As the market for online banking matures, competition is heating up for a group of consumers no longer loyal to their primary financial institution.
Some 31 percent of online consumers who have a checking or savings account are “switchers” — people who can be enticed to desert their primary bank with promotional offers like high interest rates on deposits, low fees, gifts and identity theft insurance, according to a report released last week by JupiterResearch.
“The market has matured so much it’s almost becoming boring,” the report’s lead author, Jupiter analyst Asaf Buchner, told the E-Commerce Times. “There’s only so much you can do to bring your customers online, so banks are going after customers of other banks.”
Young and Restless
Switchers tend to be younger customers. Thirty-nine percent of all switchers were 18-to-34 year olds, according to the report.
When wooing fickle switchers, banks need to deploy measures to prevent churn in their customer base, the report cautions.
“The segment’s potential disloyalty is a double-edged sword as these consumers, once acquired, might switch banks again,” it says.
“Banks should mitigate this problem by conditioning their offers,” the report continues, “by requiring a commitment to activate direct deposit, to use online bill view and pay, or to keep a minimum balance in the account for a defined period of time.”
Some 44 percent of online consumers with banking accounts were termed “hard to sway” by Jupiter researchers.
Of those faithful, researchers found 16 percent would abandon their bank only if mistreated, and another 28 percent wouldn’t switch for any reason.
The only reason 22 percent of customers remain with their existing banks is because it would be too hard to switch to another one, they confessed.
“This perception explains some of the gap between consumers’ high propensity to switch banks for a promotional offer and the fact that only about 14 percent of bank customers actually switch banks every year,” the report adduces.
Barriers to switching make customers more loyal, admittedly for the wrong reasons, reasons Buchner, but they give banks an opportunity, too.
“It gives the banks an opportunity to win those customers’ hearts back by identifying problems and solving them before the customer says, ‘I need to switch, even if it takes an effort on my part,'” he explains.
Room to Grow
Banks are engaging in healthy competition, but there’s still a large number of people who do not bank online, observes Steve Ellis, a partner with the Change Sciences Group in New York City.
Only 60 percent of Internet consumers have tried online banking, he says, and the number who use it regularly is even smaller than that.
“There’s a huge number of people who don’t use it on a regular basis,” he told the E-Commerce Times. “That’s been a real challenge for the banks.”
Traditionally, he added, online banking had been one of the fastest-growing sectors of Internet use. However, there has been evidence in recent times that its growth is leveling off — normally the sign of a maturing market.
Online banking is viewed as a mainstream Internet activity and growing with overall Internet use, although not accelerating as much as some online activities, according to a report released last summer by the Pew Internet & American Life Project.
“One reason why online banking has not outpaced growth in Internet use generally may be what industry analysts dub the ‘trust gap,'” the Pew report says.
“Trust,” it continues, “is a big factor in choosing to bank online and then sticking with it despite news headlines about identity theft and phishing.”