|
(January 1st, 2001) -Will the future of financial services be based on the traditional firm handshake and solemn smile of the local commercial bank? Or will it be based on the click of a mouse, and depend on something called "stickiness" - the envied characteristic of cyber place, where the customer, having found the right product or service, comes back again and again?
Small, upstart companies are aggressively seeking a piece of the small business financial services market, estimated at #200 billion, through the creation of "vortals," vertical ecommerce portals which aggregate a mix of services and products. If it is the right mix, those upstart companies will be enjoying return customers, without ever shaking a hand.
The Alliance
A case study of this battle is the recent alliance, in June, of QLender.com, a three month old small business loan auction site based in San Mateo, CA, and MyReceivables.com. MyReceivables was launched in May by CDS Group of Baldwin, NY, a small business financial services company with 28 years of experience, managing $300 million in 1999, primarily in the accounts receivable business.
CDS launched MyReceivables, after having acquired a "bullet proof" suit of secure Web technology. According to CDS Group President and Chief Executive Officer Leonard Leff, the site has acquired 35 clients so far. The subscription Web site allows client firms real-time access to their accounts receivable data, in addition to transaction processing, credit and collection, private label credit, and paper-based billing services.
By leaving bigger loans to larger players, Leff says MyReceivables is taking advantage of a bar set too high for too many small firms. "What we did is we said, we'll take the smaller deals because our technology is better, and we think there's a lot more fat on the bone with the small guys than a lot of people expect."
QLender's marketing is similarly aimed at small firms. Chief Executive Officer Doug Gaston, formerly a mortgage financier, believes the attraction of his site is clear - cut the time spent by small business owners seeking financing, while providing lenders with higher quality loan applications screened by QLender. Judging by the response so far, business looks promising. Gaston says QLender has already done $10 million in loan auction business, and plans to do $500million by the end of its first year.
"We want to make it convenient for the small business guy to come to our site and obtain what they're looking for without taking a lot of time away from their business. Because we understand that the small business guy certainly doesn't have a lot of time to put in an application here, put in an application there, run here, do this, phone calls there. So we're hoping to eliminate that by allowing them to go to one spot," Gaston says.
The "Vortal"
What Qlender and MyReceivables are doing is apparent to Susan Landry of the Stamford, CT-based Internet consulting firm Gartner, who sees both the problem and the solution. She says of Qlender's plans, "It's both a portal and an e-marketplace. It sounds like through their alliance with MyReceivables.com they're trying to grow into the small business services market." Landry continues, "The frequency with which you apply for a loan is low, so that's not going to engender a great deal of stickiness on its own. That's why developing services that would generate stickiness like MyReceivables makes a great amount of sense."
It helps that, though both QLender and MyReceivables are small, they are not stand-alone businesses. QLender, like other small business loan auction sits, such as PrimeStreet.com and LiveCapital.com, work through alliances with established companies like Heller Financial Inc., PNC, Wells Fargo, Amex and Bank One. The alliances permit these Web sites to offer additional business services like equipment leasing, payroll automation and lines of credit. And of course, MyReceivables is the creation of an established financial services company, CDS.
In this respect, both QLender and MyReceivables do not see themselves as a David to the large established banks' Goliath. Speaking of MyReceivables's competition, Leff says, "It might be a bank, but it might not be, because we could provide the technology and customers could still go to a bank for money."
Similarly Gaston, of QLender, prefers to think of his company as a complement to, rather than a competitor of the established commercial banks. If anything, he says, partnership with a site like his is an advantage to lenders, allowing them to improve product awareness in the small business market, and diminishing the geographic constraints of their traditional markets.
The Old Order
Apparently the established commercial banks are not quite so sanguine about the new Web financial entries. According to a May report by Cambridge, MA-based Forrester Research Inc., entitled "Small Business Bypass Banks," established commercial banks will soon be entering the small business financial services marketplace with their own proprietary portals.
Newcomb says that banks have failed to appreciate the appeal to small business to wider supplier choice, better time management, surrogate business administration servicing, and sales pressures. The result marks a possible shift from the traditional "relationship banking" to the rise of transaction based financial relationships.
Account aggregation represents another erosion of the traditional bank's role. Formally banks could sell entire banking service packages with the obvious convenience that one statement for several accounts represents, it is always easier if everything is under one roof. No longer. Now small businesses may pick and choose the best bank for each bank product. These separate accounts can then be organized by a third party Web site.
Stalking Traffic
As Newcomb says, "Banks no longer have exclusive control over account information. This shouldn't be something that makes bankers sleep easier at night." Initially, banks fought the encroachment of aggregation, but, says Newcomb, "Now they've realized it's inevitable and not worth it." Indeed, several established banks with online presence, like Wells Fargo and Chase, now incorporate the aggregation approach in their Web sites.
"The Internet is going to make the banks realize (their relationship) was a marriage of convenience for small business owners as opposed to a natural affinity," Newcomb says. Despite this shift, the report finds that in the current finance expansion, "relationship banking" is still highly regarded among established banks.
If the larger commercial banks have reason to fear Web-based threats in the small business finance area, they seem willfully unaware. According to the Forrester report, only 18% of banks surveyed say their major competition is among Web-based banks or account aggregators. Banking that emphasizes the value of the handshake over the anonymous mouse-click is in contradistinction to the Web "stickiness" approach articulated by QLender's Gaston, "If you're looking for a small business loan, we present you options and you are able to pick the option that meets your criteria - then it's to your benefit. So the next time you're looking for a loan, I would think you'd come back."
According to Newcomb, success for small business financial services on the Web is ultimately a matter of which sites can generate high traffic and plow the revenue back in, in order to expand their services. In the end, many analysts say that established banks will find the pull of new business strategies online irresistible, even if its in the form of a downward price pressure on their traditional bricks-and-mortar offered products.
Innovation Spoilers
Of QLender and MyReceivables, Newcomb agrees with Gartner's Landry, "It sounds to me like they're trying to be two things - a matchmaker to help people get the best deal, and at the same time they're also trying to be an attractor and get people to obtain other supplies there." But he comes to a different conclusion, "I'm not sure they'll be able to do both."
All business has its risks, especially in the fast changing world of financial services, whether it is Web-based or brick-and-mortar. If it is a battle between the established commercial banks, set in their ways, and the small upstarts, willing to make alliances with like-minded innovators, the spoils may go to the latter. It is therefore worth noting Landry's sage advice, "It's wise to participate and partner, to be a player, because when the story is over and the answer is clear, by then it will be too late to begin."
|
