Future Success Factors of Finance Portals - Dividing the Second Wave of Customers

Diploma Thesis, 2002

115 Pages, Grade: 1,3 (A)


Table of Contents

1 Incipience
1.1 Topic Introduction
1.2 The Second Wave of Customers
1.3 Methodology and Scope

2 Definitions and Background Information
2.1 Definition of Finance Portals
2.2 Types of Finance Portals
2.2.1 Content Portals
2.2.2 Corporate Portals of Banks and Insurance Companies
2.2.3 Neutral Brokers and Intermediaries
2.3 Providers of Finance Portals
2.3.1 Providers from the Banking Sector
2.3.2 Providers from the Insurance Sector
2.3.3 Providers from the Near-Bank Sector
2.3.4 Providers from the Non-Bank Sector
2.4 Usage of Finance Portals
2.4.1 Technical Prerequisites
2.4.2 General User Information
2.4.3 Usage based upon Demographic Factors
2.4.4 Usage based upon Consumption Behavior and other Characteristics

3 Analysis
3.1 Selected Market Characteristics
3.1.1 Online Finance Value Chain
3.1.2 Competitive Situation in Online Finance
3.1.3 Customers’ Perception of Services
3.2 Service Areas of Finance Portals
3.2.1 Information and Content
3.2.2 Brokerage
3.2.3 Funds
3.2.4 Direct Banking
3.2.5 Insurances
3.2.6 Real Estate
3.3 Basic Prerequisites for successful Finance Portals
3.3.1 Branding
3.3.2 Content
3.3.3 Member Base and Traffic

4 Future Success Factors
4.1 Advanced Prompt Facilities
4.1.1 Contextual Guidance
4.1.2 Intelligent Transaction
4.1.3 Pre-emptive Support
4.1.4 Implications for Finance Portals
4.2 Personalization
4.2.1 Types of Personalization
4.2.2 Sources for Customer Information
4.2.3 Customers’ Demand and Privacy Issues
4.2.4 Implication for Finance Portals
4.3 Peers’ Advice
4.3.1 Acceptance and Penetration of Peers’ Advice
4.3.2 Types of Peers’ Advice
4.3.3 Implications for Finance Portals
4.4 Mobile Services
4.4.1 Consumers and Mobile Services
4.4.2 Underlying Business Models
4.4.3 Barriers to Mobile Services
4.4.4 Implications for Finance Portals
4.5 Electronic Bill Payment and Presentment
4.5.1 Market Potential and Penetration
4.5.2 Delivery Models
4.5.3 Revenue Streams and Potentials
4.5.4 Implications for Finance Portals
4.6 Channel and Product Integration
4.6.1 Channel Integration
4.6.2 Product Integration
4.6.3 Implications for Finance Portals
4.7 New Marketing Ideas
4.7.1 Affinity Marketing
4.7.2 Affiliate Marketing
4.7.3 Performance based Deals
4.7.4 Implications for Finance Portals
4.8 Account Aggregation
4.8.1 Technology and Legal Issues
4.8.2 Current Market and Forecasts
4.8.3 Business Models and Returns on Investment
4.8.4 Requirements for Success in Account Aggregation
4.8.5 Implications for Finance Portals

5 Profitable Business Models
5.1 Fundamentals of Internet Business Models
5.2 Pure-Play Portals
5.2.1 Revenue Potentials
5.2.2 Incurred Costs
5.2.3 Implications for Finance Portals
5.3 Multi-Channel Providers
5.3.1 Different Approaches and their Reasoning
5.3.2 Potentials and Incurred Costs
5.3.3 Implications for Finance Portals
5.4 Coopetition
5.4.1 Structure of Coopetition Partnerships
5.4.2 Potential of Coopetition for Finance Portals
5.4.3 Implications for Finance Portals

6 Conclusion

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

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Source: 2001 - AOL Germany / Own Design

While companies like Cisco 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 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

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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 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 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.

Figure 3: Methodology

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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 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 Forrester Research, “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

Nguyen-Khac from AOL Germany, in charge of business development for the finance channel defines finance portals as “w ebsites 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, 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 TheStreet.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 Egg controlled by Prudential[11]) with its own branding or using the firm of the parent company (e.g. Citi of Citigroup [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 Scout24 Group with its portals Financesout24.de and Immobilienscout24.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 Consors and Comdirect have had an early part in online brokerage, while E*trade and Charles Schwab 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 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

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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. Deutsche Bank 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.

This also has become true for finance portals, of which many are operated and branded by old economy insurance companies such as Allianz or AXA that often go beyond their traditional insurance business. Pure-players such as Mamax and Insurance.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 (OnVista, wallstreet:online) there are also a number of Internet only investment advisers such as Hoovers.com and The Motley Fool, 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 Online Bank)[17], formerly Karstadt/Quelle (Entrium.de) and Financial Times (FT.com). Moreover, ISPs with finance channels such as Tiscali belong to this group.

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

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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 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.

Figure 6: Usage of online financial Services by Gender

illustration not visible in this excerpt

Source: 2001 - Jupiter Research (US only)

Marital Status

According to Jupiter Research, “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.


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.

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

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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 ‘skeptical indifferent’ - whose relevance will increase due to their congruence with the second wave of customers - use finance portals yet.[22]

Online Tenure

A further distinguishing mark for financial service users, which should not be neglected, is their individual experience with the online medium. As many as 66 percent of those using online financial sites and portals have had an online tenure of two years and more. Increasing online tenure and augmented online transactions including more complex dealings such as paying bills and executing stock market trades are convergent to a high degree. Exhibit 6 shows the distribution of users by online tenure in detail.[23]

Speed of Online Connection

An additional criteria not exceedingly suitable for the segmentation of customers, but even more so important for the technical design of a website is the connection speed and location used to access finance portals. Below figure shows that all users - no matter whether financial service users or not - still primarily use dial-up connections in order to go online. Lavishly designed websites will upset users due to slow site build-up, which in fact will prove to be true in Chapter 3.1.3 that deals with customer satisfaction.

Figure 8: Distribution of Users by Connection Speed

illustration not visible in this excerpt

Source: 2001 - Jupiter Research (US only)

Furthermore, the importance of managing personal finances makes users likely to interact with their pecuniary assets regardless of other activities, including their vocation. Therefore, it is not surprising that the majority of customers access finance portals whilst working, explaining the higher portion of broadband users. Due to this access behavior, financial sites should consider day-part programming during appropriate hours.[24]

3 Analysis

3.1 Selected Market Characteristics

3.1.1 Online Finance Value Chain

In the old banking system, value was mainly created by physical transaction.[25] Classic community banks knew their customers on the basis of personal contact. Therefore, brick-and-mortar banks were able to create value for their customers by intermediating between investors and savers as they themselves had no means of obtaining information about the availability of credit and the competitive prices structure.[26] As banks have grown bigger and waves of consolidation have eroded the number of small financial institutions, this source of knowledge has almost run dry.

New Value Propositions due to Internet Strengths

The Internet has the potential to replenish this wellspring of information. The flow of information rather than physical transaction can be looked upon as the primary mechanism for creating value for the new banking industry. Today, competitive advantages are increasingly based upon the gathering and usage of data that allows the development of a mutually beneficial relationship between a company and an individual.[27]

Without the Internet, marketing has to compromise between depth of information and market reach. A sales representative pitching to a single customer delivers the highest richness in information, but has of course a very low market reach. On the contrary the message of an advertisement in a newspaper with mass circulation is limited to basic content. However, the Internet turns around this trade-off since it permits an unprecedented level of personalization and customization with a merely limitless market reach that Evans has referred to as the process of “deconstructing the information value chain.” When considering this separation of physical flows - or rather their obsoleteness due to digital delivery - and information, one can rightfully claim that the old value chain is at least partly being unglued and recreated.[28] Furthermore, the high speed with which information is delivered and the ready accessibility of real-time quotes for private customers have changed the value chain dramatically.

Implications for Finance Portals

The new value chain that the Internet has made possible is already challenging traditional finance companies and their role as market makers with superior information. But the value chain of online finance is not limited to information. The next logical links of the chain are transactions based upon this information, followed by advising customers in their decision process and ultimately administrating as well as managing the clients’ financial assets. With the elongation of the value chain the value added increases just as conceptionally sketched in Figure 9.[29] Finance portals must continue to extend their absorption of the value chain in order to hedge against decreasing margins in basic financial functionalities. As an example, the evolution of the value chain of online brokerages has been chronicled in Exhibit 7.

Figure 9: Online Finance Value Chain

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Source: 2001- Otte

3.1.2 Competitive Situation in Online Finance

When looking at the competitive situation in online finance today, some past predictions have to be put into a more conservative perspective. Accordingly, Singer states that, “the foretold complete revolution of banking by the Internet may have been an exaggeration, however many changes are occurring in the industry, reflecting a spiraling process of deregulation and increasing competition.” [30] Lüer points out that, “especially brokerages developed the online financial services market and shaped customers’ expectations of service offerings’ quality and quantity” [31] (also see Chapter 2.2.3 for further reference). The question for traditional banks, whether to enter the Internet market has rather changed into the question of when to enter the digital segment if they have not already done so. For those still in the starting holes of their online operations it is probably too late to acquire a broad customer base and therefore a critical market mass. As a reverence, the development of the competitive situation during the past six years is provided in Exhibit 8.

The development of online finance and companies’ anxiousness to stay ahead sometimes leaves customers’ needs unsatisfied. Van Dyke claims that “industry convergence and an expanding number of online products are fueling the increasing complexity of online financial sites. Even though users are able to find more and more offerings at single sites - true integration is still not to be found.” [32] With the focal point typically set on the future, portal operators often become long sited and lose the focus on current customer needs and profits in the foreseeable future.[33] Old economy financial institutions are in a race to beat one another by transferring their products and services to the web in the hope of achieving first-mover advantages.

Additional competition will come from non-depository institutions offering overlapping financial products and services. Thus, all such organizations begin to look very much alike and the customer will find it difficult to discriminate for example between a credit card offered by a chain of hardware stores, a community bank, a local department store, an automobile manufacturer or an internet service provider.[34]

As many market participants strive to merge into their competitors’ market segments and expand their own product line beyond their range of expertise, another trend of a more cooperative approach can be observed in the market. Partnerships of participants with complementary core competences are formed in order to join forces against competitors. They seem to be an appropriate answer to the increasing competitiveness of the market. However, this business model will be dealt with in detail in Chapter 5.4.

The current market situation can be encapsulated by the following statement made by Otte: “The internet erodes existing competitive advantages and makes a well thought-out strategy with differentiated products and services, which create profitable growth more important than ever before.” [35] Further details on the market situation may be viewed in Figure 10, which is reasoned on the basis of Porter’s model of the Five Forces.

Figure 10: Competitive Situation in the online Finance Market

illustration not visible in this excerpt

Source: 2001 - Otte

3.1.3 Customers’ Perception of Services

According to the latest surveys of Forrester Research, today’s customers are only partly satisfied with the user experience of finance portals. Only one third asserts that they are completely satisfied with the financial websites they are using while approximately 40 percent complain about slow site build-up in the second consecutive year, proving that web designers still overestimate the penetration of broadband access. The second most important factor of dissatisfaction is the scale of fees. 28 percent of those questioned found charges for transactions too high in spite of continuous drops in prices since the beginning of 2000.[36] These and additional criticisms can be viewed below.

Figure 11: Reasons for Complaints about online financial Services

illustration not visible in this excerpt

Source: 2001 - Forrester Research (n = 414 / Germany only / multiple answers possible)

In order to satisfy the existing as well as the currently evolving costumer base, companies will have to build next-generation financial sites that at least draw near to their consumers’ expectations. Today, customers of online financial services are also concerned with the quality of online tools provided, advice given, accuracy of transactions and support via email and phone. While banking customers panned calculators and planners made available to them, online traders mainly criticized tools for filtering and screening stock as well as fund, since they often take expert knowledge of the user for granted or simply are confusing in layout. Additionally, consumers found fault with the quality of advice and relevance of product recommendations. Although call center representatives got satisfactory ratings with regard to helpfulness and responsiveness, email support came off quite badly. However, there also are thoroughly good results, especially when it comes to confidence in the accuracy of transactions, which ranked highest amongst all other collected data. Brokerages scored better than banks while within the category of banks pure-players beat the brick-and-mortar companies.[37] Exhibit 9 summarizes the above content graphically.

Singer carried out a survey of 1753 banks within the United States that rates their websites’ content from the consumer perspective. It revealed that the majority of websites do little more than list products and services. In contrast, about 150 banks, distributed evenly across the 50 states, scored much higher by making substantial efforts to portray the benefits associated with their products. Only the smallest fraction was able to do so in what Singer calls a “clever or dramatic fashion.” #[38] The exact spread of the sampling is shown in Figure 12.

Figure 12: Content from the Consumer’s Perspective

illustration not visible in this excerpt

Source: 2001 - Singer (n = 1753 / US only/ 0 = worst / 100 = best [for detailed scale refer to Exhibit 23])

3.2 Service Areas of Finance Portals

3.2.1 Information and Content

In general, the web allows information to be developed and delivered across geographic boundaries and multiple customer sectors, increasing transparency and therefore the speed and quality of decision-making. The dependence of the financial service business on information is second only to the news industry. Effectively, all aspects of consumer- and institutional financial decision-making heavily rely on information. In order for market participants to make reasoned and rational banking-, investment-, borrowing- and trading decisions, they must have access to this information on a regular and well-timed basis.[39]

As financial information exploded on the Internet marketplace, websites strived to grow their member base and traffic by all means. But when Internet stocks crashed, financial content providers’ aims quickly shifted from mere acquisition of eyeballs to ‘monetizing’ this traffic in order to reach profitability.[40] This topic will be covered in Chapter 3.3.3 in more detail.

Extremely time-critical information such as prices of stocks, options and other financial derivates is accessed most frequently. Also, financial and business news account for a portion of the traffic, especially in times of crises and extraordinary events, e.g. sensational bankruptcies or large IPOs. The approach as to how and what financial information is delivered depends on the providers’ varying business models. Content providers can be divided in the following subcategories by the criteria of information, comprehensiveness and depth:

- Aggregators - Internet service providers and general interest portals with a finance category.
- Information Providers - Usually pure Internet brands or old economy publishers who truly generate or gather information.
- Brokers - Online brokerage enablers with more than a minimum of market information.
- Niche Players - Sites focused on relatively small retail markets like foreign exchange or options trading.[41]

Figure 13 shows the overlapping of services offered by different provider types.

Figure 13: Overlapping of Information and Services

illustration not visible in this excerpt

Source: 2001 - Zask

3.2.2 Brokerage

Brokerage or online trading has revolutionized and popularized the concept of web-based retail financial services. When looking at the dynamic development of brokerage start-ups today, their success does not appear very surprising since they were able to ‘double-benefit’ from the Internet hype. As part of the new economy they benefited directly from constant demand of their own stocks and derived a second benefit through increased tradings of other stocks by customers enabled to participate in the hype through brokerages’ online trading mechanisms.

Furthermore, the introduction of online trading and associated informational tools like quotes, research and portfolio management modules solidified a trend that was increasingly evident in the ‘physical’ world. Over the past few years many individuals had grown accustomed to following the markets, stocks, bonds and mutual funds and developing personal investment strategies.[42] Zask believes that “while the outlook for online trading is still extremely promising, its growth has slowed down and will be shared among online brokers, banks, mutual funds and insurance companies.” [43]


[1] Gene Walden: “ Stocks for the Next Century”, http://www.onmoney.com, 02/17/2000

[2] Nguyen-Khac, Tung-Quan: “Quo vadis Finanzportale?“, AOL Deutschland, Hamburg, 12/13/2001

[3] FAZ: “Unternehmen sind mit E-Business bisher nicht zufrieden, investieren aber kräftig weiter”, p. 31, Frankfurt a. M., 06/10/2001

[4] Banks, Erik: “e-Finance - The Electronic Revolution”, p.140, John Wiley & Sons Ltd., Chichester, 2001

[5] Zask, Ezra: “The e-Finance Report“, p. 15, McGraw-Hill, New York, 2001

[6] Witt, Jason: Executive Director, Business Affairs, AOL TW, USA, Interview via Email, 02/07/2002

[7] w/o Author: “Finanzportale für den Privatkunden - Fokussieren und Kooperieren”, p. 5, Forrester Research Inc., Frankfurt a. M., 11/2000

[8] Nguyen-Khac, Tung-Quan: “Quo vadis Finanzportale?“, AOL Deutschland, Hamburg, 12/13/2001

[9] Wirtschaftswoche: “Alles aus einer Hand”, p. 142, Düsseldorf, 10/18/2001

[10] w/o Author: “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

[12] Available for obeservation at http://www.citibank.com

[13] w/o Author: “Finanzportale für den Privatkunden - Fokussieren und Kooperieren”, p.10, Forrester Research Inc., Frankfurt a. M., 11/2000

[14] w/o Author: “Finanzportale für den Privatkunden - Fokussieren und Kooperieren”, p.11, Forrester Research Inc., Frankfurt a. M., 11/2000

[15] Financial Times: “German online Brokers play a long-term Game”, p.21, London, 11/05/2001

[16] Rakowitz, Robert 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

[17] FAZ: “Sony startet mit eigener Bank”, p. 26, Frankfurt a. M., 06/11/2001

[18] Dannenberg, Nikki: “Jupiter Consumer Survey Report: Banking & Lending”, p.13, Jupiter Research Inc., New York, 11/14/2001

[19] Dannenberg, Nikki: “Jupiter Consumer Survey Report: Banking & Lending”, p. 15, Jupiter Research Inc., New York, 11/14/2001

[20] Geißler, Holger: “Finanzdienstleistungen im Internet aus Sicht des Kunden: Aktuelle Ergebnisse der Marktforschung“, psychonomics AG, Köln, 12/12/2001

[21] Sterling, Robert: “Jupiter Consumer Survey Report: Brokerage & Wealth Management”, p.5, Jupiter Research Inc., New York, 11/21/2001

[22] Geißler, Holger: “Finanzdienstleistungen im Internet aus Sicht des Kunden: Aktuelle Ergebnisse der Marktforschung“, psychonomics AG, Köln, 12/12/2001

[23] Dannenberg, Nikki: “Jupiter Consumer Survey Report: Banking & Lending”, p. 17, Jupiter Research Inc., New York, 11/14/2001

[24] Sterling, Robert: “Jupiter Consumer Survey Report: Brokerage & Wealth Management”, p. 31, Jupiter Research Inc., New York, 11/21/2001

[25] Boston Harvard Business Review: “Exploiting the Virtual Value Chain”, 1998

[26] Harvard Business School Press: “Blown to Bits: How the New Economics of Information Transforms Strategy”, Philip Evans, 1999

[27] Singer, Daniel: ”Successful Web Portals in Retail Banking“, p. 23-25, Frank J. Fabozzi Associates, New Hope, 2001

[28] Harvard Business School Press: “Blown to Bits: How the New Economics of Information Transforms Strategy”, Philip Evans, 1999

[29] Prof. Dr. Otte, Max: “Sie sterben wie die Fliegen“, Institut für Vermögensaufbau GmbH, Köln, 12/12/2001

[30] cf. Singer, Daniel: ”Successful Web Portals in Retail Banking“, p. 17, Frank J. Fabozzi Associates, New Hope, 2001

[31] cf. Dr. Lüer, Patricia: “Tailored and Integrated Financial Services: Orchestrating Chaos to Create Higher Switching Costs”, p. 6, Jupiter MMXI, London, 08/28/2001

[32] cf. Van Dyke, James: “Integrated Finance: Composing a Symphony out of Discord”, p. 2, Jupiter Media Metric Inc., New York, 3/13/2001

[33] Van Dyke, James: “Integrated Finance: Composing a Symphony out of Discord”, p. 1, Jupiter Media Metric Inc., New York, 3/13/2001

[34] Singer, Daniel: ”Successful Web Portals in Retail Banking“, p. 18, Frank J. Fabozzi Associates, New Hope, 2001

[35] cf. Prof. Dr. Otte, Max: “Sie sterben wie die Fliegen“, Institut für Vermögensaufbau GmbH, Köln, 12/12/2001

[36] w/o Author: “Banking und Brokerage der Zukunft”, p. 20-21, Forrester Research Inc., Frankfurt a. M., 2/2001

[37] Souza, Randy: “Next-Generation Financial Sites”, p. 7-9, Forrester Research Inc., Cambridge, 3/2001

[38] Singer, Daniel: ”Successful Web Portals in Retail Banking“, p. 129, Frank J. Fabozzi Associates, New Hope, 2001

[39] Banks, Erik: “e-Finance - The Electronic Revolution”, p. 123, John Wiley & Sons Ltd., Chichester, 2001

[40] Zask, Ezra: ”The e-Finance Report“, p. 190-191, McGraw-Hill, New York, 2001

[41] Zask, Ezra: ”The e-Finance Report“, p. 191-193, McGraw-Hill, New York, 2001

[42] Banks, Erik: “e-Finance - The Electronic Revolution”, p. 93, John Wiley & Sons, Ltd, Chichester, 2001

[43] cf. Zask, Ezra: ”The e-Finance Report“, p. 52, McGraw-Hill, New York, 2001

[a] Definition by searchHP.com: “B2C is short for business-to-consumer, or the retailing part of e-commerce on the Internet”

[b] Definition by searchEBusiness.com: “On the Internet, B2B (business-to-business), is the exchange of products, services, or information between businesses rather than between businesses and consumers.”

[c] Definition by PC Direkt: “Direct banks are banks, that let costumers conduct their banking transactions exclusively via electronic media and therefore can offer cheaper conditions as they abstain from advice.”

[d] Definition by searchWebManagement.com: “An Internet Service Provider is a company that provides individuals and other companies access to the Internet and other related services such as Web site building and virtual hosting. An ISP has the equipment and the telecommunication line access required to have a point-of-presence on the Internet for the geographic area served.“

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Future Success Factors of Finance Portals - Dividing the Second Wave of Customers
Reutlingen University  (ESB)
1,3 (A)
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Finanzportal, Finance, Portal, Online, Internet, Success Factors, Erfolgsfaktoren
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Axel Täubert (Author), 2002, Future Success Factors of Finance Portals - Dividing the Second Wave of Customers, Munich, GRIN Verlag, https://www.grin.com/document/4716


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