Banks scramble to adapt to the internet

Creative, fast and agile aren't adjectives often used to describe financial institutions, but the Internet is forcing banks to strive for these qualities, speakers said here on Wednesday at the Bank Administration Institute's Retail Delivery '99 event.

"We can only ignore (the Internet) at our own peril," said P. Jan Kalff, chairman of ABN AMRO Bank, a bank based in the Netherlands that ranks sixth in the world and third in Europe in total assets, according to The Banker, a Financial Times publication.

Because of the Internet, "retail financial services are changing faster than ever," he added in his keynote address.

Banks, especially the big ones, tend to be bureaucratic and averse to fast change, speakers here said. Those qualities served them well until the Internet opened the door to tech-savvy and nimble startups that have begun to steal away customers by providing Web-based financial services, speakers said.

"We have to rapidly create virtual dot-com businesses to complement our legacy environment. Otherwise, we run the risk of suffering death from a thousand cuts," said William Harrison, president and chief executive officer of The Chase Manhattan Corp. and The Chase Manhattan Bank in New York, during his keynote speech.

"It's not a single catastrophic event that does you in. Rather, it's the small dot-coms that slowly erode your profit margins and slowly snip away around the edges. And you might not even notice it right away," Harrison added.

Kalff of ABN AMRO echoed that sentiment. Newcomers to the market seem to have the upper hand because they are not burdened with legacy computer systems and they don't have to spend time thinking about defending margins and market share, he said.

Both Harrison and Kalff said that their respective, venerable financial institutions are trying to quickly incorporate the Internet into their business in a variety of ways, from online banking to electronic commerce.

Banks, which have traditionally moved at a waltzy pace, now seem to be embracing the rock-and-roll rhythms of the Internet. Change, they say, will do them good.

"The extremely rapid developments of e-commerce mean that any incumbent strategy has to be reviewed," Kalff said.

Other speakers here agreed that the constant change being generated by the Internet is forcing banks to increase the speed with which they modify and adapt their operations.

"We don't know what the crystal ball has in it," so there's a need to be flexible and fast, Josh Grotstein, division executive at Citigroup in New York, said during a panel discussion.

Still, banks haven't exactly been churning out new ideas, another speaker said.

"The level of innovation in the banking industry has been disappointing" with regards to the Internet, said Francois Odovard, an executive at American Express Bank in New York, during a panel discussion.

This attitude will lead banks to miss out on new business opportunities, because the Internet not only provides a new, speedy channel for delivering existing financial services to current customers but also lets banks deliver new services and reach new clients, speakers said.

"We see the Internet as (providing a way) to get business we wouldn't have been able to get," Odovard added.

But if banks decide to begin offering services via the Internet, they had better keep quality in mind, ABN AMRO's Kalff said.

"We have found that e-services raise clients' expectations significantly, including a huge appetite for research and portfolio analysis support," he said.

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