The Partner Proposition
By Steve Klinkerman
To meet multi-faceted customer needs in the emerging online market, financial intermediaries must function as co-developers with major business partners.
How should financial services providers view their online business partners? Are they to be viewed narrowly, perhaps as incidental providers of technological expertise? Or do they play a larger role in meeting customer needs and assuring the economic viability of new business models? Increasingly, it seems that the latter perspective is most appropriate, and it all goes back to the customer.
From the standpoint of individuals and businesses, financial services are not central to their pursuits, but just one of many components needed to assure convenience and efficiency. In other words, customers are really counting on three kinds of intermediaries – commercial, communications and financial – to work together to help them with their business, household and personal endeavors.
It's an ever-changing blend as to which of the three types of intermediaries has the greatest sway with the customer at any given moment. That's why FSPs must deepen their interaction with partners and develop a keener understanding of their business objectives. To use an Old Economy example, it's the dealer who primarily owns the customer relationship for the duration of an automobile sales transaction. It's to the benefit of financial intermediaries to understand the dealer's business dynamics and contribute to its success, however, because that's how they assure demand for their own piece of the action, which is financing.
From that perspective, the approach to the online world is not strictly about customer usage of mobile telecommunications devices, personal computers, smart cards and payments technology. It's about working with other types of intermediaries to profitably fulfill multi-faceted customer needs. This requires that financial intermediaries assume the role of co-developers of customer solutions with major business partners. If hybrid online financial services ventures are to achieve economic viability, they also must benefit participants such as billers, telecommunications companies, merchants, corporations and governmental entities.
A review of the common threads in partner needs brings this concept from the abstract to the concrete. For example, commercial and communications intermediaries variously want to reduce costs, boost volume, and streamline transactions and production/distribution processes. They also want to boost online security and customer service and loyalty. Understanding these partner priorities is crucial in aligning financial services capabilities and their supporting technologies with the market.
So while electronic billing is about household convenience, it's also about billers, who want to drive down the costs of handling millions upon millions of monthly payments for electricity, water and phone service. Wireless banking and trading is about serving a mobile populace. But it's also about telecommunications companies, which stand to rack up more and more billable access hours as wireless applications multiply.
The smart card is about expanding payments functionality and security for consumers. It's also about online authentication for wireless providers; fraud reduction for merchants; security for B2B transactors; and contractor management and security for the government. The seamless integration of financial services into electronic commerce is about accelerating all manner of commercial transactions. It's also about cutting back office expenses associated with processing paper media.
By itself, of course, an enlightened attitude about partnering with other intermediaries is no guarantee of success. In this era of nonbank innovation and financial services convergence, few capabilities are exclusive to one type of charter or organization. So providers still must compete for places at partners' tables. Also, commercial and communications intermediaries have increasing options to handle online financial services functions themselves. That strengthens their bargaining position and poses a new array of disintermediation risks for traditional providers.
But financial services providers can't ignore the partner proposition. An institution whose online strategy is truly customer-driven must stand ready to work with dissimilar intermediaries to meet emerging customer needs. Doing so in a way that's beneficial to all parties requires a level of coordination and creativity that can only come from a mutual understanding of each other's business objectives. Adopting the posture of a co-developer is an important step in meeting this challenge.
Mr. Klinkerman is Editor-in-Chief of Banking Strategies.