Online banking pioneer Egg will build a skinny branch network across the UK.
Egg’s business model is composed of three elements: retail banking operations, an intermediation business that focuses on financial products and services, and a transaction portal for non-financial products. These three models fit very well together, but their success depends on customer acquisition. Egg’s customer acquisition strategy has primarily been through its retail banking operations. Loss-making savings accounts, low APR credit cards and a strategic partnership with Boots have helped Egg to build a substantial customer base, but its potential customer market is limited by its lack of a branch network.
Although customers like the convenience of the Internet, the ‘human touch’ is still very important. Egg’s own experience with customer service attests to this need for reassurance. In order to keep costs down, Egg attempted to penalize customers for using the telephone to contact customer service, but soon realized they needed the extra support. Launching a ‘clicks and bricks’ service should solidify Egg’s competitive position by appealing to the substantial customer base that is not ready to do all its business online.
The incorporation of a branch network is also a telling sign of the evolution of eCommerce in financial services. The online and offline worlds are merging. It is becoming clear that successful players must have a presence in both. Just as Egg is intending to set up branches, Barclaycard has set up an online mall, similar to Egg Shop. The transparency that the Internet has brought to financial services is changing customer expectations. A new service mentality is emerging that requires financial institutions to offer ‘best of breed’ products buttressed by exceptional customer service.
As competition intensifies and more banks set up online operations, Egg’s original competitive advantage will dwindle. It is therefore imperative for Egg to attract a larger customer base. Its diversified business model combined with an expansion of its distribution network should open up new sources of customers, fuelling growth and revenue opportunities.
