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Internet Banking - US Research |
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Delivery of financial services over
the Internet is, at least in theory, a potential killer application.
Customers benefit from convenience, access to valuable information
such as stock prices, and a wealth of value-added services.
Banks benefit from a cost per transaction that is a fraction
of the cost of more traditional delivery channels. Not surprisingly
therefore, many banks have launched Internet banking services
(such as Nationwide, Royal Bank of Scotland, and the Co-operative
Bank in the UK), and, according to a survey by Booz.Allen, most
plan some sort of service in the near future. So
how many people use Internet banking? What sort of people
are they? And what marketing approach will attract the most
users? Recent research from SRI's
Consumer
Financial Decisions (CFD) programme throws an interesting
light on these questions for US consumers. On the fairly safe
assumption that what happens in the US tends to happen soon
after in the UK, British banks planning their Internet strategies
should take notice.
The SRI research is based on a large,
regular survey of US financial consumers, combined with a
sophisticated methodology which enables fairly reliable prediction
of potential as well as actual users of home based financial
services (on-line banking and investment). As shown below,
the actual number of users has grown rapidly over the last
two years to about 15% of US households. But at the same time
the number of potential users has also grown – in fact
the gap between the two has stayed fairly constant.
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| Millions of US Households
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1996 |
1998 |
| Actual Users |
6M |
17M
(15%) |
| Potential Users |
11M |
27M
(24%) |
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Although the penetration is still
quite small, the customer base is highly attractive in banking
terms – on-line users tend to be richer, younger and
above all better educated. In terms of SRI's VALS psychographic
typology, there is a huge over-representation of "Actualisers",
the most resource-rich type.
The
SRI researchers identified three important market segments
amongst actual and potential users:
- Early Adopters – attracted by novelty
and sophistication, these are the easiest consumers to attract.
- Followers on Need – consumers who are
familiar with technology but only medium level financial
needs.
- Followers on Skill – consumers with
high levels of financial need but low levels of technology
skill.
The challenge for banks is to
attract these follower segments. Only in this way will they
narrow the gap between actual and potential use. But the two
segments are quite different. Followers on Need want simple,
convenient products. Followers on Skill will require much
more hand-holding, and reassurance about security, for example.
In terms of a virtual value chain
analysis (see "financial futures" web page), banks
need to create distinctly different Contexts
for the two groups.
It seems that, in the US at least, the
banks have failed to exploit the substantial increase in technology
skill that has occurred across all segments, as shown by the
following chart which illustrates migration between segments,
1996 to 1998:
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Intriguingly, the SRI research found
that ageing baby boomers with small children tended to be the
best prospects for home based financial services. Why should
this be? The SRI explanation is as follows. These people have
tended to put off having children while they further their careers.
They are therefore relatively rich with complex financial needs,
and are likely to have been exposed to PCs at work, and moreover,
they tend to have PCs at home for the young children. Simple
really!
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Taken together, this
research suggests that Internet delivery is a promising way
for banks to attract a smallish but highly attractive segment
of financial consumers, and provides strong pointers on what
marketing approach to adopt. One obvious strategy would be to
create a Context that appeals directly to techno-literate, ageing
boomers. Is anyone doing this? Well, yes actually. Citibank
has just announced that any UK consumer with sufficient funds,
who is prepared to transfer their primary banking relationship
to the US bank, will get not only free Internet banking, but
also a years free subscription to Virgin as an Internet Service
Provider. Virgin, of course, is the quintessential boomer brand.
UK banks can their expect rich, Virgin ISP users to leave in
droves. Time to wake up chaps!
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Interested?
Please contact Nick Collin on nick@ncollin.demon.co.uk
or +44 (0)207 833 8765 with comments or questions.
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