Making e-commerce work for a traditional financial services business

Toby Strauss

recent MD Charcol

Agenda

Background to Charcol

Understanding customers and the economics associated with them

How on-line offers are changing the market for financial advice

Differences in customer behaviour

Innovation by on-line suppliers

Statistics and ‘transformation’

Background

Leading mortgage broker and independent financial adviser, lending the equivalent of a top 5 building society and in business 27 years

14 branches around the country, mostly South East focused; plus extensive introducer relationships

Brand awareness of around 30% in South East ABC1 customer segment

Consistent top rating in MORI poll of financial journalists

In leading position in online mortgage market with c£1b of pure online broked mortgages

Background contd

Have tackled and begun to understand issues of– Customer segments

– Differentiated propositions

– Differentiated economics

– Similarity (and difference) in underlying platforms

Applying all this learning to protection, investments and pensions

Understanding customers

Mortgages

Customer Every 4 years, Attitude major decision

Channels Single channel for each transaction

Economics Much still manual

On-going savings/ wealth mgmt

Multi- channel depending on product, level of advice needed etc.

Fully electronic in some product categories

Investments

Innovation driven by ecommerce

Customer facing – Simple, then more refined, search tools

– More sophisticated needs based tools by product category

– Broader financial advice tools (generally, have not been successful so far)

Reinvention of back end processes - very advanced in funds/shares and motor insurance; least advanced in pensions and mortgages

Searching for products… Charcolonline.co.uk

Tailored by customer …Search results

The beginnings of advice – What mortgage suits you?

Move into investments…wealth home page

Full advice for ISAs…Regulated Fund Adviser

Impact on economics

Mortgages: – No cost of adviser or interview space – No need for the customer to travel– Mostly handed to the customer in terms of no client

fee proposition

Wealth: – No cost of adviser or interview space – No need for the customer to travel– Significantly reduced transactional costs if straight

through processing– Shared with the customer through reduced

commissions

Key questions over the degree to which on-line offers change the market

Customer attitude– are clients able to choose own products?

– do they need personal intervention/ handholding?

Customer need– are they seeking specific transactions /

products?

– are they looking for broader solutions?

Market PlaceOnline

Charcol online

Market Place

Charcol

Customer need

Cu

sto

me

r at

titu

de

Self Service

Assisted Service

Transactional production based

Broad advice/tailored solutions

Changing the market... brands for different clients

Difference in behaviour …mortgage segments

Online

Top 25 lenders plus best in class by category plus exclusives

Fees free: no advice (but tools to help)

Internet demographic as it was 2 years ago

Self sufficient

Self confident

Read through the information or call to get it

Offline

Full market plus exclusives

Fee for advice

HNWI

More complex needs/ circumstances

Need or want support

Proposition

Customer

Demographic attitude

Source: Market Research; 2000

Difference in behaviour …between channels

“If Charcol was not there, how would you have applied for a mortgage?”

High St Bank or Bsoc

Other offline method

(e.g. broker)

40

10

40

10

Other online players

John Charcol Branch

Little cannibalisation

Lion’s share of people would have gone direct to lender or to another

online player

High Earners

Wealthly retired

Integrated on & off line

Off line only

Online only

50

17

36

49

23

5

Difference in behaviour …wealth is different

% of respondents; 2000

Source: Market Research

Trends and uncertainties

More informed people who understand the State is not going to provide

Simpler more comparable products

An overwhelming amount of contradictory information

Product innovation and linkage (e.g, Open plan, Intelligent Finance, SIPPs)

V.S.

More informed people who understand the State is not going to provide

Simpler more comparable products

An overwhelming amount of contradictory information

Product innovation and linkage (e.g, Open plan, Intelligent Finance, SIPPs)

Rate of change of behaviour: Changes likely to be less

pronounced short term, but more subtle and pervasive longer term

Trends and uncertainties

Transformation… implications

Improvement in consistency of advice given and reduced cost of compliance through more automation in all channels

Potential for a concentration of business amongst a few providers

Improvement in consumer perception of the industry leading to higher overall sales?

Multi-channel “bricks and clicks” strategy and approach to provision of “advice” will evolve as consumer behaviour continues to change

Transformation… statistics

Virtually free data capture in the on-line world enables players to look at end to end information “live” and easily, e.g.:– Traffic flows (good lead indicator for the whole business)

– Conversion to application

– Effectiveness of campaigns by partner site including average mortgage size/case value etc. etc.

Most industry benchmarking today based on physical metrics or out of date information

Transformation… statistics contd

What would we like to see more of?– Online user demographics and usage

(good lead indicator for the overall economy)

– Better analysis/understanding of changes in value chain, business performance and overall economic activity as more transactions become electronic