Tuesday, April 10, 2001

Online Products More Important Than Customer Needs

Jupiter Media Metrix, a global leader in market intelligence, today reports that financial services companies are focusing more on expanding online and wireless products than improving their existing Web sites for customers. According to a new Jupiter financial services report, four times as many CEOs said they are more interested in increasing their mobile and online offerings than did the number of CEOs who said making their sites more user-friendly is a priority. Jupiter analysts warn that financial services businesses will lose major market share if they fail to offer integrated, customized and simplified online offerings that better suit customer needs.

"Major financial institutions are in a race to outdo one another by developing new online and wireless products to gain market leadership, but are leaving usability and customer satisfaction in the backseat," said James Van Dyke, Jupiter analyst. "For financial institutions, the key to winning in this economy is to simplify and integrate basic services, such as banking and lending, insurance, investment and payments."

Key findings and forward-looking analysis from the latest Jupiter financial services report, titled Integrated Finance: Composing a Symphony Out of the Discord, include:

- A Jupiter Executive Survey reveals that a majority of financial services execs (57 percent) believe that expanding online capabilities (such as wireless services) is a top priority, compared to 25 percent who indicate increasing trust and security is a main concern. Jupiter analysts found that there is a clear disconnect between the products that online institutions are building and the services that their customers are seeking. Financial institutions that address this disconnect will see more than their fair share of online asset growth.

- According to a Jupiter consumer survey, customer service (52 percent) and federally insured accounts (59 percent) are the most important qualities consumers look for when choosing a financial services provider. Only seven percent of consumers cite availability of promotions as important criteria for selecting a financial provider. While many financial institutions focus on features, consumers' demands largely fall in two basic categories: trust and convenience. Jupiter analysts caution that new features produce only complexity, which is fundamentally at odds with the desired goal of customer convenience.

- Jupiter analysts assert that financial businesses addressing the consumer's inability to manage the volume and complexity of available offerings are best positioned to emerge as market leaders. While no single financial institution has mastered this challenge, Wells Fargo and Charles Schwab have made significant strides to integrate multiple products across a variety of customer interaction channels.

"As leading financial companies remain obsessed with first mover advantage, their failure to integrate services, content and advice is preventing customers from realizing their time-tested goals of trust and convenience," Van Dyke said. "Those institutions that fail to effectively merchandise a widening array of multichannel offerings will be left with a shrinking base of customers."

Advice for Financial Institutions
Jupiter analysts offer the following advice for financial institutions that want to maximize their online offerings by meeting customers' needs:

- Invest heavily in personalization and customization capabilities. According to Jupiter analysts, financial companies must present each customer with unique offerings based not only on explicitly requested services, but also on additional content and services from gathered usage data.

- Position online products based on customer needs, not as the latest technology. Financial institutions must accommodate the customer's experience by integrating basic needs such as banking and lending, insurance, investment and payments, into one simple interface.

- Invest in integration of disparate systems and capabilities in order to minimize the growing complexity found in today's online financial services Web sites. Companies can drive higher customer activation and asset retention by elevating the quality of customer experience over the quantity of new products and features.

Online Energy Trading Will Exceed $3.6 Trillion
Despite a tumultuous environment created by rising energy prices and new laws and regulations, online energy trading in wholesale markets surged 750% from 1999 to 2000. According to a new Report by Forrester Research, Inc., online energy trading will continue this rapid growth -- leaping from $400 billion in 2000 to $3.6 trillion in 2005. Three-quarters of this volume will come from the rollout of new over-the-counter financial derivatives like swaps and spreads.

"Despite last year's turbulence, energy companies jumped on the Net bandwagon, investing in dot-com trading sites, building private eCommerce platforms, and forming industry consortia," said Jim Walker, senior analyst at Forrester. "While Enron dominated online trade in 2000, new industry consortia like TradeSpark and IntercontinentalExchange are ramping up volume -- increasing liquidity for the entire market."

As energy companies adopt the Net, their trading style will change from art to science. In this environment, companies will supplement person-to-person negotiated deals with quantitative analysis and program trading. The speed and efficiency of online trade will also push traders to develop straight-through processing from order capture to contract settlement -- enabling companies to post real-time P&Ls in this highly volatile market.

Rather than giving rise to a plethora of new venues, the majority of online trading will occur at only a few sites. By 2005, three distinct venues will form to serve different markets: one liquidity hub, three merchant platforms, and thirty solution sites. The liquidity hub will attract companies seeking to exchange price risk in pure commodities. Merchant platforms will offer industry marketmakers a venue for trading products to maximize margins from their own long-term assets and customer contracts. Finally, energy companies will offer branded solution sites to structure special deals and provide customized services for their wholesale customers.

"We expect enymex to win out as the liquidity hub, leveraging the strength of its offline trading infrastructure and institutional trading community," added Walker. "The leaders of the merchant hubs will be Enron, ICE, and TradeSpark -- supported by traders willing to make markets and act as specialists for specific products."

For the Report "Net Energy Hits Hypergrowth," Forrester spoke with executives from online energy marketplaces, energy producers, industrial customers, traders, and software suppliers.