When William Harrison Jr. took the reins at Chase Manhattan in June, he had a tough act to follow. Under Walter Shipley, Chase had grown via a feast of mergers into a financial giant with double-digit revenue growth.
Harrison found his solution in the Internet. Weeks after taking over, he issued a memo that startled many at the bank: Effective immediately, Harrison was creating Chase.com, an attempt to fix the bank's slow efforts to capitalize on the Net.
Eight months in, Chase.com has grown to 100 employees. While a mere fraction of the company's 73,000-person staff, the dot-com unit is shaking up the 200-year-old bank. Chase has big plans for Chase.com: It sank $135 million into the site in 1999 and will invest another $250 million this year.
The investment seems to be paying off. In the short time since Harrison created Chase.com, the still-nascent unit has earned respect throughout the bank. Should it take root, the venture will not only help Chase meld its commercial and investment banking while shifting both online, but also pull off what bigger rivals Citibank and Bank of America have failed to: a vision of online banking that relates to both consumers and companies in innovative ways.
The dot-com division is the newest prong in Chase's overall Internet strategy. The bank has been using its private equity arm, Chase Capital Partners, to invest in about 100 dot-coms, including StarMedia and Stamps.com. Chase benefits from its relationship with Flatiron Partners, a New York VC firm that got its start with money from Chase Capital. [Chase Capital and Flatiron Partners are also investors in The Industry Standard.] Chase H&Q, created through the December acquisition of San Francisco investment bank Hambrecht & Quist, allows the company to research and underwrite technology offerings.
With the help of these other units, Chase Manhattan has in effect formed Chase.com as an incubator to drive its Internet strategies for financial services.
"We may be an old, legacy company," says Joseph Sponholz, who spearheaded Chase.com as vice chairman of the bank. "But we've shown that legacy companies can create excitement in the new economy."
Bringing banking into the Internet Economy is no small task. Years ago, Bill Gates called the banking industry a dinosaur, and the epithet still rings in bankers' ears. Banks have been bogged down in bureaucracy, fearful of risky investments and wary of partnerships. Despite its early start, Citigroup has floundered. So far, no one bank can claim ownership of the financial-services market, analysts say.
Small surprise that online banking has been slow to catch on. Whereas online trading accounts grew 53 percent in the 12 months through July 1999, online banking accounts grew a mere 2 percent, according to market research firm CyberCitizen Finance.
But things are finally changing: After a round of record mergers, institutions like Citigroup, Bank of America and Wells Fargo have spent the last year trying to bring new stores of wares to the Web.
