Bank Leads by a Click Over Mortar

The offices of Merita-Nordbanken in Helsinki are like a blast from the past. The ornate banking hall, with its rose marble columns and gilded cornices, seems like a throwback to the 19th century, when the Czar of Russia still ruled Finland. It's the kind of place where you would expect to see tellers wearing green eyeshades and garters on their sleeves.

But don't be fooled by appearances. Despite the historic architecture, Merita has become one of the world's most advanced banks, using the Internet and mobile phones to conduct most of its business. Some 1.2 million of Merita's customers, more than any bank in the world, use the Web to bank, while only 6% of its transactions are processed through a traditional branch. What's more, Merita has taken the lead in allowing its customers to bank over mobile phones. In March, for example, the bank received over 240,000 account inquiries by messages transmitted over cell phones.

Call it clicks and mouse meets bricks and mortar. Merita already controls about 40% of Finland's banking market, so a merger with another bank to cut costs was out of the question on antitrust grounds. Instead, Merita has embarked on a two-pronged strategy for growth: use mobile and Internet technology to cut overhead and become Europe's most aggressive bank in expanding across borders. In April it completed a merger with Denmark's Unidanmark, complementing its 1997 merger with Sweden's Nordbanken. The deals have already made Merita the largest bank in the Nordic region. Although still relatively small by European standards, cross-border banking mergers are extremely rare in Europe, yet Merita has now managed to carry out two in just three years. It has made an offer for a Norwegian bank, too.

"We see ourselves as a pan-Nordic bank with a very powerful distribution network," says Vesa Vainio, who took over last month as chairman of the three-nation bank. The idea is to serve customers in all three banks using basically the same computer platform, achieving synergies by reducing the amount per customer needed for investments in technology. Vainio says the bank expects to save $200 million a year by reinventing itself as a high-tech universal bank offering everything from mortgages to insurance.

The investment seems to be paying off. In the first quarter of the year, profits were up 26% compared to the same period in 1999. What's more, return on equity, an important valuation tool for comparing banks, was 23.1% in the first quarter, compared with a European average of around 18%. "I'm very optimistic about Merita," says Jacob Nyman, a banking analyst at Evli Securities in Helsinki. "The traditional banking operations are not that important; it's the Internet that makes Merita the best of the Nordic banks."

Bo Harald, Merita's executive vice president in charge of technology, estimates that an Internet transaction costs the bank only 11, a tenth the cost of a local branch transaction. And every month, customers make 4.1 million bill payments over the Internet. The migration to the Net also allowed Merita to close two-thirds of its bricks and mortar branches, resulting in huge savings.

The bank is still in the early stages of implementing its mobile phone strategy. While in the past customers relied on cumbersome short-messaging services a technology that transmits brief text messages through mobile phones to get account information, they can now use the cutting edge Wireless Application Protocol (WAP) browsers built into the latest generation of phones. Although business is still limited to about 10,000 transactions a month, Harald says that's mostly because it's been so hard for customers to find wap phones. But those who have them can check account balances, pay bills, transfer money and even buy shares on the Finnish stock market all with their mobile phone. And more is on the way. Merita has been so successful rolling out new services that banks from as far away as Canada regularly send executives over to observe how it is using the technology.

One service already attracting a lot of attention is a pilot project between Merita, the Finnish cell phone-maker Nokia and Visa International, the credit card company. Nokia will soon have available in Finland special cell phones that contain two chips: one for the normal mobile GSM telephone and one from Visa. The phone will then become not just a communications device but a payment device: hold it near a cash register in a shop, for example, and simply push a button to pay a bill rather than having a clerk swipe a credit card. The digital mobile phone can replace the customer's signature as well. The service seems likely to be a hit in a country where 65% of the people already own a mobile.

Another success for Merita has been its Solo payment system. Surveys have shown that consumer fears about Internet security have slowed the development of e-commerce in Europe. With Solo, Merita customers can pay for goods over the Internet using their bank accounts and special encrypted transaction codes issued by the bank that prevent hackers from stealing credit card information. With all those

Internet customers visiting its site each day, Merita realized it had a captive audience. So it set up the Solo Mall, where bank customers can shop in dozens of online stores.

Perhaps Merita's greatest accomplishment so far has been in getting customers to pay for all these services, which some foreign banks are giving away to encourage Web use. "The customer doesn't realize its value if you don't charge," says Harald. Basic Internet bank accounts costs 70 a month and mobile phone calls cost 40 each. That may not sound like much, but when you have 6 million customers regularly accessing their accounts, those little fees really begin to add up. It wouldn't be a surprise if the Nordic champion suddenly turned up elsewhere in Europe. After all, it's now just a click away.