Electronic bill-paying promises to be a big deal before long–but it’s only one of the many ways that the Internet is transforming the financial-services industry. Old-line booksellers and travel agents may fret about what the Net means to them. But money–or more precisely, the ability to track and manipulate it–may be the ultimate online product.
Retail investors in the United States already make more than a third of their stock trades online, at far better prices than brokers offer. You can get a home loan over the Web, buy auto insurance, investigate a bond fund or simply balance your electronic checkbook–all without leaving the easy chair. Last week e-first.com, Europe’s first Internet-only bank, opened its virtual doors, and like other “Net banks” around the world it’s offering higher savings rates to consumers because it doesn’t have to build or staff retail-branch networks. And there’s plenty more change to come. “The Internet is the ultimate empowerment of the end user,” says Gideon Sasson of Charles Schwab, the discount broker that pioneered online trading in the United States and is now moving into Europe. “You can make your own decisions.”
Consumers are getting the message. Ines Poschmann, a freelance architect and single mother in Dresden, has been banking online for more than a year. “I hate standing in line,” she says. Recently, she paid a bill electronically, but the payment failed to go through. “So I had to go to the bank, stand in line and fill out a bunch of forms. The experience reminded me why I don’t like going to the bank.” In France, “finance Web sites are more popular than porno,” quips Yves Naccache, who last year started an online brokerage company called Euraxfin.
The Internet has already produced radical changes in the strategies of some major financial companies. Last spring mighty Merrill Lynch, under pressure from Schwab and E*Trade, did a dramatic about-face and embraced online trading–at the risk of alienating its all-important corps of brokers. But there’s opportunity, too. As Bo Harald, executive vice president of MeritaNordbanken, points out: “Every transaction on the Web saves money. There is no need for bank staff, no need for paper; it’s all automated. The bank doesn’t even need equipment–the customers have it.” Scandinavian banks are ahead of the game, but the big boys in continental Europe are also scrambling to keep up with consumer demands and upstarts who are offering credit cards and other services over the Net. “We are pumping millions of dollars into Internet activities because we have to,” says Jan Kalff, the president of ABN Amro, a major Netherlands-based bank.
In the 1980s the automated teller machine (ATM) revolutionized banking, reducing the need for banks to employ armies of tellers. Now, says Jim Bruene, editor of the Online Banking Report, “the ATM function is moving to the PC. You’re starting to see that change.” Online customers can access their banks 24 hours a day, of course–and do so with not only PCs, but also TVs, ordinary phones and even mobile phones. Before long, Bruene predicts, e-mail will be used to handle routine information flows from banks to customers. Clients may ask their banks to send them a message every time they make a deposit or every time a bank account falls below, say, $1,000.
Some people worry about the privacy of such messages. But if financial companies can reassure customers on security issues, the rush to bank, trade and move money over the Web looks hard to stop. It’s cheap, fast and pretty easy–and who can argue with that?
