customer contacts over distance banking channels increased by 34 per cent from 95 million in 2001 to 128 million in 2002. Some 35 million of these were logons by Société Générale’s 675 000 Internet bank clients and nearly 41 million contacts were made by 1.6 million bank clients using the tele- phone bank. 5.2 Distance Banking over Electronic Media – the Creation of Minitel Banking In the early 1980s France became the first country to launch a télétel system. The French system was connected to a Vidéotex network and it consisted of three principal components: the minitel terminal, an access network with servers, and France Télécom’s system Kiosque Télétel for payments. All the French banks utilized this system to provide certain types of information to their clients. In 1984–85 Société Générale launched a test service that gave its clients the possibility to check the balance on their bank accounts. In 1987 the bank added the option to make transfers between the client’s own bank accounts. In 1989 Société Générale added a telephone bank service to the minitel service. The bank used France Télécom’s system audiotel to provide a 24-hour and seven-day-a-week service for its customers. The audiotel included a kiosque audiotel which included in the user’s tariff the cost of communication and a payment to get access to the service. In 1989 the tele- phone server was administrated by another firm. This firm played the role of a distributorthatsuppliedthe interfacebetween thebankand theclientsand the corresponding technologies. The bank transmitted to the other firm the information about the clients’ accounts. At the same time the number of minitel clients increased steadily and reached 120 000 by 1990. This created bottlenecks in the server and Société Générale decided to add new servers as the demand increased. Possibilities to expand the services were discussed. In 1993 a meeting of chief executives decided not to offer stock market transactions because it was considered risky and that the clients could make mistakes. The abundance of minitel clients and the bricolage structure of the minitel product (duplication with nine servers with different access modes: 3615LOG1 . . .3615LOG9) resulted in a study on distance banking in the coming years. On 30 May 1994 a directors’ meeting declared that the ambi- tion of Société Générale was to be one of the leaders in terms of distance banking products and to meet the demands of its customers on this matter. According to a manager of distance banking services this was the time when people argued: ‘distance banking is a revolution’ and when there existed a willingness to create the service, and make the investments. One 110 Innovation and firm strategy result of the renewed interest in distance banking was the decision to launch a stock market option on the minitel because the competitors offered it with success. In September 1994 a project team were given the task of developing a dis- tance banking platform for the private customers – this platform was called Banque à DisTance (BDT). The aims of the project were: (1) remake the ergonomy of the minitel; (2) add functions to the minitel, for example pay- ments to external accounts, stock market transactions, and consultation of the stock market; (3) change access to vocal server; and (4) create a tele- phone platform. The project group was rapidly moved to an organizational unit dedicated to distance banking directly connected to the group that managed the retail banking activity and organized customer relations. This gave it a relatively high degree of freedom. A manager of distance banking services explains: ‘. . . the banking world is a bit rigid, we had some sort of start-up spirit We irritated everybody Everybody was jealous of our position and the means we were given to work.’ In parallel a benchmark conducted by the information department resulted in a choice to use a new architecture called ‘the technical platform BDT’. It would consist of a client–server architecture with accessibility 24 hours per day and seven days per week and the security system demanded by Société Générale’s information system department. 5.3 Internet Banking at Société Générale France Télécom opened its kiosque micro service in February 1995, a private transpac network that was accessible through the number 3601 and aPCwith a modem. In 1995 there existed many different networks that enabled firms and private individuals to get connected to the Internet, for example e-world and Compuserve. In this competitive environment‘ some of ours [Société Générale’s] competitors started moreover to utilize this new technology and already tested PCs Société Générale had to position itself in the micro informatics offer Ourcompetitors advanced and it was necessary to maintain a dynamic brand image’(SociétéGénérale, 1995). In March 1995 the BDT team presented a document in which they stated that the kiosque micro offer was the most attractive choice because of its billing system, its openness towards other networks and its flexibility. In addition France Télécom promised that the system in the near future would accept downloading of software. In November 1995 Société Générale decided to install a web server. At this stage most of the French banks had a web server, but no bank offered Consumers and suppliers in electronically mediated banking 111 an Internet bank service. Some banks’ websites showed their annual report while others also offered information about their services including answer- ing questions from the clients. To enhance its image in new technologies Société Générale decided to offer its clients a selection of information on the Internet. In December 1995, Société Générale bought a server and placed it with an intermediary to avoid all contact between the bank’s information system and the server. The intermediary had the job of configuring the server, designing the web pages, and adapting them to an Internet environment. At the same time the BDT team suggested in a document that in the future, when the Internet will be used as a distance banking service, it should be integrated with Société Générale’s system. But before that could happen all the security issues, for example coding, needed to be resolved. In March 1996 the project to develop a platform ran into budgetary problems. This problem was resolved during a budgetary meeting at which priorities were set and a decision made on a more formalized budget. In May 1996 the BDT team presented a document, with the functions that they thought were necessary to get an attractive PC banking service based on the kiosque micro. A project manager in charge recollected in an interview: ‘ we get a service with the same functionalities as minitel. It offers consultation, transfers, and stock transactions. We get it on PC, with an Internet technology.’ In July 1996 a report ‘Information on Internet Products’ was elaborated by the BDT team to realize the Internet project. Although the goals of the project were similar, the work on the Internet project was different from the kiosque micro over a private network. The report (Société Générale, 1996a) imagined a connection between the Internet project and the kiosque micro. ‘ . . . the web pages with information about the services for the Internet will be reutilized for the PC version of the minitel service because of the ergonomic proximity (both used PC as a means of connec- tion) Nevertheless, the form will be adapted to the Videotex technol- ogy ’Theinformation on the different services offered by the bank was planned to become identical. The Internet service appeared in January 1997 with general information accessible to everyone. On 9 September 1996, a board of directors’ meeting discussed the devel- opment of distance banking. The future of minitel compared with other existing services was discussed. It was considered probable that the minitel service, despite the efforts of France Télécom, would be confronted with intensified competition on the one hand, with call centres, and on the other hand, with PC connections in the near future. It was acknowledged that the work on the BDT platform was running late and consumed more financial resources than planned. Another problem concerned the delay relative to 112 Innovation and firm strategy the competitors in offering a possibility to carry out stock market transac- tions over the minitel service. The board of directors suggested that the kiosque micro project should aim at avoiding more delays and that it should be coordinated closely with the Internet project. Société Générale, (1996b) also stated that: ‘ it is important to be reactive, because when the secu- rity problems have been resolved, the project “bank on PC” may migrate to the Internet environment.’ In 1997 Société Générale investigated the options for distance banking with interactive television and mobile telephone. At this time Société Générale had started to receive emails from bank customers who wanted to know when an Internet bank service would be made available. The kiosque micro project ran into more delays for different reasons. For example, it was difficult to find consultants who had expertise both in minitel and the Internet. Cost increases resulted in a budget overdraft of 1.4 million FF from the initial budget of 9 million FF. The costs were underestimated because the managers thought that it would be easy to con- struct web pages from the minitel environment. The project manager of dis- tance banking using kiosque micro explained: ‘ We had to remake everything. On the consultation we finally had to spend one year.’ Another cost was the connection kit to the Internet banking service – a CD-ROM with a manual. The connection kit was believed to solve three problems: a commercial problem, because it used the Société Générale’s logo; a technical problem, because it used well known browsers; and a financial problem, because the kit reduced the need for a hotline. A further problem was that France Télécom’s service kiosque micro was delayed and didn’t appear before the end of 1997. By that time the France Télécom system was adapted to Windows 98 which few PC users had installed. It so happened that Société Générale found out that competing banks offered Internet bank services and this was taken as a sign that the security problem was solved. In October 1997 it was decided that the Internet service should first be tested on clients living abroad before being offered to every customer at Société Générale. Instead of launching the Internet or the kiosque micro Société Générale decided to improve its minitel service by offering the new BDT platform in September 1997. The most important changes were: (1) the computers sup- porting the connections were changed; (2) the access mode was changed with one access mode (3615 SG) replacing many different access modes (from 3615 LOG1 to 3615 LOG9); (3) the BDT platform was introduced which created a time difference between the customer’s operations and the carrying out of the transaction by the bank; and (4) a possibility to sub- scribe online to minitel banking, and to look and research the movements on the bank accounts (Société Générale, 1997). Consumers and suppliers in electronically mediated banking 113 In January 1998, the project to start a PC banking service based on the kiosque micro system was abandoned due to three reasons: priority was given the Internet bank service, a too low estimated rentability, and lack of development of France Télécom’s kiosque micro system. It was decided that the services targeted for the kiosque micro should be used in the future for the Internet service. In May 1998, the first Internet services appeared at Société Générale in France. They included the consultation of bank account balances, the down- loading of historical data to be used in a customer’s budget planning software and the possibility to subscribe online to Internet banking. The Internet banking system was protected by a 40 bit secure sockets layer technology. At the start it was believed that the clientsshouldpayfor the Internet service. But due todifferent problems visible tothecustomers (the service was outof order or connections were extremely slow) it was decided to delay charging until the launch of the second version. For this version they intended to have an enhanced security system (128 bit) that in 1998 was new in the French market. At this time Internet banking took off in France. During 1999, the supply of home banking witnessed a rapid acceleration with more than 90 banks offering Internet services.Someof the bigger banks in France, such as BNP- Paribas, Société Générale, Crédit Lyonnais, CCF, and CIC, are members of the Association Française des Banques (AFB). 5 These banks dominated the French Internet banking market in early 2000 (see Table 5.8). On 4 June 1999, the second version with 128 bit coding was adopted that offeredtransfers between bank accountsandstock markettransactions: this put the Internet service on a par with the minitel service. In 1998, before the launch of the second version the Internet service had 40 000 clients and the minitel had 208 000 clients. The new system benefited from more powerful computers and a new system architecture. Nevertheless, the first months of the new service were difficult. ‘We changed the architecture, and we hoped that everything would turn back to normal. We put the system online, and 114 Innovation and firm strategy Table 5.8 Market shares in the French Internet banking market in 2000 Type of bank Market share in Internet banking Banques populaires 6.2 % Crédit agricole 16.1 % Caisses d’épargne 3.6 % Crédit mutuel 14.9 % Banques AFB 58.8 % Source: AFB (2000). it didn’t work, and we had towait twomonthstoachieve anacceptable oper- ation.’ The project manager explains:‘ InNovember 1999, it started to become poor again. By December 1999, it was an appalling shame but in February 2000, it worked like a marvel. To achieve a normal operation, it took two years.’ Because of these problems the service continued to be offered free of charge. Officially in June 2000 Société Générale announced a permanently cost free Internet banking connection. However, the clients would still have to pay for many types of services, for example stock market operations, payment of bills, and automatic payments. When the second Internet service arrived Société Générale had adopted a new strategy towards direct banking. A new division within the distribu- tion division called SGdiffusion took charge of distance banking. It was decided that distance banking was to be regarded as a channel comparable to a bank branch. This change also meant that the BDT team lost its inde- pendence and its members were moved to different sections within the distribution division. Less than a year later the distant banking concept was abandoned and replaced by the notion of a multichannel structure. The plans to change the Internet bank to a synchronic system have step by step moved further into the future. A shift is now planned to take place in 2005 and the costs are estimated to be 250 million Euros. The new multichannel structure facilitated the growth of the Internet banking service at Société Générale. In 2000 the number of Internet clients tripled and reached 260 000. In 2002, the number of Internet bank accounts at Société Générale reached 675 571. The subsidiary Crédit du Nord has approximately half as many Internet bank clients. Table 5.9 shows how Internet connections increased in France and at Société Générale and its most important competitor, BNP–Paribas, over the period 1996–2002. From the figures we can see that Internet banking penetration remains low in France. BNP–Paribas and Société Générale together had less than 1.5 million Internet bank accounts in 2002. This means that less than 10 per cent of their private clients have an Internet bank account. Also if we compare with the number of households (France had 23 810 000 households during 1996–2001 according to INSEE, the French statististical office) and private Internet connections (nine million in 2002) the number of Internet bank clients is relatively low. Société Générale’s competitors did not act vigorously to capture market share in the Internet bank market. BNP –Paribas had a six month advan- tage over Société Générale during 1999–2000, but lost this advantage in the following years. Pure-plays (i.e. Internet banks) like ING Direct and Egg entered the French market in 2000 and 2002. ING Direct had 320 000 Internet bank clients in September 2003 (El País, 2003) and Egg had only 125 000 French clients in the autumn of 2003. ING Direct claims that its French operation is profitable while Egg has financial problems. Consumers and suppliers in electronically mediated banking 115 5.4 Summary of the Société Générale Case The experience from the minitel bank provided Société Générale with a number of transferable ideas that could be used in Internet banking. First, the minitel system introduced the idea of charging. Second, minitel had a high security level functioning on a special network (France Télécom’s network) as opposed to the open Internet network. The window of opportunity for Société Générale’s entry to the Internet bank business was very long. The first mover French banks initially made small investments in an Internet service. The feedback from customers was not used extensively while the role of France Télécom had a big impact on technology choices. It was only when Société Générale noticed that com- peting banks had started Internet banking operations that the bank aban- doned the France Télécom solution for Internet bank services. Financially strong pure-plays entered the market as second movers in 2001–02. 6. DISCUSSION AND CONCLUDING REMARKS When the Internet bank was introduced Nordbanken and Société Générale had connected between 3 and 5 per cent of their customers to distance banking. Nordbanken had only a telephone bank. Société Générale had a 116 Innovation and firm strategy Table 5.9 Internet connections in France and at Société Générale and BNP 1996–2002 Aspect 1996 1997 1998 1999 2000 2001 2002 No. of 200 000 500 000 1 000 000 1 900 000 5 200 000 7 000 000 9 330 000 private internet connections Société – – 40 000 66 000 260 000 444 911 675 571 Générale Internet bank accounts BNP – – 33 000 140 000 386 000 – 700 000 Internet bank accounts Sources: ART, www.invest.bnpparibas.com/fr/; Société Générale’s documents and www.societegenerale.fr/, www.journaldunet.com. minitel and telephone bank. Between 1998 and 2002, both banks were able to capture significant market share in their Internet banking markets. The adoption of the multichannel strategy seems effectively to have blocked the advance of start-up Internet banks and traders. But important differences are evident if we look at the two banks. At the time of writing Nordbanken has already moved a significant part of its transactions to theInternet,while Société Générale isstillworking onmoving its customerbase to theInternet. Nordbanken is working on creating new markets and new channels while Société Générale still has to make the transition to synchronic Internet banking. 6.1 The Role of Customers in Developing Internet Banking Let us first turn back to the Normann model of client participation in the service industry presented above. He suggested that the client can partici- pate in six different ways in the service industry, five of which are relevant to SSTs. Though relevant,we will not discussthemarketing by wordof mouth, as we do not have access to data on this factor. Let us now consider for the remaining four aspects, how the customers in the two banks behaved. In the Nordea case the customers played an important role in the speci- fication of the telephone bank service, as their frequent calls to the bank branches constituted a problem that triggered the launch of this service. However, in the Internet bank the customers played no comparable role. Société Générale was not driven by customer actions in the launch of the minitel and Internet banking. As regards the Internet banking, the cus- tomers could potentially have played a role, as the bank received emails from customers asking about the Internet banking before it was launched. However, it is not clear that such customer reactions were taken into account in the bank’s decision process. 6.1.1 Pure co-production In both banks, co-production has increased as the banks have moved from the telephone and minitel banks to the Internet bank. The volume of co-production increases with the availability of more distance banking ser- vices, as each new enabling service also allows the customers to take on more of the tasks formerly performed by the bank. Co-production has also resulted in new services, permitting an increase in the total volume of ser- vices provided by the banks. 6.1.2 Performing quality control The complaints about problems with the card reader at Nordea constitute a good example of how customers perform quality control of services. Consumers and suppliers in electronically mediated banking 117 Another example of how Nordea’s customers participated in the quality control is when a selected group of customers tested the new web pages before the relaunch of the Internet bank service. In the Société Générale case, there is no clear example of customers performing quality control. One possible example of a negative signal could be the slow customer adop- tion of the asynchronic solution for e-banking transactions offered by Société Générale. The fact that we have seen relatively few examples of cus- tomers performing quality control in these two cases, may be an indication of the special demands that SSTs place on service providers, in detecting customer reactions to the service characteristics. 6.1.3 Development of the service In the Nordea case, the questions asked by the customers when calling the early telephone bank, provided insights into the kind of services of a futuretelephonebank.This eventuallyresulted inaCRM system. Although Société Générale received emails from customers asking about the Internet bank before it was launched, Société Générale was not driven by such customer actions in the launch of the Internet bank. Ingeneral, analysisof the behaviourof customers when usingthe Internet bank, provides insights into which services are found useful. In the Nordea case this is used to find ways to increase the numberof monthly transactions per customer. 6.2 The Role of Suppliers in Developing Internet Banking The suppliers of technology played a more important role in the first phase of distance banking. The Swedish telecommunication operator Televerket provided the equipment that brought together six Nordbanken bank branches in central Stockholm to one switch. France Télécom provided the minitel system for Société Générale’s minitel bank. The system was con- nected to a Vidéotex network and it consisted of three principal compon- ents: the minitel terminal, an access network with servers, and France Télécom’s system Kiosque Télétel for payments. The technology suppliers were less successful in supporting the transi- tion to Internet banking. Nordea’s contacts with Microsoft indicated that all PCs should be equipped with card readers in 1997–98. This proved to be wrong. France Télécom promised Société Générale that the kiosque micro service launched in February 1995, a private transpac network that was accessible through the number 3601 and a PC with a modem, would in the near future accept downloading of software. Another supplier-related problem was that France Télécom’s service kiosque micro was delayed and did not appear before the end of 1997. At that date the France Télécom 118 Innovation and firm strategy system was adapted to Windows 98 which few PC users had installed on their PCs. This eventually prompted Société Générale to opt for a nonpri- vate network Internet banking service. 6.3 Differences in History and Strategy It is apparent from the above comparison, that the two banks have differed considerably in their use of external resources, and that these differences help to explain differences in the outcome. In addition, differences in his- torical experiences and strategy of the two banks can further help to explain differences in choices made and market outcomes with regards to Internet banks. We can note that the two banks had two different strategies when they adopted the Internet bank. Société Générale wanted to charge the cus- tomers because of the increased value added. This is logical in view of their past sucess with the minitel. Nordea, on the other hand, regarded the Internet service from a cost perspective and therefore decided to charge the customers a low fee or no fee at all. Nordea’s strategy is based on the experi- ences of both Nordbanken and Merita. The cost focus of Nordbanken can be traced to their telephone bank first being started mainly as a way to divert costly balance questions away from the branch offices. As other ser- vices were added, the value creation for both bank and customers has become evident, but the cost focus has remained important. Together these backgrounds led Nordea to adopt a high growth, rapid penetration strat- egy which ultimately resulted in its present leadership position. One question that has been the object of very much debate is the rela- tive advantages of the so-called ‘pure-play’ retailers (Internet retailing only, for example Amazon) versus the ‘clicks-and-mortar’ (established retailers moving into Internet sales, for example Barnes & Noble). The debate concerns whether the strength in the new Internet technology of the pure-plays that were designed specifically to take advantage of the new set of opportunities, or the retailing experience of the established firms would provide the crucial advantages. At the height of the Internet boom, most the bets seemed to be put on the pure-plays, whereas today much of the evidence is rather in favour of the clicks-and-mortar firms. The cases of Nordbanken and Société Générale, both clicks-and-mortar operations, provide insights into what types of advantages are relevant when estab- lished banks enter into Internet business. As is shown in the case descrip- tions, pure-plays were not able to capture significant market shares as first movers. The cases also show that the previous experiences of the two banks differ considerably in terms of providing the sort of self service banking that forms a basis for Internet operations. Thus the existence of or a lack Consumers and suppliers in electronically mediated banking 119 [...]... of the product and process technological development should focus: in other words, which performance characteristics will serve as a heuristic for R&D attention Technologies are thus as much part of the institutional environment as are for instance regulations, and they manifest themselves in the form of convictions, norms, standards, and search heuristics for R&D to which firms will be likely to conform... meaning system and whose participants interact more frequently and fatefully with one another than Shifts in fuel preference for the fuel cell vehicle 131 with actors outside the field’ (Scott, 19 95, p 56 ) The organizational field may include regulatory agencies, interest and pressure groups, consumers, and other public or private actors The organizational field is the centre for dialogue and discussion... customers have an Internet bank account with their main bank The smaller banks and the new pure-plays in the Swedish market have not increased their market shares in the Internet bank market, but together they had nearly 900 000 Internet clients in 2003 Third, as we have shown in the case studies Internet banking can both decrease costs for the bank and enhance value for the customers This means that a relatively... is at the level of the organizational field that meaning is developed with regard to issues arising in the field, in a process of negotiation and discourse between actors in the field The organizational field then becomes an ‘arena of power relations’ (Brint and Karabel, 1991), and forms the locus where institutions are changed and developed This change manifests itself in regulative, normative and cognitive... others may boast their strategy as a follower of others, while again others might mention their market knowledge as their key success factor Internal routines are historically built (Nelson and Winter, 1982), and will influence technological decisions within firms 2.4 Conceptual Model Figure 6.1 shows the general model used for this study to understand R&D decisions of firms, and more specifically whether... 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This firm played the role of a distributorthatsuppliedthe interfacebetween thebankand theclientsand the corresponding technologies. The bank transmitted to the other firm the information. competition on the one hand, with call centres, and on the other hand, with PC connections in the near future. It was acknowledged that the work on the BDT platform was running late and consumed. about the services for the Internet will be reutilized for the PC version of the minitel service because of the ergonomic proximity (both used PC as a means of connec- tion) Nevertheless, the form