Offline Banks Exhibiting Online Dominance

Following a trend established by the retail industry, offline brands in the financial services industry are proving to be more popular with consumers than pure-play Internet alternatives, according to Jupiter Media Metrix.

Media Metrix traffic data reveal that the number of unique visitors to multichannel banks (banks with offline branches and online services) climbed from 6.4 million in July 2000 to 13.4 million in July 2001 — a 110.5 percent increase. During the same period, traffic to online-only banks fell 8.1 percent from 1.2 million unique visitors to 1.1 million unique visitors.

“Online banking has moved from being a competitive edge to a commodity,” said James Van Dyke, research director for Jupiter Media Metrix. “General-purpose online-only banks, competing without branches and universally accessible customer service, are losing their lead to aggressive traditional depository institutions. They will soon turn to physical distribution or audience specialization to survive.”

Use of the Internet for financial services has increased in the past year. Traffic to all banks grew 77.6 percent between July 2000 and July 2001, compared with overall World Wide Web traffic, which increased only 19.8 percent in the same period. According to Jupiter analysts, consumers’ growing comfort accessing and managing finances online as a catalyst of the increase in online bank traffic.

The most visited multichannel bank in July 2001 was Chase, and it also posted the largest year-over-year gain with a 281.1 percent increase in unique visitors — up from 957,000 unique visitors in July 2000 to 3.6 million in July 2001. Wells Fargo and Citibank rounded out the top three most trafficked multichannel banks for July 2001, each with approximately 3.5 million unique visitors.

Similar to the retailing pattern, Jupiter analysts expect that online-only banks will find it increasingly difficult to compete against larger, more established multichannel banks for online customers because, even when selecting an online bank, consumers primarily prefer traditional banking aspects. For example, a Jupiter Consumer Survey found that consumers are more likely to conduct online banking with a financial services company that offers easy access to customer service (54.6 percent), nearby ATM machines (52.4 percent), close branches (52.3 percent) and comes highly recommended by friends and relatives (21.3 percent).

“If traditional, multichannel banks have the inherent advantage of offering highly sought-after attributes, then online-only banks need to focus on their greatest area of opportunity,” Van Dyke said. “That opportunity is the ability to reach a specifically targeted client set through affinity banking — adopting a strategy that would be almost impossible for a larger, more established bank to execute.”

According to Gartner’s GartnerG2 research service, advances in technology and increased competition will lead to a rather large-scale consolidation in the financial services industry. Of the almost 10,000 U.S. financial institutions operating today, GartnerG2 expects only 5,000 to emerge by 2007. And while consumers have shown a preference to banks that give them the option of dealing with a human being, customer-facing and strategic processes may be the only tasks carried out by humans at banks in the future. By 2007 GartnerG2 expects that, beyond the customer interface, operational process will be completely electronic.