E-commerce represents a revolution bankers cannot ignore

The United States is in the midst of a multi-facetted revolution and banks are at the center of the upheaval. That's the warning that William Carden delivered April 28 in West Des Moines to bankers attending the Iowa Department of Banking's "Day with the Superintendent." Carden has his own marketing and strategic planning firm, and has been a professor of banking and business. He warned bankers they need to respond to the revolutions underway in technology and money.

Carden said the changes resulting from widespread use of the internet constitute the second of the two major technological revolutions to take place in the United States. The first addressed transportation. That revolution stopped in about 1970, when the United States essentially stopped pouring resources into efforts to move people and products faster and more economically. The current technological revolution is about moving information, Carden explained. It started with the invention of the printing press in 1473 and is exploding with the rapid world-wide adoption of the internet.

Carden described an information democracy that allows anyone with access to a computer the opportunity to study from the world's research libraries - a privilege that was available only to a small percentage of people 15 years ago. Bankers need to grasp the significance of the information revolution because information is currency; money is really nothing more than information, he postulated.
In a well-told history lesson, Carden explained how money evolved from commodities such as lumber and bricks to coins in the year 565 B.C. Other steps in the evolutionary process have been the adoption of paper money in the late 1400s, the abandonment of the gold standard in the United States in 1934, the introduction of the credit card in the 1950s, and the recognition of money as electronic blips today. "We have been deemphasizing the physical nature of money with each step," Carden said.

Most substantial financial transactions are electronic, Carden said. In 2002, he said there were 430 billion cash transactions, and 90 percent of those were for less than $10. "Cash is now the money of the ghetto," Carden said.

The volume of electronic transactions, Carden explained, is growing exponentially. This year, there will be $34 billion in consumer-to-consumer electronic transactions, up from only $1 billion in 1998. These are transactions that happen through e-Bay and any one of the hundreds of thousands of commerce-oriented blogs. The value of consumer-to-business electronic transactions will top half a trillion dollars this year, representing about 20 percent of payment flows, Carden said. In the business-to-business world, electronic transactions this year will value $3.8 trillion, representing almost one-third of those payment flows.

What do these trends mean for bankers? "It means electronic cards are going to be the business model of the future," Carden said. "It means your customers are interested in electronic bill pay and presentment. It means that if you are not offering internet banking, you better look at it pretty seriously. Europe is awash in smart cards and they are rapidly coming to the United States."

Carden said that success for any bank will depend on its speed, agility and willingness to experiment. He said bankers will have to learn to work with people they traditionally have not worked with. "The people building e-commerce technologies are different," he said.

Carden encouraged bankers to keep these facts in mind:

* Power has shifted to the customer.

* Geography is a secondary consideration. Anyone can enter your market from anywhere. We are in a global marketplace.

* E-commerce is a target-rich environment for radically reducing the costs of buying and selling goods and services.

* New technology means consumers expect their bank to be able to interact with them at multiple touch-points.

* You need to be "open" seven days a week, 24 hours a day, 365 days a year.

* Speed and responsiveness are no longer a competitive advantage, but a competitive necessity.

* Banks need to be ready to customize products and services to individual customers.

* Customers like to do things by themselves; develop self-service delivery of products.

* Competitors are quick to imitate, so in order to be a leader, you have to be ready to raise the bar to the next level.

* Branding in the e-commerce world is even more important than branding in the world of traditional commerce.

Too many bankers are continuing to operate their institutions in a "1950s paradigm." Carden lamented. "My wish is that they would begin to operate in the paradigm of 2010 or 2015," he summarized.