BankBoston to Invest in Internet

by Victoria Griffith, Financial Times, 29 June 98

BankBoston is convinced that the internet will irrevocably alter the nature of banking. Mr Meirelles, president of the bank, is quoted as saying: "If you miss this development, you could be out of the game."

But how to achieve pre-eminence in an area that is still high risk? BankBoston's approach is to invest seed money in small, entrepreneurial businesses. One vehicle for achieving this is their acquisition of Robert Stephens, a San Francisco based investment bank that has strong links to Silicon Valley. BankBoston will also use it own investment arm, BankBoston Capital. It is expected that the level of investment will reach several hundred million dollars over the next decade.

Mr Meirelles went on to say that "Developing products for the internet demands out of the box thinking and a different view of risk taking than most large corporations, especially banks, are used to. Partnerships are the way to do it".

BankBoston is already active with the Internet. It has online services under the brand names HomeLink and OfficeLink. These can be used for transfers and bill payment and for automatically notifying customers when account thresholds are reached. By investing in these new companies, BankBoston is looking to develop products and information services to enhance its basic accounting services.

Comment

BankBoston realises that internet banking could easily be just a low cost commodity service with wafer thin margins, stiff competition and high churn. Just look at the situation with Internet Service Providers (ISPs): free monthly trial periods, low cost subscriptions and now free internet access. Some users simply hop from one ISP to another using other free email services to redirect their e-mail. Could the same happen with electronic banks? Such a regime inspires little if any customer loyalty.

BankBoston knows that to succeed it must develop products and services that provide value-added information. Information that will first attract and then retain customers, preferably for life. One problem with the internet is its extremely fast development. Ideas are generated like lighting, quickly developed AND quickly copied in a matter of weeks if not days. That is why BankBoston is going outside and tapping directly into promising start-up companies. This way they can spread the risk, move very quickly and create a constant stream of new products and services.

Ideally products and service are those that require the customer to interact with a company in order to personalise the service they receive. This way the customer receives added value and the bank learns more about their customers. Further, the customer may well be locked-in, because to move to another bank they will need to spend time teaching the new bank's systems about their preferences.

In the new era of internet marketing it is less about capturing market share and more about capturing the hearts and minds of the customer. That's the way to true customer loyalty. It will not be cheap, or easy, or an overnight wonder. It will need imagination, experimentation, and patience. It seems like BankBoston has realised this and is already a step ahead of most of its rivals.

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