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Credit crunch bites online banking

23 January 2009  |  9949 views  |  1 Credit crunch bites online banking

US consumers are spending less time on traditional online banking sites, creating fresh challenges for banks as they scramble to attract retail deposits in a shrinking economy.

In general, engagement at many of the top banking sites declined in Q3 2008 versus a year ago, according to data released by comScore. Four out of the top five online banking sites experienced declines in the average number of minutes spent per visitor in the third quarter of 2008 versus a year ago, with Wachovia down 12% and JP Morgan Chase down eight percent.

Marc Trudeau, senior director, financial services, comScore, says: "Americans have less cash, are spending less and have experienced a significant decline in the value of their assets. As a result, we're seeing shifts in the way consumers manage their finances online, such as less frequent and shorter visits to their banking Web site, which has significant implications for marketers trying to reach new and existing customers."

The challenge is compounded by the ongoing banking crisis, which is causing a significant tightening in banks' marketing budgets at a time when consumers' confidence in their banks is being tested, suggests Trudeau.

At the same time, the wave of bank mergers and consolidation in the industry is drastically reshaping the retail banking lanndscape, with the emergence of new players from the investment banking industry and a concentration of deposits at the top three banks.

In the third quarter of 2007, the top three online banks accounted for nearly 60% of all of the customers of the top 10 online banks, according to comScore data. After accounting for the impact of recent bank mergers, however, the top three banks increased their share to 80%, with Bank of America, Wells Fargo and JPMorgan Chase leading the pack.

ComScore says the new competitive landscape, along with banks' thirst for capital in today's economic environment, has prompted many to adjust their marketing budgets and their strategies. Larger banks are launching aggressive customer-acquisition campaigns, offering significant monetary incentives, often in the amount of $75, $100 and even $200, to customers willing to open an account with the bank.

"In this time of uncertainty and change in the industry, many of these firms, regardless of their marketing strategies or business objectives, are turning to the Internet," says Trudeau. "They realise this medium provides a more cost effective, efficient and flexible channel than the traditional bank branch, and represents a way in which they can more efficiently and effectively reach their target audience and communicate their distinct value proposition."

Comments: (1)

A Finextra member
A Finextra member 29 January, 2009, 13:13

It will be interesting to see if this trend will transpire in the UK and the rest of Europe. It is certainly true that as the level of confidence between financial institutions in the interbank lending space nears its low, many banks on this side of the pond turn to online banking to find alternative sources of funding. However, as competition for the retail customers increases, banks need to offer a lot more than one-off monetary incentives. Online banking portals should provide services that customers can really see the benefits and value in. Increased customer service through the e-banking channel should be top of the list especially for financial institutions engaging with Generation Y customers typically accustomed to peer-to-peer interaction.

During the downturn, it is also crucial for banks to keep offering competitive interest rates to their clients. One trend we are seeing is the increased adoption of direct savings banking. This model allows customers to be self-directed, meaning that banks can minimise overheads and pass on considerable incentives such as higher interest rates. It is through initiatives such as this that banks have the best chance of competing and achieving profitability in these tough times.

 

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