Branches Still Rule Banking in Europe

Slightly more than one-quarter of European consumers with Internet access bank online, according to a report by Datamonitor, and British Internet users are the most likely to go online for their banking needs.

In 2001, 7.52 million people in Britain chose to conduct some or all of their banking affairs over the Internet. By 2005, 57.7 million consumers will be banking online in the six European countries covered in the report (Britain, Germany, Sweden, France, Italy and Spain).

Despite the expansion of online banking services, Datamonitor’s consumer research across six European countries found that the Internet is only the third most commonly used means to purchase or arrange banking services. Casting further doubt on any suggestion that the bank branch has had its day, almost 80 percent of European consumers state that a personal visit to a branch is their preferred method for dealing with banking products.

“The strategies of many an Internet bank were based on the idea that the death of the branch was imminent,” said Alex Boorman, Datamonitor eFinancial Services analyst. “However, Datamonitor’s research confirms a growing realization within the e-banking sector that this is not the case. Although branch numbers are still falling, it is now recognized that the branch assumes an important role as part of a banks’ multichannel distribution strategy. To provide only one channel whether it is the Internet or the branch is to appeal to only a limited proportion of the consumer market.”

In addition to the Internet, many European consumers prefer the phone as their way to handle remote banking. Only in Sweden and Germany had more consumers purchasing or arranging banking services over the last 12 months using the Internet than the phone, Datamonitor found. In Britain, while 19 percent of consumers have purchased or arranged banking services via the Internet, 37 percent have done so using the phone.

“Such is the importance of having a branch presence that Datamonitor predicts that some standalone Internet banks will soon move to establish some form of branch presence,” Boorman said. “These new branches may not appear in the form with which we are currently familiar, as tie-ups with retailers are likely. In Sweden, for example, SkandiaBanken has launched a new online bank in partnership with the Coop, which will involve it developing a presence in supermarkets. Many banks are likely to see their existing branches undergo a shift from convenience to excellence as they specialize in providing more value added, expert services while the more mundane tasks are taken care of by electronic channels.”

European e-banking providers generally remain optimistic about the proportion of their business that will be online by 2002. For example, 28 percent of retail banks believe that they will handle more than 60 percent of current account applications online by 2002, while 27 percent of retail banks believe that they will handle more than 60 percent of credit card applications online in 2002.

There is concern that financial service providers may not have done enough to convince consumers of the merits of their Web sites because only 3 percent of European consumers identify a financial service site as their favorite type of Web site from which they have purchased goods or services. However, Datamonitor found that the consumers in this bracket tend to visit the sites with considerable regularity. For example, 35 percent of European consumers who identify a financial services Web site as their favorite type of Web site from which they have purchased products or services, visit that site between two times and six times a week. Knowledge of the regularity with which online bankers visit financial service Web sites should impress on providers the importance of functionality since more regular visitors to sites will be less likely to tolerate cumbersome procedures, slow feeds and frequent Web site down time.

Though right now the market for banking via mobile devices or with digital TV is uncertain, Datamonitor predicts a more positive future as both customer numbers and available services increase. Although only 1.1 million Europeans currently engage in mobile banking, Datamonitor predicts this number will rise to 27.1 million by 2005. The number of Europeans engaging in digital TV banking will increase from 0.75 million to 9.81 million by 2005. Currently 9 percent of European’s own WAP phones and 19 percent own digital televisions but levels of ownership vary both within and between countries. In Sweden, for example, while 19 percent own digital TVs only 9 percent own WAP phones. Fourteen percent of Germans own WAP phones and 15 percent own digital TVs.

European consumers conduct other financial activities online in similar or smaller proportions than they bank online. Datamonitor found that 25 percent of European consumers who have accessed the Internet over the last 12 months have done so to make payments and 11 percent have done so to trade stocks. Only 3 percent of European consumers accessing the Internet have applied for a credit card online over the last 12 months despite the attractive offers made by some online credit card providers and the fact that a credit card represents a financial product that is relatively easily managed online. Big national variations are noticeable. For example, 42 percent of Swedes accessing the Internet over the last 12 months have made payments online as opposed to only 8 percent of Spaniards.

Although account aggregation has been around for some time now in European banking circles, and the service has been launched by some providers, including Citibank and Accountunity, Datamonitor’s report found its future is uncertain.

“Whether providers can profit from offering aggregation depends on whether the financial benefits of increased customer retention and cross-selling that result outweigh the high costs of establishing the service,” Boorman said.

Preferred Method for Dealing with Banking Products
	Germany	Spain	France	Britain	Italy	Sweden	Europe
Phone	6%	5%	11%	25%	5%	14%	11%
Mail/fax	2%	1%	4%	5%	3%	2%	3%
Internet/online	5%	3%	2%	5%	4%	7%	4%
Personal visit	86%	88%	80%	63%	84%	76%	79%
No answer	2%	4%	4%	3%	4%	1%	3%
Source: Datamonitor