Wednesday, 15 November 2006

Egg Case Study

What is EGG Bank?
Egg is the largest Internet bank in the world and is part of Prudential Plc.
It has been launched in 1998 and its customer base is about 3.5 millions. It sells financial products as mortgages, personal loans, saving accounts etc; basically all the services that a high street bank could offer to its customers are also provided by Egg to its users.

EGG Business Strategy
Egg is aiming at the “Optimum value territory” where brands that have a high level of sustainability and a high level of differentiation lie.

Their business strategy focuses mainly on 4 points highlighted below:
- High quality unsecured lending book
- Good brand awareness and consideration
- Low unit cost of acquisition
- Young and affluent customer base

Egg is mainly looking at keeping their competitive strength concentrating on Customer Focus and Technology; as we can see below, those two are closely linked.

"Embracing Technology" concept
"Embracing Technology report paints a very clear picture of a nation growing up with technology. As long as train spotting exists, this probably does not indicate the demise of the anorak. But it does mark a significant shift in British consumer attitudes to new technologies. Digital life, it would seem, has arrived."
Mark Nancarrow, Chief Operating Officer, Egg

From a strategic point of view, Egg has always tried to gain competitive advantage through innovative technology. It has been made clear from its beginning by the management that the bank has not only the responsibility to provide its customers with the best products and services it can offer but this has to be done through the channels that best fits the customers life-style.
This is where the concept of "Embracing Technology" comes on board; in fact Egg is fully aware of the Cultural Revolution that is storming today's world and it is imperative in the long and short term strategic plan to walk side by side with technology development and adoption. They are aiming at fulfilling the expectations of their technology users that are becoming increasingly demanding. Egg has moved since quite a long time from the one-dimensional way of doing business on the web, trying to offer a satisfying and sophisticated experience which is two-way, multidimensional and long term.

How does it exploit technology to gain competitive advantage?
Egg likes to describe itself as an "opportunistic" company; the main aim is to create products and services that have to appeal customers for being innovative.
Continuous technical changes are seen as the best way to generate business value

Dealing with Security issues
One of the biggest challenges that Egg (like all the other institutions that are providing financial services on-line) is security; in fact the bank, in order to be successful has to meet its users' security concerns. A great deal of attention is focused on making sure that security breach is not happening; Egg is aiming at keeping always ahead of the "bad guys". This is also done through the giving away of free antivirus software and the building of an excellent network security.

EGG's Money Manager
“With today’s busy lifestyle it is often hard to keep on top of things and our finances are frequently one of the last things we get around to sorting out. ‘Egg Money Manager’ helps customers to view everything on one page; it makes understanding and arranging your money simple and less time consuming”
Andy Deller, Director of Banking & Insurance, Egg UK

Egg Money Manager is one of the top services offered by the Internet bank: customers are given the possibility of managing all their accounts (including the ones from other financial institutions) through one web page. The service has been claimed to be the first aggregation service to be launched in the UK. In terms of security, the system stores encrypted password on the user’s home PC. As the passwords are not disclosed to Egg, in theory, there is also increased security. The aggregation service is guaranteed and covered against any losses for fraudulent activity for Egg and all the other banks that have their accounts accessed through Money Manager.
It is worth mentioning though that many companies are concerned with the service and have asked to be taken off from the list due to security and legal issues.

M Banking service with O2
Egg has teamed up with the mobile operator O2 in order to provide its customers with access to their accounts through the i-mode service.
Also in this step, Egg has done the first move and has shown clear signals to have understood the way its customers want to manage and control their finances, having direct and secure contact to the e-bank through their mobile phones while they are on the move.
With the above Egg is embracing the idea that its customers should be able to see at any point in time what level of funds have available and have the possibility to get a convenient and fast access to their money wherever they are.

Agreement with
Egg has also started a partnership with whereby it provides its customers with a monthly on-line newsletter including a range of offer from the e-retailer. Also customers will receive 5% cash back on the purchases made from using their Egg-card

Alliance with Microsoft to provide on-line financial products
Egg and Microsoft have formed a strategic alliance aiming to exploit the new market for fund supermarkets in Europe. The funds supermarket is an e-marketplace where customers have the ability to buy, sell, switch and manage their unit trusts; Egg wants exploit the distribution channels of Microsoft’s MSN to gain a stronger international presence. The two corporations are obviously trying to combine the bank’s transactional capabilities with MSN’s digital distribution capability

Credit Card information sharing with other banks
One of the main problems of Egg is the extremely high level of bad debt. As this is a great concern for many other financial institutions, some UK Credit Card issuers (Abbey, Barclaycard, The Co-operative Bank) have agreed to start sharing data on how their customers manage their debts.
This will involve the swapping of behavioural data which includes how much their cardholders spend, repay and manage changes in their credit limits. Egg, in order to be profitable, must improve its ability to make good lending decision and to do so need to increase the information data it has access to.

EGG Jobs moved to India
As a part of £40MM yearly cost-saving initiative, EGG has decided to move to shift about 700 people of its workforce to India. Those organizational changes have been announced by the management as a crucial step in order to deliver savings that will enable the UK business to grow.

What have they achieved?
Overall EGG has managed to build an IT strategy which is well linked to its overall business strategy as we would expect by an Internet Bank.
In the last couple of years, Egg has not been doing extremely well (also due to the divestment in France) and because of the high increase in bad debts (which has harmed many other financial institutions).
Looking at their customer base, it seems that EGG does not have very loyal customers as they are shifting somewhere else as soon as the interest rates given on borrowings or on the saving accounts do not meet their expectations and other institutions are offering a better deal. Research have also shown that the average age of EGG customers is not what we would expect to see, as a large majority is made up by people that have some free funds to invest (definitely not young and affluent).
It is also interesting to see if the “First Mover Advantage” is a myth or reality for EGG bank; let’s wait few more years to see what happen…

Smile Case Study

Part of Co-Operative Financial Services (CFS), Smile was created as a 100% online bank venture and has never had a high street presence. Smile does have some 'bricks and mortar' buidings with support staff based in the famous ‘pyramid building’ in Stockport, Manchester.

Launched in 1999, Smile has been a success story and now has over half a million customers and has achieved numerous awards for its customer service. For example it was recently crowned the "best Internet banking provider" for the fifth consecutive year and “best online student account provider’ in the 2006 ‘Your Money Direct Awards’.
Other highs street banks such as Abbey National have tried to copy the success of CFS/smile an introduced an independently branded online bank (cahoot) but have not achieved the same success.

As part of CFS, Smile shares the same ethical policies meaning that it refuses to invest in companies involved in things like the arms trade, genetic engineering, animal testing or poor labour practices. For example, in 2005/06, CFS turned almost £10m of business on ethical grounds including a company that makes sporrans from fox pelts and a shoe firm that trims high-heeled boots with sable.

Smile’s Business Strategy
Smile offers the normal full range of banking products including current accounts, credit cards, loans, mortgages, savings, investments (ISA, sharedealing etc. ). They offer good interest rates and claim to simplify ‘hidden’ charges. So they do all the basic stuff reasonably well it seems.
CFS had a limited budget to launch Smile so focussed on creating a memorable brand with a slick marketing campaign. Smile targeted a customer base of young, urban and affluent consumers which the main CFS brand had failed to do. In this way they hoped that smile would not cannablise its existing customer base. The smile brand is central to the company strategy and has tried to differentiate itself by creating an image of being ethical, friendly, on the customer's side, and a bit quirky.

“We're pink where others are black, we're straight-talking where others talk gobbledygook." Paul Cairney, marketing communications manager for smile.

Smile aim to make banking straightforward without financial language and use words such as 'dosh' and 'wonga', clearly trying to appeal to a younger audience.

The focus for smile has now shifted to providing the best possible customer service to differentiate itself.

"To be a growing, pioneering, financial services business delivering benefits to customers, members and communities through commitment to value, fairness and social responsibility’.

Their vision is..."To be the UK’s most admired financial services business’.

So how does the IT Strategy support this vision?
To support thee vision of being the UK's most admired financial service business, smile has to get the basics right. And the basics in online banking starts with security.

Smile takes security very seriously because of course it has to. There has been a lot of negative publicity about the dangers of online banking and we have all probably received a 'phishing' e-mail asking for our personal bank details.
It is the fear of these security breaches and the need for the occasional 'high-value' or 'complex' transaction that keep people loyal to their bricks and mortar bank. If you are offering an online only service then you can't pop down to your local branch when you want the comfort of completing a transaction face to face. But Smile seems to be getting this part right and are the only online bank to be awarded a British Standards (BS7799) kitemark for information security management. To log on you need your own personal security code plus 5 pieces of private information.

Cross Selling
Cross selling is key for any bank, and smile make this particularly easy. Once logged on you can sign up to new services literally at the click of a button as it remembers all of your personal details. This is absolutely key for smile because they want to keep their sales transaction costs down as much as possible so you don't want people giving up after a couple of clicks and calling the 'expensive' helpdesk facility.

Site Design

To be a no-nonsense, straight-talking bank they you need a website that is easy to understand and navigate. The site achieves this with all of your accounts appearing on one page with your 'net worth' totalled. Smile have not yet gone down the route of aggregating all of a user's accounts (including other banks). This is presumably because of the security issues this raises but this may be a mistake in my opinion. As a customer of rival Egg, I love the Egg Money Manager that allows me to view all of my accounts across several banks on one page. Account aggregation may go some way to reducing the barriers of take up of online banking as it solves the problem of remembering multiple log-in details. (The Data Protection Act in the UK prevents banks from knowing the passwords or personal information of their customers’ third-party accounts but services such as Ewise get round this by providing customers by aggregating information on the client side. Customers can put all their information and pincodes into a digital safe that only they know the details of, and then have one overall password/ PIN to access all the accounts. Another option is the use of a universal electronic wallet system, such as the proposed microsoft Passport system.)

Without an account aggregator, Smile is risking losing its customer traffic to a rival site and losing out on potential cross-selling opportunities.

The site is written in a friendly, down-to-earth style e.g. with one click you can check that your PC is set up correctly for Smile internet banking. The site has loads of how to guides and walkthroughs which makes it very user or idiot friendly.

Understanding its Customers
To deliver real benefits to customers then you need to understand them as well as possible. Smile uses Site Intelligence’s
Visitor Behaviour Information System (VBIS) software to analyse website users' online behaviour and to drive its web development and marketing strategy. Smile uses VBIS to understand what its customers require from the website by analysing volumes of web traffic. The software allows smile to see visitor activity graphically showing where they have come from, what pages they viewed and how they navigated around the site etc. This allows smile to understand where its most valuable customers are coming from on the web.

Bank Extras
Again, because no physical branch exists on your high street, smile tries to do all the 'extra' things you can do at your bank on its site. For example, at the click of a button (or two!) you can order foreign currency and travellers' cheques or get copies of statements.

Quirky Extras
Smile is trying to strengthen its link to its young target base through alliances and deals. For example, it signed a deal with Capital Radio to become the first sponsor of Capital Radio podcasts.

In conclusion, Smile seem to be doing a lot of things right and clearly half a million people agree with me. But they had better sort the account aggregation out before they are smiling on the other side of their face...