Banks and Securities Firms Cannibalize Own Business to Survive in New e-Conomy.

NEW YORK--(BUSINESS WIRE)--Dec. 8, 1999--

Future e-Business Success Increasingly Depends on Building

New, Profitable Business Models, According to 

Deloitte Consulting and Deloitte & Touche

Banks and securities firms must adopt aggressive Internet strategies, possibly even cannibalization of their existing businesses, to succeed in the intensely competitive and rapidly-changing marketplace in the year ahead, according to an annual Deloitte Consulting and Deloitte & Touche report released today. However, the Millennium Top Ten: Year 2000 Global Banking & Securities Industry Outlook reveals that these online strategies must be linked to sound, innovative business models to be effective and profitable in the long-term -- and getting there will require firms to fundamentally transform themselves.

The traditional pace of business has now accelerated to Internet speed. "The explosion of online 'attackers' has changed the rules for the financial services industry. At the same time, it has created an extreme sense of urgency forcing firms to respond quickly with their own Internet play," says Jim Reichbach, principal and global banking and securities practice leader of Deloitte Consulting. "Even the dot.coms will have to be profitable at some point -- and profitability is based on creating a business system that can continuously innovate, and evolve with customers and business partners. Banks and securities firms will need to move beyond a limited initial e-Business response, or otherwise be left in a weak position as competitors aggressively move towards more radical transformations of their business models."

"To be competitive, companies need to go beyond Internet pure plays and embrace a more holistic 'click and mortar' strategy, which blends online and traditional services," adds Henry J. Ferrero, banking and securities group managing partner with Deloitte & Touche. "But what financial services firms must realize is that using an Internet-based delivery channel may ultimately alter the nature of their business, increase risks, and change how they bring value to their customers and shareholders. With the current technology frenzy driving decision-making, the 'business' in 'e-Business' needs to take a more dominant role."

What else must banks and securities firms do to respond successfully to these fundamental changes? Deloitte Consulting and Deloitte & Touche urge firms to immediately address ten key issues in the upcoming year. The issue of transforming enterprises by building new, profitable business models, along with the following themes, are the most critical to success.

Speed: A Defining Factor of Success

Old ways of running the business will not work in the fast-paced new e-conomy, and the ability to rapidly define, create and execute new e-Business models will be a key success factor. As budgeting processes move from annual to real time, and as companies seek better ways to buy and deliver information technology, firms of the future will "rent" software provided by external applications services providers (ASPs).

The need for speed is also driving change in the securities industry. The U.S. Securities and Exchange Commission has mandated that securities firms shorten settlement times from T+3 (3-day settlement of trades) to T+1 (next day settlement) by June 2002. This reduces the risks of settlement failure, while improving efficiency. "Meeting the 2002 deadline poses a serious challenge for U.S. securities firms since they tend to underestimate the expense and time required by such an undertaking," says Bill Ehrhardt, New York based partner in the securities industry practice of Deloitte & Touche. "However, the longer the industry waits to address this issue, the more it will cost."

In addition to T+1, the growing influence of Electronic Commerce Networks (ECNs) creates both opportunities and risk for market participants. By offering increased speed and access, as well as reduced costs, ECNs in the U.S. have captured 30% of the trading of shares in NASDAQ from traditional players. Estimates are that this figure will grow to 50% by 2001.

Shifting Staff from Y2K to the Internet

With Y2K conversion work nearing an end, banks and securities firms are burdened with armies of IT staff ill-suited to fight the next war -- delivering services over the Internet. "Utilizing current IT employees to deliver Web solutions is like trying to fit square pegs into round holes," explains Bill Clay, a principal in the financial services industry practice of Deloitte Consulting. "Because many of the Y2K programmers do not have the necessary skills to handle the high demands of the online environment, firms will need to either embark on massive retraining programs or join the bidding war for top talent against dot.coms offering lucrative stock options. In either case, a substantial investment will be required."

Community Banking Goes Virtual

The new e-conomy is also providing greater opportunities for financial services companies to acquire customers and penetrate new markets in Year 2000. Banks and dot.com start-ups are now updating the concept of the community bank through the use of the Internet. These new virtual community banks are forming alliances with specific affiliate groups, corporations and professional organizations, regardless of geography, to co-brand products.

Developing affinity banking alliances not only provides an easy way for firms to sell products in regions where they lack branches, but also allows for increased customer targeting, resulting in more effective marketing and cross-selling capabilities. In addition, forming online communities enables companies to expand product offerings beyond financial services industry lines. Given the wide range of benefits, community banking is sure to be an integral part of consumers' banking experience for years to come.

As banks and securities firms head into the new millennium, they will be entering a new world. The Internet is not the only challenge facing the industry. In the U.S., the demise of Glass-Steagall will determine the shape of the financial services firm of the future - similar regulatory barriers are falling around the globe creating opportunities for local and global players. E-Procurement and electronic bill presentment and payment will threaten the banks' historical role in payment systems. Also, the expenditure of hundreds of millions of dollars on ERP (enterprise resource planning) and CRM (customer relationship management) systems will provide the foundation for revenue growth and enhanced performance. For more details on how financial services firms can survive in this changing landscape, or to view a complete version of the Millennium Top Ten: Year 2000 Global Banking and Securities Industry Outlook, please visit www.dc.com.

Editor's Note: The annual Banking and Securities Top Ten Outlook is a part of Deloitte Consulting's and Deloitte & Touche's e-Business and Financial Services Industry practices. Please also watch for the upcoming Millennium Top Ten: Year 2000 Global Insurance Industry Outlook, to be released in January.

About Deloitte Consulting and Deloitte & Touche

Deloitte Consulting is one of the world's top management consulting firms, providing services to transform your entire enterprise -- your strategy, processes, information technology, and people. Deloitte & Touche, one of the nation's leading professional services firms, provides assurance and advisory, tax, and management consulting services through over 28,000 people in more than 100 U.S. cities. Deloitte Consulting and Deloitte & Touche are parts of Deloitte Touche Tohmatsu, one of the world's leading professional services firms, delivering world-class assurance and advisory, tax, and consulting services. More than 90,000 people in over 130 countries serve nearly one-fifth of the world's largest companies as well as large national enterprises, public institutions, and successful fast-growing companies. Our internationally experienced professionals deliver seamless, consistent services wherever our clients operate. Our mission is to help our clients and our people excel.

With more than 400 e-Business engagements, 2400 e-Business consultants and our recognized industry expertise, we help our clients create, defend and/or reinvent their business and economic models by guiding them through the crushing complexity of the digital economy.

About Deloitte Touche Tohmatsu

Deloitte Touche Tohmatsu serves financial services firms globally through our Global Financial Services Industries practice. GFSI's industry specialists represent every major financial center in the world and bring decades of experience and leadership in banking, securities, insurance and investment management to each client assignment. Complex global engagements are carried out by industry specialists who bring the full scope of Deloitte Touche Tohmatsu expertise to client operations around the world. The oversight provided by global practice leaders means that our clients receive uniform, quality service wherever they do business, anywhere in the world.