Consumers Shop, But Don’t Buy Credit Online

Many consumers routinely surf the Web to shop for the best credit offers, but when it comes time to apply for a loan, less than half of Web credit shoppers will click on the application form, according to a study by PSI Global.

According to the study, credit cards currently account for the majority of online credit applications.

“Consumers’ willingness to apply for credit online differs widely among various types of products,” said Roger Swales, PSI Global President and CEO. “Consumers readily respond online to offers for new credit card accounts, but are far less willing to complete the more detailed applications required for other types of credit, such as mortgages. Customers want assurance that their personal financial information will be handled in a secure, confidential manner.”

The study also identified price and reputation of the lender as key factors in increasing online applications for credit.

“The importance of price is undeniable, and relationships matter in the online space,” Swales said. “Eighty-three percent of online consumers said saving money would motivate them to apply for credit online, and 80 percent said an offer for credit from a known, trusted provider would be important in their decision.”

The PSI study also found that 47 percent of Web credit shoppers applied online, but in the case of those who were looking for a new credit card account, 61 percent filed applications via the Internet. In contrast, only 23 percent of consumers who researched mortgage loans applied online, and even fewer, just 16 percent, of those who shopped for auto loans or leases applied online.

Maria Erickson, PSI Global executive VP for research said that consumers were divided in their preference for a high-tech versus a low-tech approach to lending. For example, almost as many online credit shoppers would prefer to complete the application face-to-face as to continue the automated process. The ability to speak to a lending specialist during the process was important to 38 percent of online credit shoppers in the PSI study and to 47 percent of those who did not apply online, she said.

Privacy and security issues have been major barriers to online lending, according to the study. Fully 44 percent of online credit shoppers said that too much confidential information is required in an Internet application, and 56 percent of shoppers who do not apply online share this belief.

“These concerns cannot be considered overblown,” Erickson said. “When 86 percent of consumers who had used the Internet to research or apply for a loan online said they would be likely to do more business with a company if they were confident about how private information would be used.”

Sixty-eight percent of Internet credit shoppers said they would continue to compare offers online. However, fewer of these companies are “very likely” to apply for loans online this year. Among consumers who anticipate shopping for credit online in 2000, 15 percent said they were “very likely” to apply for a credit card; 7 percent, a mortgage; and 7 percent other types of loans.

Research by Cyber Dialogue found that online credit card seekers are both more ethnically diverse and more receptive to online branding than the general online population. They are also younger, primarily male, and more likely to carry larger balances than other segments such as online traders. According to Cyber Dialogue, 9.8 million Americans have shopped for credit cards through the Internet.

Cyber Dialogue’s research also found that online credit card seekers are especially attractive because nearly half of them (4.3 million) have applied for a credit card directly online, potentially reducing the cost of acquisition to online credit card issuers. Online credit card applicants also have a particularly high conversion rate, as more than half of those who applied on the Web (2.2 million) ultimately acquired and began actively using the credit card they obtained online.

Online credit card seekers are more demanding credit card customers than the general online population, Cyber Dialogue found. They are especially concerned about low interest rates and the reputation of the credit card card company: 90 percent of online credit card seekers list low interest rates as an important feature of a card and 83 percent list a trusted institution. The general online population is a third less likely to cite these two factors as important to their choice of a credit card issuer.

“The Internet is an ideal place for credit card seekers because it empowers them to shop on their own time instead of culling through junk mail offerings,” said Sam Callard, financial analyst for Cyber Dialogue’s Internet Strategies Group.

Other findings from Cyber Dialogue’s research include:

  • 35 percent of online credit card seekers are in the ethnic minority, in comparison to 20 percent of the general online adult population
  • 38 percent of online credit card seekers intend to apply for a credit card in the next year
  • Credit card seekers carry an average balance of more than $3,100, nearly $1,000 more than the general online population
  • 40 percent of credit card seekers are interested in obtaining a credit card from banks, compared to only 22 percent of all online adults.

Cyber Dialogue’s findings come from its Cybercitizen Finance Continuous Advisory Service, fielded as part of the company’s American Internet User Survey.

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