The tech market may indeed be taking a battering on stock exchanges around
the world - but practitioners of online finance seem to firmly believe that
the Internet has indeed unleashed tremendous change and upheaval in their
"Despite all the market sentiment and an apparent backlash against dotcoms,
serious players in established verticals like finance remain convinced that
the Internet will have a profound impact," said Lionel Smith-Gordon, Asia
head of Lab Morgan (www.labmorgan.com), the e-finance unit of J.P. Morgan Chase.
Speakers and delegates from across Asia and parts of Europe and the U.S.
gathered in Singapore recently for the e-Finance Asia Summit, hosted by
Marcus Evans Conferences.
The Net is creating a conducive environment for changing banking and
finance in Asia, Smith-Gordon said.
"At one end of the spectrum - information-driven activities such as foreign
exchange, brokerage, equities and futures - the Net is a disruptive force
by commoditising these entities. At the other end of the spectrum -
advice-driven activities like mergers, acquisitions, project lending and
corporate finance - the Net allows for new kinds of un-bundling and
re-bundling," he said.
It is advice and knowledge - not products - which will differentiate
financial institutes online, according to Smith-Gordon.
LabMorgan is the e-finance engine of JP Morgan Chase; it focuses on
integrating e-business elements with its core lines of business as well as
transactions with its external partners.
LabMorgan has unveiled dozens of products and e-services for internal use
and for other banking and commerce players, such as credit trading platform
MarketAxess.com, foreign exchange marketplace Atriax.com, derivatives
trading network SwapsWire.com, credit automation service eCredit, B2B
purchasing solution Metiom.com, derivatives services site Cygnifi.com,
surplus products marketplace TradeOut.com, equities network Archipelago,
and car purchase information site CarClub.com.
"More people than ever before are getting access to more information than
ever before thanks to the Net," said Suresh Advani, Asia head for online
ventures at Dresdner Bank (www.drkw.com).
"The Net represents the fourth and fifth wave of disintermediation in the
banking industry over the decades. The first two waves of disintermediation
were the rise of the capital markets and mutual funds. This was followed by
the third wave: outsourcing back office operations. The Net ushers in the
next two waves of disintermediation: for distribution and payment," said
Kathryn Kerle, director of ratings firm Moody's Singapore (www.moodys.com).
"The Net can help lower the cost of transactions, improve customer data,
increase cross-selling opportunities, and integrate new financial products.
On the other hand, e-finance also leads to higher development costs for new
products, accelerated homogenization of banking products, more competition
from non-banks, higher customer expectations, and more opportunities for
empowered customers to click away to another site," observed Kerle.
Moody's is devising new ratings frameworks for a bank's e-development
initiatives, which will impact its earnings capability: such as level of
online service, reliability, speed, innovation, and customization of products.
"The Net will impact bank ratings in Asia in the medium to long-term, but
not short-term. Product sophistication is still developing," said Kerle.
Moody's rates banks in countries across Asia, including India.
Asia exhibits a diverse variation in Internet penetration, income
distribution, and customer sophistication, she observed.
"Many local banks in Asia are still struggling with the basics of IT
projects. Foreign banks like Citibank and Standard&Chartered are very
proactive in this space," Kerle said.
The battle is on for leveraging new technologies for increased acquisition,
retention and wallet share for money-related services, said M. Ramaswami,
e-commerce director for the Asia Pacific region for Citibank.
The Net in its various incarnations can be used for mediating business
processes, facilitating new business models, and creating new markets, he
Citibank rolls out a minimum "e-toolkit" across all its branches worldwide,
and the various branches then exploit local patterns in IT variation. For
instance, Asian countries like Japan and South Korea lead in mobile phone
banking usage, while multi-currency payment services are popular in Hong Kong.
Citibank offers cash management services to over 20,000 companies and
financial institutions around the world. Its financial services cover
delivery systems (CitiDirect, My-RM.com), payment systems (e-Clear,
CitiWithin, WorldLink.com) and integration capabilities (e-Billing).
In the U.S. market, by year 2003 there will be 44.8 million online
shoppers, 31 million users of e-banking services, 12.5 million online stock
traders, and 15.2 million users of electronic bill presentment and payment
services, said Harry Chopra, Asia Pacific managing director at e-billing
solutions company CheckFree (www.checkfree.com).
On the IT front, challenges arise for bank managers who are suddenly thrust
into the role of managing new IT projects - an area where they have very
little expertise, observed Chopra.
Financial information accessible via the Net tends to be deep, wide and
quick, said John Kuse, deputy managing director at T.D. Waterhouse Investor
Services. Issues like taxation are beginning to loom big in market after
market, he said.
Increasing de-regulation coupled with globalisation will lead to an
integration of vertical silos of e-finance that are emerging around the
world, Kuse predicted.
"We view the Net as a key medium in helping us allow the Chinese diaspora
in North America to tap into investments closer to home in Hong Kong. The
same principle can apply to the Indian diaspora in America, Europe and
Australia as well," Kuse said.
T.D. Waterhouse has a presence in India as well, via a joint venture with
At the same time, financial institutes need to stay way from excessive
"marketing exorbitance" in trying to build their brands, Kuse warned. He
claimed that T.D. Waterhouse spent only $112 in advertising expenses per
new account last year, as compared to over $260 by its competitors E*Trade
At the same time that it opens up new opportunities for banks and
consumers, the Net also pushes the frontier of crime.
"The Net gives criminals broader access to new victims, a cloak of
anonymity for perpetrators of cybercrime, access to new bank accounts and
e-commerce sites, and very high speeds of operation," warned Peter
Hazlewood, vice president for regional security services at J.P. Morgan
One of the most prominent cases of online fraud last year was the fake
online posting about the resignation of the CEO of a publicly listed data
networking company called Emulex. The company shares plunged 60 per cent
because of this fake rumour.
It is possible for potential criminals to buy passports - perfectly legal
ones - off the Internet for countries like Argentina, Brazil, Belize, and
even Ireland, Hazlewood said.
There are even non-existent countries -- like the so-called Dominion of
Melchizedek -- for which fraudsters advertise passport services online;
these fake passports have actually been accepted by immigration authorities
in India and Indonesia, said Hazlewood.
"Money-laundering has become more complicated to crack thanks to the Net.
You can even to a search engine like Google and type in 'offshore banks' -
and get a list of banks for sale," said Hazlewood.
Offline, new devices called 'skimmers' make it easy to swipe a credit card
and capture the information stored on its magnetic stripe. "This data is
then used to re-create duplicate credit cards at sites like Kuala Lumpur,
which is the largest centre for counterfeiting credit cards in Asia. These
cards are then used at e-commerce sites to buy as many books or other goods
as possible before the fraudulent transactions are discovered," warned
While B2B e-commerce is supposed to be a hot emerging arena, the truth is
that on many such exchanges the final trade is still done manually. "Banks
should be expanding into this market," said P. R. Balaji, Asia Pacific
financial services director at Oracle.
And as increasing de-regulation blurs the turf lines for banking, insurance
and financial trades, the Net as a common operational platform also raises
questions of why these sectors need to function independently in cyberspace
as well, he added.
Very soon, local banks who were protected by government regulation will
face the heat of technology savvy global players who have mastered the game
in markets around the world, Balaji warned.
"Banking was one of the first industries in the world to computerize.
Today, however, some of the older banks are struggling to evolve their
former legacy systems with the Web-based environments of today," Balaji said.
Banks now have to evolve down the entire e-chain: basic information,
interactivity, transaction, and collaboration with other partners. "Exploit
the Net - don't just accommodate it," he advised.
Forming alliances is a key strategic move for banks in e-space;
TradeCard.com and LendingTree.com are good examples in this regard.
"Collaborative commerce with a company's business partners creates value,"
said Camtu Macintyre, principal for financial services at SAP Asia.
Collaborative commerce in open Web-based marketplaces creates new sources
of revenue as well as sharing of equity stakes and revenue in co-owned
marketplaces; mySAP.com is moving into this space as an infrastructure
provider for marketmakers.
Asian banks need to approach "Netsourcing" more aggressively via the ASP
model, said Francis Lacan, global head of risk management at IBM. They need
to observe and learn from global players like Chase, who are not treating
technology as a cost but as a revenue opportunity by developing and selling
technology solutions to other players, he said.
Mobile Internet banking is taking off in Japan, South Korea, Hong Kong and
Singapore. European companies like Genie, the mobile Internet arm of
British Telecom, are eyeing the mobile portal market not just in Europe but
Asia as well.
"Some learnings from the Internet world can be applied to the wireless
world as well, but the wireless user environment is more immediate,
personal and impatient," said Minnaa Hataaja, head of mobile commerce at
Though industry opinion on the performance of WAP is divided, she feels it
still has delivered a lot of value to customers.
U.K. banks rolling out Genie's mobile Internet banking services include
Cahoot, Natwest, Halifax, Lloyds, Bank of Scotland, and Prudential. "For
one particular bank, mobile services helped reduce churn from 35 per cent
to 10 per cent," Hataaja claimed.
"By 2003, more users will be accessing the Net from cellphones and PDAs
than PCs. Mobile Internet services should definitely be on the agenda of
all financial institutes," Hataaja concluded.