Revving the Engines of Online Finance

Few industries have more to gain from digital technologies than financial services. After all, finance is a pure bits business, based on the flow of data through billions of transactions.

To date, most digital efforts in banking, insurance and brokerage have been directed at developing an online presence with no clear picture of customer benefits, and so this has led to low returns. Customer acquisition costs often exceed online revenues, and, according to research by Mercer Management Consulting, technology spending does not directly affect shareholder value. The lesson here: Technology can enable a successful business but not drive it.

The most innovative and successful financial services companies understand that distinction. In Europe, two financial firms stand out for their use of digital technology to improve customer relationships: Marschollek, Lautenschläger und Partner AG (MLP) in Germany and Bankinter in Spain.

MLP offers made-to-measure financial advice and services. The firm targets young professionals just out of college, whom it reaches through career seminars and other special programs. In recent years, MLP has captured more than one-third of graduating students annually, building a customer base of engineers, lawyers and physicians whose average age is 33. Obviously, this bodes well for future revenue streams.

Its youthful, well-educated customers are also natural targets for digital services. Not surprisingly, MLP describes itself as a “digital financial consultancy” with 1,700 financial consultants advising more than 335,000 private clients in 180 offices in Germany, Austria, Switzerland and the Netherlands. The company’s growing array of digital tools and offerings includes a proprietary electronic brokerage platform, an intelligent financial management system and a collection of information tools that guide customers through their own financial calculations. Customers can also create personalized “myMLP” Web pages that provide weather forecasts, stock market listings, news headlines, relevant book offerings from Amazon.com and even financial products from sources other than MLP.

Most importantly, MLP consultants have one-click access to a full array of financial planning tools and information about the customer. MLP can now provide one-on-one investment counseling — whether face-to-face, by phone or over the Internet — to a category of customers that could never afford it previously.

Bankinter is using digital tools in other ways. Like Charles Schwab in the United States, it is a clicks-and-mortar financial services provider with 276 branch offices, telephone service and Internet service. But its online brokerage service is ranked the best in Europe, and brokerage is just the tip of the iceberg. Bankinter uses the Internet to assemble a host of specific offerings that, in combination, amount to a new kind of value proposition for customers. The Web site offers comparison engines for credit cards and mortgages, showing how Bankinter rates compare with competing institutions. It provides an advice engine for investments, which gathers information on a client’s goals, income, risk tolerance and so on, then recommends a suitable investment mix. An online credit-card application service provides a response within five seconds. And a “choice board” engine compares various combinations of mortgage features.

Bankinter clients receive specialized services and can customize their personal Web pages to receive news and other information. For example, if customers apply for a mortgage, they will be offered access to a real-estate search engine, a utilities contracting service, home repair manuals and other things. Imagine the formula of eSchwab + Yahoo! That gives you some idea of the range of Bankinter’s offerings. Not surprisingly, the Bankinter Web site is Spain’s leading financial site and also one of the country’s 25 most visited Web sites.

The experiences of Bankinter and MLP show that technology can spur value creation, so long as you start with the customer’s priorities. Before spending more to revise your Web site or undertake any other digital initiative, invest the effort to find out what your customers want and will pay for, and how that is likely to change over time. Crack the code on customer priorities and profit models first — then digitize.