The impact of the online finance revolution is making itself felt across Europe. Consumers are beginn...
But the market is still immature. Many of the UK retail banks have struggled to catch up with the slicker, Internet-only players, with sometimes alarming results. We have seen this in the scare stories of online banking portals fraught with security risk and scalability problems.
Nonetheless, the online finance revolution is here to stay and beginning to gather pace. Forrester Research estimates that while 3.1 million Europeans will be using the Internet for guidance on financial services in 2001, by the following year, this figure will be closer to 10 million.
The majority of Europeans who do use online finance products currently favour simple e-banking and share dealing services, but this will soon change as consumers demand more attractive, higher yielding investment products. The arrival of the US-style 'fund supermarkets' in the UK and Europe is transforming the retail investment business for fund managers, savings product providers and investors alike.
In the United States, fund supermarkets have revolutionised the mutual fund industry. Today, in that country, 30% more money is held in mutual funds than in cash accounts. This trend is likely to be reflected in Europe. The ticking of the pension time bomb is building consumer demand for better performing savings products and falling interest rates are making cash accounts less and less attractive. Fund supermarkets meet this demand in a way that the increasingly perilous world of online share dealing cannot.
The concept of the online fund supermarket is simple: consumers are able to shop for suitable, best-of-breed retail investment products from a wide range of product providers. While many of them will do this via the Internet, increasingly in the future many will use WAP, 3G mobile technologies and digital interactive television. Fund supermarkets offer straight through processing, providing seamless trading, clearing and settlement of investment funds online.
The concept is simple, but in many ways the realisation of that concept is not. The banking industry in the UK and Europe is not renowned for the speed at which it adopts new technologies.
Likewise, the world that the fund companies inhabit has until now been fairly straightforward in terms of marketing and distribution. Retail investors have been able to access their products on a direct basis or through an IFA. But fund supermarkets have arrived in Europe, shaking up these certainties about distribution and marketing in a matter of months.
While fund supermarkets do raise questions about how fund providers will alter their sales and marketing strategies, they also offer tremendous opportunities. Through online supermarkets, fund managers get access to new markets - and increased invisibility - as their funds are displayed alongside all those across the industry: UK, European and global.
The distributors of those funds - the fund supermarket 'owners', be they retail banks, building societies or new entrants to financial services - offer a high value investment service to their customers that will retain existing assets and attract new, 'sticky' money. Lastly, the retail investor wins. They get more information and the widest possible choice of funds, as well as access to online asset allocation, fund selection and research tools that previously have only been available to the professional investor.
There will be three basic fund supermarket models in the UK and Europe. The first is the direct-to-retail model, such as Egg or Fidelity's FundsNetwork. But because so much fund distribution in the UK is tied into the IFA networks, there is a second model
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected