Internet Changes Everything: March 2005 Archives

March 31, 2005

Banks urged to act on Net security fears

Finextra: Banks urged to act on Net security fears

Banks must act "urgently" to tackle Net user security fears if they are to retain and attract customers to cheaper online channels says Forrester Research.

In a survey of more than 22,000 Europeans, Forrester found that just 30% of Internet users are confident of the security of personal financial information, like credit and debit card numbers, when used to make transactions online. Two-fifths of the European Net users who don't use online banking say they don't because they worry about security.

Benjamin Ensor, senior analyst, financial services at Forrester says: "Consumers' deep-seated security fears remain one of the biggest barriers to online banking use in Europe, particularly in countries like Italy, France, and the UK, where two-factor online banking authentication is rare or unknown. The more confidence Net users have in security, the more likely they are to bank online."

The analyst group says that banks should look to educate Net users about security precautions, not let usability fears compromise security, deploy or strengthen two-factor authentication "urgently", and collaborate rather than compete on security.

March 31, 2005 at 10:10 PM in Financial Services | Permalink | TrackBack (46) | Top of page | Blog Home

Crowned at last

http://www.economist.com/printedition/displaystory.cfm?story_id=3785166

Mar 31st 2005
From The Economist print edition
The claim that �the customer is king� has always rung hollow. But now the digital marketplace has made it come true, says Paul Markillie

IT IS the biggest advertising event of the year. On February 6th, half the households in America sat down in front of their televisions to watch the 2005 Super Bowl. Never mind the game: the Super Bowl is a showcase for television commercials, and more than a quarter of the viewers tune in just to watch the ads. For days before and after the event, these are discussed in the newspapers, on radio and on TV. At an average cost of $2.4m for a 30-second slot, a Super Bowl commercial is the most expensive pitch an advertiser can make. For some, such as Anheuser-Busch, it has become an institution. The brewer's decision to drop one of its ads from the ten slots it had booked made headlines. The commercial was a cheeky take on Janet Jackson's �wardrobe malfunction� (a slipping top) during the half-time show at the 2004 game. The resulting publicity prompted large numbers of people to visit Anheuser-Busch's website to look at the ad, which meant that probably as many saw it as if it had been screened.

The Super Bowl is a great excuse for a party, especially for the advertising industry. It shows that people still enjoy ads that are creative and entertaining. But it raises an awkward question: does it actually sell any more bottles of beer, cars or pills for erectile dysfunction? Although TV viewers tend to be able to recall a particularly good commercial, many cannot remember the product it featured. And for the most part they try to avoid the rising barrage of ads. Getting their attention is becoming increasingly difficult, because audiences are splintering as people use different kinds of media, such as cable television and the internet. The choice of products and services available is multiplying, but at the same time consumers have become more sceptical about claims made for products. In today's marketplace, consumers have the power to pick and choose as never before.

All-seeing, all-knowing

This new consumer power is changing the way the world shops. As this survey will show, the ability to get information about whatever you want, whenever you want, has given shoppers unprecedented strength. In markets with highly transparent prices, they are kings. The implications for business are enormous: threatening for some, welcome for others. For instance, the huge increase in choice makes certain brands more valuable, not less. And as old business divisions crumble, a strong brand in one sector can provide the credibility to enter another. Hence Apple has used its iPod to take away business for portable music players from Sony; Starbucks is aiming to become a big noise in the music business by installing CD-burners in its caf�s; and Dell is moving from computers into consumer electronics.

�I am constantly amazed at the confidence level and sophistication of the average consumer,� says Mike George, Dell's chief marketing officer and general manager of its consumer business in the United States. Dell soared to the top of the personal-computer business by cutting out retailers and selling directly to consumers. If Dell changes prices on its website, its customers' buying patterns change literally within a minute. �That tells you people are well-researched and knowledgeable,� adds Mr George.

Even buying a car, long considered to be one of the worst retail experiences anyone can have, is being transformed. Over 80% of Ford's customers in America have already researched their prospective purchase on the internet before they arrive at a showroom, and most of them come with a specification sheet showing the precise car they want from the dealer's stock, together with the price they are prepared to pay. Similarly, more than three-quarters of mobile-phone buyers in America do their research on the web, even though only 5% buy online, says John Frelinghuysen of Booz Allen Hamilton, a firm of business consultants. They still want to go to a shop to hand over their money and get their phone, but first they want to see exactly what the service package covers, and to read what other users say about their proposed purchase.

Disintermediation seems to be in the air

With consumers becoming increasingly empowered, how can the marketing, advertising and communications firms that companies use to promote their products hope to get their messages across? And what does it mean for media businesses relying on advertising revenue, the traditional channels for reaching this increasingly elusive audience? Disintermediation�the process of middlemen being cut out�seems to be in the air. The three big TV networks in America have all hedged their bets by acquiring cable channels. The advertising business is reorganising itself, seeking safety in size. Many agencies are now clustered into four big global groups: America's Omnicom and Interpublic, France's Publicis and Britain's WPP. In some ways they are recreating the big, vertically integrated advertising giants of the past, but with separately run companies to deliver the range of specialist marketing services they think their clients will need in the future.

So what will that future hold? �For the first time the consumer is boss, which is fascinatingly frightening, scary and terrifying, because everything we used to do, everything we used to know, will no longer work,� says Kevin Roberts, chief executive of Saatchi & Saatchi, part of Publicis. Shelly Lazarus, head of Ogilvy & Mather, part of WPP, is more sanguine. �Advertising is as vibrant as it has ever been. It's just that the way you define it is so much broader now, with new ways to reach people,� she explains. �In the past you would keep pounding the creative message out into the market place and look at reach frequency,� says Howard Draft, a veteran direct-marketing expert and chief executive of his eponymous New York agency, part of Interpublic. �Well, basically that is dead. What you have today is an informed consumer who is taking control of the way he learns and hears about products.�

Companies with some of the world's biggest advertising budgets are beginning to look for new ways of attracting consumers' attention. Jim Stengel, global marketing officer for Procter & Gamble (P&G), is one of the advertising industry's harshest critics, awarding it a �C minus� for its ability to embrace new media. And Larry Light, who has been giving McDonald's a makeover as its chief marketing officer, says bluntly: �The days of mass marketing are over.�

Mass retailing, however, looks as healthy as ever. The supermarkets are taking an increasing proportion of consumer spending�and on a lot of things beside groceries. A growing part of Wal-Mart's business comes from people searching online for information on products such as consumer electronics, and then visiting a store to make a purchase. �I think it works to our advantage, because we are the price leader,� says Lee Scott, chief executive of the world's biggest retailer. �There's power for them and us.�

Consumers, of course, care not a jot about marketing machinations. They are delighted to have more choice, which makes it easier for them to turn their back on a company they do not like and buy elsewhere. For some this is sweet revenge. �Consumers have become jaded and cynical,� says Rob Markey, a partner at Bain & Company, a consultancy. �There is a pile of broken promises heaped on the floor.�

The ads we love to hate

In fact, consumers have been telling market-research companies for 50 years that they do not trust advertising. But they have become even more negative about it recently, says Eric Schmitt of Forrester, a research firm. Indeed, people are actively looking for ways to avoid ads, using tools such as pop-up blockers on web browsers and digital video recorders (DVRs) that allow them to skip the ads when they record TV programmes. Forrester found that 60% of the programmes watched by DVR users are recorded, and 92% of the ads on such programmes are skipped. The firm reckons that by the end of 2008, 36m households in the United States will be using DVRs. So what will happen to the $60 billion spent on TV advertising in America every year? Mr Schmitt thinks that if the TV industry can no longer guarantee its audiences, a lot of that money will move elsewhere.

For the moment, advertising expenditure gives no hint of trouble ahead. The business is bouncing back strongly from the slump that began in 2001, when the bursting of the technology bubble caused a sudden collapse in ad spending. Worldwide advertising expenditure on the mainstream media and the internet in 2004 grew by around 7% to $370 billion, estimates ZenithOptimedia (see chart 1). Universal McCann, a media-services firm, uses different measures but sees a similar recovery. It says that in America last year $264 billion was spent on national and local advertising and other marketing, such as direct mail (a $50 billion business), up 7.4% on the previous year. And it expects ad spending in the world's biggest market to grow by more than 6% this year.

But the way that money is spent is changing. In America, growth in ad spending is led by the internet, Spanish-language TV and cable networks, according to TNS Media Intelligence, a media-monitoring company (see chart 2). And as with P&G's $4 billion advertising budget, a growing proportion is shifting from mainstream media, such as television, radio and print, to new media and other forms of sales promotion, such as direct mail, public relations, promotions, sponsorship and product placement. Collectively this sort of spending, sometimes called �below-the-line� advertising, or marketing services, is already worth more than twice what is spent on traditional display advertising. Together, the two sorts of spending added up to more than $1 trillion last year, says WPP.

By comparison, the $10 billion or so spent on internet advertising in America last year looks tiny. But it was 32% up on 2003, according to a study by the Interactive Advertising Bureau and PricewaterhouseCoopers. And that growth is accelerating, leading some forecasters to suggest that the online ad market could double in value this year. The internet is also becoming a lot more sophisticated as an advertising medium, beyond banner ads and pop-ups. In search advertising, companies buy words that, if they appear in searches made on sites such as Google or Yahoo!, will bring up a link to the company's website, displayed alongside the search results. The advertiser pays only if someone clicks on his links. This makes the results of search advertising reassuringly measurable, because tracking how many people go on to make a purchase is relatively easy. Google is beginning to work like an advertising agency, placing small text-based ads on other people's websites on behalf of its clients and splitting the revenue with the website owners. Google's software scans the sites to match the ads it serves up to the site's content.

Local search could be the next big moneyspinner on the internet�for whoever comes up with a winning formula. Microsoft's MSN site, for instance, will provide details about a local shop, and a map to get you there. A9, a new search engine from Amazon, has a feature called �Block View� with pictures of streets and their shop fronts, so if you have forgotten the name of the restaurant you are looking for, you may be able to recognise it in the picture. The next step will be a feature that allows users to �click to call�. Initially this service is likely to be free, but in time it could be developed into another big source of online revenue.

Media from dawn to dusk

Some changes in consumer behaviour that were already under way have been speeded up by the growing use of the internet. For example, consumers are spending more time with media of all kinds: currently about ten hours per person per day in America. According to Veronis Suhler Stevenson (VSS), a New York-based media merchant bank, this is likely to grow to 11 hours by 2008. James Rutherfurd, the bank's managing director, thinks this is due to a relatively new phenomenon he calls �media multi-tasking�: using different media at the same time. �This has enormous implications for advertisers and programmers,� he says. �It used to be that they were competing to get you to turn on the television. Now the TV may be on, but they are competing to keep your attention on the TV as opposed to the computer screen, the magazine or the iPod.�

Consumers are spending more time with media of all kinds: currently about ten hours per person per day in America

Fujio Nishida, chief marketing officer of Sony's electronics division, points out that this forces advertisers to think very carefully not only about which media to use for the market they want to reach, but what people are likely to be doing when their ad appears. In Japan, he says, in the past you could be fairly sure that 90% of your potential targets would be watching TV at some point between 8pm and 10pm; but now only 70% may be watching and 60% will be using the internet�many doing both at the same time. Advertisers can take advantage of this by putting on TV ads specially designed to encourage consumers to go straight to a website, as Sony has done.

�Who actually controls distribution in this type of world?� asks Bill Gossman. �The individual does. That's where the ultimate consumer power comes from.� His company, Revenue Science, is developing new ways of �behavioural targeting�. This involves analysing online consumer behaviour and then delivering ads that are likely to be relevant to groups with common interests. Mr Gossman thinks that as the world becomes more digital, his techniques will increasingly be used by all kinds of electronic media.

Amazon, which has long evolved from an online bookseller into a mass retailer, uses a form of behavioural targeting by suggesting products its customers might like, based on their past purchases. Jeff Bezos, Amazon's chief executive, was among the first to spot that the transparent pricing and product information the internet was able to provide would allow people to shop just about anywhere. The trick was to make it easier for them, so Amazon's website now operates as a shop front for lots of other companies too. And it gives customers the chance to read not only the sales blurb but also other customers' comments on the products.

For some companies this is scary stuff�the same as throwing open your customer-relations files and hoping that people have said enough nice things about you. Companies can, of course, try to control everything that is said and written about them through advertising and public relations. But nowadays a web search can turn up all sorts of skeletons in the cupboard, especially from news groups where people post comments, from online journals (called �web logs� or �blogs�) and more recently from �podcasting�, in which individuals produce their own audio programmes for others to download to their Apple iPods or other MP3 players. Video versions of this are sure to follow. Not all of this can be dismissed as amateurish twaddle. Microsoft, for instance, is taking blogs seriously enough to have hired its own celebrity blogger, Robert Scoble, even at the risk that he might be scathing about the company's products.

This is a clever move. The less control a company has over its marketing message, the greater its credibility, says Pamela Talbot, an expert in consumer-product marketing and chief executive of the American side of Edelman, a giant public-relations firm. Indeed, Saatchi & Saatchi's Mr Roberts thinks marketing departments must accept that brands no longer belong to them, but to the people who use them. The most valuable users of a company's brand are what he describes as �inspirational consumers��people who are closely associated with a company and its products. It does not even have to be another company. Some of the most successful agents for generating a buzz�and plenty of free publicity�can be the people who run the business.

For example, the celebrity status of Sir Richard Branson has rubbed off on the Virgin brand, so his businesses, from music to airlines to space travel, get instant consumer recognition. Stelios Haji-Ioannou, a familiar face in Britain, founded easyJet, one of Europe's first cut-price airlines. Mr Haji-Ioannou, who describes himself on his business card as a �serial entrepreneur�, believes that a brand represents �a promise�. So whether he is attaching his name to a car-rental business, a new no-frills hotel chain or a new cruise line, the consumer knows what to expect from the person putting his reputation on the line. Donald Trump has also turned himself into a brand, but the New York businessman is especially well known for �The Apprentice�, a business reality show on TV. This is a huge hit in America (unlike Sir Richard's own show), and companies pay to be involved.

What is it worth to have the contestants on such a show design a new product for your business, as Burger King did? The fast-food chain then went on to mount a similar competition on its own website. Measuring the effectiveness of such marketing is not easy. The marketing profession has yet to catch up with new media, says Malcolm Hunter, chief strategy officer of Vizeum, a London agency set up to seek out opportunities from recent trends. �Consumers are real people, and companies that understand that can do well.� That might seem blindingly obvious, but he is right to remind the industry of it. Advertisers are still inclined to depict their activities as a form of warfare. Consumers are �targets� and ad �campaigns� are meant to �wear down resistance� and score �hits�.

The rise of consumer power can best be charted through three industries: packaged goods, consumer electronics and cars. In each of these three very different categories consumers carry increasing clout. As the cost of the product goes up, they spend more time and effort considering which make and model to buy. The battle for their attention and money begins at the supermarket.

March 31, 2005 at 08:42 PM in Web lifestyle | Permalink | TrackBack (7) | Top of page | Blog Home

Power at last

Economist.com | Consumer power

Mar 31st 2005
From The Economist print edition
Armed with the internet, the customer has finally got on top
WHEN a customer enters my store, forget me. He is king, decreed John Wanamaker, who in 1876 turned an abandoned railway depot in Philadelphia into one of the world's first department stores. This revolutionary concept changed the face of retailing and led to the development of advertising and marketing as we know it today.

But compelling as that slogan was, in truth the shopper was cheated of the crown. Although manufacturing efficiency boosted the variety of goods and lowered prices, advertising provided most information about products. Through much of the past century, ads spoke to a captive audience confined to just a few radio or television channels or a limited number of publications. Now media choice has exploded too, and consumers select what they want from a far greater variety of sources�especially with a few clicks of a computer mouse. Thanks to the internet, the consumer is finally seizing power.

As our survey in this issue shows, consumer power has profound implications for companies, because it is changing the way the world shops. Many firms already claim to be �customer-driven� or �consumer-centric�. Now their claims will be tested as never before. Trading on shoppers' ignorance will no longer be possible: people will know�and soon tell others, even those without the internet�that prices in the next town are cheaper or that certain goods are inferior. The internet is working wonders in raising standards. Good and honest firms should benefit most.

But it is also intensifying competition. Today, window shopping takes place online. People can compare products, prices and reputations. They can read what companies say about products in far greater detail, but also how that tallies with the opinions of others, and�most importantly of all�discover what previous buyers have to say. Newsgroups and websites constantly review products and services.

This is changing the nature of consumer decisions. Until recently, consumers usually learned about a product and made their choice at the same time. People would often visit a department store or dealership to seek advice from a salesman, look at his recommendations and then buy. Now, for many, each of these steps is separate. For instance, Ford is finding that eight out of ten of its customers have already used the internet to decide what car they want to buy�and what they are willing to pay�even before they arrive at a showroom.

Know-alls

Of course, the amount of time people spend researching and checking prices tends to rise in proportion to the value of the product�and cars are expensive. But consumers are displaying similar behaviour when they purchase other things, such as digital cameras, mobile phones or fashionable clothes. And while supermarket shoppers may not research in this way all the individual items they drop into their trolley, many suppliers of the packaged goods sold in supermarkets are already acutely aware that their customers, too, are better informed than ever before about the value or health implications of the products they sell.

Reaching these better-informed consumers with a marketing message is not easy, and not only because they are more sceptical. Many people now spend as much time surfing the web as they do with television, magazines or newspapers. The audience for advertising is splintering and its attention is harder to attract. On top of that, many people are arming themselves with technology to avoid marketing messages, such as pop-up ad-blockers for the internet and personal video recorders that make it easy to skip TV commercials.

Despite the flood of product and price information suddenly available, consumers are unlikely ever to become wholly calculating. Tastes and fashion will differ. Brands are likely to remain popular. But brand loyalties are weakening. A slip or delay can cost a firm dearly and hand the advantage to an opportunistic rival. This is how Apple's iPod snatched from Sony the market leadership in portable-music devices.

Virtual shopping

Many firms do not yet seem aware of the revolutionary implications of newly empowered consumers. Too many companies relaxed after the bursting of the dotcom bubble, assuming that the online threat had faded. This was a mistake. It is true that the vast majority of people still go to shops for most purchases (though online sales continue to grow). Before doing that, however, most have used the internet. More than 90% of people aged between 18 and 54 told America's Online Publishers Association in a survey that they would turn to the internet first for product information. The differences between the virtual and the bricks-and-mortar worlds do not worry consumers. But they should worry companies. Many consumers first encounter a firm through its website, and yet for too many firms, their online presence remains a low priority.

By contrast, some businesses have embraced the internet wholeheartedly, and been rewarded for it. Dell has by-passed retailers and used direct sales to become the world's leading supplier of personal computers. The web is also transforming the travel business, giving consumers the power to book flights, hotels and cars directly. And it has allowed hundreds of thousands of small businesses, from mom-and-pop stores to traders of collectibles on eBay, to reach a global market.

The explosion of choice that followed the opening of Mr Wanamaker's store is minuscule compared with the cornucopia already provided by the internet. But the consumer's choice is about to become even greater. Internet search firms such as Google, Yahoo! and MSN are now falling over each other to offer more localised services. These promise to open up a new goldmine in search advertising. And soon this facility will be available not just on PCs at home or work, but on mobile phones. At a touch, consumers will be able to find a local store and then check the offers from nearby outlets even as they browse the aisles, or listen to a salesman. When that happens consumers will truly be kings, and only those firms ready and able to serve these new monarchs will survive.

March 31, 2005 at 08:40 PM in Web lifestyle | Permalink | TrackBack (7) | Top of page | Blog Home

Comment: Jill Kerby: Internet offers banks window of opportunity

Comment: Jill Kerby: Internet offers banks window of opportunity - Sunday Times - Times Online

WHAT is it that good Christian bankers say? That the good Lord doesn’t close one branch without opening another? Last week Bank of Ireland announced that 10 of its branches would shut over the next few years. But hadn’t Bank of Scotland just announced that it was going to open 52 new branches in the old ESB shops in towns and cities around Ireland?

It wasn�t too long ago that the closure of Bank of Ireland and AIB branches was deeply resented by customers and the cause of much complaining on radio talk shows. However, as Bank of Scotland, Danske Bank and even Permanent TSB start taking up the slack in the big banks� traditional rural strongholds, I expect the attitude to 10 more Bank of Ireland branch closures will be more �so what�, than �oh, no, not again�.

Anyone who is a confident internet user has an even greater choice of bank service, of course, since they can do their banking via their home or office computer or mobile phone. Which makes one wonder why the big banks are not doing more to encourage vulnerable customers � such as older people � to join the computer generation so they can also check their account balances, shift money between accounts and pay bills online.

I don�t accept for a second � and neither do the excellent people at Age Action Ireland � the patronising view that older people are incapable of becoming computer literate. They simply need encouragement and education. I keep in touch with older friends and relatives by e-mail who are quite comfortable on their laptops.

The minister for social welfare says he wants to break the cycle of isolation that affects social welfare beneficiaries such as the elderly and single parents. Providing them with subsidised access to the internet would be a good way to achieve that. Brian Goggin, the Bank of Ireland�s new chief executive, should be at the forefront of such an initiative too.

Jail the biggest tax transgressors

Michael Roche, a retired farmer, was probably a bit unlucky to find his name alongside fellow Limerick men such as Matthew Kavanagh, who recently settled with the Revenue Commissioners for �536,605, Brendan Nolan, who paid more than �309,959, or the late Dr Anne Teahan whose estate presumably ended up settling her �469,593 bill.

Roche owed �13,305, just �605 over the �12,700 limit which saw him end up on the Revenue�s published list of tax settlements. Since at least half that amount is made up of interest and penalties, it does seem to be a disproportionate punishment for what was probably an under-declaration of �5,000 or �6,000.

The farmer was doubly unlucky that his transgression wasn�t discovered a little later: from now on, only settlements of �30,000 or more will be listed.

I�ve no idea how Roche or the 181 other named parties feel about being on this list, but an automatic jail sentence for the biggest transgressors would be one way of cutting down the numbers. Why not introduce this penalty for anyone owing more than �500,000 after all the undeclared tax, interest and penalties are taken into account. Fourteen people fall into that category for the October to December 2004 period, with three owing more than �1m.

Double trouble over stamp duty

When I called one of the main banks last week on behalf of a Money reader who wanted to know how to switch her credit card without paying double stamp duty, I assumed the process was simple enough. Silly me. Nothing that involves tax, banks and a minister for finance is ever simple, as the answer provided by the bank in this week�s MoneyMatters column shows.

The fact that a credit card holder must get a signed and stamped certificate from the old bank to confirm that the �40 stamp duty on an existing credit card has been paid before another bank can issue a lower-cost, stamp- duty-exempt replacement, is positively Pythonesque.

The absurdity doesn�t end there. After much lobbying by the banks and consumer groups who argued that this duty was anti-competitive, the finance minister Brian Cowen corrected the anomaly in his December budget. Why then did he not extend the concession to the ATM and laser cards that each carry a �10 stamp duty and the combined ones with the �20 duty? Anyone who switches their current account following the introduction of the switching code designed to facilitate this change, is going to lose some of the advantage of lower charges by having to pay two sets of stamp duty for the year. Meanwhile, the Revenue website, www.revenue.ie, is expected to post a FAQ on the stamp duty on bank cards in the next few weeks.

March 31, 2005 at 06:08 AM in Financial Services | Permalink | TrackBack (5) | Top of page | Blog Home

March 29, 2005

Yahoo ups free email storage to 1 gigabyte

Yahoo ups free email storage to 1 gigabyte - Yahoo! UK & Ireland News

SAN FRANCISCO (Reuters) - Yahoo says it will soon begin giving users of its free Web e-mail service 1 gigabyte of storage, four times more than it now offers, amid intense competition.

Consumers are increasingly using their Web e-mail inboxes as a repository for e-mail as well as digital photos and documents. Web e-mail providers have been responding with offers of ever more free storage

Yahoo said on Wednesday the global storage upgrade will begin in late April and take about two weeks to complete.

The Internet media company also said it is beefing up antivirus protection for free e-mail users, giving them the ability to remove viruses from attachments -- a feature that had only been available to paying users.

Yahoo Mail is available in 15 languages in almost two dozen countries around the world.

Google last spring was the first to offer 1 gigabyte of free storage to users of its invitation-only test Gmail service, setting off me-too moves from rivals.

Gmail is now available only as an English-language service.

Microsoft currently limits free storage on its free MSN Hotmail accounts to 250 megabytes.

Yahoo and Microsoft each offer 2 gigabytes of storage to users who pay about 10 pounds per year for the service.

March 29, 2005 at 08:38 AM in Portals | Permalink | TrackBack (21) | Top of page | Blog Home

Stolen Laptop Exposes Data of 100,000

Yahoo! News - Stolen Laptop Exposes Data of 100,000

Mon Mar 28,10:55 PM ET
By MICHAEL LIEDTKE, AP Business Writer

SAN FRANCISCO - A thief recently walked into a University of California, Berkeley office and swiped a computer laptop containing personal information about nearly 100,000 alumni, graduate students and past applicants, highlighting a continued lack of security that has increased society's vulnerability to identity theft.

University officials waited until Monday to announce the March 11 crime, hoping that police would be able to catch the thief and reclaim the computer. When that didn't happen, the school publicized the theft to comply with a state law requiring consumers be notified whenever their Social Security numbers or other sensitive information have been breached.

The law is meant to alert people their personal information could be used by scam artists to obtain loans or conduct other business under an assumed identity.

UC Berkeley plans to advise the 98,369 people affected by the laptop theft to check their credit reports, although there has been no indication any of he personal information has been used illegally, university spokeswoman Maria Felde said.

"The campus really regrets this happened and is taking steps to strengthen security in the future," Felde said. The university has set up a hotline, 1-800-372-5110, and a Web site, http://newscenter.berkeley.edu/security/grad/ to answer questions about the laptop theft.

The UC Berkeley incident follows several other high profile instances in which businesses and schools have lost control of personal information that they kept in computer databases.

Recent breaches have occurred at: ChoicePoint Inc., a consumer data firm duped into distributing personal information about 145,000 people; Lexis-Nexis, a data storehouse where computer hackers obtained access to the personal information of 32,000 people; and Chico State University, where a computer hacking job exposed 59,000 people to potential identity theft.

Universities have accounted for 28 percent of the 50 security breaches of personal information recorded by California since 2003, said Joanne McNabb, the chief of the state's Office of Privacy Protection. That's more than any other group, including financial institutions, which have accounted for 26 percent of the breaches affecting Californians.

This is the second time in six months that UC Berkeley has been involved in a theft of personal information. Last September, a computer hacker gained access to UC Berkeley research being done for the state Department of Social Services. The files contained personal information of about 600,000 people. That security breach hasn't been linked to any cases of identity theft, Felde said.

The risks of identity theft have risen in recent years as technological advances make it easier for businesses, schools and other organizations to create vast databases containing Social Security numbers, credit card account numbers and other personal information.

All that valuable data has turned the computer storehouses into inviting targets for thieves who frequently don't have to work too hard to pull off their crimes.

Computer hackers create some of the mischief by circumventing high-tech firewalls, but 58 percent of the breaches recorded by California officials have occurred after a computer or other device containing personal information is lost or stolen, McNabb said.

The security risks of these incidents could be minimized if the caretakers of the personal information encrypted the sensitive information � a process that makes it virtually impossible to read the data without a special code.

The laptop stolen from the UC Berkeley was supposed to be encrypted this month, Felde said. The computer, which required a password to operate, was left unattended for a few minutes in a restricted area of a campus office before someone walked in and stole it, Felde said. A campus employee witnessed the theft and reported it to university police.

Authorities suspect the thief was more interested in swiping a computer than people's identities. Felde said there been no evidence so far to indicate the stolen information has been used for identify theft.

The stolen laptop contained the Social Security numbers of UC Berkeley students who received their doctorates from 1976 through 1999, graduate students enrolled at the university between fall 1989 and fall 2003 and graduate school applicants between fall 2001 and spring 2004. Some graduate students in other years also were affected.

The stolen computer files also included the birth dates and addresses of about one-third of the affected people.

March 29, 2005 at 08:37 AM in Phishing & identity theft | Permalink | TrackBack (15) | Top of page | Blog Home

Microsoft to Implement EU's Windows Changes

Yahoo! News - Microsoft to Implement EU's Windows Changes

BRUSSELS (Reuters) - Microsoft has agreed to implement all the "main changes" to its new stripped-down version of Windows requested by the European Commission, the software giant said on Tuesday.

The European Union's executive had ordered Microsoft to sell a version of the dominant computer operating system without its Windows Media Player program after ruling that the company had abused the near-monopoly of Windows to crush competition, and fined it nearly 500 million euros ($650 million).

The two disagreed over technical issues, but on Monday Microsoft said it would adopt the Commission's suggested name for the operating system, "Windows XP Home Edition N," after the EU anti-trust authority rejected 10 options from Microsoft.

"Earlier today we contacted the Commission and informed them that we have accepted all the main changes they have requested we make to the version of Windows without Media Player," said Horacio Gutierrez, Microsoft's top lawyer in Europe.

The modifications include technical changes to "registry settings," and removing references in product documents and packaging warning that certain products won't work without Media Player, Gutierrez told Reuters by telephone.

Microsoft had also agreed to create a software package allowing consumers to replace the absent media files, he added.

Gutierrez said "a few technical issues" remained to be resolved but added: "This basically takes care of 99 percent of the things they asked for."

A Commission spokeswoman could not immediately confirm that Microsoft had notified it of the changes.

The Commission's order is meant to open the market for alternative software to play films and music, from RealNetworks , Apple and others.

Microsoft is appealing the Commission's landmark decision, and other disputes are still simmering about a second order to share information with rival makers of servers and the appointment of a trustee to monitor Microsoft's compliance.

Microsoft could ultimately face fines of up to $5 million a day if the Commission finds it is refusing to comply with its decision.

March 29, 2005 at 07:51 AM in Microsoft | Permalink | TrackBack (16) | Top of page | Blog Home

Grokster and StreamCast face the music

Economist.com | Illegal file-sharers under attack

Mar 24th 2005
From The Economist Global Agenda

The entertainment industry is taking its battle against illegal downloading to America’s Supreme Court. But attacking the technology behind file-sharing could stifle innovation without tackling the industry’s long-term problems

THE music business should have stuck by Thomas Edison�s technology if it wanted to avoid the threat of piracy. His wax cylinders could record a performance but could not be reproduced; that became possible only with the invention of the flat-disc record some years later. On Tuesday March 29th, America�s Supreme Court will begin to hear testimony in a case brought by the big entertainment companies that is intended to stop the illegal downloading of copyright-protected music and film. The industry�s target is the peer-to-peer (P2P) technology that allows the swapping of files directly over the internet. The defendants in the case are two firms that make file-sharing software: StreamCast Networks and Grokster.

The entertainment business has long been susceptible to copyright infringement�and it has usually blamed the electronics industry. The music industry first cried foul at the introduction of the cassette-tape recorder in the late 1960s. More recently, the digitisation of music has allowed �burning� of music tracks on to CDs with the help of a computer. The latest threat to the record companies is a copying technique of even greater speed, ease and scope. Every day some 4m Americans swap music files over the internet, according to figures from Pew, an independent research organisation. And now the swapping of new films online is gaining ground too, to the chagrin of the movie industry.

This comes at a particularly bad time for the music industry, which is struggling to reverse a long-term decline. According to the IFPI, a recording-industry umbrella group, worldwide music sales plunged in value by 22% in the five years to 2003�a drop of over $6 billion. In 2004, sales fell by 1.3%, though that decline looks less bad when revenue from legal digital downloads is added in. The music industry largely blames illegal file-sharers for its ills, noting that CD sales are dipping steeply in countries where broadband internet access is growing fast.

Some suggest that the latest attempt to curb illicit file-swapping�legal action against the technology that drives P2P networks�threatens the future of innovation. P2P software allows computers to talk to others running the same software without having to use intermediaries. Grokster and StreamCast argue that they are not able to control the use to which their software is put, whether it be searching, downloading or sharing.

In court, the two software firms will no doubt cite the case of Sony�s Betamax technology as a precedent. The home video-recording system, which was eventually superseded by VHS, faced a suit in 1984 in which Disney and Universal called for its ban. The entertainment firms feared that the ability to record on to video would allow considerable infringement of their copyright. America�s Supreme Court ruled that Sony was not liable because the equipment had �substantial� uses other than infringement, such as the recording of TV programmes for later viewing.

Similarly, the software produced by StreamCast and Grokster has significant non-infringing uses, such as sharing music that is not copyright-protected and internet-routed phone calls. In fact, some make the case that P2P technology could make the internet more robust and secure by avoiding the use of centralised servers, and that the entertainment companies� lawsuit is thus harmful to the web as a whole.

Napster, the first and best-known of the file-sharing businesses, was killed off by the music industry in 2001. Because it used central servers and so had the ability to block users who broke copyright laws, a judge issued an injunction ordering Napster to shut its servers down. At the time, it boasted some 14m users. Since then, the industry has ramped up action against file-sharing and widened its attack by going after individual downloaders as well.

At present, some 8,000 individuals around the world face lawsuits for illegal file-sharing. The industry has backed up its legal moves with a publicity offensive aimed at convincing the public that unauthorised downloading is theft. As well as cinema- and TV-advertising campaigns, 45m instant messages have gone out to users of P2P services, warning them to stop putting copyrighted material on the internet. America�s Department of Justice has weighed in too, even suggesting that P2P services could be used to support terrorism. Others have muttered darkly that the technology is a conduit for illegal pornography.

There are some signs that these measures are working: surveys suggest that internet users are becoming more wary of illegal file-sharing, for instance. However, according to the IFPI�s own figures, the number of unauthorised music files on the web has grown in recent months after falling sharply in the first half of 2004 (see chart). The number of users is also up, with 8.6m offering illegal files compared with 6.2m a year ago.

The music business has employed other defensive measures. Apart from a round of mergers and cost-cutting over recent years, the industry has tried to embrace legal downloading. Napster itself was reborn as a legal downloading service. And in 2004, according to the IFPI, the number of legal download sites increased four-fold to 230 and the number of legal downloads to over 200m (a figure that could double in 2005, according to forecasts). Apple�s iTunes, the largest legal download catalogue, has over 1m songs available and handles over 1m downloads a day.

But even if the entertainment business manages to coax more users into paying for legal downloads and succeeds in court against Grokster and StreamCast, its problems are unlikely to go away. True, a Supreme Court ruling in the industry�s favour would put paid to other P2P services. But it is not clear that curbing illegal downloading will translate into extra sales for the music business. A rush into legal downloading would hardly be good for sales of CDs: some cannibalisation is inevitable. And perhaps the decline in global sales is indicative of a far greater problem for the music industry�consumers simply think that many of its products are just not worth paying for.

March 29, 2005 at 07:50 AM in Business Models | Permalink | TrackBack (16) | Top of page | Blog Home

March 25, 2005

Grokster and StreamCast face the music

Economist.com | Illegal file-sharers under attack

Mar 24th 2005
From The Economist Global Agenda

March 25, 2005 at 12:54 PM in Business Models | Permalink | TrackBack (1) | Top of page | Blog Home

March 23, 2005

Banking on a Distinctive Identity

Design Flash

Photography by Roy Wright

Independence Savings Banks charged Landy Verderame Arianna Architects to redesign its branch offices to reflect the local culture and flavor of each neighborhood.

It has always been a challenge for financial institutions to find ways to create a distinct identity. As a result, they need to look beyond just their service offerings to find ways to distinguish themselves in the eyes of their customers.

That challenge is even greater if you're an institution that relies heavily on branch offices to attract customers and deposits. The cost of "bricks and mortar" branching is significant. Plus, often there are conflicting goals of propagating a singular corporate visual identity, while at the same time conveying a sense of community and commitment to the neighborhoods in which the branches reside.

Independence Savings Bank, based in Brooklyn, NY, faced all of these factors when it undertook a major overhaul of its branch banking system beginning in 1994. The bank, with assets exceeding $4 billion, is one of the fastest growing institutions in the northeastern United States. Through growth and, in part, acquisitions, the bank's branch network now stands at 34. Branches can be found in neighborhoods representing practically all socio-economic sectors within the New York City metropolitan area.

The ATM at the Roosevelt Ave. branch shows how Independence Savings Bank's logo and signage was incorporated into Vitricor surfaces.

A driving force behind the overhaul program was the desire to give Independence Savings Bank branches a distinctive appearance in order to differentiate them from other neighborhood branches. "We wanted our customers to feel comfortable banking with us," says Terence J. Mitchell, the bank's executive vice president and director of retail banking. "To accomplish this, each of our branches was redesigned to reflect the local culture and flavor of the neighborhood."

That approach is unusual. Typical branch offices of financial institutions adhere to a "corporate style" of mandated colors and materials that can rob them of a strong personality and tend to give them a "cookie cutter" appearance. Given the inner-urban environments of many of the branches, a common practice has been to redecorate them frequently, but to use only average materials in the belief that it is uneconomical to invest more.

The New York City architectural firm of Lady Verderame Arianna was selected to produce the designs for the branch overhaul project. Instead of establishing a rigid "design standard" to be adhered to across the system, a decision was made to use a surfacing material as the standard: Vitricor�. Vitricor is a methacrylate decorative surfacing that provides a reflective gloss appearance much like that achieved through hand-lacquering. It also is available in a matte finish known as Mist, as well as in woodgrains and stone patterns known as Impressions by Vitricor.

"Independence Savings Bank had actually used Vitricor in two of its branches back in the late 1980s," explains Deborah Verderame, RA, ASID, a principal at Landy Verderame Arianna. "It turned out that, in addition to its unique appearance, this material actually held up better than other surfacing materials used. As a result, we felt that the Vitricor would provide not only a distinctive design statement, it would also be the best choice for the long-term from a cost standpoint."

Since 1994, more than 20 Independence Savings Bank branches have been redone. In some instances the interior of the branch has been completely gutted and redesigned, while in others, existing fixtures and furnishings have been resurfaced. The Vitricor material has been the central unifying element in each project: it appears on wall surfaces, on teller stations and check-writings stands, as well as on the ATM surrounds located in the 24-hour banking areas.

At the Jackson Heights branch, strip lighting underneath the purse shelf at teller stations highlight the bank's logo and diamond inlay pattern displayed on the vertical surface.

Independence Savings Bank favors the use of red, white and blue colors in its branch interiors. Such a combination could have turned out to be problematic for designers, except that the bank's only directive was that "some aspect" of the colors appear in each branch design. Robert P. Braun, RA, one of the Landy Verderame Arianna architects working on the project, explains. "They wanted all of the branches to have some subtle reflection of the three colors. But that still gave us a lot of leeway.

"At the recently completed Prospect Park branch in Brooklyn, for instance, we have a blue matte Vitricor, exposed red brick walls, and plenty of white on the walls. At the Broadway branch in Queens, the floor tiles are blue, but they also incorporate white and red tones. That's completely different from many corporate design standards, which often require the same millwork, the same light fixtures, the same flooring, carpeting, wall covering and decorative surfaces," says Braun.

"The flexibility we were given made it much easier for us to give each branch an individual personality and tie it into the neighborhood," adds Verderame. "The Roosevelt Ave. branch in Queens is anchored in a Hispanic neighborhood. The color scheme we used there actually emanated from a colorful chair fabric that is reflective of the Latin American culture. We led with that color scheme and designed the rest of the elements around that," she notes.

Another striking element is the integration of signage and lettering into the Vitricor surfaces. Independence Savings Bank's name and logo are prominently incorporated into the ATM surrounds. In addition, the logo is displayed on the vertical surfaces of the teller stations. "Since we place strip lighting underneath the purse shelf, it is an ideal location to highlight the bank's logo," says Verderame. Some of the teller stations feature other artistic inlays or embossed-like elements to add interest and flair to the 40-foot-long teller station expanse. Others have incorporated the indicator lights in clear Vitricor material. The effect is rich and elegant.

Floor plan

A. Vestibule
B. Corridor
C. Travel agency
D. Work room
E. Conference room
F. Expediting area
G. Banking hall
H. Teller line
I. Office
J. Hallway
K. Stairway
L. Closet
M. Restrooms
N. Break room
O. Lockers
P. Community room
Q. Open to below
R. E-mail

March 23, 2005 at 11:34 AM in Financial Services | Permalink | TrackBack (23) | Top of page | Blog Home

Inside the branches

The Banker: Inside the branches

Published: 02 July, 2004
Page 140

The bank branch is undergoing another transformation as the emphasis shifts further towards self-service offerings, using ATMs, smart ATMs and online kiosks. Rekha Menon looks at progress.

The role of the bank branch has undergone a number of transformations in recent times. Although it represents the bank and its value proposition in the customer’s mind, being the oldest delivery channel, several industry pundits had predicted the demise of the branch during the internet heyday, suggesting that new-age delivery channels such as online banking would replace it. When the internet bubble burst, such predictions came to nought and the branch has once again been identified as a critical delivery channel. But this time its role is being perceived differently.

Enduring delivery channel

Unlike other delivery channels, the branch is one place where most bank customers still go for complex transactions that are facilitated by human interaction. By providing face-to-face human contact, branches are in a unique position to help banks to develop invaluable personal relationships with customers. Banks are therefore migrating routine banking transactions, such as cash withdrawal and deposit; funds transfer and standing instructions, to the less expensive non-traditional delivery channels, such as ATMs, telephone banking and online banking. This gives bank staff more time and space to focus on higher end activities, such as client relationship management and sales, which helps to drive down costs and increase revenues.

Inside a branch, the emphasis is on self-service, on enabling bank customers to complete routine banking transactions without any human interference through self-service terminals like cash-dispensing ATMs, smart ATMs and online kiosks. For instance, leading UK high street bank Barclays has introduced more than 600 quick pay point machines across its branches that enable customers to make payments by cash, cheque or a combination of the two, without having to queue for a teller.

According to analyst firm Forrester Research, in an effort to enhance self-service terminals at their branches, more than four-fifths of European banks have enhanced their ATM networks with functionality beyond cash withdrawals, three-quarters plan deposit ATMs, and more than half are adding kiosks (self-service PCs for online banking). Two-thirds of these firms are enabling ATMs with bill payment or statement printing options, and one-third are ordering account management functionalities such as changing PINs. Product marketing through ATMs is also being considered by one-third of these banks.

Marketing via ATM

OCBC Bank, a leading Singapore-based financial services group, has introduced targeted marketing and a personalised experience at all its in-branch ATMs in Singapore. The bank is the first in Asia to target personalised product and service offerings, record potential customer needs based on individual transactions and provide frontline customer service staff with the information they need to respond better to customer needs and identify cross-selling opportunities.

Patrick Chew, head of delivery, consumer financial services at OCBC Bank Singapore, says that ATMs are an important link in the bank�s customer relationship management (CRM) strategy. �We launched our CRM strategy in 1999 and in due course linked up all other delivery channels: branch, call centre and internet. Linking the ATM was the next logical step in our effort to provide our customers with an enhanced banking experience,� he says.

Among the various features that the bank has introduced, the most popular has been a �usual transaction� feature that provides bank customers with the option to customise and pre-set their usual ATM transaction choices such as the dollar amount and receipt option. During the pilot period, OCBC found that more than 60% of customers who used the upgraded ATMs signed up for the new feature, which according to the bank reduces the transaction time by up to 30%.

Industry observers believe that such features, which positively enhance the banking experience, can lead to an increase in usage of the self-service terminal for the bank. Banks in general have found it quite difficult to increase the level of self-service in branches because customers who visit branches are usually those who want human contact and are usually not comfortable with the non-branch delivery channels like ATMs, telephone and the internet. To get them to use an ATM in a branch is not easy, a fact that was highlighted in a survey carried out by Forrester Research. The survey showed that nearly one-third of branch transactions are over-the-counter primarily because banks do not actively encourage migration to the automated branch platforms out of fear of annoying customers.

Encouragement needed

Banks that adopt a wait-and-see policy on customer migration to self-service at the branch will be disappointed: customers will stick to their habits and will not switch to self-service terminals, says Charlotte Hamilton Clark, analyst at Forrester Group and author of the survey report, Fostering Self Service at the Branch. Banks should also use branch staff to help branch users gain confidence in ATMs, says Ms Clark. She gives the example of UK building society Nationwide, 75% of whose customers use self-service ATMs once they are shown how, compared with only 5% of customers that migrate of their own accord.

There is a wide array of ATMs available from vendors such as NCR, Diebold and Wincorp-Nixdorf. There are plain vanilla cash machines and the new-age ATMs based on open architecture can be included in a bank�s multi-channel integration exercise. OCBC Bank has deployed APTRA Relate from NCR, which enables it to design a tailored CRM solution for the ATM. APTRA Relate is one of the solutions in NCR�s APTRA suite of solutions that are designed for self-service banking.

According to Ms Clark, when a bank is deploying ATMs, it should clearly communicate the function of the self-service terminal to customers. This would allay a first-time user�s anxiety and confusion. Banks should also bear in mind other factors affecting customer psyche; for instance, Ms Clark says, banks should realise that customers only feel comfortable using new terminals like cheque-imaging and cheque-deposit ATMs inside the branch, where help is at hand. She also suggests that in the basic ATMs, which are plain cash dispensing machines, banks must avoid time-wasting financial product advertising or time-consuming additional third-party services like ticketing.

Bo Harald, vice-president and head of electronic banking at Nordea, the largest financial services group in the Nordic and Baltic regions, is also critical of direct marketing features on ATMs. �There is usually a long queue in front of ATMs and having such a feature will only increase transaction time, which is quite the opposite of what customers would like to experience. An ATM is a very expensive device and the shorter the transaction times, the better,� he says.

Direct marketing strategy

Although OCBC Bank has deployed enhanced ATMs and is using direct marketing on-screen messages, it is careful about not wasting customers� time. �We don�t want to overwhelm our customers with unnecessary marketing messages. Instead what we have done here is to leverage on the capability of our CRM-powered ATMs to recognise the unique needs of each of our customers and then target relevant products and services according to what they need,� says Mr Chew. At OCBC�s ATMs questions like �Your fixed deposit is maturing soon. Would you like to find out how to earn more interest?� or �Would you like a reno loan with your recently approved housing loan?� pop up while a customer is awaiting a cash transaction to come through, requiring the customer to press a �yes� or a �no� button. The responses are channelled to the bank�s personal financial consultants, branches or call centre for future follow-up.

Industry experts suggest that marketing programmes that are designed to meet specific needs of customers are a powerful way to leverage the number of contacts that customers make with the bank through the ATM.

New-age technologies and open standards are coming together to include ATMs in the multi-channel integration strategy of banks. But banks need to realise that to enhance the branch self-service proposition, the solution needs to be implemented intelligently, keeping in view the customer psyche and requirements.

1709.photo.jpg

March 23, 2005 at 11:28 AM in Financial Services | Permalink | TrackBack (2) | Top of page | Blog Home

Growth Formula: Mergers and Retail Strength (Wachovia)

BAI Online | Banking Strategies | September/October 2004: Growth Formula: Mergers and Retail Strength

By Kenneth Cline

Even as Wachovia's Ken Thompson forges a retail strategy based on service, sales and new customer acquisition, merger integration remains a key concern.

As 2004 draws to a close, retail banking strategy at Wachovia Corp. is dominated by a familiar theme: merger integration.

Never mind that in the last four years, chairman and CEO G. Kennedy "Ken" Thompson has also presided over a complex evolution of Wachovia's retail operations based on improved service quality, sales management and customer acquisition. The Charlotte-based company now has a multiple channel delivery system that is able to provide appropriate products and service levels to a wide array of targeted customer segments. And more refinement of that model is underway.

Yet for now, and for Wachovia's executives as well as for Wall Street, merger integration remains the front-burner issue.

In June, Wachovia announced a $14 billion purchase of Birmingham, Ala.-based SouthTrust Corp., which comes shortly after the completion of the company's landmark deal, the 2001 merger of First Union Corp. and the old Wachovia Corp. Last year, Wachovia also undertook a joint venture with Prudential Financial Corp.'s retail brokerage operation that created the third largest U.S. brokerage.

It's fair to say, then, that merger integration has been a top-of-mind issue at Wachovia since Thompson assumed command of the old First Union in April 2000. This makes it difficult for Thompson, 53, to keep analysts and investors focused on the more fundamental changes and improvements engineered by his retail operation, headed by senior vice president Benjamin Jenkins, 60. Jenkins manages the company's General Bank, which includes 1,637 retail branches and the small business banking and recreational dealer finance units.

Wachovia's "challenge, in the near term, is integrating the most recent deal," i.e., SouthTrust, says Denis Laplante, an analyst with Keefe, Bruyette & Woods Inc. in New York.

The SouthTrust integration occurs in the context of Wall Street's long-held concern that mergers take up too much of management's attention at Wachovia. "Any time you have a focus on a deal, it takes away resources from customer contact and customer marketing," Laplante says. This causes some frustration for Thompson, who likes to point out that deposit growth and service quality metrics improved steadily throughout the First Union/Wachovia integration process. "We ought to be applauded for doing two things at once, not criticized for it," he says.

One problem is that Wall Street still remembers the problems predecessor First Union encountered in its 1998 integration of CoreStates Financial Corp., when a rushed systems conversion caused massive customer defections.

This time, the concern has less to do with systems integration � which is expected to go smoothly, given the fairly straightforward systems architecture at SouthTrust � and more to do with SouthTrust employee morale as the combined bank adopts Wachovia's more robust sales culture. Will employees stay or leave? "Investors should not underestimate the challenges of bringing the SouthTrust retail system up to Wachovia's level," says Gerard Cassidy, managing director of bank equity research at RBC Capital Markets in Portland, Maine.

The merger integration is scheduled to be completed in the first quarter of 2006. In the meantime, Thompson and his team also are contending with the issues of running the bank, which includes managing in a rising rate environment.

Service Matters

The ramifications of rising rates are complex. In certain scenarios, such as when assets re-price faster than deposits, higher rates can help bank profitability. But retail bankers will certainly be challenged to grow deposits, since customers will be looking for higher yields in the broader market. This will at least partially reverse the trend of recent years, when customers had few attractive alternatives to low-rate bank accounts.

"We won't have the rising tide lifting all boats that we've had over the last several years," Thompson says.

The challenge for banks will be to keep this money in-house, whether that means in certificates of deposit, money market accounts or investment accounts, in order to preserve as much share of the customer wallet as possible. In this arena, Thompson argues, Wachovia is fully competitive, since it can offer a wide array of bank deposit and investment products through multiple delivery channels. "We are well balanced in that we can play in the bank deposit market or in the investment market at the same time," he says.

This balanced approach is at the heart of Wachovia's retail strategy, which stresses quick and efficient service in the branches and call centers for transactors and a full product array for investors. The investors can be served by licensed salespeople in the branches, or off-site brokers and financial experts who work closely with the branches.

This delivery system is backed up by a rigorous enforcement of service quality standards based on up-to-date feedback from customers using all the company's branches and call centers. To obtain this feedback data, Wachovia has hired the Gallup Organization to survey each week a sample of 6,500 Wachovia customers who recently visited a bank branch or phoned a call center. The data is compiled into weekly reports, which the managers use to either praise and reward employees who met customer service expectations or coach those who fell short. The scores for individual branches and call center units are also linked to the compensation system, so they become an important factor in how Wachovia employees get paid.

To measure itself against industry standards, Wachovia looks at the University of Michigan's American Customer Satisfaction Index (ACSI), which ranks the four major retail banks in the U.S.: Wachovia, Bank of America Corp., Bank One Corp. and Wells Fargo & Co. Both Gallup and ACSI data show a steady improvement in service quality at Wachovia in recent years. In the most recent ACSI ranking (fourth quarter of 2003), Wachovia beat its three peers.

Jenkins recently added customer loyalty to the mix as a metric to be analyzed and linked to incentives. The weekly Gallup survey of Wachovia customers now includes three questions that seek to determine whether the respondent is likely to stay with the bank, such as "Would you recommend Wachovia to a friend?" An affirmative answer to the question, Wachovia believes, shows the customer is likely to stay loyal.

"We want to go beyond customer service and achieve loyalty," Thompson says. "We think there's a big payoff in revenue."

Book of Business

As important as service quality and customer loyalty are, retail profitability also depends on sales � moving more product through existing delivery channels � as well as customer acquisition. Wachovia measures and incents all of these through a management system known as "book of business."

As Jenkins explains it, each branch maintains separate books of business � essentially names of its existing and potential customers � categorized by three strategic initiatives. The first is the retention book, which comprises a list of customers identified by Wachovia's customer integration group as highly valuable. The branch employees are asked to provide these customers with special attention and service so they remain loyal.

The second book contains names of people who are good customers, but who have purchased only a few products from the bank. Branch employees are asked to cross-sell to these customers and try to tie them more closely to the bank.

Finally, there's the third book, which is focused on new customer prospects. Employees are asked to contact these people and try to sell them a checking account or other product.

This approach by Wachovia differs from other banks that manage their branches through individual profit and loss statements. From Jenkins' perspective, separate P&Ls incorporate many elements outside the control of branch employees. By tying employee compensation to 1) service quality as measured by Gallup, 2), sales productivity as measured internally, and 3), what's happening with the balance sheet as measured by each branch's book of business, Wachovia is able to "measure totally what we can control," Jenkins says.

Since Wachovia has already made good progress on customer service and sales productivity in recent years, Jenkins says he and his team are working hardest right now on customer acquisition, an effort that includes advertising, new products and de novo branch openings, particularly in Texas and New York City.

Jenkins is specifically focusing on customer acquisition in the small business and affluent markets. Unlike many banks, which serve small business out of their wholesale or commercial units, Wachovia houses small business customers with up to $3 million in annual sales in the retail bank, with the branches functioning as the service nexus. Small business customers can take care of their basic needs, such as deposits, in the branches while small business bankers are available at nearby locations to handle more complicated issues.

For the affluent market, Wachovia recently introduced its private advisory banking program, which focuses on customers with investable assets in the $250,000 to $2 million range. Like the small business specialist, a private advisory banker typically services several branches from a central location to take care of retail customers with complex financial needs at a level below the wealth management group, which handles customers with $2 million and up in investable assets.

Below the level served by private advisory bankers, customers can receive help from branch platform employees licensed to sell mutual funds and annuities, known as "financial specialists." These financial specialists, in turn, work with and are coached by licensed brokers who work outside the branch and can handle more complex investments, like stocks and bonds.

Wachovia's system is designed to provide investment and insurance products for customers at all levels. One missing element is financial planning for the mass market, which is currently available only to wealth management clients. But Jenkins says plans are underway to introduce a simpler version of financial planning to the mass market by next year.

"For a company with a broad retail product line and a broad investment product line, the retirement market is very attractive," Jenkins says. "And as people think about retirement, they think about financial planning."

Network Optimization

This question of how to serve the mass market efficiently is a perennial issue in banking. Most institutions are generally aware that affluent customers are the most efficient to serve simply because they provide more business to the bank per employee time devoted to serving them. A Wachovia study has found that the typical affluent customer costs $554 per household to serve, but represents $1,837 in revenue per year, compared to a cost of $515 and revenue of $801 for the mass market customer. The "network efficiency" of serving affluent customers, then, is nearly double that of the mass market.

"That told us we need to be really attuned to acquiring affluent customers, and we're all over that," Jenkins says. "On the mass market side, there may be a way to do things more efficiently."

Jenkins intends to proceed gingerly on the latter front. Both he and Thompson are adamant about the need to retain current headcount and service quality levels in the branches. Earlier this year, Wachovia hired a former McKinsey & Co. consultant, Jonathan W. Witter, as its new head of distribution to look into the issues involved in network optimization. This means making sure the appropriate level of resources are allocated to each customer segment and delivery channel. "Like a grocery store, we have to make sure that shelf space in our distribution system is allocated properly between products," Thompson says.

Also like a grocery store, Wachovia needs to keep adding outlets to increase market share. One big plus to the SouthTrust acquisition, Thompson says, is that it jumpstarts Wachovia's entry into Texas by about two years. Prior to striking the deal, Wachovia had planned to open about 40 de novo branches in Texas this year. The addition of SouthTrust gives Wachovia an in-place network of 60 branches in Texas, to which the planned branches can be added. Jenkins says he then expects to build 150 to 175 more branches over the next four years in a state that's growing faster than the national average. Wachovia also believes its four targeted markets � Dallas, Houston, San Antonio and Austin � are on the cusp of a robust job recovery.

And Thompson sees another opportunity. Since SouthTrust's branch sales productivity is less than Wachovia's in several key areas such as core deposits and investments, he estimates that bringing SouthTrust's 665 branches up to Wachovia's standards will generate "a couple of hundred million dollars" in revenue opportunities not included in the financial estimates Wachovia presented when the deal was announced.

Wall Street will be watching this integration process closely, in part because bad memories from the CoreStates debacle of 1998 still linger. First Union had focused so much on headcount reduction during the integration in order to meet financial projections that the CoreStates branches were ill-equipped to handle service complaints generated by a rushed integration effort.

No problem of this magnitude showed up in the subsequent First Union/Wachovia merger, which helped the company regain credibility on the merger integration front. But Thompson concedes that a definitive judgment on the SouthTrust integration awaits the completion of the merger in first quarter of 2006.

As for whether the new Wachovia has once again become the "merger machine" First Union was in the '90s, Thompson says, "We spend very little time focused on the next company we're going to buy. We're focused on execution, organic growth and customers."

Mr. Cline is senior editor of Banking Strategies.

March 23, 2005 at 11:19 AM in Financial Services | Permalink | TrackBack (5) | Top of page | Blog Home

Bank branch transformation: The new multi-channel reality

IBM - Bank branch transformation: The new multi-channel reality

By: Patrick Brazel, CEO Eontec Limited and Mark Greene, General Manager, Global Banking Industry, IBM Corporation

"... the emergence of branch renewal within a broader integrated multi-channel delivery infrastructure for retail banking continues to be one of the most significant trends today." — Retail Banking Fact Sheet 2002, � 2002, The TowerGroup

Representing and protecting the brand of an organization, providing a physical presence and serving the full range of customer needs, the branch network has always been the heart of a bank's franchise and revenue generating potential.

Yet not all that long ago, many analysts and industry commentators were convinced that the bank branch was going the way of the dinosaur. And who could blame them? The evidence was clear for all to see. A combination of increased competition, especially from non-banks with trusted proven brands combined with tougher economic conditions, and industry consolidation meant that achieving rapid cost savings was right at the top of the management agenda. The result was that some banks started closing branches, sometimes in great numbers and often with what seemed, at least to many of the banks' customers, with undue haste.

Similarly, rapid changes to demographic and commuting patterns left increasingly time-poor customers looking for alternatives to having to visit their local branch. Advances in self-service banking, particularly by phone, through ATMs and over the Internet, seemed just what the customer needed and appeared to make branches totally redundant.

However, the bursting of the Internet bubble mirrored a marked transformation in the way banks now view their branch networks. As more and more customers access banking products and services through multiple channels, banks have come to realize that the distinctions between the channels are not nearly as clear and defined as once believed.

Customers are increasingly clear (not to mention vocal) about how they view their branches. While they like the convenience of Internet Banking, they also like the personal nature of branch banking. For example, research in the UK published by Deloitte & Touche, "Bring back the Branch: September 2002," underlines the importance of the branch as part of a multi-channel network and stresses the role of the branch as an engine for future growth. According to this research, the branch is used by more than 80% of all bank customers and is the preferred channel for 52% of consumers interviewed. The Deloitte & Touche research also directly contradicts the entrenched belief that young consumers prefer the Internet finding that 78% of 16-year-old to 24-year-old account holders use branches in preference to the Internet or phone.

Similarly in the United States, customers are reinforcing the multi-channel role of the branch in how they wish to do business with their bank. Research from Forrester , "Comparing Channel Usage At The Top US Banks: Forrester Techstrategy, June 2003," indicates that 47% of online U.S. households say they have used an electronic channel to manage their financial accounts in the past, but they plan to use human channels in the future. The same research shows that only one in three online financial services consumers intends to do routine transactions electronically in the future.

In addition to a blurring of distinctions between channels, revitalized branch networks have re-emerged as combined centers for advice-based product sales and service, as well as more traditional banking transactions. Customers want more than just a place to complete transactions. They want a full-service center for all their needs -- from banking products to brokerage services.

Under the trend towards multi-channel banking and the growth of full-product sales and service centers is the realization that whether a customer accesses a bank's products and services through a branch, the Internet or via a call center, the provision of real-time customer knowledge is the key to ensuring consistency of product and service. Ensuring consistency of product and service is the key to retaining profitable customers -- especially in today's competitive banking environment where customers are increasingly mobile and fickle. In fact, almost half of U.S. consumers have dumped their primary financial provider at least once. ("Winning The Changing Financial Consumer -- Forrester Techstrategy: July 2003.")

Branches -- A New Multi-Channel Reality

Any banker can easily prove that electronic transactions, like balance inquiries and account transfers, are exponentially cheaper than the same transaction conducted through a bank representative either in a branch or through a call center. Yet at the same time, face-to-face contact with a bank representative is still the most effective way of building revenue from high value sales and services. Optimizing the channel mix as part of a multi-channel strategy to service and sell to customers is the new reality -- and at the heart of this reality remains the branch.

Yet, today's transformed branches bear little resemblance to what preceded them. Rather than a banking hall with a limited range of mainly cash focused functionality, transformed branches are destined to become collaborative-networked service centers that sell multiple product streams. Lightly staffed and highly adaptive to local market niches and conditions, transformed branches are differentiated by open standards, connectivity to internal or external service networks through integration hubs, and the ability to easily add additional customer- focused banking services to meet changing customer demands.

While branches may be transforming, some things will remain the same for banks: the need to reduce costs, decrease risk and increase sales.

* Reductions in development costs, time to market, implementation costs, maintenance costs and total cost of ownership (TCO) can be achieved by reusing and deploying applications built from proven banking services across multiple channels and disparate systems. Such banking services should of course operate independently of the channel that uses them. Thus, whether a balance check is performed in a branch, online or by telephone the same service is being used, resulting in a consistent outcome for the customer and the bank.
* Operational risk may be reduced by leveraging a bank�s existing systems, maintaining a rigorous and disciplined software development and delivery environment and by deploying proven software applications that are flexible and scalable enough to meet the most challenging of future demands. Further reductions in risk may be achieved by using a proven platform such as the IBM WebSphere software platform, which offers a comprehensive set of integrated e-business solutions, based on industry standards as eXtensible Markup Language (XML) and Java technologies.
* Increased sales can be delivered by boosting cross-selling and up-selling opportunities. To best achieve this, banks need to excel at two things -- the ability to quickly roll out new and enhanced products to meet specific customer needs and to leverage customer knowledge where it counts -- at the point of customer contact. Using Eontec component-based solutions allows a bank to rapidly address the origination and fulfillment of additional financial products by quickly extending Eontec Banking Services across more customer interaction points, thus achieving even greater ROI, increased operational efficiencies and shorter time to value.

Equally important is the need for tellers to leverage customer knowledge. Tellers and call center agents don't have time to assimilate and analyze exhaustive databases when dealing with customers - they need a simple, intuitive, informative view of the customer. That's why Eontec infuses every customer contact point with specific information relevant to that customer. Presented visually, with a single glance, and supported by more detailed information and contact history at the touch of a button -- the end result is increased conversion of customer contacts into closed sales and deepened relationships.

For banks, branch transformation is rapidly becoming one of the key drivers of competitive advantage allowing them to maximize revenue opportunities by delivering highly focused banking services to their customers while at the same time managing costs and improving productivity. Transforming branches -- especially as part of a multi-channel strategy -- means that an asset, which was once isolated and undervalued, is now a vital profit center.

Read other articles in this issue:

* The case for business transformation outsourcing in the financial markets industry
* Update on internet insurance
* The technology challenge for corporations from International Accounting Standard No. 39
* Technology isn't enough...the key to customer management
* Mistakes that might sink your wealth management initiative

March 23, 2005 at 11:08 AM in Financial Services | Permalink | TrackBack (22) | Top of page | Blog Home

Yahoo Ups Free Email Storage to 1 Gigabyte

Internet News Article | Reuters.com

SAN FRANCISCO (Reuters) - Yahoo Inc. (YHOO.O: Quote, Profile, Research) said on Wednesday it will soon begin giving users of its free Web e-mail service 1 gigabyte of storage, four times more than it now offers, amid intense competition.

Yahoo said the global storage upgrade will begin in late April and take about two weeks to complete.

Yahoo Mail is available in 15 languages in almost two dozen countries around the world.

Google Inc. (GOOG.O: Quote, Profile, Research) last spring was the first to offer 1 gigabyte of free storage to users of its invitation-only test Gmail service, setting off me-too moves from rivals.

Gmail is now available only as an English-language service.

Microsoft Corp. (MSFT.O: Quote, Profile, Research) currently limits free storage on its free MSN Hotmail accounts to 250 megabytes.

Yahoo and Microsoft each offer 2 gigabytes of storage to users who pay about $20 per year for the service.

March 23, 2005 at 09:01 AM in Portals | Permalink | TrackBack (14) | Top of page | Blog Home

Managing IT as a business for the business

Nov. 2004 -- Let's start with this premise: Practically every large enterprise today is completely dependent on information technology. Whether it's a financial institution's online banking portal or a manufacturer's supply chain linked to key suppliers, the service quality that IT organizations provide is essential to business success.

Now, though, IT organizations are being asked to do more. They're being asked to become reliable, low-cost IT service providers. They're also being asked to align strategically with their internal line-of-business customers. Increasingly, the view from the top is that IT should focus on business as well as technology outcomes and should become an enabler of a company's success.

The challenge is that most IT organizations have evolved as IT-centric cost centres focused more on technology management than on service and on users instead of customers. One study says that nearly 70 percent of IT departments still function as tactical, reactive technology partners rather than as strategic service providers and business enablers.

How then does an IT organization transform itself into a service provider strategically aligned with the business? At HP, we have all the pieces � the systems, HP OpenView management software, and the consulting services � to help IT organizations make this transition. We also have a robust set of best practices based on our extensive experience working with IT departments around the globe.

The key, we have found, is to integrate process, people, and technology through a combination of management software and IT services best practices.

The Role of IT Service Management
Many IT organizations seeking a roadmap through this transformation have turned to IT Service Management for guidance. IT Service Management is based on the IT Infrastructure Library (ITIL), the most comprehensive and respected source of information about IT processes. To make these best practices even more accessible to our enterprise customers, we developed the HP ITSM Reference Model. This reference model covers such issues as service delivery assurance, continuity and security management, configuration and change management, and much more. Many customers have told us that they have found this reference model to be an invaluable tool for implementing changes to their processes, people, and technology.

Let's look first at the importance of process in IT transformation and the high cost of process problems. While technology management has been the traditional mainstay of IT, most IT organizations now realize that poor service delivery has little to do with technology and much to do with poorly designed or missing IT processes. According to our estimates, nearly 80 percent of unplanned downtime results from process and people issues. The best technology is not helpful if a service fails because of a process-related problem.

Clearly, improved processes are useless without people. But the people component of IT refers to more than a simple understanding of how process reengineering and process management affect IT staff. It also involves skill sets, attitudes, and the new roles and responsibilities that the staff must assume to be successful. Examples include viewing the consumers of their services as customers and expanding their focus on technology to include a focus on service delivery. Each of these human aspects must be transformed in order for IT organizations to evolve from technology to service providers.

Making new or improved IT processes function smoothly often requires significant changes to existing technologies as well as incorporating new technologies into the existing IT environment. An IT organization needs special tools to automate processes and the collection of information needed to manage IT services across the enterprise This list can include tools that let companies view their Internet infrastructure and simulate and monitor business activity; track the performance of Web sites and improve the customer experience; and provide timely and accurate service reporting.

Stages of IT Evolution Before an IT organization begins this kind of transformation, several key questions should be addressed. For example, where should an IT organization start? Should the team try to transform everything at once? What are the priorities? Do they need to cut costs? Improve service delivery? Or is the goal to comply with regulatory requirements like Sarbanes-Oxley or HIPPA in the U.S. or Basel 2 in Europe?

Some IT departments may know their goals and their desired end-state but are unsure how to get there. For example, one IT organization may need to lower its costs but doesn't know how to do that without compromising service levels. Another might need to comply with Sarbanes-Oxley requirements but isn't sure of the best approach to take. In these cases, a services-led assessment is a smart first step so that an IT organization gets a clear picture of its starting point and where it is today.

In addition, we have created a three-stage framework that describes how enterprise IT management evolves and that shows how IT organizations can create greater business value at each stage.

* Managing the Infrastructure Initially, IT organizations evolving from technology providers into service providers focus on improving the management of the enterprise infrastructure. This means maximizing return on computing assets and taking control of the infrastructure, the devices it contains, and the data it generates. Achieving this goal begins with an understanding of all computing elements. The desired outcome is a highly available enterprise IT infrastructure. Tactically, the emphasis during this stage is on implementing technology, such as HP OpenView, which plays a critical role in helping an IT organization become a reliable infrastructure provider. This technology discovers, monitors, and manages all computing elements that critical business applications depend on�regardless of where they are located�and displays linkages and topology. This comprehensive monitoring and management of computing elements is critical to IT Service Management success. For example, management software automatically detects status changes, such as a failure or subtle performance degradation that might lead to service failure. When problems arise, automated, corrective actions can repair routine problems.
* Managing the services An IT organization that evolves through stage two is actively identifying the services its customers need and focusing on planning and delivering those services to meet availability, performance, and security requirements. In addition, IT is managing service-level agreements, both internally and externally, to meet agreed-upon quality and cost targets. These activities are central to running IT as a business. When a service is disrupted or performance degrades, the IT organization not only knows the devices involved but, more importantly, understands the business implications of the problem and takes effective action. Given its new, business-focused perspective, IT can base its actions on broader business priorities rather than on pressure from users. When implemented properly, an IT Service Management solution combining process, people, and technology will tightly associate every device with the services it supports. As a result, IT organizations can proactively manage that device as part of strategic business services. By measuring the results of these daily activities, an IT organization can manage IT services to meet its business customers' expectations for reliability, availability, and performance. It also positions the IT organization to deliver and support services that provide real business value.
* Managing the business value of IT At this stage IT organizations have full infrastructure data and can provide services at agreed-upon cost and quality targets. But another crucial change has taken place: The IT organization is now looking for innovative ways to use its intellectual property for business advantage. At HP, for example, we have begun marketing security and supply chain tools that were created by internal IT teams to solve line-of-business challenges. At this point, IT moves from being a cost centre to a profit centre and becomes an enabler of the company's success. This is managing IT as a business for the business.

Summary IT executives with a broader business-IT perspective realize that the measure of an IT organization's success is increasingly based on business outcomes as well as technology outcomes. This requires aligning the IT organization with the business' goals, transforming IT into a trusted service provider for internal customers, and becoming an enabler of the company's success.

We know that this will require a transformation for many IT organizations. We know this from what customers tell us and from our own experience transforming HP's internal IT organization. Yet help is available. At HP, we have invested for more than 10 years to develop the tools, methodologies, and best practices to make this transformation a reality for our customers. On November 30, we took another large step forward and introduced more than two dozen new management software solutions and services to make this transformation easier. For more information, visit here. This is the direction to go if you want to realize the benefits of managing IT as a business for the business.

� 2005 Hewlett-Packard Development Company, L.P.

March 23, 2005 at 07:38 AM in Financial Services | Permalink | TrackBack (5) | Top of page | Blog Home

March 20, 2005

Physical security becoming an IT problem

Physical security becoming an IT problem - Yahoo! UK & Ireland News

By Andrew Donoghue, ZDNet UK

Security experts from the Royal Mail, Proctor & Gamble and Barclaycard agree that the systems used to secure company facilities and IT systems are merging

The proliferation of technologies such as identity management mean more IT managers are having to take responsibility for physical security, according to a panel of leading IT security managers.

Speaking at the Business Continuity Expo in London's Docklands, IT security experts fro