Banking and E-Commerce Group ‘A’ April 23 rd 2003

OUTLINE OF PRESENTATION Banking Industry Background Current E-Commerce Environment Market Participants Business Models Partnerships Buyer/Supplier Relationships Competitive Advantage Ethical, Social & Political Issues

INDUSTRY BACKGROUND Glass-Steagall Act of 1934 Deregulation New Technology = New Distribution Channels  ATM  Telephone  Online banking

INDUSTRY BACKGROUND – TRENDS Mergers & Acquisitions Consolidation of Services  Investments  Insurance  Traditional banking services

FACTORS LEADING TO TRENDS Need for greater efficiency Leveraging technology Changing laws Diversification of risks

CURRENT E-COMMERCE ENVIRONMENT Market Size & Growth Banking sector is a leading player in e-commerce Online banking use is increasing

SOME KEY TECHNOLOGIES Public Key Infrastructures and Digital Certificates and Privacy Digital coin-based money and electronic wallet Image Technology Microsoft SQL Server Mobile E-banking Corporate cash mgmt and wholesale lockbox function Web-enabled ATM

CURRENT E-COMMERCE TRENDS Digital check imaging with Internet delivery Electronic storage/ delivery of documents IT outsourcing for large institutions Further use of Internet-enabled technologies to improve customer offerings/services Banks will pay more attention to privacy and identity theft concerns Banks will continue to improve their customer knowledge Corporate cash mgmt will become fully browser-based Banks will extend their reach in business’s financial supply chain Banks will use XBRL to simplify the mechanics of working w/financial stmts Banks will continue to respond to Pay-pal threat

MARKET PARTICIPANTS – KEY PLAYERS IN BANKING Central Bank Clearinghouse Commercial Banks Credit Unions Development Banks Money Center Bank Retail Banks Savings & Loan

MARKET PARTICIPANTS – NEW ENTRANTS AND SUBSTITUTES Pure Players Net Bank E-Trade Account aggregators MSN Money Market Yahoo Financial

BUSINESS MODELS Existing & Future Models for Revenue Investment income from deposit balances Fee income Cost savings on transactions Transaction fees Consulting fees Brokerage fees

BUSINESS MODELS Existing & Future Models for Content Level I – Web as an information vehicle Level II – Web as a channel for transactions Level III – Web as a tool to improve customer relationships

PARTNERSHIPS Banks found that they could not excel individually in e-commerce technologies Types of firms to seek as partners  Complementary technology  Complementary infrastructure  Access to markets

PARTNERSHIPS – BENEFITS PROVIDED Frees up bank resources for customer service Able to complete the banks’ technology evolution at a faster rate and a lower cost Shift the risk of changing economic conditions onto the vendors Reduces the banks’ exposure to variable costs Access to greater purchasing power

PARTNERSHIPS – OBSTACLES TO CRAFTING ALLIANCES Lengthy negotiating process Difficult to relinquish control of legacy systems to others Control and security of data Branding and co-branding issues

BUYER/SUPPLIER RELATIONSHIPS Customers  Allows tighter relationship with customers  New channels of convenience have changed customer expectations and needs Supplier  Requires tighter relationship with suppliers  Outsourcing mission-critical applications

CREATING COMPETITIVE ADVANTAGE Outsourcing Training Consolidated service Initiative Differentiation Creativity Customization

E-COMMERCE TECHNOLOGIES THAT ENABLE CUSTOMIZATION User Interface Web Browser Web-Enabled Mobile Devices Scripting Languages Plug-ins and Helpers Seeking User Information (Cookies, Transaction Logs, etc) SSL

WHO WILL DOMINATE? In order to dominate you need to provide: Aggregation Access 24/7 Facilitation of Information Costs Trust Value-Added Service

WHAT ARE CONSUMERS SAYING? Listen to various consumer opinions on online banking

ETHICAL, SOCIAL AND POLITICAL ISSUES Ethical Issues Privacy of Information Accuracy of Information Ownership of Information Security of Information U.S. Patriot Act 2001

ETHICAL, SOCIAL AND POLITICAL ISSUES Social challenges Trust Loss of advisory jobs

ADDRESSING THE CHALLENGES Prominently display security message on login screens Reinforce security once customers are logged in Allow customers to define their usernames Inform customers how their information will be utilized