Wingspanbank. com was launched on June 24, 1999. It was a freestanding Internet bank under the auspices of the First USA division of Bank One. It was an Internet-only bank that marketed itself with the claim, “If your bank could start over, this is what it would be.? Created in a record four months and launched with a huge advertising campaign in year 1999, Wingspan provided one-stop shopping for financial services. At first glance Wingspanbank appeared to be a hugely successful startup, and in a way, it was because it had met virtually all of its goals and led the industry.
However, the First USA division had performed poorly since then, it suffered $70 billion in outstanding receivables and shares of Bank One had fallen more than 40 percent since May 1999. Finally, “Wingspanbank was downgraded to be a test lab because it didn’t attract enough customers? Bank One officials said in September 2000. But was Wingspan, a standalone Internet bank, a flawed business model or a good idea doomed by circumstance? The answer may be both. Internet pure plays don’t have staying power, especially in banking. “Pure online banks are beginning to look like failed dreams,?
said a report issued by Newton, MA-based Meridien Research. However, the bad management in Wingspanbank also contributed to its failure. The internal problems included the direct competition between Wingspanbank and its parent company ? Bank One, frequent system failure, huge marketing campaign, the lack of planning, and the ongoing management turmoil within its parent company. The problem Wingspanbank faced was it should find option(s) that it should adopt to be a valid strategic model to stay in business, to solve the problem of management, to take full advantage from its opportunities to attract and retain customers.
In the analysis, in-depth insight will be given to examine the situation of Wingspanbank and recommendation will be given to Wingspanbank or Bank One in order to improve the situation of the business. 2. 0: Analysis and Evaluation 2. 1: Review the Big Picture In the late 1990s, the United States and the rest of the world were experiencing the longest economic expansion in the history. The years 1994-2000 witnessed solid increases in real output, low inflation rates, and a drop in unemployment to below 5%. In year 1999, unemployment rate in the US was 4. 2%, the lowest one in these years.
At the same time, the widely use of personal computer and the explosion of the Internet brought more and more people to the Net and made them feel more and more comfortable with e-commerce. People were doing more and more business on the Internet. The development of Internet technology was a result of the development of computer hardware and software. The increase in employment changed the consumers? life style to be seeking convenience and simplicity because they had less time to shop and handle the routine banking transaction. Therefore, the environment was friendly, especially for the Internet-related industries.
2. 2: Industry Analysis Online financial service industry characteristics: The online financial service industry began its climb in the mid-1990. At the time when Wingspanbank was launched, the industry was in the growth stage in its life cycle with a rapid speed. By November 1999, there were more than 500 online banks, and another 1000 were predicted to launch in year 2000. Moreover, in 1998, the number of households using online banking nearly doubled to 7 million. There are two typical models of online financial service: the first one is the combination of “bricks? (a physical location) and “clicks?
(a Website). The primary purpose of the website is to retain existing customers and provide information about retail products at brick-and-mortar locations. In this model, the traditional bank provides many leverage in developing Internet products. The second one is “pure-play Internet banking? which provids one-stop shopping for financial services with great convenience and low price and higher interest rate. Key Success Factors The key success factors in this industry include all of the following: the primary key success factor is security issue with the trust and concern of privacy.
To have a strong position in banking, especially online banking industry, brand name and reputation play an important role. To satisfy customers, a wide selection of service with good quality is absolutely necessary. And having a web-presence, the design of the website and the speed of access are important to attract and retain visitors. At the same time, convenience and simplicity of processing are very critical because those are what online customers are looking for. Industry Driving Force The online financial service industry is a technology driven industry.
The development of the Internet technology determines the processing of online banking service and the speed of access and design of the site as well as the convenience and simplicity that a site can provide to its visitors. The legal issue associated with the security concern is also a driving force because of the concern of consumer privacy. Government regulation is also playing an important role, for example, the Federal government further spurred competition with the repeal of the Glass-Steagall Act, removing barriers among banks, brokerages, and insurance companies.
Characteristics of Customers Being a service industry, to address the characteristics of customers is very important. In the online banking industry, consumers? main concern is trustworthiness followed closely by price. Because Internet-only banks have lower overhead costs, they can pass saving on to consumers, and because transactions are electronic, they can be done faster and provide great convenience to customers. However, as trust and safety are concerned, consumers want a proven brand and/or local presence in addition to the low cost, convenience and speed of online sales and service.
2. 3 Industry Analysis at Micro Level Threat of new entrants The threat of new entrants of the online financial service industry is moderate. First of all, a recognized brand name and reputation are required to attract customers. Secondly, security issue is another barrier to entry because of the associated legal issue and government regulation. For example, Yahoo and AOLs face a barrier to entry in being unable to secure charters. Moreover, the heavy marketing expense required to market a website also create a high barrier to entry.
However, the wide availability of web technology reduces the barrier. Rivalry among existing competitors As addressed earlier, by November 1999, there were more than 500 online banks and another 1000 were predicted to launch in year 2000. Besides Bank One, other giant banks such as Citibank, American Express were planning to launch their Internet-only divisions. Online customers are easily switch from this site to others; therefore the low switching cost increases rivalry among competitors.
Threat of substitutes The substitutes of online banking include all of the following: traditional banking, phone banking, wireless banking and financial service providers. With traditional banking, there are brick-and-mortar locations for customers to handle routine banking transactions. A consumer survey, conducted by Newton, MA-based TowerGroup, drives home the point: more than half of consumers surveyed (51%) still prefer to handle transactions at traditional bank branch.
Phone banking is a way by which customers can handle transaction by phoning an automotive response system or a service representative. Wireless banking is growing with the use of wireless device such as mobile phones and PDAs. The wireless service providers offer trading and related account services to their customers. Other financial information service providers are also taking customers from online banks. Therefore, the threat of substitutes is relatively high.