J.M. Pennings and F. Harianto (1992, p. 44) regarded Minitel as an astounding success. 2
It has been suggested that the French banks, because of their success with Minitel, are lagging behind their European competitors in the adoption of Internet banking. The argument is that the French banks invested too much effort on transposing their Minitel services to the Internet without investigating the possibilities of Internets higher interactivity than Minitel. From a commercial point of view the business model of Minitel was built on relatively high access charges which many French banks sought to impose on their Internet clients that were accustomed to the Internets spirit of cost free services. An inherent problem in the construction of distance banking is the importance of a high security level. The banks face two important problems: 1) that a non-authorised person enters the banks internal accounts, and 2) that one person can enter another persons account. To avoid these problems the banks have constructed different security systems. The banks have tried many different ways of protecting their internal system from unwanted infringements. One solution is that the bank decide to use an asynchronic system in which the client interacts with an intermediarys system. A draw-back with this system is that it cannot handle transactions in real time, for example share trading. Another solution is that the bank allows customer synchronic access to the internal bank system. In this case security checks are crucial to keep out unwanted visitors. The banks have tried many different security solutions as we will see in the two cases. As the telephone bank and the Internet bank have matured the security systems have become more sophisticated.

Research Issues

In this paper we aim at showing the factors that were critical in the adoption of an Internet bank at the Nordic bank Nordea and the French bank Socit Gnrale and to analyse the differences in the adoption of the new technology in the two banks. Both banks had previous experiences from distant banking over electronic media. Socit Gnrale had a telephone bank and a Minitel bank. Merita, the Finnish branch of Nordea, had a telephone bank and PC:s connected over the telephone network, and Nordbanken, the Swedish branch of Nordea, had only a telephone bank.

Theoretical Framework

The introduction of service innovations typically involves a reshuffling of tasks between providers and customers. Normann (1991) distinguishes between two types of innovations relieving and enabling. Relieving innovations are those where the consumer is relieved of
performing a certain task which can profitably be performed by a commercial provider. Ready-cooked meals are an example of a relieving innovation, increased service content of the food product relieving consumers of the need to perform much of the task of food preparation. Enabling innovations, on the other hand, provide the consumers with the tools and knowledge to perform the task themselves. Internet banking is a good example of an enabling innovation. By giving the bank clients access to their own accounts and to many financial services, the clients could take on tasks where they previously had needed the help of bank employees. Normann (1991) claims: A typical case (of enabling customers to perform the service/our comment) is the explosion of securitization in the financial markets. As business companies have increased their level of competence and their information about the markets, they have tended to issue securities on their own rather than go to the bank to get loans. To keep some of their business and the customer relationships, banks have often redefined their business, helping their customers to access the capital markets by selling them services and advice on how to do this. Enabling innovations inevitably involve consumers as co-producers, or prosumers, to use the term coined by Toffler (1980). Customer co-production is typically rationalised in terms of cost savings. Because the scope for productivity gains is relatively smaller in service industries than in manufacturing, it is argued that consumer involvement is an alternative way to lower the costs of service production. From the consumers point of view, they are able to save on the price by contribution some of their spare time to co-production. A typical example would be IKEA furniture or self-service stores. We would like to emphasise that customer co-production often entails an important value creation potential in addition to possible producer cost and consumer price savings. Such value creation may take place both from the consumers and the producers point of view. In the case of Internet banking, the cost savings come from reductions among teller personnel, and fewer bank branches. Some of these savings are passed on to Internet bank customers in the form of lower fees and better interest terms. In addition, consumer value is created in Internet banks by the ability of Internet banks to offer 24-hour banking, higher degree of privacy in banking, an increased sense of control and perhaps also positive feelings related to being a modern person. One example of how Internet banking can create value for the bank, is by allowing it to live up to institutional demands on what a modern bank should be. Providing Internet banking also builds up a customer base, experienced users who, if satisfied

with the service, can recruit and teach potential new users. Interaction with the first users, such as through problem-solving, also enables the bank to learn and improve its services. Figure 1: The New Cost-Benefit Equation of Internet Banking Producer Cost/price savings Value creation Personnel, offices, etc. Client Lower fees, lower interest rates, etc.
Image benefits, higher Flexibility, more privacy client retention, learning,
The creation of an Internet bank is a major undertaking for most banks. The banks are confronted with a new competitive situation in which the old cost advantages and customer relations are changing. But there exist opportunities for incumbents in such turbulent markets. They can for example use their historical market position to move to markets where the advantage is more sustainable. Companies slow to accept the inevitability that new technologies will force lower prices for basic information may find themselves losing market share rapidly on all fronts. Competitive advantages based on access to raw information are under siege; the trick is to migrate incumbency and scale advantages into value-added aspects of information, where advantage is more sustainable. (Shapiro and Varian, 1999) This sounds easy but in reality such shifts in strategy are cumbersome and difficult. To make such a move towards Internet banking a bank must commit itself to many substantial strategy changes: a) It must allow the customers to participate more actively in the carrying out of the bank service. b) It must question historical investments in bank branches and other interfaces with customers. c) It must learn to make new cost and revenue calculations.2 The weight of the investments in bank branches and the competencies of the bank personnel to manage service interactions face-to-face with clients compared with the completely new service delivery system of Internet banking: home banking and machine-to-machine interactions.
Tang (1988) discusses the problem of comparing the return on investment of an old technology protected by massive fixed investments and a new technology in which no investments have been made. 5
d) It also has to make decisions on the marketing of the Internet bank service, because the increased involvement of the customers in the banking services gives both a higher value added for the customers (faster and more certain service delivery) and lower marginal costs for the bank. This new equation (see figure one) opens avenues for entrants to attack the position of incumbents.3 In short the bank has to negotiate a transition from one technology to another under the threat that other banks will make this move faster and be successful in adopting the new technology thereby gaining a first-mover advantage. The bank is confronted with the threat of structural inertia inhibiting it from responding correctly to technological change structures of organizations have high inertia when the speed of reorganization is much lower than the rate at which environmental conditions change.(Hannan and Freeman, 1989, p. 70) Hannan and Freeman (1989, pp. 67-69) distinguish between internal and external pressures towards structural inertia. Internal sources are: a) investments in plant, equipment and specialized personnel, b) incomplete information, c) internal politics, and d) the organizations history. External sources are: a) legal and fiscal barriers, b) getting access to external information, and c) legitimacy constraints. In a discussion of inertia and industrial change Robertson and Langlois (1994) identify four sources of inertia: 1. Real or economic inertia, that depend on firms failure to adapt to changing demand levels, changes in factor endowments or relative prices. 2. Incompetence, managers are either too stupid or too idle to adopt new business practices. 3. Cognitive or informational problems, that can depend on lack of knowledge or inability to measure changes in competing systems and firms performances. 4. Cultural incompatibilities, for example a society or a business system that cherish other things than entrepreneurship and innovation. Another important source of inertia is according to many writers the firms own customers, see for example Christensens (1997) discussion of innovation.4 Since inertia can originate in different ways it is not possible to find one remedy for the problem. The other side of the coin is of course that inertia or friction is normally beneficial for a firm. Repeat buys from satisfied

We have a case in which an entrant could get an advantage both by a perceived benefit strategy or a lower cost strategy. (Besanko et al, 1999) 4 An opposite view holds that customers can in fact drive innovation (Thomke and von Hippel, 2002) 6
customers, successful technology adoption, and other impediments to imitation and barriers to entry are the cornerstones of a successful strategy. Inertia is often a product of successful adaptation to earlier innovations, as a firm develops ways of operating that appear to be so well suited to its internal and external environment that is sees no reason to change. (Robertson and Langlois, 1994)5 Although we acknowledge the positive aspects of inertia we will onwards in the discussion of the adoption of Internet banking regard it as a problem. The problem of implementing a strategy of change to enable an organisation to successfully adopt a major innovation can be regarded as: 1. A problem of timing. Learning and adjusting structure enhance the chance of survival only if the speed of response is commensurate with the temporal patterns of relevant environments. Indeed, the worst of all possible worlds is to change structure continually to find each time upon reorganization that the environment has already shifted to some new configuration that demands yet a different structure. (Hannan and Freeman, 1989, p. 70) But, an important threat to extant organisations is entrepreneurial organisations designed specifically to take advantage of some new set of opportunities. If the new competitors can grow faster than the extant organisations the greater is the relative inertia. (Hannan and Freeman, 1989, p. 71) In the case of technology innovation and adoption the firm wants to negotiate between the error of adopting too early or too late. In the first case the firm selects a design that becomes unsuccessful, in the second case the laggard will face an uphill battle against the first-mover who enter with a right design at the right time (Pennings and Harianto, 1992, pp. 44-45). 2. A problem of capabilities and resources, capacity to learn about and adapt to changing environments. Normally an organisations past provides it with the adequate set of capabilities and resources to handle technological change. But, radical innovations that question the core activities of the organisation demand changes in strategy. The need to respond to change in volatile environments can justify adoption of commercially doubtful technologies if these experiences can preserve and enhance an organisations competitive edge in building and acquiring new skills. (Pennings and Harianto, 1992, p. 45). 3. A problem of the construction of a transition path - path creation that includes the concurrent creation of a new technology or system and the gradual dismantling of old technologies. Drawing on the literature on technological lock-in we conjure that three

See also Hannan and Freeman (1989, p. 67). Nevertheless, we hold that selection processes tend to favor organizations whose core structures are difficult to change quickly. 7
problems are particularly difficult when an organisation seeks to create a transition path: a) co-ordination effects, how to move the installed base of customers to the new technology, b) learning effects, both internal in the organisation and among the customers, and c) specialised fixed investments in capital improvements.6 In Garud and Rappa (1994) one of the most important conclusions was that markets are unlikely to select out complex technologies that are difficult to evaluate. Independent institutions are therefore necessary to develop evaluation procedures. In the case of Internet banking issues such as security and consumer acceptance were of key importance in this regard. Before we move on to the cases and the analysis we would like to recapitulate the major points of interrogation from the theoretical discussion. Internet banking is an enabling innovation that results in both increased cost efficiency due to consumer co-production and value creation. When moving to Internet banking established banks are confronted with the problem of inertia. Internal in the form of investments in plant, equipment and specialised personnel; cognitive problems relating to incomplete or incorrect information; internal politics or cultural incompatibilities; and the organisations history. External in the form of legal and fiscal barriers; getting access to external information; legitimacy constraints in case of changes in the organisations mission; and the firms own customers. To achieve a change in strategy the bank can look for a mix of three changes in strategy: timing; its past history accumulated in capabilities, resources and competencies; and the identification of a transition path (path creation) from the old to the new technology.
Distance and Internet banking at Nordea
Nordea is the biggest bank in the Nordic region with 10 million private customers, 1.1 million corporate customers, 2.7 million private e-clients, 1260 branch offices and 40000 employees. Nordea is the result of the merger in 1996 of the Swedish bank Nordbanken and the Finnish bank Merita that later has merged with Kreditkassen in Norway and Unibank in Denmark. This case will focus on the building of an internet bank service at Nordbanken and Merita. These two banks had together more than 2 million netbank customers in December 2001 an increase with 25 % in 2001 from 2000. These customers made 53 million log-ons in 2001 and carried out 71 million internet payments. Nordea claims that it has the biggest electronic banking traffic, and the longest e-experience.

Arthur (1994) argued that co-ordination effects were easier to manage than specialised learning and specialised
Merita Distance banking started in 1982 in Merita with a telephone bank service. In 1984 Merita opened the possibility for its private customers to connect a PC over a telephone line to the banks payment system. The reason for this was that Meritas customers used a cumbersome system with payment machines installed in bank branches and in shopping centres. In 1984 very few persons had a PC at home but they had access to one at the office. Therefore Merita launched workplace banking in 1986-86. Merita approached their biggest client firms and suggested that they should allow their personnel to use the office PCs to connect to the bank service.7 The early start created a willingness at Merita to be a first-mover in electronic banking. In 1988 the bank started to offer equity dealing. In 1992 appeared a mobile telephone bank service. In 1996 the bank launched its Internet bank with a number of services: bank account balance, payments, bank transfers, equity dealing, and e-shopping. Two years later the bank added e-loans, e-billing and e-signatures. In 1999 it became possible to make foreign payments and for students to get there student loans. In 2000 came e-salary and the first WAP services. In parallel the bank added new distribution channels: telephone bank 1982, PC-connection in 1984, Internet in 1996, web-television in 1998, enhanced mobile services in 1999 and 2002. In all connections the customer used the same access method and the same access codes. As stated in a document (Nordea, 2002a) One service agreement covers all channels customers can use any device. The bank regarded the strategy of adding services, channels and access devices as a value adding strategy. The Internet bank business followed three stages: create the habit, interconnect the customers and customise and personalise. The bank regarded habit as a key resource. By allowing the customer to use habits learnt in earlier stages (telephone bank, PC connection etc.) it could with relatively low friction export customers to new banking services, new devices and public sector services.8 In early 2002 Nordea in Finland runs a substantial part of the total banking activity over Internet: 80 % of equity orders, 60 % of mutual funds, 45 % of student loans, 45 % of private
fixed investments in capital improvements, because the advantages of the other two factors are not reversible and not transferable to an alternative equilibrium. 7 Interview with Bo Harald 8 Interview Bo Harald 9
small payments, nearly 100 % of larger corporate payments, 29 % of consumer credits, 22 % of foreign exchange and 15 % of car financing.9 The next step at Nordea in Finland and in Sweden is to use the installed base of customers to create attractive market places with what Bo Harald calls critical sub-masses for the banks 1 million corporate customers. Nordbanken The 1980s was a decade with many mergers and acquisitions in the Swedish bank industry. Nordbanken emerged as the result of two merger steps. First Sundsvallsbanken merged with Upplandsbanken to become Nordbanken. This bank was a few years later merged with the former state owned bank PK-banken to form a bigger Nordbanken. Distance banking at Nordbanken started in 1988 with a project aiming at a complete telephone bank service. Before Nordbanken offered different types of distance banking: for example the possibility to pay bills through the Swedish banks giro system and a simple telephone bank where the customer could check his balance and the latest movements on the account. The origin of the telephone bank project was that many clients called their bank offices to ask questions. One problem with this was that the bank couldnt offer a full service since it was difficult to be certain about the identity of the caller and another problem was that calling customers were kept waiting because of too many incoming calls. The problem was particularly pressing in Stockholm where Bo Eriksson was appointed project manager of a project to solve the problem. He first designed a system with the help of the Swedish telecommunication operator Televerket that brought together 6 bank branches in central Stockholm to one switch. This solved the problem with the waiting but the customers still couldnt get an attractive bank service over the telephone. During study trips in the US two managers had looked at American telephone banks. These two inputs resulted in a decision 1988 to launch a project aiming at the creation of a complete telephone bank. The project was rapidly conducted under the direction of Bo Eriksson and a plan was put forward in 1989. The decision to launch the bank was difficult because the costs were considered to be high, in total 15-20 million Swedish Crowns. The costs were due to investments in switches, marketing and a new office in Uppsala 70 kilometres north of Stockholm.

The history of this is that the two Swedish state owned banks: Pk-banken and the post office after they started to co-operate used the personal number as the clients bank account number. 11
forecasted increases in the number of clients when they gave reports about the bank. Eventually the new bank service started to grow faster than the projections. The telephone bank was introduced at the same time as Sweden was in a severe financial crisis and Nordbanken faced big economic difficulties. When the telephone bank was questioned it got support from managers supervising the new activity. The telephone bank service improved gradually the first years. At the start the call centre operator had to ask the client for his name and account number. The security check proved that the client was a telephone bank customer. At the start the work environment was not fully computerised this was also the case in a normal bank branch. If a client wanted to buy or sell shares the call centre operator had to type the order on a type-writer. This type of problems created the insight that the telephone bank needed its own system to manage transactions and customers. When the bank developed such a system in 1992-93 it came to include items that we find in a market database or what we today call a customer-relationmanagement. The database included information on the mailings to the customer and if the customer had responded to these, the latest transactions, and the customers overall connections to the bank. When this type of system was developed at Nordbanken little expertise was available outside the organisation. Therefore Nordbanken developed the technique to connect a telephone operation with a customer database in-house. Competitive pressure from the Swedish bank rival SEB forced Nordbanken in 1992 to offer a 24 hour telephone bank service. In 1995 the telephone bank manager Bo Eriksson in co-operation with the information manager decided to move the telephone bank service to internet. They did this on their own initiative without any formal budget. They took some of the options from the telephone bank and created web pages for each option. The security level was not the highest possible. They kept the system with one time codes on a piece of paper. Nordbanken asked the Swedish Bank Inspection about the rules for internet banking and got the answer that the inspection had no objections since the internet service only covered transfers between own accounts. A demand for an increased security level came from within the organisation. It was the head of security with the support of internal accounting that demanded that the bank switched to a system with card readers connected to the PC. When the client wanted to connect to the Internet bank he should swipe the card through the card reader. According to the projections in early 1996 the card reader solution should become an industry standard in a couple of years. Contacts with Microsoft indicated that all PCs should be equipped with card readers in

1997-98. In the meantime Nordbanken offered its Internet bank customers that they could install a card reader with their home computer. In early 1996 Nordbanken had approximately 10-12000 internet customers. However, the card reader solution demanded three communication portals while a PC normally only has two communication portals. Despite these problems a high percentage of the internet customers were willing to install a PC card reader. Because of the lack of standardisation as regards PCs, softwares and browsers Nordbanken had to create a support service where the customers could call and ask about the installation of the card reader. The launch of the card reader system coincided with the take-off of internet banking in Sweden. Nordbanken got more customers but lost market shares in comparison with the competitors. It is estimated that the smart card solution delayed the bank 6-9 months. Together with the smart card Nordbanken presented a new improved Internet bank service. The web pages were better designed and the number of services increased. The solution to the problem with the card reader came from the merger with Merita that took place in 1996. The two banks combined their knowledge on Internet banking. The Finnish bank also used a system with one time codes but these codes had a higher level of security, as the codes came with seals. After discussions with the security organisation at Nordbanken it was agreed that the solution with one time codes gave a sufficiently high security level. On the other hand it was found that the Swedish bank had a better solution for the web pages and the commercial offer and these were used by Merita. After 1996 Nordbanken and Merita cooperated in the development of the Internet and distance bank, but the Finnish bank remained more advanced.
Distance and Internet banking at Socit Gnrale
The goal with this case is to reconstruct the evolution of distance banking and internet banking for private customers at Socit Gnrale. The bank is a European Bank Group. Its main activities are retail banking, capital management, and investment and financial banking. The retail banking was reinforced by the take-over of Crdit du Nord. In total Socit Gnrale has more than 12 million private clients and it is the leading retail bank in France, measured in turnover, number of bank branches (Socit Gnrale and Crdit du Nord have together 2600) as well as number of clients in France (7.5 million). The Socit Gnrale is also the bank that has the best image in France according to IPSOS.
In 2000 the bank became the first French bank to offer six different channels to access the bank from a distance: 1) telephone, 2) PC via Internet, 3) Minitel, 4) warnings over mobile phones, 5) WAP over mobile phones, and 6) interactive television. The number of customer contacts over distance banking contacts increased with 32 % from 70 million in 2000 to 95 million in 2001. The creation of Minitel banking France became in the early 1980s the first country to launch a tltel system. The French system was connected to a Vidotex network and it consisted of three principal components: the Minitel terminal, an access network with servers, and France Telecoms system Kiosque Tltel for payments. All the French banks utilised this system to provide certain types of information to their clients. In 1984-85 Socit Gnrale launched a test service that gave its clients the possibility to check the amount on their bank accounts. In 1987 the bank added the option to make transfers between the clients own bank accounts. In 1989 Socit Gnrale added a telephone bank service to the Minitel service. The bank used France Telecoms system audiotel to provide a 24 hour and seven day a week service for its customers. The audiotel included a kiosque audiotel which included in the users tariff the cost of communication and a payment to get access to the service. In 1989 the telephone server was administrated by another firm. This firm played the role of a distributor that supplied the interface between the bank and the clients and the corresponding technologies. The bank transmitted to the other firm the information about the clients accounts. At the same time the number of Minitel clients increased steadily and reached 120000 in 1990. This created bottle-necks in the server and Socit Gnrale decided to add new servers as the demand increased. Possibilities to expand the offer were discussed. In 1993 a meeting of chief executives decided not to offer stock market transactions because it was considered risky and that the clients could make mistakes. The platform BDT The affluence of Minitel clients and the bricolage structure of the Minitel product (duplication with 9 servers with different access modes: 3615LOG13615LOG9) resulted in a study on distance banking in the coming years. May a directors meeting declared that the ambition of Socit Gnrale was to be one of the leaders in terms of distance banking products and to meet the demands of its customers in this matter. According to a manager (Mr Bela) this was the time when people said: distance banking is a revolution and when

there existed a willingness to create the service, and make the investments. A result of the renewed interest in distance banking was the decision to launch a stock market option on the Minitel because the competitors offered it with success. In September 1994 a project team got the mission to develop a distance banking platform for the private customers this platform was called Banque DisTance (BDT). The team should: 1) remake the ergonomy of the Minitel, 2) add functions to the Minitel, for example payments to external accounts, stock market transactions, and consultation of the stock market, 3) change of access to vocal server, and 4) the creation of a telephone platform. The project group was rapidly moved to an organisational unit dedicated to distance banking directly connected to the group that managed the retail banking activity and organised customer relations. This gave it a relatively high degree of freedom. A manager (Mr Bela) explains: the banking world is a bit rigid, we had some sort of start-up spiritWe irritated everybodyEverybody was jealous of our position and the means we were given to work. In parallel a benchmark conducted by the information department resulted in a choice to use a new architecture called the technical platform BDT. It consists of a client-server architecture with accessibility 24 hours per day and seven days per week and a security system demanded by Socit Gnrales information system department. Start of Internet banking France Telecom opened its kiosque micro service in February 1995 a private transpac network that was accessible through the number 3601 and a PC with a modem. In 1995 there existed many different networks that enabled firms and private persons to get connected on the Internet: e-world, compuserve etc. In this competitive environment some of ours [Socit Gnrales] competitors started moreover to utilise this new technology and tested already PCs Socit Gnrale had to position itself in the micro informatics offerOur competitors advanced and it is necessary to maintain a dynamic brand image.11 In March 1995 the BDT team presented a document in which they stated that the kiosque micro offer was the most attractive choice because of its billing system, its openness towards other networks and its flexibility. In addition France Telecom promised that the system in the near future would accept telecharging of softwares.

Socit Gnrale, 1995 15

In November 1995 Socit Gnrale envisaged to install a WEB server. At this stage most of the French banks had a WEB server, but no bank offered an Internet bank service. Some banks showed their annual report while others also offered information about their services including answering questions from the clients. To enhance its image in new technologies Socit Gnrale decided to offer its clients a selection of information on the Internet. In December 1995 Socit Gnrale bought a server and placed it at an intermediary to avoid all contact between the banks information system and the server. The intermediary had as a mission to configurate the server, to design the web pages, and to adapt them to an Internet environment. At the same time the BDT team suggested in a document that in the future when Internet will be used as a distance banking service it should be integrated with Socit Gnrales system. But before that could happen all the security issues, for example coding, should be resolved. In March 1996 the project to develop a platform run into budgetary problems. This problem was resolved during a budgetary meeting during which priorities were made and a decision made on a more formalised budget. In May 1996 the BDT team presented a document, after meetings since March 1995 and customer research, with the functions that they thought were necessary to get an attractive PC banking service based on the kiosque micro. A manager (Mr Frna) in charge recollected in an interview: we get a service with the same functionalities as Minitel. It offers consultation, transfers, and stock transactions. We get it on PC, with an Internet technology. In July 1996 a report Information on Internet products was elaborated by the BDT team to realise the Internet project. The work on the Internet project was different from the kiosque micro over a private network although the goals of the projects were similar. The report envisaged a connection between the Internet project and the kiosque micro. the web pages with information about the services for the Internet will be reutilised for the PC version of the Minitel service because of the ergonomic proximity (both used PC as a means of connection) Nevertheless, the form will be adapted to the Videotex technology12. The information on the different services offered by the bank was planned to become identical. The Internet service appeared in January 1997 with general information accessible to everyone. September a board of directors discussed the developments of distance banking. The future of Minitel compared with other existing services was recalled. It was considered

Socit Gnrale, 1997 18

June 2000 Socit Gnrale announced eternal cost free Internet banking connection. However, the clients have to pay for many types of services, for example stock market operations, payment of bills, and automatic payments. When the second Internet service arrived Socit Gnrale had adopted a new strategy towards direct banking. A new division within the distribution division called SGdiffusion got in charge of distance banking. It was decided that distance banking was to be regarded as a channel comparable to a bank branch. This change also meant that the BDT team lost its independence and the members were moved to different sections within the distribution division. Less than a year later the distant banking concept was abandoned and replaced by the notion of a multi-channel structure. The Internet banking service expanded rapidly and towards the end of 2000 Socit Gnrale had 200000 Internet customers. The plans to change the Internet bank to a synchronic system have step by step moved further into the future. A shift is now planned to take place in 2005 and the costs are estimated to 250 million Euros.

Discussion

When the Internet bank appeared the banks had reached from 3-5 per cent of their customers with distance banking. Nordbanken had only a telephone bank. Merita run a telephone bank and home or office banking using PCs connected over the telephone network Socit Gnrale had a Minitel and telephone bank. Nordea is today considered to be a world leader in Internet banking while Socit Gnrale is considered to be a market leader in the French market. Both banks have been able to capture significant market shares in the Internet market. The adoption of the multi-channel strategy seems effectively to have blocked the advance of start-up Internet banks and traders. But important differences are evident if we look at the two banks. Merita has already moved a significant part of the transactions to Internet, while Socit Gnrale is still working on moving its customers to Internet. Nordea is working on creating new markets and new channels while Socit Gnrale still has to make the transition to synchronic Internet banking. One question that has been the object of very much debate, is the relative advantages of the so-called pure-play retailers (Internet retailing only, e.g. Amazon) versus the clicks-andmortar (established retailers moving into Internet sales, e.g. Barnes & Noble). The issue was whether the strength in the new Internet technology of the pureplays that were designed

charges per minute in the Minitel bank. Nordbanken was captured for some time in a type of cognitive inertia when the security organisation demanded a very high level of security. We can note that the two banks aimed at two different strategies when they adopted the Internet bank. Socit Gnrale wanted to charge the customers because of the increased value added. This is logical in view of their past sucess with the Minitel. Nordea, on the other hand, regarded the Internet service from a cost perspective and therefore decided not to charge the customers. Nordeas strategy is based on the experiences of both Nordbanken and Merita. The Merita bank had the most evident path creation strategy. It consciously used the idea of customer habit as an institution (norm) to move customers to the Internet bank. The cost-focus of Nordbanken can be traced to their telephone bank first being started mainly as a way to divert costly balance-questions away from the branch offices. As other services were added, the value creation for both bank and customers has become evident, but the cost focus has remained guiding. Together these backgrounds led Nordea to the adopt a high-growth, rapid penetration strategy which ultimately resulted in its present leadership position.

References

Arthur, W.B., 1994, Positive feedbacks in the Economy, chapter 1 in Increasing Returns and Pathdependence in the Economy, The University of Michigan Press Besanko, D., Dranove, D, and Shanley, M., 1999, Economics of Strategy, 2nd ed., Wiley Dixit, A. K. and Nalebuff, B. J., 1991, Thinking Strategically, Norton Christensen, C.M., 1997, The Innovators Dilemma, Harvard Business School Press Garud, R., and M.A. Rappa, 1994, A Socio-cognitive Model of Technology Evolution: The Case of Cochlear Implants, Organization Science, 5: 344-362 Hannan, M.T. and J. Freeman, 1989, Qrganizational Ecology, Harvard University Press Lovelock, C.H. and Young, R.F., 1979, Look to consumers to increase productivity, Harvard Business Review, May-June Normann, R., 1991, Service Management. Strategy and Leadership in Service Business, 2nd ed., Wiley Pennings, J.M. and F. Harianto, 1992, The Diffusion of Technological Innovation in the Commercial Banking Industry, Strategic Management Journal, 13: pp. 29-46 Robertson, P.L. and R.N. Langlois, 1994, Institutions, Inertia and Changing Industrial Leadership, Industrial and Corporate Change, 3: pp. 359-378 Shapiro, C. and H.R. 1999, Varian, Information Rules, Harvard Business School Press Tang, M.-J., 1988, An Economic perspective on Escalating Commitment, Strategic Management Journal, 9: pp. 79-92 Thomke, S. and E. von Hippel, 2002, Customers as Innovators. A New Way to Create Value, Harvard Business Review, April pp. 74-81 Toffler, A., 1980, The Third Wave, New York, Collins. Wright, M. and Howcroft, B., 1995, Bank Marketing, in Ennew, C., Watkins, T., and Wright, M. (eds.), 1995, Marketing Financial Services, 2nd ed., Butterworth Heinemann, pp. 212-235

Documents from Socit Gnrale
Socit Gnrale, 1995 (March), La banque sur micro-ordinateur, document de travail Socit Gnrale, 1996a (July), Information produit sur Internet, cahier des charges Socit Gnrale, 1996b (25 October), Projet banque distance sur micro Clientle des particuliers, Dossier de synthse Socit Gnrale, 1997 (21 October), Compte rendu comit projet BDT

Documents from Nordea

Nordea, 2002a (22 February), From e-banking to e-business, presentation by Bo Harald Nordea, 2002b (7 March), Will Money Talk, presentation by Bo Harald
Interviews at Socit Gnrale
Mr Bela, 28 July 2000 Mr Frna, 27 July 2000

Interviews at Nordea

Mr Bo Eriksson, Head of Private Retail Banking at Nordbanken, 7 March 2002 Mr Bo Harald, Executive vice President Nordea, 6 March 2002 Mr Kurt Gustavsson, Head of the Telephone and Internet Bank at Nordbanken, 25 January 2002

1 THE MINITEL AND FRANCES LEGACY OF DEMOCRATIC INFORMATION ACCESS IN THE AGE OF THE INTERNET H. L. Moulaison
Abstract: Although the Minitel is relic in the world of online information technology, there is more to this outdated machine than the history of its failure. The Minitel grew out of a French tradition of information transfer and was uniquely suited to serve its target population. Competition provided by the Internet has been stiff, but the Minitel staved it off through the turn of the millennium. Indeed, the French cannot be blamed for keeping hold of their Minitels as long as possible, as the Minitel came to be not only the homegrown purveyor of democratic access to information, but also a symbol of national pride. Now, as France moves with the rest of the world to embrace the Internet, it is not without a certain sense of deja vu.
The Minitel and Frances Legacy of Democratic Information Access in the Age of the Internet
With the relatively recent rise of the Internet, Anglo-American writers have understandably turned their attention toward the new and exciting possibilities that this online system represents. At the same time, there has been less interest in Frances Minitel, the worlds first popular online system. Based on the fact that the Minitel is now widely considered to be a failure, both in France and abroad, one finds a host of condescending comments these days and, not surprisingly, not much that is positive. However, there is more to the story of the
Citation: Moulaison, H. L. (2004). The Minitel and France's legacy of democratic information access. Government Information Quarterly, 21(1), 99-107.
2 Minitel than the smug announcement of its demise. The Minitel was in its heyday a valuable tool, one that has left its mark on Frances information sector and on French society at large, and one that has created expectations in the minds of the French concerning the value of an online information system. Indeed, from our vantage point in the first part of the twenty-first century, now is the perfect time to explore the implications of the Minitel on Frances information and communication culture.
French Society and Information Technology: A Brief Overview France, as a country, has long been proud if its penchant for transferring information and for its capacity to embrace this new technology to these ends. A document issued by the French Embassy proclaims that, as far back as 1470, King Louis XI of France invented the first system of mail dispatch using horses. King Henri IV later democratized this system by making it available to the people of the country [1]. By the mid nineteenth century, Parisian businesses had adapted all too well to the efficient new means of transmitting information afforded by the telegraph. According to the French post office, La Poste, once the telegraph system was no longer sufficient to satisfy the information transfer demand, the French took the situation in hand and installed a system of pneumatic tubes that used bursts of air to propel actual letters under the streets of Paris. This pneumatic tube system of information transfer became operational in the 1860s and was hugely successful [2]. Although the pneumatic technology was borrowed from the British, the French were quick to implement it and to make a success of its use [3]. These tubes transferred information both quickly and efficiently, and were of overwhelming importance to the information transfer industry. One aspect of the tubes that

3 Anglophones might have difficulty appreciating is the importance of the handwritten letter that it delivers. A sort of valuable human contact is implicit when one takes the time to handwrite a letter. Despite their taste for technology, the French as a people are extremely concerned with the personal aspects of communication. I distinctly remember a grandfatherly French friend of mine telling me about the good old days. This gentleman had been employed as a professor of English at a French university and was often involved in choosing candidates for university-sponsored programs. He enjoyed reading the hand-written applications of the candidates and became, in his own words, a bit of a handwriting analysis expert in the process. In the case that two candidates were equally qualified, he would arrive at a decision by selecting the candidate with the more promising penmanship. Even in the present day, vestiges of this appreciation for handwritten items are to be found in the public sector. Although discussions of culture and generalizations about a people are always complex, some concepts are taken for granted. For example, it is widely understood that French businesses prefer communications with clients and with each other by means of handwritten letters to typewritten ones. As well, if the typical Frenchman needs information, he prefers to ask someone face-to-face [4, p. 113]. In fact, in her chapter devoted to the telephone, Carroll gives examples of this attitude regarding the home or office telephone and discusses common French reactions to the American perception of the usefulness of the device. One particularly interesting statement involves information-seeking at a place of business: Several French people have admitted to not having confidence in information obtained by telephone because they had learned from experience that a response over the phone commits no one [4, p. 90] Carroll suggests that going directly to the information source is the most typical French solution. By analogy, I would like to suggest that, in the case of business communication, a hand-written letter has long been the preferred
4 means of contact because it engages and commits the author in a similar fashion. A typed letter is impersonal and the quality of its contents dubious at best, as no one was required to invest him or herself in its creation. The Parisian pneumatic tube network, a means of transferring these precious handwritten letters, managed to survive long past the invention of the telephone or even of the computer. Information transfer via tube was obsolete by the time the information society began, but the tubes themselves were not completely retired from service until 1984 [2]. Another system devised to aid in the transfer of information surfaced in France during the last year of the pneumatic tubes existence: this system also allowed for a certain degree of uniqueness to the correspondence as it was a system of French design and was marketed under the name Minitel.

The Minitel: An Early Online Success Story In the tradition of the pneumatic tubes, Frances second highly successful and high-tech form of information transfer came into being to serve an information need, and this one during the computer age. The teletex system that allowed for online communication came to be marketed under the name Minitel in the early 1980s [5]. The Minitel began as a small, rectangular box with a screen on the end that served as a miniature text-interface monitor. The user interacted with the Minitel through a small albeit awkward keyboard situated under the screen. For those who acquired the technology, the magic of the Minitel allowed them to use online services and even to make secure online purchases [5]. Like the telephone, the Minitel quickly proved to be user-friendly enough to outweigh the lack of a personal touch discussed in the previous section. The elaborate gadget gained in popularity in part due to the fact that the French government indirectly had a monopoly on
5 both the telephone service and the Minitel service. At the time, the government had possession of the phone utility France Telecom, and France Telecom was the sole distributor of both telephone and Minitel services. Payment for both was streamlined and charges incurred from the purchase of online services were itemized on the regular telephone bill [5]. The Telecom oversaw the details of operation, and ease of use was a top priority, although painfully slow by todays standards, the interface was easy to navigate. Some of the services that were offered were financial, some were entertainment-based. The Minitel appealed to both businesses and to individuals; anyone who had a telephone line could benefit. By the mid-1990s, although it did not hesitate to enumerate its shortcomings, The Economist proclaimed that the Minitel was a part of everyday life in France [6] Over the course of the following decade, France Telecom did its best to continue the promotion of the Minitel. France Telecoms concern for the well-being of the Minitel was not exactly philanthropic, as it kept a full fifty percent of the money collected for the Minitels online services [7]. Well into the mid 1990s, and the age of the Internet, the Minitel remained an aspect of everyday life in France. Jones tells us that by 1997, six million consumers and three million businesses bought more than a billion dollars worth of goods and services on the Minitel, or more than ten times the income from Internet commerce in Germany and in the UK in 1998 [7].

The Internet as an Unfriendly Information Source in France At a glance, it seems incongruous that the Minitel could win out so handily over the Internet in the latter half of the 1990s when the Internet was doing so well in America and was catching on in Europe. The French, as we saw as far back as the 1800s with the adoption of the pneumatic tubes, are traditionally a people who embrace new technologies. These new
6 technologies, however, must provide a worthwhile service and be culturally compatible in order to be readily accepted. The communication advantages that were present for the French with the pneumatic tubes and with the Minitel were lacking with the Internet. After all, the Internet sprang forth from American roots, and this entire system of online communications grew out of an economic climate unique to America. Many of the underlying differences resided in the cost of a phone call and the competition that regulated prices. Of benefit to the Internets American growth was the fact that the United States national telephone company monopoly had already been dissolved prior to the widespread use of online communications. The American Telephone and Telegraph Company had been taken to court by the Department of Justice in 1974. By 1982, AT&T was divested of its local services; the Regional Bell Operating Companies were created in 1984 as replacements [8]. Dial-up connections to the Internet were not a concern to consumers for a full ten years after the upheaval; competition had been fostered by the time the American public tried to get its PCs online from home. Conversely, France Telecom was a possession of the government and the purveyor of the telephone service monopoly throughout the first fifteen years or so of the Minitels existence [9]. The phone rates that France Telecom offered, considered high for the average customers informal phone conversations, were in no uncertain terms prohibitive for most customers wishing to establish dial-up connections for a computer. By the end of the 1990s, the French were beginning to realize that the future of information dissemination, especially on a global scale, hinged on the adoption of the Internet. Lionel Jospin, then French Prime Minister, was reported by Businessweek to have admitted in 1997 that the Minitel was slowing the growth of technology in France [10]. In an effort to make up for lost Internet time, the French government agreed to the partial
7 privatization of France Telecom, but only after intense political scrutiny. The process was begun by in 1996 when France Telecom became a corporation in the French sense (a socit anonyme), but it was only opened up to having its shares traded on the stock exchange in October 1997 [9]. After the privatization, one of the on-ramps to the information superhighway became more accessible, almost as accessible as it had been to Americans up until that time. Accordingly, during the calendar year immediately following the privatization, from 1998 to 1999, France Telecom alone estimated fifty percent more subscribers to its Internet service Wanadoo [11]. Not coincidently, it was during this era of the telecommunications market changes that France saw a rise in the sale of computers, a commodity that is relatively expensive when compared to the prices that Americans pay for comparable equipment. While the French were getting online in 1998, they were also buying large numbers of PCs for the first time. The Canadian Department of Foreign Affairs and International Trade confirmed that Computer sales (in France) increased by twenty-two percent in 1998, the second fastest growth rate in Europe behind England at twenty-four percent. This was the first time that more than a million PCs were sold in France. In the first quarter of 1999, sales of PCs increased by thirty percent over the same quarter in 1998 [12]. Even after the privatization of France Telecom and individuals attempts at outfitting their homes and businesses with the appropriate means for accessing the Internet, France as a whole was still reluctant to give up the Minitel in order to embrace fully the age of the Internet. Gerard Poirot feels that Frances hesitancy was due to the fact that the Minitel became such a dismal failure so quickly and after so much investment and that people were unwilling to invest too much of themselves in system that would be obsolete in a matter of

8 years [13]. In a 1995 article, he describes the extent to which the financial impact of a large Minitel push is still being felt. Despite the profits that France Telecom generated from Minitel use, FT now admits that Minitel's break-even mark is well beyond the 2000 AD horizon and refuses point blank to speculate on just when the service might move into profit [13]. Financial difficulties notwithstanding, the Minitel remains a contender in the world of information access. At least, it does for the moment. The presence of the nouvelle gnration i-Minitel at http://www.i-minitel.com/ is proof.
The Fundamentally Democratic Worth of the Minitel Through the late 1990s into the new millennium, the continued adherence to an outmoded system of information went beyond a fear of new technologies and a dislike of outside influences. In fact, it lay in the intrinsic worth that the Minitel came to have in the eyes of the French people: it engendered a sense of national pride because of its cleverness and ease of use. It came to symbolize homegrown ingenuity. The French were not actively rejecting the Internet as a means of information transfer, a foreign information entity shaped for an American audience by its American creators, instead, they hesitated to snub a technology that a large number of their own people find useful and simple to access, one that was shaped to reflect their unique culture. It is worthwhile to note that the Minitel made its appearance as the information society that had been set in motion after the Second World War was looming large on the Englishdominated information horizon, and it was a bright spot on that horizon. On my first trip to France in the early 1990s, I was proudly shown one familys Minitel terminal. Quite a bit of
9 nationalistic pride was evident in the young mothers voice as she showed me the contraption and reminded me knowingly that we did not have such a thing in America. Bender argues in his article Transborder Data Flow that culture is impacted by the globalization of information sources [14]. He is certainly not alone in suggesting that cultural imperialism is impacting certain countries. The average Frenchman tends to want to fight this encroaching perceived danger and to protect his way of life. In combating the approaching cultural menace, the French came to value even more their new system. While the rest of the world plugged away with telephones and faxes in the late 1980s, the French had excelled beyond these contraptions in creating cutting-edge technology, made by the French, for the French. In a county where a group of intellectuals has been nominated to an Acadmie to oversee the national language since 1635, the appeal of French-language information should not be underestimated. Although educated people in France are more and more likely to speak English, it is still of fundamental importance that information sources be accessible on a wide scale; virtually everyone born in France can access information written in the French language, thus information in French is democratic. The French literacy rate is one of the highest in the world at ninety-nine percent [15], and the technology-savvy businessperson along with the most unsophisticated country-dweller could access information by means of the Minitel if he simply had access to a phone line and a Minitel terminal. The argument for the value of democratic access to French information is an integral part of the rationale behind the famous and frequently mocked Toubon law of 1994 [16]. Seemingly arrogant from an outsiders perspective, the Toubon law (although rarely respected and not enforced) attempts, among other things, to keep French information in the French language and to exclude information in English. The value of the Minitel, a resource that

10 democratizes information in a country where socialism dominates politics, shows itself in that it is indeed a tool that is engineered for that very specific society. The Minitel in many ways seems to be the very embodiment of the French motto of Libert, galit, Fraternit. Campaigns to get the French using the Minitel were aimed at democratizing information access, something that the Internet was never meant to do in France. Moreover, the Internet proved to be elitist. Prohibitive requirements included not only a phone line, but also an ISP, the necessary hardware including a fast computer and a modem, and the knowledge to coordinate the operation. Though the French rely more and more on the Internet, they have not entirely turned their backs on the Minitel. In an article written two years into the new millennium, Michael Pastore explains: Minitel users still outnumber all other forms of online access, Forrester's Technographics report found. Some fifteen million French consumers (thirty-three percent of the nation) still use Minitel. But French consumers are accessing the Web via PCs in large numbers, and although the Minitel system will not disappear from French homes, its role will be reduced [18]. As time goes on, even though the French are making more purchases via Internet than through Minitel [19], they are hanging on to their terminals. In fact, the percentage of Minitel terminal owners has not changed since 1995 when one third of the French had terminals [6].
Conclusion Regardless of the successes or failures that will come with the widespread adoption of Internet in France, the Minitel has clearly run its course. The Internet will come to have more resources tailored to the French; more are certainly added on a daily basis and the French as a people are getting increasingly comfortable with Internet technology. Also in the realm of
11 technology, according to a paper by Gunnar Trumbull of the Harvard Business School, the heretofore unheard of number of tech start-ups in France are actually helping the unemployment situation and changing the way the French approach innovation [19]. Where does this progress leave the Minitel? As excitement is generated by the new Internet culture and as new technologies come under state protection, I believe that the Minitel will quietly fade into oblivion, a noble old creature whose time has clearly passed, but whose worth and one-time prominence will not soon be forgotten. Like the great romantic poets or the conquests of Napolon, the Minitel is a vivid reminder of a certain point in French history when the French were superior to their neighbors in a given domain, a time that has come and gone. As French interests are distracted by other ventures such as making up for lost time in terms of technology, the French will eventually move on from their great contribution to the latter half of the twentieth century. Or, perhaps as with the pneumatic tubes, the Minitel will not be completely retired until a clearly superior, homegrown innovation is created to replace it.

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