Technology, Knowledge and the Firm Implications for Strategy and Industrial Change PHẦN 5 potx

5.3 Internet Banking at Société Générale France Télécom opened its kiosque micro service in February 1995, aprivate transpac network that was accessible through the number 3601 and a PC

customer contacts over distance banking channels increased by 34 per centfrom 95 million in 2001 to 128 million in 2002 Some 35 million of thesewere logons by Société Générale’s 675 000 Internet bank clients and nearly

41 million contacts were made by 1.6 million bank clients using the phone bank

tele-5.2 Distance Banking over Electronic Media – the Creation of

to their clients In 1984–85 Société Générale launched a test service thatgave its clients the possibility to check the balance on their bank accounts

In 1987 the bank added the option to make transfers between the client’sown bank accounts

In 1989 Société Générale added a telephone bank service to the minitelservice The bank used France Télécom’s system audiotel to provide a24-hour and seven-day-a-week service for its customers The audiotelincluded a kiosque audiotel which included in the user’s tariff the cost ofcommunication and a payment to get access to the service In 1989 the tele-phone server was administrated by another firm This firm played the role of

a distributor that supplied the interface between the bank and the clients andthe corresponding technologies The bank transmitted to the other firm theinformation about the clients’ accounts

At the same time the number of minitel clients increased steadily andreached 120 000 by 1990 This created bottlenecks in the server and SociétéGénérale decided to add new servers as the demand increased Possibilities

to expand the services were discussed In 1993 a meeting of chief executivesdecided not to offer stock market transactions because it was consideredrisky and that the clients could make mistakes

The abundance of minitel clients and the bricolage structure of theminitel product (duplication with nine servers with different access modes:3615LOG1 3615LOG9) resulted in a study on distance banking in thecoming years On 30 May 1994 a directors’ meeting declared that the ambi-tion of Société Générale was to be one of the leaders in terms of distancebanking products and to meet the demands of its customers on this matter.According to a manager of distance banking services this was the timewhen people argued: ‘distance banking is a revolution’ and when thereexisted a willingness to create the service, and make the investments One

result of the renewed interest in distance banking was the decision tolaunch a stock market option on the minitel because the competitors

offered it with success

In September 1994 a project team were given the task of developing a tance banking platform for the private customers – this platform was calledBanque à DisTance (BDT) The aims of the project were: (1) remake theergonomy of the minitel; (2) add functions to the minitel, for example pay-ments to external accounts, stock market transactions, and consultation ofthe stock market; (3) change access to vocal server; and (4) create a tele-phone platform

dis-The project group was rapidly moved to an organizational unit dedicated

to distance banking directly connected to the group that managed the retailbanking activity and organized customer relations This gave it a relativelyhigh degree of freedom A manager of distance banking services explains:

‘ the banking world is a bit rigid, we had some sort of start-up spirit

We irritated everybody Everybody was jealous of our position and themeans we were given to work.’

In parallel a benchmark conducted by the information departmentresulted in a choice to use a new architecture called ‘the technical platformBDT’ It would consist of a client–server architecture with accessibility

24 hours per day and seven days per week and the security systemdemanded by Société Générale’s information system department

5.3 Internet Banking at Société Générale

France Télécom opened its kiosque micro service in February 1995, aprivate transpac network that was accessible through the number 3601 and

a PC with a modem In 1995 there existed many different networks thatenabled firms and private individuals to get connected to the Internet, forexample e-world and Compuserve In this competitive environment ‘ some of ours [Société Générale’s] competitors started moreover to utilizethis new technology and already tested PCs Société Générale had toposition itself in the micro informatics offer Our competitors advancedand it was necessary to maintain a dynamic brand image’ (Société Générale,1995)

In March 1995 the BDT team presented a document in which they statedthat the kiosque micro offer was the most attractive choice because of itsbilling system, its openness towards other networks and its flexibility Inaddition France Télécom promised that the system in the near future wouldaccept downloading of software

In November 1995 Société Générale decided to install a web server Atthis stage most of the French banks had a web server, but no bank offered

Consumers and suppliers in electronically mediated banking 111

an Internet bank service Some banks’ websites showed their annual reportwhile others also offered information about their services including answer-ing questions from the clients.

To enhance its image in new technologies Société Générale decided to

offer its clients a selection of information on the Internet In December

1995, Société Générale bought a server and placed it with an intermediary

to avoid all contact between the bank’s information system and the server.The intermediary had the job of configuring the server, designing the webpages, and adapting them to an Internet environment At the same time theBDT team suggested in a document that in the future, when the Internetwill be used as a distance banking service, it should be integrated withSociété Générale’s system But before that could happen all the securityissues, for example coding, needed to be resolved

In March 1996 the project to develop a platform ran into budgetaryproblems This problem was resolved during a budgetary meeting at whichpriorities were set and a decision made on a more formalized budget

In May 1996 the BDT team presented a document, with the functionsthat they thought were necessary to get an attractive PC banking servicebased on the kiosque micro A project manager in charge recollected in aninterview: ‘ we get a service with the same functionalities as minitel

It offers consultation, transfers, and stock transactions We get it on PC,with an Internet technology.’

In July 1996 a report ‘Information on Internet Products’ was elaborated

by the BDT team to realize the Internet project Although the goals of theproject were similar, the work on the Internet project was different from thekiosque micro over a private network The report (Société Générale,1996a) imagined a connection between the Internet project and thekiosque micro ‘ the web pages with information about the services forthe Internet will be reutilized for the PC version of the minitel servicebecause of the ergonomic proximity (both used PC as a means of connec-tion) Nevertheless, the form will be adapted to the Videotex technol-ogy ’ The information on the different services offered by the bank wasplanned to become identical The Internet service appeared in January

1997 with general information accessible to everyone

On 9 September 1996, a board of directors’ meeting discussed the opment of distance banking The future of minitel compared with otherexisting services was discussed It was considered probable that the minitelservice, despite the efforts of France Télécom, would be confronted withintensified competition on the one hand, with call centres, and on the otherhand, with PC connections in the near future It was acknowledged that thework on the BDT platform was running late and consumed more financialresources than planned Another problem concerned the delay relative to

devel-the competitors in offering a possibility to carry out stock market tions over the minitel service The board of directors suggested that thekiosque micro project should aim at avoiding more delays and that it should

transac-be coordinated closely with the Internet project Société Générale, (1996b)also stated that: ‘ it is important to be reactive, because when the secu-rity problems have been resolved, the project “bank on PC” may migrate tothe Internet environment.’

In 1997 Société Générale investigated the options for distance bankingwith interactive television and mobile telephone At this time SociétéGénérale had started to receive emails from bank customers who wanted

to know when an Internet bank service would be made available

The kiosque micro project ran into more delays for different reasons Forexample, it was difficult to find consultants who had expertise both inminitel and the Internet Cost increases resulted in a budget overdraft of1.4 million FF from the initial budget of 9 million FF The costs wereunderestimated because the managers thought that it would be easy to con-struct web pages from the minitel environment The project manager of dis-tance banking using kiosque micro explained: ‘ We had to remakeeverything On the consultation we finally had to spend one year.’

Another cost was the connection kit to the Internet banking service – aCD-ROM with a manual The connection kit was believed to solve threeproblems: a commercial problem, because it used the Société Générale’slogo; a technical problem, because it used well known browsers; and afinancial problem, because the kit reduced the need for a hotline

A further problem was that France Télécom’s service kiosque micro wasdelayed and didn’t appear before the end of 1997 By that time the FranceTélécom system was adapted to Windows 98 which few PC users hadinstalled It so happened that Société Générale found out that competingbanks offered Internet bank services and this was taken as a sign that thesecurity problem was solved In October 1997 it was decided that theInternet service should first be tested on clients living abroad before being

offered to every customer at Société Générale

Instead of launching the Internet or the kiosque micro Société Généraledecided to improve its minitel service by offering the new BDT platform inSeptember 1997 The most important changes were: (1) the computers sup-porting the connections were changed; (2) the access mode was changedwith one access mode (3615 SG) replacing many different access modes(from 3615 LOG1 to 3615 LOG9); (3) the BDT platform was introducedwhich created a time difference between the customer’s operations and thecarrying out of the transaction by the bank; and (4) a possibility to sub-scribe online to minitel banking, and to look and research the movements

on the bank accounts (Société Générale, 1997)

Consumers and suppliers in electronically mediated banking 113

In January 1998, the project to start a PC banking service based on thekiosque micro system was abandoned due to three reasons: priority wasgiven the Internet bank service, a too low estimated rentability, and lack ofdevelopment of France Télécom’s kiosque micro system It was decidedthat the services targeted for the kiosque micro should be used in the futurefor the Internet service.

In May 1998, the first Internet services appeared at Société Générale inFrance They included the consultation of bank account balances, the down-loading of historical data to be used in a customer’s budget planning softwareand the possibility to subscribe online to Internet banking The Internetbanking system was protected by a 40 bit secure sockets layer technology Atthe start it was believed that the clients should pay for the Internet service Butdue to different problems visible to the customers (the service was out of order

or connections were extremely slow) it was decided to delay charging until thelaunch of the second version For this version they intended to have anenhanced security system (128 bit) that in 1998 was new in the French market

At this time Internet banking took off in France During 1999, the supply

of home banking witnessed a rapid acceleration with more than 90 banks

offering Internet services Some of the bigger banks in France, such as Paribas, Société Générale, Crédit Lyonnais, CCF, and CIC, are members ofthe Association Française des Banques (AFB).5These banks dominated theFrench Internet banking market in early 2000 (see Table 5.8)

BNP-On 4 June 1999, the second version with 128 bit coding was adopted that

offered transfers between bank accounts and stock market transactions: thisput the Internet service on a par with the minitel service In 1998, before thelaunch of the second version the Internet service had 40 000 clients and theminitel had 208 000 clients The new system benefited from more powerfulcomputers and a new system architecture Nevertheless, the first months ofthe new service were difficult ‘We changed the architecture, and we hopedthat everything would turn back to normal We put the system online, and

it didn’t work, and we had to wait two months to achieve an acceptable ation.’ The project manager explains: ‘ In November 1999, it started tobecome poor again By December 1999, it was an appalling shame but

oper-in February 2000, it worked like a marvel To achieve a normal operation,

it took two years.’ Because of these problems the service continued to be

offered free of charge Officially in June 2000 Société Générale announced

a permanently cost free Internet banking connection However, the clientswould still have to pay for many types of services, for example stock marketoperations, payment of bills, and automatic payments

When the second Internet service arrived Société Générale had adopted

a new strategy towards direct banking A new division within the tion division called SGdiffusion took charge of distance banking It wasdecided that distance banking was to be regarded as a channel comparable

distribu-to a bank branch This change also meant that the BDT team lost its pendence and its members were moved to different sections within thedistribution division Less than a year later the distant banking concept wasabandoned and replaced by the notion of a multichannel structure Theplans to change the Internet bank to a synchronic system have step by stepmoved further into the future A shift is now planned to take place in 2005and the costs are estimated to be 250 million Euros

inde-The new multichannel structure facilitated the growth of the Internetbanking service at Société Générale In 2000 the number of Internet clientstripled and reached 260 000 In 2002, the number of Internet bank accounts

at Société Générale reached 675 571 The subsidiary Crédit du Nord hasapproximately half as many Internet bank clients Table 5.9 shows howInternet connections increased in France and at Société Générale and its mostimportant competitor, BNP–Paribas, over the period 1996–2002 From thefigures we can see that Internet banking penetration remains low in France.BNP–Paribas and Société Générale together had less than 1.5 million Internetbank accounts in 2002 This means that less than 10 per cent of their privateclients have an Internet bank account Also if we compare with the number ofhouseholds (France had 23 810 000 households during 1996–2001 according

to INSEE, the French statististical office) and private Internet connections(nine million in 2002) the number of Internet bank clients is relatively low.Société Générale’s competitors did not act vigorously to capture marketshare in the Internet bank market BNP–Paribas had a six month advan-tage over Société Générale during 1999–2000, but lost this advantage in thefollowing years Pure-plays (i.e Internet banks) like ING Direct and Eggentered the French market in 2000 and 2002 ING Direct had 320 000Internet bank clients in September 2003 (El País, 2003) and Egg had only

125 000 French clients in the autumn of 2003 ING Direct claims that itsFrench operation is profitable while Egg has financial problems

Consumers and suppliers in electronically mediated banking 115

5.4 Summary of the Société Générale Case

The experience from the minitel bank provided Société Générale with anumber of transferable ideas that could be used in Internet banking First,the minitel system introduced the idea of charging Second, minitel had ahigh security level functioning on a special network (France Télécom’snetwork) as opposed to the open Internet network

The window of opportunity for Société Générale’s entry to the Internetbank business was very long The first mover French banks initially madesmall investments in an Internet service The feedback from customers wasnot used extensively while the role of France Télécom had a big impact ontechnology choices It was only when Société Générale noticed that com-peting banks had started Internet banking operations that the bank aban-doned the France Télécom solution for Internet bank services Financiallystrong pure-plays entered the market as second movers in 2001–02

When the Internet bank was introduced Nordbanken and Société Généralehad connected between 3 and 5 per cent of their customers to distancebanking Nordbanken had only a telephone bank Société Générale had a

BNP 1996–2002

No of 200 000 500 000 1 000 000 1 900 000 5 200 000 7 000 000 9 330 000 private

minitel and telephone bank Between 1998 and 2002, both banks were able

to capture significant market share in their Internet banking markets Theadoption of the multichannel strategy seems effectively to have blocked theadvance of start-up Internet banks and traders But important differencesare evident if we look at the two banks At the time of writing Nordbankenhas already moved a significant part of its transactions to the Internet, whileSociété Générale is still working on moving its customer base to the Internet.Nordbanken is working on creating new markets and new channels whileSociété Générale still has to make the transition to synchronic Internetbanking

6.1 The Role of Customers in Developing Internet Banking

Let us first turn back to the Normann model of client participation in theservice industry presented above He suggested that the client can partici-pate in six different ways in the service industry, five of which are relevant toSSTs Though relevant, we will not discuss the marketing by word of mouth,

as we do not have access to data on this factor Let us now consider for theremaining four aspects, how the customers in the two banks behaved

In the Nordea case the customers played an important role in the fication of the telephone bank service, as their frequent calls to the bankbranches constituted a problem that triggered the launch of this service.However, in the Internet bank the customers played no comparable role.Société Générale was not driven by customer actions in the launch of theminitel and Internet banking As regards the Internet banking, the cus-tomers could potentially have played a role, as the bank received emailsfrom customers asking about the Internet banking before it was launched.However, it is not clear that such customer reactions were taken intoaccount in the bank’s decision process

speci-6.1.1 Pure co-production

In both banks, co-production has increased as the banks have movedfrom the telephone and minitel banks to the Internet bank The volume ofco-production increases with the availability of more distance banking ser-vices, as each new enabling service also allows the customers to take onmore of the tasks formerly performed by the bank Co-production has alsoresulted in new services, permitting an increase in the total volume of ser-vices provided by the banks

6.1.2 Performing quality control

The complaints about problems with the card reader at Nordea constitute

a good example of how customers perform quality control of services

Consumers and suppliers in electronically mediated banking 117

Another example of how Nordea’s customers participated in the qualitycontrol is when a selected group of customers tested the new web pagesbefore the relaunch of the Internet bank service In the Société Généralecase, there is no clear example of customers performing quality control.One possible example of a negative signal could be the slow customer adop-tion of the asynchronic solution for e-banking transactions offered bySociété Générale The fact that we have seen relatively few examples of cus-tomers performing quality control in these two cases, may be an indication

of the special demands that SSTs place on service providers, in detectingcustomer reactions to the service characteristics

6.1.3 Development of the service

In the Nordea case, the questions asked by the customers when callingthe early telephone bank, provided insights into the kind of services of afuture telephone bank This eventually resulted in a CRM system AlthoughSociété Générale received emails from customers asking about the Internetbank before it was launched, Société Générale was not driven by suchcustomer actions in the launch of the Internet bank

In general, analysis of the behaviour of customers when using the Internetbank, provides insights into which services are found useful In the Nordeacase this is used to find ways to increase the number of monthly transactionsper customer

6.2 The Role of Suppliers in Developing Internet Banking

The suppliers of technology played a more important role in the first phase

of distance banking The Swedish telecommunication operator Televerketprovided the equipment that brought together six Nordbanken bankbranches in central Stockholm to one switch France Télécom provided theminitel system for Société Générale’s minitel bank The system was con-nected to a Vidéotex network and it consisted of three principal compon-ents: the minitel terminal, an access network with servers, and FranceTélécom’s system Kiosque Télétel for payments

The technology suppliers were less successful in supporting the tion to Internet banking Nordea’s contacts with Microsoft indicated thatall PCs should be equipped with card readers in 1997–98 This proved to bewrong France Télécom promised Société Générale that the kiosque microservice launched in February 1995, a private transpac network that wasaccessible through the number 3601 and a PC with a modem, would in thenear future accept downloading of software Another supplier-relatedproblem was that France Télécom’s service kiosque micro was delayed anddid not appear before the end of 1997 At that date the France Télécom

transi-system was adapted to Windows 98 which few PC users had installed ontheir PCs This eventually prompted Société Générale to opt for a nonpri-vate network Internet banking service.

6.3 Di fferences in History and Strategy

It is apparent from the above comparison, that the two banks have differedconsiderably in their use of external resources, and that these differenceshelp to explain differences in the outcome In addition, differences in his-torical experiences and strategy of the two banks can further help toexplain differences in choices made and market outcomes with regards toInternet banks

We can note that the two banks had two different strategies when theyadopted the Internet bank Société Générale wanted to charge the cus-tomers because of the increased value added This is logical in view of theirpast sucess with the minitel Nordea, on the other hand, regarded theInternet service from a cost perspective and therefore decided to charge thecustomers a low fee or no fee at all Nordea’s strategy is based on the experi-ences of both Nordbanken and Merita The cost focus of Nordbanken can

be traced to their telephone bank first being started mainly as a way todivert costly balance questions away from the branch offices As other ser-vices were added, the value creation for both bank and customers hasbecome evident, but the cost focus has remained important Together thesebackgrounds led Nordea to adopt a high growth, rapid penetration strat-egy which ultimately resulted in its present leadership position

One question that has been the object of very much debate is the tive advantages of the so-called ‘pure-play’ retailers (Internet retailingonly, for example Amazon) versus the ‘clicks-and-mortar’ (establishedretailers moving into Internet sales, for example Barnes & Noble) Thedebate concerns whether the strength in the new Internet technology of thepure-plays that were designed specifically to take advantage of the new set

rela-of opportunities, or the retailing experience rela-of the established firms wouldprovide the crucial advantages At the height of the Internet boom, mostthe bets seemed to be put on the pure-plays, whereas today much of theevidence is rather in favour of the clicks-and-mortar firms The cases ofNordbanken and Société Générale, both clicks-and-mortar operations,provide insights into what types of advantages are relevant when estab-lished banks enter into Internet business As is shown in the case descrip-tions, pure-plays were not able to capture significant market shares as firstmovers The cases also show that the previous experiences of the two banks

differ considerably in terms of providing the sort of self service bankingthat forms a basis for Internet operations Thus the existence of or a lack

Consumers and suppliers in electronically mediated banking 119

of previous banking experience in itself is not enough to predict theoutcome of launching an Internet service Instead, qualitative differences

in the nature of existing self service banking services play an importantrole in shaping this outcome

Table 5.10 summarizes some of the potential benefits of existing ogy use for the introduction of Internet banking Looking at this summary

technol-of potential benefits may give us an idea technol-of the reasons for the differences insuccess of the two banks Comparing the table with the case descriptions,

we find that some of the potential benefits proved realizable while othersturned out not to be adequate under the circumstances

That the transferability of capabilities from the telephone banking can

be beneficial is evident in the Nordbanken case For example, the simplemethod of access code on a sheet of paper could be used in the early phase

to get the Internet system up and running Later on it was replaced with asystem that had a higher security level, but in the meantime Nordbankencould launch the Internet bank and joint learning through customer usecould start to take place Similarly, building the Internet bank by transfer-ring ‘modules’ from the telephone bank was a cost-efficient constructionmethod but, more importantly, allowed Nordbanken to benefit from thevalue constituted by a customer base used to a similar design and pedagogy

On the other hand, in the case of Société Générale, some potential fits did not turn out to be actual advantages For example, the bank’s experi-ence in procuring complex systems from an advanced developer was oflittle value when no such system was made available by the supplier In fact,this experience may even have been detrimental in that it contributed tokeeping Société Générale from starting to develop a system of its own.Neither did the potential advantage of having a customer base of userswilling to pay for services prove to be of actual value in the circumstances.Although the prospect of services on the Internet starting to become fee-based has been discussed for several years, this is still a very marginal part

bene-of Internet business Trying to launch a pay-for-use service slowed downthe adoption of Internet banking in at least two ways First, by not introdu-cing a potential disadvantage of the existing minitel solution and therebynot giving minitel users this incentive to try the new technology Second,the usage fee also constituted a disincentive for potential customers whohad experience of other Internet services and who therefore had adoptedthe idea of the Internet as a medium that should be free of charge

6.4 Concluding Remarks

In this comparison of the introduction of Internet banking at Nordea andSociété Générale we have found that the two banks, despite pursuing very

different strategies, end up with not very different relative market positions.Both banks belong to the group of the most Internet-advanced banks intheir markets In the language of Shapiro and Varian (1999) the banksmigrated incumbency and scale advantages into value added aspects ofinformation However, in the case of Internet banking the clicks-and-mortar banks have benefited from a mix of scale and scope advantages Forexample: (1) the possibility to mix face to face interaction with Internetbanking; (2) the offer of a bundle of services to Internet clients that werealready developed for the non-Internet market (e.g share trading, funds,private loans); and (3) the ability to offer accessibility to the bank serviceover a multichannel bank service.

The big difference between the two banks’ move into Internet banking

is that Nordea in Sweden has moved a majority of its customer base to theInternet and that Société Générale only has moved 10 per cent of itsFrench customers to Internet banking An interesting question from thepoint of view of strategy is if this will matter for the long term market posi-tion of the banks The slower adoption rate of Internet banking by SociétéGénérale’s customers may be strategically important for three reasons.First, if we compare the two banks’ growth curves in the Internet market

it is evident that Société Générale is following a different trajectory thanNordea After five years of Internet banking in 2002, Société Générale hadreached less than 10 per cent of its bank customers and acquired aninstalled base of nearly 700 000 Internet accounts These figures are muchlower than the comparative figures for Nordea in Sweden in 2001: morethan one million Internet accounts and nearly 70 per cent of the active cus-tomers had an Internet bank account Second, the French banking sectorcontinues to be attacked by pure-plays that offer bank products that attractsegments of the customer base There exists a continued possibility that thepure-plays will become dominant in the Internet market The Swedishbank market is more difficult to attack because nearly all bank customershave an Internet bank account with their main bank The smaller banksand the new pure-plays in the Swedish market have not increased theirmarket shares in the Internet bank market, but together they had nearly

900 000 Internet clients in 2003 Third, as we have shown in the case studiesInternet banking can both decrease costs for the bank and enhance valuefor the customers This means that a relatively lower Internet bankingactivity in a bank would give it higher costs and lower revenues in themedium to long run compared with a bank with a much higher Internetbanking activity Our conclusion is therefore that although first moverpure-plays in the French market were unsuccessful, banks like SociétéGénérale may still be attacked by second mover pure-plays or foreigncompetitors

1 Pennings and Harianto (1992, p 44) regarded minitel as an ‘astounding success’.

2 Tang (1988) discusses the problem of comparing the return on investment of an old nology protected by massive fixed investments and a new technology in which no invest- ments have been made.

tech-3 Televerket was the state-owned telecommunication operator monopolist In 2004 Televerket had its name changed to TeliaSonera after the merger between Telia and Sonera.

4 The history of this is that the two Swedish state-owned banks, Pk-banken and the Post

O ffice, after they started to cooperate, used the personal number as the client’s cheque account number.

Consumers and suppliers in electronically mediated banking 123

organization interview

Société Mr Benoît Lauret Former manager 28 July 2000 Générale of distance

banking services Société Mr François Project manager 27 July 2000

banking using kiosque micro Nordea Mr Bo Eriksson Head of private 7 March 2002

retail banking

at Nordea Bank Sweden AB, former telephone bank manager

Internet bank

at Nordea Bank Sweden AB

president, Nordea

at Nordea Bank Sweden AB

5 The French legal system identifies six types of banks: commercial banks, cooperative banks, savings banks, local public banks with social aims, financial institutions, and spe- cialized financial institutions with the sole goal of lending money to a clientele.

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