Price Attracts Financial Services Customers

Online financial services customers are initially motivated by price sensitivity, but that influence declines as online customers realize the benefits of convenience, according to research by Mainspring.

“Based on this study’s results, we are advising our financial services clients that price sensitivity is the critical factor in convincing consumers to seek an online financial service, but over time, convenience displaces price as the key driver for continued use,” said Dan Latimore, director of Mainspring’s eStrategy Direct financial services practice. “In our study, 45 percent of online banking users cite rates and fees as the initial reason to bank online, but only 6 percent cite them as a reason they continue to use these services.”

According to Mainspring, financial services firms should implement a two-pronged customer service model in which they promote low costs and fees during the customer acquisition phase, but focus on service features such as anytime access, 24×7 customer service and fully integrated channels to drive customer retention.

The Mainspring study also found that brand is more important online than offline. When researching insurance purchases online, 56 percent of customers went straight to name-brand sites as compared with 32 percent for aggregation sites. When initiating a purchase online, 60 percent went to name-brand sites as compared to 32 percent for aggregation sites.

“On the Internet, brand is no longer simply a perception of a product or company — it is a set of directions to the point of sale. Established firms face the most intense competition from fellow incumbents, not new entrants or pure-plays,” Latimore said. “The trust conveyed by a brand also has greater weight on the Internet given the large number of concerns consumers continue to have with online security. To encourage adoption, we recommend that established firms affiliate their online products and services closely with their brands and reputations.”

One-stop shopping remains the holy grail of financial services. Nearly three-quarters of the respondents said they would be interested in viewing all of their accounts from a single online source, and 55 percent of online consumers expressed interest in purchasing all of their financial services from a single online source. Younger respondents preferred one-stop shopping, as well as customers with more online financial services experience. Additionally, 43 percent of respondents who had never purchased a financial services product online wanted to purchase from a single site.

According to Datamonitor, the global eFinancial Services (eFS) market has unprecedented growth opportunities in wealth management and in B2B services to small and medium sized enterprises.

“Globally, the functionality offered by the Internet is opening up new revenue ‘sweet spots’ in both B2C and B2B,” said Adam Hill, eFS Datamonitor analyst. “Traditional FSIs and dot-coms alike are pushing highly aggressive growth-centered Internet strategies to align themselves for a new era of B2C and B2B opportunity.”

The greatest new B2C revenue opportunity will emerge in eWealth Management, Datamonitor found, especially as the underlying growth in the number of wealthy individuals across the globe increases.

In the US alone, the number of individuals with a high net worth (those with >$1 million in liquid assets) is set to grow from 1.97 million in 1998 to 3.75 million in 2003. Datamonitor estimates that the global eWealth Management market could be worth $70 billion to FSIs by 2005.

“FSIs have been rolling out integrated wealth management portals to fill the gap between higher-end retail banking services and traditional private banking for affluent customers,” said Michael McNamara, eFS Datamonitor analyst. “These portal services are set to become a key source of non-interest, fee-based income as FSIs seek to drive revenue growth.”

While eFS initiatives so far have been dominated by traditional mass market B2C offerings, FSIs and new dot-com players are now converging on emerging value-creating areas in the B2B market. A key sweet spot for FSIs will be B2B services to small and medium sized enterprises in the US and Europe. Datamonitor values this revenue opportunity at more than $50 billion.