Internet bankers near 60 million
Since the emergence of Internet banking services the convenience of online banking has encouraged millions of Europeans to bank online. In 2003 almost 60 million European consumers will bank online. This total has increased from just more than 23 million in 2000, reflecting a compound annual growth rate of 37%. Scandinavians are the most likely to bank online. In Sweden and Finland more than 4 people in every ten use Internet banking services.
Repositioning the Internet in the channel mix
As a banking channel the Internet has certainly experienced strong growth in customer uptake in the past few years. Yet despite this the Internet remains secondary to both branches and call centers as a business generator and in terms of customer usage. Banks are therefore in the process of repositioning the Internet within their multi-channel distribution strategy, a process that has been underway for at least the last 12 months.
Banks are, for example, increasingly realizing that the Internet is not suitable for all products and services or as a fully-fledged sales channel since there is currently no opportunity for personal interaction with a bank employee and because inputting information online can be difficult. On the other hand banks have realized that the Internet is a good channel for making simple transactions e.g. making payments, transferring funds and checking balances.
Internet banking launches were a characteristic of 2002
Although 2002 was not as eventful as 2001 in terms of the number of banks launched it was by no means without activity. Zurich Bank was one Internet bank that entered the market in 2002. The launch of the bank was accompanied by a high profile ‘flying pigs’ marketing campaign and by a promise to keep the bank’s deposit rate and overdraft rate at 0.5% and 5% respectively above the Bank of England base rate.
Despite being open less than a year, Zurich Bank was closed by its parent group, Zurich Financial Services, in October 2002. The closure was in part due to the failure of the bank to attract a large enough customer base, and because it exceeded cost expectations while being launched more than a year late.
Ultimately, however, the closure resulted from the difficulties being faced by Zurich Financial Services, which like other insurers, has been hit hard by the downturn in stock markets. At a time when Zurich Bank needed patience and financial support, Zurich Financial Services could offer the bank neither of these virtues.
Over ambition is a dangerous thing
The closure of Zurich Bank in addition to the closure of other Internet banks such as First-e and Redsafe highlights the danger of over-ambition in the Internet banking space. Setting realistic targets for customer acquisition, expansion plans and costing (or least having very deep pockets) is vital if the long-term health of an Internet bank is to be guaranteed and the reputation of Internet banking in general is to be protected.
The fact that over ambition contributed to the demise of Zurich Bank in much the same way it did First-e and other Internet banks more than 12 months earlier highlights how easy it is for those behind Internet banks to lose sight of realistic projections.
Account aggregation is bubbling under the service
2002 was scheduled to be a big year for account aggregation in Europe and a number of account aggregation launches did occur. For example, Egg launched Money Manager and has since attracted around 135,000 customers.
In February of this year Moneysupermarket.com finally launched its service ‘View My Accounts’. The service is innovative in the sense that it combines Moneysupermarket.com existing product aggregation tool with an account aggregation service informing a customer when a product in the market is better performing than one they already hold. Moneysupermarket.com must look to acquire partners for View My Accounts in order to increase its exposure.
Banks should exploit the popularity of online leisure
While online banking is popular, it is not as popular as using the Internet for leisure purposes. While 33.5% of German consumers who have accessed the Internet in the last 12 months bank online, 72% of German consumers who have accessed the Internet in the last 12 months have done so for entertainment purposes. Nearly 76% have done so to research products and services.
European banks should attempt to exploit the popularity of using the Internet for leisure purposes. Scandinavian bank, Nordea, is one bank that has already done this. It has partnered with Veikkaus (the Finnish National Lottery) to allow Finnish Internet banking customers to play a number of online games provided by Veikkaus via the OnNet Internet gaming platform. Customers do not need to register separately as an OnNet user, nor transfer money to an OnNet player account. Instead they can use their bank account to pay directly for gaming transactions and have monies won credited directly to that account.
Still room for improvement
In some areas Internet banking services have progressed a great deal over the last five or so years. Internet banking sites are now faster and more ‘slick’; they are better laid out, increasingly multi-functional and contain a greater amount of information. Yet many Internet banking services still show room for improvement. The initial enrollment process is one area where improvements can be made.
This is, after all, the first taste a consumer has of a bank’s more personalized Internet offering and so the process must be as quick and straightforward as the rest of the Internet banking experience aims to be. It is paradoxical that some banks still require customers enrolling in Internet banking services to do so using other channels. The fact that some tasks such as changing address details cannot always be completed entirely online is also a source of consumer aggravation which banks should seek to remedy.
European Internet bankers to surpass 84 million by 2007
Datamonitor believes that the number of European consumers banking online will continue to grow in coming years reaching 84 million by 2007. However, that success will not come easy for Internet banks or banks providing Internet services especially if they fail to adopt a two pronged strategy of getting the basics right and developing improved functionality.
Only this strategy will maintain the interest of an increasingly experienced and demanding Internet banking population while extracting maximum value from each and every Internet banker.
If you enjoyed this article, you may be interested in Datamonitor’s report, eBanking Strategies in Europe 2003, which explores how banks can fine tune their online distribution strategies.
