E-Trade and The Future of Web-Based Banking

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Adds Framke, "Our bet has been that if we give our customer the functionality to see what they are making and to move their money around as they see fit, we will bring more money in." He adds, however, that it’s also important not to overwhelm the customer with too many options. "You need to walk the line between offering sophisticated functionality but not too much," he adds. For example, he notes, E-Trade would rather offer fewer, highly effective functions like QuickTransfer than a wider variety of more run-of-the-mill ones.

Framke cites E-Trade’s move to offer token-based "multifactor" authentication as another such key function. When the company introduced the RSA tokens in March 2005, it was the first financial company in the United States to offer multifactor authentication to U.S.-based customers (the technology is now strongly recommended by banking regulators). E-Trade customers who choose the service use a token that displays a new six-digit number every minute. The number acts as an extra, onetime password that matches with an identical number generated at the same time at E-Trade’s offices. Framke won’t specify how many customers have opted to use the security tokens, but says E-Trade is pleased with the adoption. "If people feel secure, they tend to keep more money with us," he says. E-Trade did not provide data to back up this claim, but Internet performance monitoring company Keynote Systems says that in its most recent survey of prospective customers of online brokerages, E-Trade was ranked as a top performer in privacy and security.

Keep Moving

While E-Trade’s success reflects an increasing acceptance of online banking, traditional banks and their branches aren’t going away yet, or maybe ever. Some customers prefer talking with a real person face-to-face when making important financial decisions. Dotcom banks such as Wingspan failed because the majority of customers aren’t yet willing to make the leap to doing everything online. Still other customers are concerned that their financial information may not remain secure from hackers or phishing attacks. These factors present a challenge to E-Trade.

In acknowledgement of the advantages that brick-and-mortar banks still have, E-Trade has opened 20 financial centers and plans to add up to 15 more. The company doesn’t want to turn itself into a brick-and-mortar bank, but rather to offer some face-to-face advice to regular online customers at the sites, which will be located in areas where most customers are located, says Framke.

Going forward, E-Trade will have to keep its eye on its competitors—both online and traditional banks—in order to stay ahead. The online brokerages "are telling us [banking is] extremely competitive and they need to use their websites to draw people in," says Lance Jones, an analyst at Keynote Systems. Looking ahead, Framke acknowledges that the competition is likely to remain stiff. "The challenge remains deploying technology that is easy to use yet produces meaningful results for the customer and the company," he says. Framke also has his eye on new Internet technologies such as application composites, or mashups, which are applications created by combining multiple services.

And even though E-Trade is beefing up its physical presence, the company knows it will remain an online leader only if it can continue to come up with tools, such as the Intelligent Cash Optimizer and QuickTransfer, that are effective, easy to use and ahead of the pack. Says Framke: "We have to be ahead of the technology curve as new Web services technologies emerge, and use them in a way that is unique to us."

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Copyright © 2006 IDG Communications, Inc.

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