General Electric Co. does not enter new markets lightly. Chairman John F. (Jack) Welch is famous for his ironclad rule that GE must be No. 1 or No. 2 in its businesses or get out. It has been a successful formula for one of the world's most profitable and best-managed companies. But will it work in one of GE's boldest new ventures--the cutthroat world of online consumer financial services?
In early February, GE quietly launched its first financial Web site for consumers, the General Electric Financial Network, or www.gefn.com. Now, after two years of planning and an investment that executives will only say is already in the tens of millions of dollars, GE is making clear it has big ambitions for the site.
It will launch a national TV ad blitz that will start in September and be featured prominently during the Summer Olympics, to which GE subsidiary NBC holds the rights. More national marketing is planned through early next year. The pitch: gefn.com is the place where consumers can go to simplify their investment lives and get everything from a bank account to life insurance to GE mutual funds. "Make no mistake," says Michael D. Frazier, head of the GE Capital consumer unit building gefn.com, "we want to be as well known to consumers for financial security as we are for light bulbs and appliances."
With so much of the baby boomers' wealth up for grabs, GE has good reason to build its brand name in financial services. Still, gefn.com is a bold strategy for a newcomer in an already crowded marketplace. And not everyone is convinced GE will easily accomplish its goal. The nation's top banks and brokers have already staked out a leadership claim in GE's target market. And its offering so far falls short of the feature-packed sites of even smaller competitors, such as WingspanBank.com. At gefn.com, consumers can do basic banking and get GE insurance and loans, but they can't trade stocks or buy mutual funds other than GE's own funds (table). "Launching a potpourri of products is not going to be sufficient," says Eric J. Rajendra, global director of the e-finance practice at consultants A.T. Kearney. "The risk of becoming yet another [financial] portal is very high."
GE does not expect to be an also-ran in online consumer finance. The Web site already has a huge advantage over many rivals, GE executives claim. In part, it's an important new distribution channel for GE Capital's booming financial-services business, whose $9.6 billion in revenues last year were larger than those of the top five online brokers combined. GE won't break out earnings for GE Financial Assurance, but says that its income has grown at a rate of 40% a year since 1996. The unit sells insurance, mutual funds, and 401(k) plans to consumers and corporations worldwide. About 35% of GEFA's sales are made by direct mail and its own salesforce; the rest are made through a network that includes independent agents, brokers, banks, and securities firms such as Charles Schwab & Co.
Led by Frazier, a 41-year-old executive straight out of the Welch mold, the unit has been one of GE's most powerful growth engines in the past five years. Frazier, formerly head of GE Japan, is considered golden inside GE--partly because of his Net savvy and partly because revenues have nearly tripled from the $3.4 billion when he arrived in 1996. Cobbled together partly with 15 major acquisitions, such as insurer Life of Virginia, since 1997, GEFA's assets under management have more than doubled from $45 billion to an estimated $109 billion expected at the end of this year. As for gefn.com, Frazier says: "We can get into a path of profitability that's immediately accretive, or in a very short time, which is something the dot-coms would die for."
With some 25 million customers, GEFA has a huge opportunity to recruit users for gefn.com. Indeed, GE plans to go after many of these customers by putting links to gefn.com on intranets at companies that have existing relationships with GE through their insurance or 401(k) plans. "We already have scale, now we have to focus on execution," Frazier says.
With just 35 employees, gefn.com made its "soft" launch on Feb. 8. Many of the site's key products are in-house GE fare ranging from auto insurance to mutual funds. But two key features were farmed out to specialists. Houston's CompuBank provides banking and bill-payment services, while Paytrust Inc. in Princeton, N.J., provides an alternative, all-electronic bill-payment system. Bill Goings, senior vice-president for e-business and head of gefn.com, says the site will eventually add new features, including brokerage. "Choice is a critical part of our strategy," he says.
UPWARD BOUND? Given its huge financial clout, GE could easily afford to make a bid for the likes of Schwab or Merrill Lynch to propel itself into the big leagues and close the obvious glaring hole in its online offering. But executives say they are not going to expand gefn.com by acquisition but plan to continue to expand by building more alliances with other providers. GEFA's entry into e-brokerage will likely be through a "carefully crafted alliance," they say, but decline to provide details.
That's leading some analysts to question whether gefn.com can make it to the ranks of top financial Web sites with the present strategy. One potential roadblock: the lack of branch offices. The financial assurance unit doesn't have a physical place for customers to go and transact business. Instead, service is handled through call centers and, more recently, over the Net. GEFA is, however, planning a pilot scheme for Atlanta. It will set up a storefront operation in a shopping mall, where customers can learn about term life insurance and annuities--and buy them, too. But there's no intention to add similar operations elsewhere.
Experience at other Internet-only banks suggests that's a risky course. They have failed to capture even a small percentage of the online market, in large part because customers still demand access to bank tellers, says Dan Latimore, an online financial-services consultant with Mainspring Communications Inc. in Cambridge, Mass. Any newcomer "will have to have some physical presence or else they'll be stuck in a niche for the next five years," when consumers will presumably be more comfortable with Internet-only banking. He adds: "I would be shocked if they didn't have something in the works."
Goings says he has no plans to acquire a brick-and-mortar bank. While he admits that online financial services are still in their infancy, he says he is confident that consumers will see the benefits of GEFA as a "financial solutions" company. Next up, though, is expanding gefn.com overseas. The financial assurance unit operates in 17 countries, and 34% of its revenues come from Europe and Asia. Execs see the best opportunities are in Japan, the world's No. 2 life insurance market and where consumers have savings of $13 trillion.
GE'S online finance unit may well have a hard time making a big splash. But the test of its success, says Frazier, will not be whether it overtakes Charles Schwab and Citicorp. Jack Welch is prepared to bend his ironclad rule for financial services, a highly fragmented industry. "Being No. 1 or No. 2 is not as important as being big enough to control your own destiny," says Frazier.
Right now, gefn.com lacks the heft to do so. But, given the track record of most GE businesses, it's too early to write this one off.