Report: Consumers Cool to Net Banking

Consumers are leery of online alternatives to traditional banking and will require an extra push from financial institutions to take their business online, according to a report released Tuesday by Deloitte Consulting.

The study of consumer habits in 10 countries found that two-thirds of consumers do not consider online services important and that almost 30 percent do not know whether their bank offers Web-based services.

Consumers “certainly don’t rate the Internet or interactive services, as a key factor,” said Julian Badcock, retail financial services specialist at Deloitte’s London office. “There is a disconnect between financial institutions and their customers.”

Banks Make Push

The Deloitte survey comes as many banks attempt to beef up their online offerings. In fact, an earlier Deloitte survey of bank executives found that 41 percent felt that the Internet would be the most important factor in a bank’s success by 2003.

However, Deloitte found that even among bank customers who rated online access as important, just 22 percent actually used those services.

The report, “Myth vs. Reality in Financial Services: What Your Customers Really Want,” studied consumer behavior in the United States, Canada, the United Kingdom, Japan and several European countries.

Web Only Not Appealing

The study looked most closely at bank customers in the United Kingdom, which has seen a rash of Web-only banks spring up recently. There, 63 percent of all customers said good customer service was the most important factor in whether they were satisfied with their bank and 90 percent said they had “no interest” in seeking the services of a Web-only bank.

“Traditional financial services companies have managed to retain the customer advantage in the short-term,” Badcock said. “The traditionals no longer feel as threatened by the new entrants and consumer feedback is reinforcing this around the world.”

Remedy Suggested

The report said the financial services industry should pull back from its rampant investment in infrastructure and turn toward customer education and improved service. Rather than investing in new technology, banks should focus on finding ways to drive customers to existing Web offerings, without fearing the impact of pure Internet banks.

“The major financial services organizations are now caught in a classic cost trap,” said John Reeve, another financial services specialist at Deloitte. “Personal service, in its traditional sense, is now just too expensive to provide for the vast majority of account holders. At the same time, remote channels have yet to become acceptable substitutes for visiting a branch.”

In fact, nearly half of the consumers surveyed said convenient access to a bank branch was among the most important factors in keeping them as satisfied customers. The bottom line, said Deloitte, is for banks to move customers to new online channels by showing they can deliver better customer service in those areas.

“The customer is inherently more conservative than the industry thinks,” the report concludes. “Customer service is still what really matters.”

Separate Study Sees Growth

A separate study by Jupiter Research, however, sees tremendous growth in the number of Americans banking and managing their finances online in the next several years, although those using traditional banking practices will continue to outnumber those who bank online.

The research firm, a subsidiary of Jupiter Media Metrix (Nasdaq: JMXI), reports that U.S. households will have more than $5 trillion (US$) in investments — one-third of all consumer stock assets — managed online by 2005. The biggest Internet investors will be those earning more than $100,000 a year, the study said.

Jupiter forecasts that 13.1 million U.S. households will use the Internet for banking transactions this year, with the number growing to 43.5 million by 2005. About 40 percent of those will use the Web the same way they now use ATMs — for checking bank balances, paying bills, and researching credit options — the firm said.

Other Data

Other analysts have predicted a surge in online banking as well. In a report issued in July, International Data Corp. (IDC) said it expects nearly 23 million Americans to pay their bills and access their financial accounts over the Internet by 2004. The report said online banking is nearing a “critical point,” with banks beginning to acknowledge the Net as a “mainstream” channel rather than an alternative to bank branches, ATMs and customer service call centers.

Online investment firms are also seeing more business, though a slowdown in both on- and off-line stock trading has put pressure on their stock prices. E*Trade Group, Inc. (Nasdaq: EGRP) added 562,000 new investment accounts during the first quarter, up 30 percent from the fourth quarter.