Online Extra: Q&A with Nordea's Bo Harald

Bill paying was the killer app. It still is

Bo Harald is no hip, young Internet entrepreneur. He's a 53-year-old career banker, married for three decades with three children. And yet, it's Harald who may show the future of the Internet. As the director of electronic services for the Nordic region's largest bank, Nordea, he has built what arguably is the world's biggest and most-wired financial institution, with 3 million subscribers conducting 7 million transactions per month. His secret? Avoiding the sky-high marketing costs of pure e-banks and leveraging the power of an existing customer base and branch network.

Harald sat down for two long interviews recently with BusinessWeek's William Echikson, one in his comfortable suburban house outside Helsinki and the other in a wood-paneled meeting room at the bank's Finnish headquarters:

Q: Tell me a little about yourself. How did you become interested in banking and the Internet?

A:

I am a Swedish-speaking Finn. My mother tongue is Swedish, though I speak Finnish as well. [He also speaks fluent English, German, and good French.] I grew up in a small farm in the middle of nowhere, not far from the Arctic Circle. It was a dairy farm, and I am very skilled at hitting the cat's eye with milk. There was no indoor plumbing and even no electricity at the beginning. So I know what outside work is and am very grateful to get a job that keeps me indoors. I'm a rare Finn who doesn't have a lakeside summer home. When you are born in the countryside, you don't feel you need it. I have a pond here in my garden.

Q: And banking?

A:

I went to a Swedish-speaking university and studied economics and law. I wanted to study agriculture, but my father was against it because he didn't see a future. It was the late 1960s, and most students were left-wing. But I never felt any attraction to leftism. So I founded a group to fight the communists in the university.

I started banking because I needed to pay off my student loan. I worked summers in the foreign-exchange department of the Union Bank of Finland. For my college thesis, I wrote about the risks of various types of collateral. Union Bank was the leading commercial bank at the time. It was conservative. After my army service, I joined full-time. I met my wife, Arja, in college, and we have three children, Charlotta, 23 years old, Carolina, 21, and Carl, 15.

I always like challenges. I moved to Luxembourg in 1977 to help open an office there. I was credit manager. Then I went to Singapore and later to London. While away from home, I started using the computer to authorize payments. The beginning of PC banking in 1984 was a blessing for me. It became so much easier to do things from distance.

Q: And e-banking?

A:

I think the secret of our success was to start early. We started back in 1982 with telephone voice commands. By 1984, we had PC banking. It was like black and white compared to the color Internet, but it was a start, and it gave us experience.

Q: Is that really the only reason you are ahead of American banks in using the Net?

A:

No. America is a check society. They use 69 billion checks per month. That's expensive. We put a big price on check payments a long time ago and that drove people to plastic, to ATMs, and to the Net. Secondly, Finland had a good gyro system for payments. In the U.S. and many other countries, there is a central clearing organization that controls such payments. But in Finland we didn't have such a central system, and that gave the banks each an incentive to innovate. Finally, Americans got excited about online brokerage. But in Finland, the banks are the biggest brokers. So we had a real chance.

Q: So the killer app was online bill payments?

A:

Yes. Bill paying was the killer app. It still is. People wanted to look at their account online, but above all they want to pay bills. In America, even many of the electronic-payment systems end up printing a check out and mailing it. We Finns were far ahead on that account.

Q: What lessons do you draw from your experience?

A:

First, start early. Second, use simple technological innovations. One password should suffice. Avoid extra software and hardware. Many banks forget this and go with complicated systems. Three, don't spent big money. Be evolutionary. You can achieve a lot with low spending. We spent only $18 million in Finland and won't spend much more in Sweden, Denmark, and Norway. Fourth, engage all your staff. All 37,000 Nordea employees should be selling Internet services. And fifth, connect your customers. Our electronic marketplace allows our corporate customers to reach our private customers. We serve as the middleman, and that's a profitable place to be, in the middle of all those transactions.

Q: How much money do you expect to save thanks to the Net?

A:

We predict 300 million euros in three years, half from reduced costs, half from extra revenues. People pay us nice subscriptions to use our Internet services. And we save a lot of money from reduced transactions. Our predictions could be low if new services such as mobile-phone banking take off.

Q: Do you think Finland and the rest of the Nordic region can keep its lead?

A:

I think we have an advantage with mobile phone. We thought we would be ahead with Interactive TV and went big into TV banking in 1998. But it didn't work. The PC is sit-forward, TV is sit-back. I think the mobile phone is sit-forward like the PC.

Admittedly, we only have 20,000 WAP mobile-phone customers. But it has been only a year since we introduced it. And I think that the mobile phones will improve. Their screens will get bigger. The connections will get faster. People will love the convenience. They will want to check their bank balances, their stock portfolios, buy and sell stocks, and they will want to make the occasional payment when they are on the move.

And I firmly believe with Nokia that Finland will continue to play a leading role in mobile phone technology. I was recently on the train from the airport in Stockholm and a group of teenage girls was in the same cabin. They all took out mobile phones, and all were Nokias -- in different colors. I was amazed. Those are our customers in the future.

Q: Is there a lesson here, too: perseverance?

A:

Yes, everything takes time. There are no fast takeoffs. Most products take five years before they take off. It was that way with foreign payments. It has been available for a while, but all of a sudden gone from almost 0% to 34% of all payments in the past year. That's astounding.

Q: How do you make money on the Net when you lower costs to attract customers?

A:

It's true. People pay $14 in a branch for a foreign payment and only $7 for an Internet one -- but our costs come down much more, so our margins are higher.

Q: What is your goal?

A:

To eliminate all paper transactions. We have taken millions of transactions away from the branches and onto the Net. We used to have 100% payments in branches. Now we only have 4%. But that's still 4% too many. We must take even more away from the branches.

Q: And what will happen to the branches?

A:

We have been cutting branches for a long time, partly thanks to mergers and now thanks to the Internet. Finland used to be overbranched. But now it is almost underbranched. The future is to change the way branches work. We are now opening tellerless branches in places such as shopping centers. The idea is to use the branch to sell and provide services, not to make transactions. The branch staff should add value for customers. It shouldn't do routine, uninspiring work. In fact, my goal is to end the stupid, manual routine work.

Q: Couldn't a pure e-bank or e-brokerage do this better than you?

A:

We haven't lost a significant amount of business to pure e-players. They may be cheaper than us. But an e-bank has no personal selling, no customer base, and it costs them a fortune to get each customer. I'm convinced people want the safety of branches, of a trusted relationship. Our vision is high-tech and high-touch. That will make us invulnerable to cyber-attacks. I believe traditional banks will play a central place in the e-economy. They have trust. They have established brand. Nobody today would try to build up an Amazon-type bank. It's just too expensive, and it doesn't work in our business.

Q: What services are you planning?

A:

I want to help companies eliminate the need to send out bills, and customers to find it easier to pay bills. My dream here is to defeat payables and receivables. Everything should be in electronic form. Already, we let some big companies such as the electricity and telephone company sends out e-bills, and customers just have to press O.K. if they agree, and it is paid. The company is happy because it saves on billing expenses and gets an interactive relationship to their customer. The customer is happier because it is easier than receiving regular mail. And we are happy because we charge a small fee for this service.

Q: And what about your own personal future?

A:

I love my job. Headhunters have been contacting me with offers, but I'm not interested. This job chose me. The deeper I go, the more interesting it becomes. I have been a banker for this bank for more than three decades -- and that's what I still want to be in five years' time or more.

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