Danger and Opportunity

By Thomas P. Johnson Jr.

Electronic commerce is full of pitfalls. But visionary strategists will persist in developing the business propositions that will unlock online banking's potential.

Electronic banking's volatility was on full display August 12, the day that Wall Street demolished 40% of the trading value of CheckFree Corp. Just as the avant-garde company seemed poised to capitalize on years of groundwork in electronic payments, it stunned investors by announcing that fiscal 1999 revenues would fall short of earlier projections by roughly $20 million, or 7%.

CheckFree's predicament underscores the fact that electronic (or PC) banking remains a nascent business. The company attributed its earnings shortfall to a marketing slowdown among client banks. But the problem ultimately points to consumers. Demand has yet to catch up with expectations, despite the vast sums invested by banks and technology companies.

This does not mean players should withdraw from the field. The electronic revolution has begun, and those who cling to paper-based business models risk losing valuable expansion opportunities -- not to mention throngs of customers -- when the new market attains critical mass.

However, the varying growing pains experienced by CheckFree, MSFDC, Integrion Financial Corp. and others do suggest the importance of staying power. Substantial capital resources and a long-term commitment are required to compete in major electronic payments arenas. This seems to tilt the electronic playing field towards larger entities.

Of even greater importance is the requisite of what might be termed pragmatic creativity. This issue of Banking Strategies presents four articles on electronic banking, including our cover story on CheckFree CEO Peter Kight. If any one theme comes clear, it is that successful competitors will be those who transcend technological concerns and devise the business propositions that will attract and profitably serve online customers, both retail and commercial.

This requires an enlightened understanding of competitive urgency, in that danger and opportunity represent two sides of the same coin. PricewaterhouseCoopers consultants Anthony J. Lipp and Jay D. Norman explore this concept in their article on electronic bill presentment and payment. They note that electronic commerce could have profound implications for traditional, paper-based cash management operations. Strategists must look beyond the immediate danger -- losing lucrative businesses -- and focus on new online opportunities.

There are no guarantees in the electronic world, as CheckFree's Kight can testify. But neither are there excuses for unpreparedness. As Lipp and Norman put it, "One serious trap to be avoided is assuming there's no urgent need to plan for tomorrow simply because the pace of change appears slow today."

Copyright © 2003 by Banking Strategies, published by BAI.

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