Some good advice Yahoo can bank on

'Yahoo
has the opportunity to pounce on and reshape the business, which is exactly the type of move it needs to make. And the online banking industry needs a brand name like Yahoo to enter the mix because online banks are still largely
invisible.'

Some good advice
Yahoo can bank on

Real opportunity is in online financial services

By Andy Wang

     New Yahoo CEO Terry Semel, a former Warner Bros. executive, is under a lot of pressure as he attempts to rejuvenate the internet portal.
     But while Semel is an entertainment industry veteran, a focus on entertainment is not the direction in which Semel should be taking Yahoo.
     What Semel needs to do is turn the company into a full-service financial services business.
     Yahoo already offers bill-paying services, and the next logical step is to become an online bank and also compete with PayPal to become the internet’s unofficial currency exchange.
     Electronic finance is really beginning to gain momentum, as evidenced by PayPal’s more than seven million users, and it’s time for Yahoo to use its brand name to grab a bigger piece of the market.
     One of the simplest ways for Yahoo to do this is by getting into the online banking business.
     Yahoo has the opportunity to pounce on and reshape the business, which is exactly the type of move it needs to make. And the online banking industry needs a brand name like Yahoo to enter the mix because online banks are still largely invisible.
     Despite the fact that online banks like NetBank and ETrade Bank are offering customers better interest rates and more favorable terms for accounts than their off-line counterparts, online banking still hasn’t really caught on.
     Most people still don’t seem secure taking their money out of brick-and-mortar banks, even though funds in online banks are also FDIC-insured and online banking customers often have to pay fewer and smaller fees to maintain accounts.
     It’s a matter of perception and trust, really. A company like NetBank simply isn’t enough of a brand name to inspire widespread customer confidence, even though the bank offers great terms for accounts.
     But Yahoo, of course, is enough of a brand name.
     In fact, among the nation’s youth, Yahoo is about as trusted a company as there is. According to a Forrester Research report released in October, consumers between the ages of 16 and 22 are more likely to trust Yahoo than Fidelity.
     So what’s Yahoo waiting for? Whether the company starts its own online bank, forms an alliance with one, buys one or partners with a banking giant like Chase, Citigroup or Fleet, it has a tremendous opportunity to be a one-stop shop for financial services online.
     At the very least, Yahoo could make a deal with ETrade Bank, especially considering that the companies share a major investor in Softbank.
     Given the uncertain state of online advertising, Yahoo clearly needs to find more revenue streams, and financial services is one of the most obvious and potentially lucrative options there is.
     Electronic finance is just getting started, and the industry should really pick up as young web users start making significantly more money.
     It seems only a matter of time before online banks take off. Right now, they remain one of the web’s best-kept secrets, but with the sorts of favorable deals offered by many online banks, consumers are bound to discover them in greater numbers sooner than later.
     Not long ago, e-commerce companies attracted consumers by giving consumers free items and ridiculous price breaks. Those days are over for online retailers, but online banks are still offering great deals.
     The difference here for consumers, of course, is that their money is being protected by the FDIC. That’s not a bad safety blanket.

-Andy Wang is the features editor of Gear and the founder of Ironminds.com

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