Let’s face it, whether you work in it, invest in it, or simply write about it, the Internet isn’t nearly as fun as it was a year ago. But fun isn’t what banking is all about, nor what customers are looking for. It’s time to stop dreaming of a quick run-up in our stock portfolios, and get back to the business of pleasing customers at a profit. We see 2001/2002 as a period of great opportunity for the following types of companies:
Incumbent financial institutions (aka brick-and-mortar): The Internet has not changed human wants and needs. One long-standing retail banking fundamental is that consumers do NOT want to hassle switching checking accounts, unless a move or life change requires it. A bank has to perform pretty miserably to drive away checking account customers. And now that the bloom has faded from the dot-com sector, the novelty of signing on to thehotnewbank.com just for the fun of it — well, it’s just not going to happen.
Online lenders: Most consumers really don’t care whom they borrow from, as long as they think they are getting a good deal. They will walk away if they can beat your rate by 5 basis points, or if their real estate agent sends them to Joe’s House of Mortgages down the street. It’s not a product category that engenders a lot of BRAND loyalty. Luckily for lenders, underwriting peculiarities make it hard for consumers to make direct price comparisons.
For these reasons, we expect online lenders of all shapes and sizes will be able to compete effectively online. And with the mini refi-boom generated by recent U.S. interest rate reductions, we think the fortunes of online lenders, both Internet pure-play and brick-and-mortar, will substantially improve in 2001.
Banking technology providers: The “”make vs. buy”” decision for Web-based products is still pretty straightforward. It’s all outsourced, except at the very largest banks. But even Citibank, which previously employed 1,600 at its e-citi unit, bought statement aggregation from Yodlee. Look for nimble providers of Web-based services to grow even stronger.