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IBM: Customers will rule banking

Customers will hold the power in online financial services, not brokers, bankers, or insurance firms, a top IBM executive says.

NEW YORK--In the networked world of the Internet, financial services power will be held by customers, not by the brokers and bankers and insurance companies that hold sway today, a top IBM's (IBM) executive warned.

"When the customer can go anywhere and anyone can come to you, that's a huge change. Why? Choice--I can push a button and say, 'Next,'" Robert Howe, London-based general manager of IBM's global banking, finance, and securities group, told attendees at Miller Freeman's Financial Technology Expo here today.

"There's no question that this networked world is going to put pressure on intermediaries and, at a minimum, drive margins down," Howe said. "But the real issue is: Whose customer is it?"

Speaking on a panel after Howe's keynote, Quote.Com cofounder Chris Cooper echoed the IBM executive's comments.

"You don't have a lot of time to think about it," said Cooper, chief technology officer of Quote.Com. "The battle going on is for who owns the customer, and it's almost settled."

During the last year, he added, Quote.Com has shifted its strategy and now gets 75 percent of its revenues by offering online financial information to brokerages, banks, and other financial institutions that provide data to their customers online. Quote.Com continues, however, to sell its subscription service to individuals, its original business model.

Another panelist, Chuck McCaig, chief information officer of giant insurer conglomerate Chubb & Son, said his firm recently surveyed customers to find out who they thought they were insured by.

"The smaller companies looked at Chubb as the insurer and liked that," McCaig said. "For our commercial lines, many companies didn't know they were insured by Chubb. They identified with their broker."

McCaig indicated that Chubb has not yet decided how to deal with the branding issue.

IBM's Howe oversees several key IBM strategies on the Internet, including Integrion, IBM's joint venture with 16 North American banks, as well as its activities on the Secure Electronic Transactions protocol, the secure credit card standard for Internet financial transactions.

Howe outlined four strategies for attracting customers that financial institutions can pursue on the Net and other wired networks. Citing data from Forrester Research, he estimated that about 22 percent of the online financial market will go to players who attract and hold customers by providing content.

He also predicted that 58 percent of the market will go to companies that process transactions--retail card transactions, online bill-paying, and transferring high-value payments worth billions around the globe via secure private networks.

"Certain [online] distributors will be aggregators of services--they will be a brand and offer a whole bunch of services," he said. But he warned that only 25 to 30 companies can pull off that strategy--and many won't be financial companies at all.

"We know some of the names. You will compete with airlines and retailers who also would be financial service aggregators," he said. "Who has a better set of data on more attractive customers than airlines with frequent-flyer programs?"

He identified service aggregators as that segment of the online financial market that deals in commodity transactions for customers without brand loyalty, who buy services based on price. Targeting these customers is a strategy that will prove profitable for efficient organizations, he predicted.