This fortnight we explore some strategies that banks can adopt to acquire an e-customer base.

Move first
There is a race for the customers' eyeballs in e-space. The first mover is bestowed with significant advantages. A larger share of customer eyeballs will translate into lower costs as economies of scale are effected and also as experience effects take place. Studies have shown that unless a newer entrant can radically alter the customer value proposition (this can mean paying customers to use the service), the first mover advantage tends to be sustainable.

It has also been seen that the first mover is able to skim the market and charge a higher price for the services offered. The customer base consists of technology-savvy early adopters who are willing to pay for new products.

Moreover, when a company has not moved first, it is usually seen to be giving away the service for free and relying entirely on indirect revenue such as advertising on the site for revenues.

For example, American Express recently launched an on-line brokerage. It offers zero-commission trades to compete with first movers such as Schwab and other established players such as Merrill Lynch who currently charge $30. As if to move price competition to its next plane, it is actually paying $100 to investors who sign up for the service.

This assumes significance in the Indian context wherein, as of date, there are few online banking offerings. Our survey of banking sites in India showed how only some sites had progressed beyond a product information/ electronic brochure function. Even the sites that allow customers in India to bank online can currently provide only rudimentary functions. Clearly, the market is waiting to be skimmed by a first-mover.

Create partnerships with corporate customers
Besides targeting the eyeballs of individual customers directly, banks can also look at partnerships with the popular portals and content sites as a customer acquisition strategy. As corporates foray into business to consumer e-business, their portals and content sites will need the services of a bank to deliver the payment solutions. Each corporate site is likely to have a captive "house" bank to which a customer can provide authorisation to debit and pay the corporate.

This holds true to a greater extent for the business to business commerce wherein it is envisaged that a bank will have accounts with all the dealers of a corporate and the cash settlement transaction will be paperless. This will involve only an account-to-account transfer. Information about the transaction will be delivered over the Internet as will information about glitches such as insufficient balance that might - automatically - trigger an alert to the warehouse not to despatch goods.

The same could be extended to cover a company's suppliers.In the above scenario, the sheer network effects - the network value increases as each dealer is added - is enough to create a barrier to entry for any newer entrant.

Leverage the brand
The Internet is likely to threaten the very existence of a brick and mortar business model and bring about a wave of "commodification". Search engines and product aggregators will make information available to all those who seek it with virtually zero search costs. As information becomes perfect, markets will tend to become perfectly competitive. In such a scenario, it is theoretically possible that brands will cease to have value for the lot of price sensitive netizens.

In yet another paradox, while the Internet will catalyse commodification, it is expected that the brand equity of the physical world would deliver value in the digital world as well. Though the customers will look for the best deals, brands will endure ad help netizens around in a world with virtually unlimited choice. They will continue to provide the customer with powerful positive signals of trust and reliability.

Provided that the existing players move first, their online offerings are likely to be more acceptable to customers than those of a start up company. Forrester Research surveyed a customer segment which was technology friendly, educated and had an above average income level - people most likely to be Internet savvy. In the US they found that less than one per cent of the respondents were likely to look at a non-financial company to purchase financial products online.

Next fortnight, we conclude our discussion of an e-customer acquisition strategy and explore some of the strategic options that can help banks make their e-customer base attrition proof.

The author works for a foreign bank. The views expressed are his own