Portals are not a new concept. These entry points to the internet, which offer content and services, search facilities and enable transactions, provide customers with advice, transparent prices and a wide range of products from which to choose. But, to date, the benefits for financial services providers have been limited.
The marketers' theory is that in a time-poor, PC-rich society, there is a huge demand for a one-stop shop for information and services that can be accessed from the office desk or home.
The benefits to consumers are apparent but businesses behind existing portals are struggling to identify a long-term revenue stream. Yahoo, arguably the most successful portal has seen its shares plummet. Financial portal Interactive Investor International is in a similar position.
While iii's website is superb, users all too often use information garnered from the portal's search engine to promptly move off and buy their products elsewhere, most often perhaps in the bricks and mortar branch of an organisation recommended online.
The size of commission that portals can take when they sell financial products or services is limited. They cannot take a big cut when they are offering such a range of products as they will not be delivering financial product providers the volume of business.
From the point of view of providers of financial products to portals, once the portal has taken its commission on a sale, there is very little profit remaining on low-margin products. Not only that, some financial services providers are reluctant to relinquish direct control over relationships with end-customers, which is key if they are to successfully cross-sell additional products.
The process of setting up a portal is, in itself, a considerable technological challenge and requires a great deal of marketing to drive into consumers' consciousness. But even participating in established portals can be too costly for many banks. IT systems have to be updated and linked to outside systems and back offices have to be automated.
These factors can make it unprofitable for financial services providers to become involved in portals at all. However, all this could be about to change.
If depolarisation of Catmarked products and stakeholder is followed, as seems likely, with the abolition of the polarisation regime, portals could benefit.
Under existing legislation, to qualify as an independent financial adviser, a portal must offer a complete range of every product. The end to this strict regulatory demarcation between an IFA and a tied provider will free portals to recommend a limited selection of each financial product.
Products affected by polarisation such as life insurance, pensions and other investments form an important part of the range of financial products that portals offer. I believe that, after depolarisation, the potential profits for all parties, both on the business and consumer side, will be greater. Encouraged by the prospect of higher sales volumes, banks or thirdparty providers should pay more generous commission to the portal. Banks that set up their own portals should be able to establish a profitable cross-selling relationship with a handful of other providers.
I also believe consumers should not be concerned that the quality of the advice they get will be compromised. It is not in the interests of the portal to offer unsuitable advice as this would only jeopardise its own chances of survival.
There still remains the thorny issue of how providers will go about encouraging consumers to buy rather than just research their financial products from a portal. The answer lies in providing the highest level of value-added service. This means establishing a site tailored towards individual users that provides an instant response to any of their queries.
Regular “unified” statements of users' financial affairs would have to be provided, along with warnings of any market events that could affect an individual's financial portfolio. And, of course, it goes without saying that the site must be fully transactional. It may not be possible to provide all these services for free but, if they are of a high quality, users would probably be happy to pay a small premium to the portal.
Before banks can get their products into this portal marketplace, there are considerable technical challenges they have to overcome.
The first necessary step is full automation of backoffice processes within the bank itself. There would be little point in developing a web front end, let alone a link to a portal, unless tasks within the organisation are processed so that that information on them is available universally, including online.
Automation also maintains speed of response to customers in the face of higher volumes and more sophisticated transactions.
After this, financial services providers will have to improve IT infrastructure to support a portal link. It is vital that multiple financial systems within and between organisations can be accessed. This demands developing technology that integrates applications so that all types of data can be exchanged seamlessly.
An infrastructure would have to be created that allows companies to link their systems together, no matter what hardware and software is being used. The use of data formats such as XML (eXtensible Mark-up Language) that allow easy integration of different types of applications is essential in an enterprise that aims to link up multiple organisations with different proprietary systems.
A detailed plan of how other banks and portals are going to access your banking systems securely must be drawn up. Only when all the technical matters have been attended to will it be possible to provide security and ease of use online via a portal.
Depolarisation could prove to be the defining factor in the success of online financial portals. For the first time, portals will become financially viable both for the portal provider and the financial institutions involved. Banks and other financial services organisations must ensure they lay the necessary technical groundwork now to ensure that they can reap the rewards that could soon be on offer through the portal model.