Direct Banking Market To Nearly Triple In Five Years

More than 65 million consumers will open deposit accounts online in 2012--representing a 280% increase from the current level of 23 million, according to a report from Javelin Strategy & Research. The five-year increase is a result of increased consumer willingness to adapt to new technology, and a readiness among financial institutions to expand offerings.

Financial institutions must enhance existing online account opening systems to take advantage of deposit acquisition, customer retention opportunities, and huge cost savings that will materialize through the exponential growth in online account opening. Banks that are ready for the demand will experience increased retention and services per household among existing customers, and will accelerate acquisition of new customers at one fourth the cost of offline acquisition, according to the Pleasanton, Calif.-based Javelin.

Banks and credit unions need to focus on product as well as process to grow online account openings, however, says Jean M. Garascia, an associate analyst and the report's author. A competitively priced, basic product coupled with a simple, secure and immediate online account opening and funding process will enable financial institutions to compete with the "direct banks" that currently lead in this arena.



Suggested improvements include shorter application forms, real-time security and identity authentication, and immediate funding of accounts through multiple means. The availability of simple products designed for the online channel is vital to retaining and expanding relationships with existing customers and acquiring new customers through online account opening, Garascia tells Marketing Daily. These accounts have basic terms that can be easily understood online and offer attractive benefits that "offline" products may not, such as zero minimum balances, fee free accounts, and high-yields for savings and checking.

While the number of deposit accounts opened online leveled off between 2006 and 2007, projected growth will be funded by strongly rising consumer demand coupled with attractive product offerings in a simplified online account opening process, Garascia says. This combination of process and product will increase acquisition of new customers and retain existing customers who currently are being enticed to open attractive online accounts elsewhere.

All financial institutions interviewed claim increases in total accounts opened per year since implementing a "straight-through" online account opening process allowing consumers to open and fund accounts in a single session. While growth has varied across different institutions, those who combine competitive product offerings with straight-through online account openings have experienced net growth in deposits from 3% to 15% since implementation.

The increase in online banking will not render traditional banking obsolete. Conversely, it should be viewed as a technology that complements the efficiency of employees and the level of service they are able to provide new customers. The use of online account opening technology frees up more time for the branch or customer service representative to adopt the role of a personal banker who can offer a more customized new account on-boarding experience, and focus on setting up online services or cross-selling other products, such as online banking and bill payment.

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