided venture capitalists with financially attractive exit opportunities, a circular flow of
capital boosted an entire industry that did not make any profits (see Figure 1).
2
Figure 1: Capital Circle during the Internet Hype
VC
Start Ups
IPO`s
Exit-Opportunities
$
Source: 2001 - AOL Germany / Own Design
While companies like C
ISCO
that helped to build Internet infrastructure have benefited the
most from heavy investments into e-Commerce and already earned tremendous profits, truly
lucrative business models for companies using the Internet as their sole delivery channel are
1
G
ENE
W
ALDEN
: "Stocks for the Next Century", http://www.onmoney.com, 02/17/2000
2
N
GUYEN
-K
HAC
, T
UNG
-Q
UAN
: "Quo vadis Finanzportale?", AOL Deutschland, Hamburg, 12/13/2001
1 I
NCIPIENCE
2
rare. Many Internet companies had to shut down operations after the end of the stock market
hype in early 2000 because they lacked reasonable business plans and revenue potentials.
Figure 2: The second Generation has begun
First Generation
Second Generation
Netscape
IPO
Dot-com Wave
starts
E-Commerce X-mas
Business 1998
AOL takes over
Time Warner
First spectacular
Bankruptcies
like boo.com
Stock Prices
fall rapidly
Investors
draw back
Second Wave
of Customers
builds up
Core
Competences
become
web-enabled
E-Business is
part of Companies
Structure
New Business Models
Sustainable Business Models
Consolidation
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Perceived Value Added
Cost Reduction
First Generation
Second Generation
Netscape
IPO
Dot-com Wave
starts
E-Commerce X-mas
Business 1998
AOL takes over
Time Warner
First spectacular
Bankruptcies
like boo.com
Stock Prices
fall rapidly
Investors
draw back
Second Wave
of Customers
builds up
Core
Competences
become
web-enabled
E-Business is
part of Companies
Structure
New Business Models
Sustainable Business Models
Consolidation
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Perceived Value Added
Cost Reduction
Source: 2001 - Gartner Research and Advisory Service / FAZ
History has shown that the railroad market eventually underwent a severe slump leading to a
period of consolidation, just as the new economy has experienced in the last 18 months.
However, even today railroads - or to put it in more general terms - `connection technologies'
as such have not become obsolete just as the Internet will not. In fact, the Internet and
particularly online finance will increase in importance with the arrival of the `Second Wave'.
Not only will this wave consist of a second more moderate ascend of e-Commerce, but even
more importantly of new users who are new to the medium. After leaving the bottom of the
valley as illustrated in Figure 2, targets of e-business investments have shifted from market
penetration and customer base towards enhancement of efficiency and cost reduction.
3
Moreover, website operators will invest in technologies, such as personalization and channel
integration, that are likely to become the key success factors for obtaining and retaining
customers of the second swell.
Many features of traditional financial supremacy - manifested in banks possessing strong
stakes in virtual every large company - have been challenged by the Internet's capability to
3
FAZ: "Unternehmen sind mit E-Business bisher nicht zufrieden, investieren aber kräftig weiter", p. 31, Frankfurt
a. M., 06/10/2001
1 I
NCIPIENCE
3
timely provide information, as well as tools and platforms which give the web its power and
reach. The Internet has made available the infrastructure and framework to new and
established financial ventures leading to a digital reconstruction of the delivery and design of
financial products and services. Technology has helped to recreate financial and economic
processes, leading to change, adaptation and competition.
4
The proliferation of finance
portals that bring together a range of financial services at a single location will continue to
fundamentally change the nature of the finance industry, just as railroads shared in
revolutionizing the mobility of individuals and goods by means of technological advancement
and innovation.
5
1.2 The Second Wave of Customers
In the past, early adopters of the Internet, which mainly consisted of young, educated,
affluent and typically male customers, drove the success of e-Finance. Many of these
customers were or still are `heavy traders', very familiar with the selling and buying of stocks,
carrying out numerous transactions per month. As the penetration of this segment draws
near to 100 percent in almost all geographical markets and can not be notably expanded,
finance portals must look for new target groups and turn towards customers of the Second
Wave.
As the adoption of the Internet increases and becomes an everyday tool just like the
telephone, even consumers who are generally more reluctant and conservative when it
comes to accepting new technologies begin to embrace the Net's vast possibilities. By and
large this group consists of older people and women with a lower affinity to technology than
men. Naturally, customers of the Second Wave possess less online tenure and will therefore
require higher levels of advice and guidance than formerly employed by websites. In terms of
financial products and services, this group also has different needs and preferences, due to
higher risk averseness on the one hand and lower financial assets on the other hand.
6
Especially in Europe, many second wave customers have inherited post-war savings, which
- when combined - represent a tremendous amount of potential investments to be managed
online. Today, large portions of this money are still bound in fixed bonds or even deposited in
4
B
ANKS
, E
RIK
: "e-Finance - The Electronic Revolution", p.140, John Wiley & Sons Ltd., Chichester, 2001
5
Z
ASK
, E
ZRA
: "The e-Finance Report", p. 15, McGraw-Hill, New York, 2001
6
W
ITT
, J
ASON
: Executive Director, Business Affairs, AOL TW, USA, Interview via Email, 02/07/2002
1 I
NCIPIENCE
4
savings accounts as the owners rarely are knowledgeable about and have reservation
towards more advanced and risky financial products. Nevertheless, the recent trend towards
the personal management of one's financial assets has resulted in advanced requirements
for individual information. Finance portals, able to address this segment successfully with the
right information and products will have good chances of survival.
1.3 Methodology and Scope
The intention of this thesis is to provide a comprehensive overview of future success factors
for online finance portals operating in the B2C
a
sector. It is identifying those innovations that
will enable finance portals to obtain their share of new users when the second wave of
customers is divided amongst them. The observation, analysis and valuation of markets are
confined to the US and the European market with a focus on Germany within the latter. With
the exception of online bank transfers and effecting insurances via the Internet, consumer
behavior and needs across these geographic boundaries are assumed to be sufficiently
similar in order to equate them.
As above markets ideally supplement each other in terms of market development of the
various financial segments, a complete picture of the cutting edge applications and
developments in the entire market can be drawn. This is achieved through the following three
steps:
At the outset, by defining the term `finance portal' and by providing the reader with the
necessary background information on their occurrences, usage and providers.
Subsequently, through the analysis of selected market characteristics, the individual
service areas of finance portals and - as a foundation for the following chapters - the
former success factors, which have by now degenerated into mere prerequisites for
those websites that have survived so far.
In the third step, this thesis gives a strategic outlook, consisting of two different parts.
To do this, Chapter 4 discusses future killer applications for finance portals and
Chapter 5 identifies profitable business models that are to come. As it is the intent of
this thesis to provide the reader with strategic directions, rather than guidance for
implementation, no detailed calculations are included.
1 I
NCIPIENCE
5
Figure 3: Methodology
Definitions and Background Information
(3)
Analysis of the Facts
(4)
Outlook
(5 & 6)
Conclusion
(7)
Source: 2002 - Own Design
The findings of thesis will be summarized in Chapter 6 at the very end, which contains the
author's conclusion and recommendations.
2 D
EFINITIONS AND
B
ACKGROUND
I
NFORMATION
6
2 Definitions and Background Information
2.1 Definition of Finance Portals
As already succinctly mentioned at the beginning of Chapter 1.3, B2B
b
finance portals will not
be considered in this thesis, thus rendering unnecessary any definitions of portals apart from
those of the B2C industry.
Customers' Perspective
According to F
ORRESTER
R
ESEARCH
, "portals are websites that serve Internet users as a
starting point for the World Wide Web. They clearly arrange an assortment of information and
services by offering a pre-structured and interest-oriented view of the respective topics."
7
Finance portals therefore are websites that devote their efforts to do the above in the area of
finances.
Business Perspective
N
GUYEN
-K
HAC
from AOL G
ERMANY
, in charge of business development for the finance
channel defines finance portals as "websites that bundle Internet traffic generated by users
with a high affinity to financial topics and commercialize these traffic flows by means of paid
content, marketing, transaction fees or a combination of those revenue sources."
8
This
certainly is a more business related definition, however, it serves the purpose of this thesis
much better.
No matter which of these two definitions is applied as to sieve out finance portals from other
types of portals, a large number still is in compliance with those definitions. Therefore, it is
the purpose of the following chapter to divide the remaining rest into three different types of
finance portals.
2.2 Types of Finance Portals
Currently there are a great variety of websites to be found on the Internet that call
themselves or are referred to as finance portals. Banks, direct banks
c
, brokerage companies,
7
W
/
O
A
UTHOR
: "Finanzportale für den Privatkunden - Fokussieren und Kooperieren", p. 5, Forrester Research Inc.,
Frankfurt a. M., 11/2000
8
N
GUYEN
-K
HAC
, T
UNG
-Q
UAN
: "Quo vadis Finanzportale?", AOL Deutschland, Hamburg, 12/13/2001
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publishers, search engines, marketplaces and of course Internet service providers
d
(ISP)
have tried to acquire as many customers as possible and tie them to their financial products
and content in the past. The large number of providers from different backgrounds and
intentions lead to multifaceted and sometimes confusing offerings, not only for the consumer,
but for the operators of portals as well. Otherwise, why should direct bank subsidiaries get
their parent companies in strategic distress by competing for the same target group
consisting of the second wave of customers?
9
Nevertheless, and in spite of some
overlapping services, providers can be classified according to their products and services as
follows in the next chapters or as in Exhibit 1.
2.2.1 Content Portals
Pure content portals are those websites that do not (yet) facilitate any transactions, but
distinguish themselves by offering specific and partially detailed finance information. The
operators of such finance portals either are publishers from the old economy traditionally
operating in the media industry, pure-player start-ups or general interest portals and ISPs
with a finance category. The information, data and other contents these companies produce
or obtain through offline counterparts can either be displayed solely on own portal sites or be
syndicated to other subsidiaries and even competitors, depending on the respective business
model.
10
Even though T
HE
S
TREET
.
COM
faced various financial problems and shut down some
of its international branches, it still is an apt example of a pure financial content portal.
2.2.2 Corporate Portals of Banks and Insurance Companies
Most of the times, corporate portals have developed or derived from initial representative
online presences of banks and insurances. Today, they are being continuously transformed
into portals with a large choice of transaction tools and sticky content in order to keep
customers on the institute's website and therefore increase sales. Even though corporations
use different strategies when setting up the operation of their portals by either founding a
new subsidiary (e.g. UK-based E
GG
controlled by P
RUDENTIAL
11
) with its own branding or
9
W
IRTSCHAFTSWOCHE
: "Alles aus einer Hand", p. 142, Düsseldorf, 10/18/2001
10
W
/
O
A
UTHOR
: "Finanzportale für den Privatkunden - Fokussieren und Kooperieren", p.9, Forrester Research Inc.,
Frankfurt a. M., 11/2000
11
Available for observation at http://www.egg.co.uk
2 D
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using the firm of the parent company (e.g. C
ITI
of C
ITIGROUP
12
), it still all boils down to web-
enabling their traditional business models.
13
2.2.3 Neutral Brokers and Intermediaries
Websites of neutral brokers and intermediaries facilitate users with online comparisons of
prices and fees for financial products, transactions or services, thus, performing an
independent role on the financial stage. Over the last 12 months the term `open finance',
referring to banks selling competitors' products, has been one of the finance industry's
favorite idioms. The competitive pressure, which lead to this trend originated largely from
financial intermediaries. Although this segment already started off fairly large it will gain even
more importance as content providers and corporate portals merge into the segment by
either increasingly starting to offer online tools or by getting used to and implementing the
idea of open finance.
14
The German S
COUT
24 G
ROUP
with its portals F
INANCESOUT
24.
DE
and
I
MMOBILIENSCOUT
24.
DE
can be referred to as intermediaries.
Brokerage portals that also belong to this category, but pursue a slightly different business
model, enable their users to trade stocks, options and other derivates online. These portals
have played an important role in increasing the acceptance of online finance transactions
during the run on the stock market.
15
In Germany, especially C
ONSORS
and C
OMDIRECT
have
had an early part in online brokerage, while E*
TRADE
and C
HARLES
S
CHWAB
are prominent
examples taken from the US market.
2.3 Providers of Finance Portals
There are several distinguishing properties that can be applied to categorize providers of
finance portals. Firstly, a practical division is to winnow old economy companies from those
of the new economy. Even though this is a very rough criteria it still is an important one since
many brick-and-mortar companies have founded independent start-ups, which financially
belong to their parent companies, but by definition actually are part of a different group - that
of the new economy. Secondly, the affinity to the industry or rather the original derivation of
12
Available for obeservation at http://www.citibank.com
13
W
/
O
A
UTHOR
: "Finanzportale für den Privatkunden - Fokussieren und Kooperieren", p.10, Forrester Research
Inc., Frankfurt a. M., 11/2000
14
W
/
O
A
UTHOR
: "Finanzportale für den Privatkunden - Fokussieren und Kooperieren", p.11, Forrester Research
Inc., Frankfurt a. M., 11/2000
15
F
INANCIAL
T
IMES
: "German online Brokers play a long-term Game", p.21, London, 11/05/2001
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the provider should be used for a more exact classification. Thus, when combined resulting
in the following eight categories, as shown in Figure 4 as well as the next chapters.
Figure 4: Differentiation of Providers of Finance Portals
Citibank
DAB
Allianz
Mamax
Ne
w
Old
AWD
Onvista
Banks
Insurances Near-Bank
Non-Bank
Financial
Times
Entrium
Citibank
DAB
Allianz
Mamax
Ne
w
Old
AWD
Onvista
Banks
Insurances Near-Bank
Non-Bank
Financial
Times
Entrium
Source: 2001 - AOL Germany / Own Design
2.3.1 Providers from the Banking Sector
Currently, financial portals provided by banks are segmented into two types of banks: multi-
channel banks and Internet-only banks. Multi-channel banks have both an offline as well as a
web presence and originated from the old economy, while pure-player banks solely rely on
their website for client interaction and belong to the new economy.
16
Multi-channel banks
have enjoyed continuing market dominance, but Internet-only banks' audiences are growing
dramatically. A further comparison of both business models will be given in Chapter 5.
D
EUTSCHE
B
ANK
24 and DAB can be referred to as fitting examples of both types of
providers.
2.3.2 Providers from the Insurance Sector
Even though insurance companies could be ascribed to the sector of near-bank companies it
is more apt to put them in a group of their own due to the unique products they provide for
their customers as well as their sheer size and importance to the finance sector. Because
they usually have a shareholder's stake in banks and all the more for the reason insurance
companies have gradually merged towards banks' products and services on the perceptual
map the borders between banks and insurance companies have continued to obliterate over
the last ten years.
16
R
AKOWITZ
, R
OBERT
N.: "Online Bankers: Differences between Multi Channel Bankers and Internet-Only
Bankers: Topical Report Volume 3", p. 1, Jupiter Media Metrix Inc., New York, 2001
2 D
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This also has become true for finance portals, of which many are operated and branded by
old economy insurance companies such as A
LLIANZ
or AXA that often go beyond their
traditional insurance business. Pure-players such as M
AMAX
and I
NSURANCE
.
COM
are
counter-examples taken from the new economy.
2.3.3 Providers from the Near-Bank Sector
Providers from near-bank sectors have penetrated into markets that are related to their
conventional core business or at least supplement it to some extend. In the offline as well as
the online world leasing companies, issuers of credit cards, postal services, asset managers
and investment advisers can be apportioned to this group.
Apart from pure-play online brokers (O
N
V
ISTA
,
WALLSTREET
:
ONLINE
) there are also a number
of Internet only investment advisers such as H
OOVERS
.
COM
and T
HE
M
OTLEY
F
OOL
, which
belong to the group that originated from the new economy. An example of a near-bank
company from the old economy offering an online finance portal is AWD, the independent
personal finance manager.
2.3.4 Providers from the Non-Bank Sector
In the cluster of non-bank companies that provide finance portals belong those companies
whose traditional business segments have absolutely no connection to the industry of
banking. As it becomes less unusual for retailers or car manufacturers to offer financial
services such as leasing and installment sales, finance portals provided by publishers and
department stores are also no longer unheard of. Such companies usually offer banking
functionalities to a more or less large extend in order to increase sales of their chief goods
and services or to open up an additional revenue stream.
Some good examples of companies that have ventured into the unfamiliar area of finance
portals are SONY (in the process of founding the SONY O
NLINE
B
ANK
)
17
, formerly
K
ARSTADT
/Q
UELLE
(E
NTRIUM
.
DE
) and F
INANCIAL
T
IMES
(FT.
COM
). Moreover, ISPs with finance
channels such as T
ISCALI
belong to this group.
17
FAZ: "Sony startet mit eigener Bank", p. 26, Frankfurt a. M., 06/11/2001
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2.4 Usage of Finance Portals
2.4.1 Technical Prerequisites
The fundamentals of portal usage may seem obvious to the familiarized reader, but should
still not be underestimated in terms of importance as the aimed at customer segment needs
to fulfill a number of technical prerequisites that today still limit their number at large.
Customers from the offline world that want to access finance portals not only need a simple
online connection, but the respective hardware (multimedia PC) and software (web-browser)
to log on to the WWW. Here, they will have to find their way towards finance portals via
search engines, links on their ISP's homepage or advertisements. Figure 5 illustrates these
basic requirements schematically.
Figure 5: Diminishment of the Target Group due to Technical Prerequisites
Offline Customers
People with Online Access
Internet- / WWW-User
Portal Users
Source: 2002 - Own Design
2.4.2 General User Information
Users of online financial services are ideal consumers in many respects: They have an
income that is higher than average, are experiences online users, underwent higher
education and possess a disproportionate amount of personal depository assets. However,
the continuous growth of the online finance community means that this supreme customer
segment is becoming increasingly mainstream and diverse at the same time.
18
Due to this
development, operators of portals will be confronted with a clientele that has fewer financial
assets at their disposal, is not as well educated and is less tenured in online usage. This
second wave of customers will on the one hand be less lucrative and on the other hand even
18
D
ANNENBERG
, N
IKKI
: "Jupiter Consumer Survey Report: Banking & Lending", p.13, Jupiter Research Inc., New
York, 11/14/2001
2 D
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more demanding concerning prices, service and ease of use. Nevertheless - and in spite of
lower margins - simply owing to the size of this segment there is profitable business to be
made.
2.4.3 Usage based upon Demographic Factors
The usage of finance portals is affected by a range of demographic variables such as
gender, marital status, education, levels of utilization of the Internet as such and other less
important ones.
Gender Discrepancies
In general one can still rightfully assert that male users play the dominant role on the Internet
as a whole, which further amplifies the uneven distribution of online finance usage. Since 76
percent of online males access their financial accounts online, compared to only 67 percent
of women, this creates an opportunity for financial institutions to draw in new customers
through targeting women by focusing on how they choose financial institutions and sites with
which they conduct their online transactions.
19
A graphical illustration of above numbers is
charted in Exhibit 2. The discrepancy between sexes is most prominent in the limited service
area of online brokerage since women only represent seven percent of customers that make
use of this service whereas more than twice as many men do.
20
The exact numbers can be
extracted from Figure 6 below. The most important essence of the chart is represented by
the two bars to the left, which symbolize the regular usage of finance portals. These again
show a noticeable difference between men and women.
19
D
ANNENBERG
, N
IKKI
: "Jupiter Consumer Survey Report: Banking & Lending", p. 15, Jupiter Research Inc., New
York, 11/14/2001
20
G
EIßLER
, H
OLGER
: "Finanzdienstleistungen im Internet aus Sicht des Kunden: Aktuelle Ergebnisse der
Marktforschung", psychonomics AG, Köln, 12/12/2001
2 D
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Figure 6: Usage of online financial Services by Gender
"Do you regularly use the following
online Services?"
21%
44%
16%
14%
38%
7%
0%
25%
50%
75%
100%
Finance Portals
Online Banking
Online Brokerage
Men
Women
Source: 2001 - Jupiter Research (US only)
Marital Status
According to J
UPITER
R
ESEARCH
, "online financial users are more likely to be married or at
least have been married at some stage than others." Singles are by far less likely to utilize
financial services online, which may represent the predominance of teenagers in that
segment who still lack noteworthy financial responsibilities or assets. The scarcity of tailored
products and services for single customers has the effect of creating less enticing offerings
for what will become tomorrow's most precious user population.
21
Those online financial
service providers who will succeed in attracting these clients now or in the near future will
have a sound customer base in the decades to come. A complete breakdown of customer
segments according to their marital status can be viewed in Exhibit 3.
Education
Amplifying a general trend in the overall online population, online financial users tend to be
more educated than those who do not access financial sites or their accounts online.
Nonetheless, this is gradually changing towards a more average level of education due to the
new types of mainstream users venturing into such services. More details on levels of
education are given in Exhibit 4.
21
S
TERLING
, R
OBERT
: "Jupiter Consumer Survey Report: Brokerage & Wealth Management", p.5, Jupiter
Research Inc., New York, 11/21/2001
2 D
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2.4.4 Usage based upon Consumption Behavior and other
Characteristics
When approaching new customer segments it is of crucial importance to differentiate them
not only by demographic attributes, but also by their behavior patterns.
Purchasing Patterns
The respective types of customers defined in Exhibit 5 closely follow the target groups for
insurances classified by the German based market research company
PSYCONOMICS
AG.
These are assumed to be transferable to a wider product range of financial services and
therefore applied to the clientele of finance portals as well. Each group shows a distinct
access behavior regarding finance portals. Ahead of the so-called `distinguished
conservative', the so-called `price oriented rationalist' uses portal sites dealing with finance
topics most frequently.
Figure 7: Usage of Finance Portals by Types of Customers
16%
20%
22%
25%
9%
9%
0%
5%
10%
15%
20%
25%
30%
Overstrained Support Seeker
Skeptical Indifferent
Trusting Sales Rep Customer
Demanding Delegater
Distinguished Conservative
Price oriented Rationalist
Source: 2001 - psychonomics (Germany only)
Figure 7 demonstrates that 25 percent of them and 22 percent respectively use finance
portals. For them the Internet is a convenient online tool to search for savings and
markdowns, doing justice to their price-conscious image. The former group of people mainly
seeks out non-committal offerings submitted by well-known companies. The so-called
`demanding delegators' are by nature and of course by definition open to additional service
and often compare products from the offline world with those from websites. It is apparent
though that only a vanishing few of the `overstrained support seekers' as well as of the
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- , 2002, Future Success Factors of Finance Portals, Hamburg, Bedey Media GmbH, https://www.diplom.de/document/220802
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