There's nothing that boosts a company's share price these days like the mention of anything approaching a dotcom strategy. It works particularly well for some of the oldest institutions around: European banks.
Shortly after Deutsche Bank unveiled its plan to develop a pan-European ecommerce bank with mobile telephone provider Mannesmann, its stock went up five per cent.
The early success of internet entrants, such as Prudential's Egg or Dublin's first-e, showed the banks pretty quickly that customer loyalty can no longer be taken for granted. Now, supermarket chains, utilities, and even auto manufacturers may move into internet finance. And, of course, telecom companies, too.
As if that wasn't bad enough, ecommerce is developing in a way that erodes the banks' dual role in providing and processing money. Telcos could easily take control of the processing. Many banks have also realised that they need to provide the most advanced internet delivery channels - using mobile phones - if they are to keep existing customers and win new ones. The best way to do so is to team up with phone companies. Otherwise, "traditional banking establishments are clearly at risk," says Robert Dedman, managing director of Winchester consulting firm, Teleconsul Europe.
If you can't beat 'em, join 'em
The links with telecom firms aren't just defensive. Some ambitious banks think they can take a bigger slice of the ecommerce market by working with the phone companies, not against them.
But bank executives could be disappointed. No-one knows if consumers will rush to do their banking on their cellphones - especially since mobile calls still cost more than ones made over fixed lines. Besides, corporate cultures could clash, and it may not be long before the telecom providers decide that they can make more money by ditching the banks and taking over completely.
"The telecom companies control the portals and therefore the interface with the customer," says Dedman. "These deals could turn out to be like Trojan horses, a means for the telephone companies to steal a march on the banks."
That doesn't seem to worry the big banks. Over the past month, at least five have unveiled plans to link up with various telecom providers. Many others are poised to follow, including France's Banque Nationale de Paris and Italy's UniCredito Italiano, which analysts say is negotiating deals with France Telecom and Telecom Italia (TI) respectively. None of the companies would comment.
"There's a growing realisation in Europe that the banks and phone companies that will do best out of ecommerce will be the ones working together," says Robin Arnfield, a mobile telephony specialist with Lafferty Group, a London financial publishing and research group. "This is the beginning of a powerful new trend."
For the telcos, these alliances are probably the easiest, and certainly the quickest, way to provide financial services. It would be difficult for telcos to offer online banking on their own. Apart from the regulatory hurdles they face, they lack both banking expertise and the brand recognition to snare clients.
Hooking up - recent cases
Consider some recent deals. Telecom carrier Telefonica and Spanish bank BBVA will jointly provide online financial and payment systems, as well as business-to-business and business-to-consumer services to customers throughout Spain and Latin America. To cement the relationship, the phone operator will buy a stake of up to three per cent in BBVA, while the bank will increase its stake in Telefonica from about eight per cent to 10 per cent.
And Deutsche Bank isn't just hooking up with Mannesmann. It also plans to shell out up to $1 billion (£620 million) this year on some 200 other internet initiatives, including agreements with German business software group SAP, internet service provider AOL Europe, and Silicon Valley information and financial services startup, eTime Capital.
"The digital economy is fundamentally shifting power to the customer and transforming the way we go to market," says Hermann-Josef Lamberti, a managing board member of Deutsche Bank. "We're acting now with an unparalleled sense of urgency to put Deutsche Bank in a leadership role."Shift in the internet economy
The convergence of telecom and banking also heralds a major shift in the internet economy, say ecommerce analysts. In particular, these deals could spur the development of Europe's fledgling mobile ecommerce market.
The number of internet-enabled cellular phones will overtake the number of laptop PCs in Europe sometime next year, according to Durlacher, a London investment bank specialising in technology and media.
The new generation of phones also present fewer security problems. Subhajit Gupta, a telecom analyst at Standard & Poor's in London, describes them as "effectively credit cards with antennas". Given that, the potential for mobile ecommerce in Europe is enormous. Business volumes will top $23 billion by the end of 2003, predicts Durlacher. The institutions that handle the payments for all that business should do well.
It all seems to make sense, and investors obviously like the idea. But potential conflicts of interest, which could arise once the portals are more firmly established, may mean some of these deals will unravel. Still, financiers and telecom specialists agree on one thing: the banks and phone companies that have linked up know that in the internet economy, it's smart to grab market share first.
First published in Business Week. Copyright 2000 by the McGrath-Hill companies inc. All rights reserved.
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