E*TRADE — the pioneer company that helped propel the financial
services field into the future five years ago when it launched its Internet
trading service — is redefining itself to become the E*TRADE of tomorrow.
But those who follow developments in online financial services think that
vision is increasingly resembling traditional banks of today.
Since last fall, E*TRADE has been quietly rolling out a click-and-mortar
strategy with the opening of the first “E*TRADE Zone” in a Target store
located in Georgia. In partnership with the retailing giant, E*TRADE plans
to open 20 more Zones across the country over the next two years. These
stores, which utilize very little square footage, are relatively simple: a
few computer terminals; an ATM; a representative during business hours.
Now the Menlo Park, Calif.-based company has secured retail space on
Manhattan’s highly-trafficked Madison Avenue — one of the most expensive
areas in New York. E*TRADE plans to open its first “E*TRADE Center” concept
store during the second quarter of 2001. No date has been set.
In its latest TV spots, E*TRADE itself pokes fun at the enormous cost structure of
traditional banks. And data shows the mockery is somewhat justified. The American Bankers Association found that in 1999 banks spent roughly $1 million to $1.18 million in average operating expense per branch depending on the size of the bank.
But E*TRADE officials are quick to point out that their new
centers are different from traditional bank branches. “It is not a branch in
the traditional sense … in terms of the costs that it incurs and the
functions that it serves,” said Deborah Newman, spokesperson at E*TRADE
Bank.
Perhaps, the change of heart is fueled by the relatively slow adoption of
online financial services. Most Web-based financial services have yet to win
acceptance among consumers, according to a report by Mercer Management
Consulting. The study, “Digital Business Designs in Financial Services,” found that
consumers make online purchases of insurance, loans, and mortgages far less
often then they buy computer hardware, books, travel, clothing, and other
consumer goods and services online.
To be sure, E*TRADE is also trying to keep up with those traditional
banks, which have made substantial in-roads in transitioning to Web-based
financial services. If you compare any large money center bank with a
competitive online venture like E*TRADE, “they will end up pretty equal five
years from now,” said Avivah Litan, research director of financial services
at Gartner Group.
E*TRADE Centers will not only offer access to banking and
brokerage products and services but also tools and education to help the
consumer access more online. Personnel are at hand but customers are
directed to machines to conduct their transactions. While automated
self-service help hold down costs, the location “helps to forge a
relationship with customers and potential customers,” Newman said.
But replacing physical labor with technology doesn’t necessarily insure
lower costs as banks have found in migrating their customers onto the
Internet. While customers migrate their transactions, the number of those
transactions (account balances, transfers, etc) increases dramatically.
“They (banks) ended up not saving money because they had more transactions
per customer,” Gartner’s Litan explained.
However, there are residual benefits. Banks found that as a result of
their responsiveness, customers tended to stay with the financial
institutions that would catered to their needs. This is exactly what E*TRADE
is doing.
“It’s more a customer-retention strategy than a cost-cutting strategy.
They are starting from one end of the spectrum and going to the other end”
as opposed to banks who have migrated from offline to on,” Litan said.
To further
drive customers satisfaction, E*TRADE this morning selected
Mosaic Software to upgrade its ATM network. Since the completion of its Card
Capture Services Inc. acquisition, the company has operated the nation’s
third largest ATM network behind Wells Fargo and Bank of America. With
Mosaic’s Postilion software, E*TRADE now plans to enhance the network’s
speed, transaction processing and monitoring capabilities.
More importantly, though, E*TRADE will work with Mosiac to create the
first ATM network that will provide customers with access to both E*TRADE
Bank accounts and E*TRADE Securities brokerage accounts — an industry
first. Because development is in the early stages, however, it is unclear if
the company plans to offer trading or only access through the ATM, Newman
cautioned.
Such a move was looked upon very favorably by Gartner.
“Definitely, E*TRADE’s position is going to enable them to move much
faster than the traditional bricks-and-mortar banks,” Litan said.