Online Banking - Lukewarm Customer Response

LUKEWARM CUSTOMER RESPONSE

Framingham, Massachusetts-based International Data Corp. (IDC), a leading research firm, found that while nearly 50 percent of U.S. households were online in 2000, only 10 percent were active in any online banking. Estimates for the future showed only modest growth; by 2004, IDC expected about 22 percent of U.S. households to bank over the Internet.

Online banking is fraught with difficulties. Leading this list in the early 2000s was consumer confidence to protect financial information from potential hackers and cyber thieves. Mainspring Inc. of Cambridge, Massachusetts conducted a survey of 209 defectors from online banking and found that nearly one-third did so out of concern for security. Those fears were given weight when, in September 2000, Western Union Financial Services was the victim of a high profile hacking in which nearly 16,000 accounts were compromised. Online banking also was hampered by customer service problems. To their dismay, banks found that simply getting their systems online was only the tip of the iceberg; the process necessitates significant investments in new forms of customer service. For instance, online customers expect return emails rapidly, in a matter of hours. Thus, systems and personnel need to be in place to make such a quick turnaround on a customer's inquiry. Other key reasons for customer hesitance included basic connection problems with logging on to the banking network, and a lack of clear advantages in banking online versus through traditional channels.

Online churn, whereby customers allow their accounts to lapse, was another problem for online bankers who not only sought to maintain online customers, but to keep them active so their online efforts would pay off. Efforts toward increasing the user-friendliness of online banking, including more easily navigable Web sites, improved inquiry-response times, and other measures seemed to finally pay off in 2000 as churn rates fell to 9.8 percent in the second quarter, compared with 49.2 percent in the same period the year before, according to CyberDialogue, a New York-based research firm.

The eMarketer report, compiling and analyzing data from Forrester Research, Grant Thornton, Tower Group, and several other leading banking sources, found that despite the lackluster performance of Internet banking, most banks (especially those with assets exceeding $100 million) intended to create or augment their Web banking operations, often as a defensive posture. Thus, while frustration and complications abound, online banking was firmly established as part of the financial services paradigm in the early 2000s.