Wall Street & Technology: What does the future hold for e-commerce in financial services? What trends do you see emerging?
Harley Lippman: The conversation is now turning away from the discussion of whether or not an online delivery can ever replace/duplicate in-person delivery of services. The relevant questions today are: What part of the value chain can be effectively delivered online and to what percentage of the target market? And is there ... a new market segment that can be tapped by using this unique delivery mechanism?
Simply put, online financial advisors/service providers are attempting to deliver against the majority of the traditional service providers value chain to the majority of their customers. As a result, traditional financial service providers are having to reassess what exactly they are providing to the customer that is valuable. For advisory and planning services, for example, online advisors are estimating that they are providing about 75% of the planning process/output for about 10% of the cost of in-person advisory. For a 90% differential, traditional service providers are going to have to add more value or change their cost structure.
A second trend emerging is the value users are placing on working with financial service providers who filter information before delivering it to them. Information overload is overwhelming the ability to assimilate. Providers who can know their customer and focus their attention to best meet their needs will win customer loyalty. With the overload of information available on the Web, a case can be made for a new type of company such as third-party infomediaries. They argue that they provide objective information so they can be a safe harbor to consolidate all financial information. They claim that because they do not participate in the creation of the product they therefore can maintain their position as being product agnostic.
Wall Street & Technology: Will Wall Street firms be more involved in business-to-business or business-to-consumer e-commerce in the future?
Harley Lippman: Wall Street firms will probably focus in the businesses that they are already aligned with to survive. The numbers are huge in the business-to-business arena. The changes in margins as a result of more efficient delivery mechanisms make this area extremely compelling. For firms with large institutional client bases, they absolutely must deliver using this avenue to continue to exist. Many are also banding together with competitors, to develop common solutions in order to keep new entrants into their sacred space at bay. This is truly where volume will be critical, where it will provide the means to pay for all these expenses to streamline and make processes more efficient.
Also, the business to business world is already wired and ready, in comparison to the consumer world. On the other hand, institutions who rely on the retail customer for the bulk of their business will need to focus on analyzing how they will be adding value in the future and addressing what the online delivery vehicle means to them.