Is Your Internet Banking Solution Costing You Customers?

Sixty-one million households use Internet banking today and two-thirds of those users would switch financial institutions (FIs) for a better online banking solution. Despite the growing importance of Internet banking to attract and retain high-value customers, many FIs still rely on first-generation systems that lack the service levels and features that savvy online bankers are seeking.

Internet banking enables customers to save time, take control of their personal finances and even help the environment by opting to receive electronic statements.

According to Javelin Strategy & Research, 61 million households regularly use Internet banking today and 82 million online banking households are expected by 2012.

For Internet banking users, online banking services are the third most important driver of FI selection, falling just behind rates/fees and customer service. These days, it’s not good enough to simply offer online banking services, however. To maintain existing customers and attract new ones, FIs need to keep their offerings up to date with the latest features.

Who are these customers? In a nutshell, they are younger, wealthier and more desirable than the average banking customer. Javelin reports that 89 percent of young adults have tried Internet banking, with 53 percent reporting they had banked online within the previous seven days.

Considering 30 percent of online bankers aged 25 to 34 join to save time and 21 percent join to get more control over their finances, FIs must ensure the capabilities of their Internet banking solution proficiently deliver on these customer needs, especially as younger customers gain more and more financial responsibility.

Online banking doesn’t just appeal to the young and the hip; it appeals to the more educated and affluent segments of the population as well. Eighty-six percent of individuals with incomes over $75,000 have used Internet banking and 62 percent of these users have done online banking in the last seven days. Online bankers fit the profile of customers that FIs want to attract. In addition to their appeal as consumers of financial services, they are also systematically easier to serve.

Non-online bankers value a personal relationship with their FI and they place high importance on service offerings that can be expensive: the availability of many branch locations and high levels of personal service. In addition, non-online bankers are more price sensitive, scoring “rates and fees” six points higher than online bankers in importance when choosing an FI. Finally, they are considerably less likely to migrate to paperless billing and statements—increasing the ongoing cost to serve them. Specifically, the net annual value to the financial institution averaged $241 more per customer for Internet banking users than for offline users, according to a 2006 Forrester Research Report.

To retain discerning online banking customers, FIs need to offer robust Internet banking capabilities. In CashEdge’s second annual Consumer Online Banking Study, 85 percent of respondents stated they would never consider an FI without online capabilities and 65 percent said they would switch to an FI that offered more online services.

The top six financial institutions offering Internet banking account for 41 percent of all users, according to Javelin Research. These institutions understand the needs of online banking customers and are continually adding functionality that will deepen their relationships with existing customers, while helping them attract new ones.

Smaller Fis can still compete, but they need to understand the importance of Internet banking for customer retention and, in some cases, upgrade first-generation Internet banking solutions that limit system performance, features and functionality.

Without a complete solution in today’s competitive financial market, the most valuable customers are bound to select an alternate financial services provider—making platform conversion a risk entirely too great to put off. Luckily, the conversion process to a new Internet banking solution is easier than some may think, with an Internet banking provider well versed in best practices.

This paper explores the common issues FIs face with dated Internet banking solutions, concerns these institutions have in converting to a new solution, how to identify the ideal Internet banking solution and best practices in a successful conversion. In addition, this paper will help FIs gain a deeper insight into the capabilities today’s online bankers demand.