Online Account Opening Consumer Analysis and Vendor Comparison:

Transcription

1 Online Account Opening Consumer Analysis and Vendor Comparison: How to Optimize Efficiency, Enrollment and Risk May Hacienda Drive, Pleasanton, CA USA t f

2 Table of Contents Overview... 5 Primary Questions... 5 Findings and Analysis... 5 Methodology... 6 Executive Summary... 7 Key Findings at a Glance Key Recommendations High Failure Rates Undermine an Essential Service It s a Given: Many Consumers Want to Sign Up Online Gen Y Opportunity Most Online Applicants Already are Familiar With the Bank Applicants Expect a Quick, Hassle-Free Experience Primary Motivations Vary Among Existing, Past and New Customers The Main Consumer Complaint Most Applicants Say Application Process is Easy Unlike Consumers in General, Successful Applicants Balk at Visiting Branch to Confirm Identity Female Applicants Encounter More Obstacles Females Fail Much More Often Than Men Successful Applicants Are More Profitable Successful Applicants Use More Bank Products Successful Applicants Use All Banking Channels Successful Online Applicants Embrace Online and Mobile Banking Fees and Lack of Online Services Frustrate Successful Online Applicants The Business Case for Online Account Opening Bankers and Vendors Agree on ROI How Bankers Grade Online Account Opening Products The Primary Obstacles and Why There s Finger-pointing Between Vendors and Bankers Bankers and Vendors Blame Each Other for Shortcomings How it Works: From Application to Funding Identity Verification Funding Verification Data Analysis Microdeposit Authentication

3 Table of Contents Account Aggregation Why Strategies for Large and Small Financial Institutions Vary A Checklist of Desirable Features Vendor Profiles Andera CashEdge Fiserv Jack Henry & Associates Inc. (MeridianLink) Metavante Online Resources S1 Corp. (S1 Enterprise and Postilion) umonitor Parsam Technologies Yodlee Related Research Companies Mentioned

4 Table of Figures Figure 1: Online Account Opening Process... 9 Figure 2: Efficiency Cost Savings Gained for Accounts Successfully Opened Online in Figure 3: Opened a Checking Account Online Without Needing to Phone or Visit Bank Figure 4: Last Time Attempted to Open Checking Account Online (All Consumers) Figure 5: Last Time Attempted to Open Checking Account Online (By Generation) Figure 6: Online Applicant Relationships With the Bank Figure 7: Consumer Motivations for Applying for Checking Account Online Figure 8: Motivations for Applying Online (By Relationship to Bank) Figure 9: Consumer Challenges When Opening Account Online Figure 10: Ease of Process (By Age) Figure 11: Preferences for Verifying Identity When Opening an Account Online Figure 12: Success Rates for Completing and Funding Application Entirely Online (By Gender) Figure 13: Banking Products Currently Used Figure 14: Conducted Various Banking Activities in Past 30 Days Figure 15: Banking Activities in the Previous Week Figure 16: Reasons for Switching Banks (By Success in Funding Account Online) Figure 17: Online Account Opening Cost Savings Figure 18: Primary Factors Driving Return on Investment (Bankers vs. Vendors) Figure 19: Biggest Obstacles That Stand in the Way Figure 20: Online Account Opening Workflow

5 Audience: Authors: Contributors: Editor: Financial institutions, online-banking platform providers, online-banking vendors, online-banking marketing Mark Schwanhausser, Analyst, Multichannel Financial Services Mary Monahan, Managing Partner and Research Director Stephen Matava-Knighten, Data Analyst Alan Ruperto, Associate Analyst James Van Dyke, President and Founder Levi Sumagaysay Publication Date: May 2009 Overview The need for cost-efficient online account opening processes has never been greater. Consumers routinely conduct banking transactions online at their own convenience, and they similarly expect to be able to open and fund accounts at will, quickly and easily, within a single session. Last year, anxious depositors seeking safer havens for their savings drained billions of dollars from wobbling banks, providing a dramatic example of how online opening services can give forward-thinking financial institutions a boost on their competition. And yet, many financial institutions still rely on relatively archaic, paper-driven processes that require manual review in the branch. This report analyzes ten vendors that offer compelling online account opening products, maps out how such products improve profitability, and examines what banks and vendors identify as the key obstacles slowing adoption of such products. The report profiles Andera, CashEdge, Fiserv, Jack Henry (MeridianLink), Metavante, Online Resources, S1 (S1 Enterprise and Postilian), Parsam Technologies umonitor and Yodlee. Primary Questions How many consumers open accounts online? What motivates consumers to open accounts online? Do financial institutions deliver the service experience that consumers expect? Are online applicants more profitable than consumers overall? What is the return on investment from an online account opening process? Do banks and vendors see eye to eye on the primary payoffs and obstacles? How do large and small financial institutions set strategies for online account opening? What product features are desirable? What distinguishes the nine vendors? Key Findings Nearly half of consumers have attempted to open a checking account online (45%), and 30% of Gen Y consumers have tried in the past 12 months alone. Contrary to expectations, these are not just channel seekers: About 64% of online applicants either had an existing relationship with the bank (41%) or were seeking to revive a lapsed relationship (23%). One in every five applied online because they did not live near their bank. Though consumers expect that opening an account online will be simple and quick, Javelin survey data indicates that nearly two out of five applicants and more than half of female applicants fail to complete the process without phoning or visiting a branch. Such failures can create a poor first impression for these highly desirable, tech-savvy applicants, who use a wide range of banking products, interact actively with their bank and have high expectations when it comes to online services. Financial institutions selecting a vendor to upgrade this crucial process must weigh such factors as their business strategy, their needs for customization and funding flexibility, and the riskmanagement criteria they use when verifying identities and authenticating fund transfers. When selecting a vendor, financial institutions should always check first with their core processor. Such vendors offer an opportunity to integrate into the existing infrastructure and minimize the interaction with outside vendors, keep costs low and speed up implementation. But two vendors stand out above the pack: CashEdge and the Andera/Yodlee combination. These vendors enable financial institutions to choose from the three methods used to verify funding accounts, enable applicants to fund accounts via credit, debit or ACH, and they have strong track records with clients. 5

6 Methodology The consumer data in this report is based on data collected online from a random-sample panel of 2,350 respondents in March The overall margin of sampling error is ±2.0 percentage points at the 95% confidence level. The survey targeted respondents based on representative proportions of gender, age and income compared to the overall U.S. online population. This report is also based on data collected online from a random-sample panel of 2,339 respondents in September The survey targeted respondents based on representative proportions of gender, age and income compared to the overall U.S. online population. Overall margin of sampling error is ±2.0% at the 95% confidence level. Subscribers to Javelin s syndicated research service are invited to submit inquiries related to this or any other topic. Please contact us via inquiry@javelinstrategy.com with such requests. 6

7 EXECUTIVE SUMMARY Gathering assets is a top priority and online account opening paves the way. The importance of strengthening the asset base has taken on magnified importance as the financial crisis has deepened. As consumer anxiety peaked in late 2008, banks with effective online account opening stood to gain as Americans drained billions of dollars from teetering banks and sought safer havens. But installing an efficient online account opening process also can pay off by: Trimming the cost of opening and servicing accounts. Expanding a bank or credit union s footprint beyond its physical network of branches and ATMs. Serving as a building block for online and mobile banking. Freeing up tellers to focus more on selling profitable products and services. Cross-selling products and services during the application process, while banking needs are top of mind for the consumer. Wooing a profitable segment of active consumers who have a strong desire to use bank through cost-effective electronic channels and regularly use sticky services. Failure rates are disturbingly high. About 39% of consumers who attempted to open a checking account online were unable to complete the process without making a trip to a branch or phoning the financial institution. Though there are often sound reasons for weeding out dubious applicants, this is akin to barring the door to two out of five applicants who seek to enter the front door to what some financial institutions consider their most productive branch. The rejection rate is even higher for women: a worrisome 54%. Nearly half of consumers have tried. The value of this service is crucial, with about 15% of U.S. households attempting to open a checking account online in 2008 and an additional 30% trying in previous years. This service is 7

8 especially popular with Gen Y consumers. About 30% of Gen Y consumers attempted to open an account online in the past twelve months twice the rate of their elders. Hassles can leave an indelible first impression. About one out of four applicants primarily sought to open an account online because they expected it would save them time and spare them a trip to the branch. Indeed, nearly one out of five said they applied online out of necessity because they did not live near a branch. For many applicants, a trip to a branch is a deal-breaker. The high failure rates combined with the common complaint that financial institutions take too long to complete initial deposits (17%) and grant new customers access to their money (14%) means banks and credit unions routinely run the risk of unnecessarily alienating their new customers. Successful applicants tend to be more profitable but they do expect a range of online services. Javelin data shows that applicants who complete the application process entirely online are worth the trouble and investment. They buy a range of banking products, they actively interact with their bank, and they often though not exclusively are willing to use lower-cost or self-service channels and services. But they can be a challenging lot to please. Among their main gripes: a lack of online services. There s a strong business case for online account opening. Bankers and vendors surveyed for this report agree strongly that automating the process can slash the cost of opening an account, from about $60 down to $15. (Online costs estimates ranged from $3 to $25). In addition to cost savings, online account opening can draw in new customers who live far from the financial institutions geographic range, identify candidates for cross-selling, make it easier for existing customers to add accounts, lure in low-cost deposits for checking accounts, and keep them in step with competitors. For the most part, a Javelin survey of eight bankers who had installed account opening technology said their vendors had delivered on the promised results. Vendors and bankers blame each other for disappointments. Eight of 10 profiled vendors said the No. 1 obstacle is the failure of financial institutions to appoint a point person who owns the project and will referee the competing interests of those who manage e-commerce, retail banking, operations, security, marketing and other departments. Vendors also complain that institutions hobble their programs by failing to market them smartly. On the other hand, surveyed bankers said their chief complaint was that the vendors products are inadequate and reject too many applicants. The high failure rates combined with the common complaint that financial institutions take too long to complete initial deposits (17%) and grant new customers access to their money (14%) means banks and credit unions routinely run the risk of unnecessarily alienating their new customers. 8

9 Complex two-phase process has several pressure points. Online applications are authenticated in two basic steps: The first verifies the identity of a faceless applicant who might never step foot in a branch, while the second determines the legitimacy of the account that will fund the new account. Ideally, online account opening products must reach out and analyze data from third-party vendors, flag suspicious applications for manual review, accept or reject applications, identify cross-selling opportunities, minimize the risk of fraudulent transfers, help new customers switch over accounts and bill-pay chores and much more preferably within the few minutes that the applicant is engaged in the task at their computers. Three key choices for fund verification. Vendors provide three primary ways for financial institutions to verify the funding account: analyzing data, microdeposit authentication and aggregation. Each has pros and cons that will affect the risk of fraud, the likelihood of abandoned accounts, processing costs and customer satisfaction. Picking a verification method or whether to verify funds at all will depend upon a financial institution s strategic goals and tolerance for fraud risk. Figure 1: Online Account Opening Process 2009 Javelin Strategy & Research 9

10 Institutional needs and strategies vary and so will their vendor choices. Financial institutions install or upgrade online account opening solutions for a host of reasons. For example, a large national bank might place a premium on automating the process to cut costs or to make the screening process more consistent, while a community bank or credit union might be motivated to entice customers or members from outside their branch network. Similarly, one bank might be intent on wooing large CD or savings deposits, while another might be targeting transactional accounts like checking accounts. Understanding the consumers needs, the institution s strategic thinking and its limitations will strongly shape the choice of vendor. Key Findings at a Glance 39% of consumers who attempted to open a checking account online were unable to complete the process without phoning or visiting the financial institution. 54% of women failed to complete the process online compared with 30% of men. 45% of households have attempted to open a checking account online, including 15% during the past 12 months. Gen Y consumers were twice as likely as their elders to apply online 30% vs. 15% for consumers overall. That rate is even higher among 18- to 24-year-old millennials (35%). About one of four applicants tried to open an account online because they thought it would be faster and save them a trip to the bank. About 64% of online applicants either had an existing relationship with the bank (41%) or were seeking to revive a lapsed relationship (23%). About 19% to 25% of applicants applied online because they thought it would be quicker, save them a trip to a branch or because they didn t live near a branch. About 32% of women tried it primarily to avoid a trip to a branch, but 35% of men said they did so because they did not live near a branch. Existing customers applied online primarily because they wanted to save time (37%), but past customers did so mostly because they didn t live near a branch (33%). New customers were motivated by high interest rate offers (32%). About one out of three consumers complained they were required to phone or visit the bank, while others cited delays in funding their accounts (17%) or gaining access to their funds (14%). About 53% of consumers said the application was easy, five times the 10% segment that considered it a hard process. Successful applicants are significantly more likely than consumers in general to buy CDs (29%) and open money market accounts (23%). Half to three-fourths of successful online applicants used ATMs, visited branches and dialed the automated phone service in the previous month, significantly higher rates than for consumers in general. In the previous week, 58% of successful online applicants conducted online banking, 16% banked via mobile device, and they are two to six times more likely to use or text alerts, transfer funds, wire money or use alternative payments. Successful online applicants griped that they went hunting for a new bank primarily because their previous bank charged fees that were too high (36%) or offered inadequate online services (21%). Javelin estimates that banks and credit unions spend about $60 to manually process an application about four times the average cost of automated online applications. 10

11 KEY RECOMMENDATIONS Mark the process simple, clean and quick. Customers who apply online expect the process to be routine and efficient. Ideally, the process should: Take only a few minutes for a new customer and even less for an existing customer. Determine whether to accept, reject and fund the vast majority of applications in a single session. Assign an account number and order checks, if opening a demand deposit account. Give customers immediate access to their funds. Enlist the call center or branches for back-up purposes only, stepping in just when applicants get stuck. Give customers the choice of funding an account with a credit card, debit card or a transfer from another account. Pre-qualify, cross-sell, offer and open additional accounts relevant to the applicant s needs in the same session. Provide an online switch kit that will help customers disentangle from their previous bank s bill-pay, automatic deposits and other payments. Banks and credit unions can lay claim to being the customer s primary financial institution when they corner the bill-pay chores. Today s paper-intensive switch kits even if they at least partly populate the forms that customers mail later are archaic afterthoughts to an automated process that leave new customers with a headache or, worse, a continuing connection to the previous bank or credit union. This feature, currently offered only by Yodlee and its partner, Andera, deserves a look. Prioritize your strategic goals and limitations. Banks and credit unions must identify the primary goals for implementing an online account opening product. For example, does your institution seek to draw in large savings and CD deposits, or does it prefer to build relationships by wooing checking accounts? Are you seeking a solution that also could be used in branches or call centers? Is it a 11

12 primary goal to automate the system and cut back-office costs, or does your institution intend to continue reviewing many applications manually? Do you seek to offer a customized, cutting-edge service, or are you content to employ a lower-priced, plug-and-play product? Will your technology infrastructure limit what you can consider? How you answer such questions will define your needs and shape the vendor selection process. Understand the breadth of the project. Though vendors often can install a plug-and-play product within weeks, it is crucial to understand that online account opening can have a ripple effect across the institution. Installing a product will involve technology infrastructure, operations, security and compliance, online banking, branch banking, call centers, marketing and so forth. Seek input from all affected departments but assign a decision-maker who can weigh their conflicting interests and ensure your project moves forward. Don t let applicants fall through the cracks. Do not give up on applicants who fail or abandon the process. Evaluate applications that are in limbo and resuscitate applications from potentially worthy customers. Follow up with a phone call or reminder s to spur or assist them to complete the application. Analyze rejected applications to determine whether the screening or application process is flawed. One online bank discovered an unacceptable number of applications were derailed because credit bureaus could not confirm the addresses of people who had moved in the past six months. That prompted the bank to update the application so consumers could note their current address if they had moved recently. Doing so not only maintained the automated process by saving the bank from phoning the applicant, but it also helped boost its application completion rates. Today, the bank boasts it opens and funds 97% of applications. Provide funding choices. Ideally, financial institutions will give consumers the flexibility of making their initial deposit by credit card, debit card or by ACH transfer. Some vendors are now offering PayPal or Google checkout funding options. Many consumers prefer to make their initial deposit by credit or debit card so they can earn rewards or incentives, but ACH transfers can enable them to move larger deposits. Each funding method has pros and cons that include the cost of interchange fees, how quickly customers can access their funds, the risk of funding fraud, and the size of the initial deposits. Banks focused on transactional accounts and a return on investment centered on fees will be more inclined to eat the interchange costs for a relatively small initial deposit. But banks focused on savings, CDs and other non-transactional accounts will prefer larger ACH transfers if they can minimize the fraud risks. Seek vendors that offer flexibility when evaluating account funding. Offering a range of funding verification choices that appeal to different consumer groups translates into higher acquisition rates for the institution. Financial institutions must balance two types of risk when evaluating the funding phase of account opening: the risk of fraud against the risk of alienating applicants. This report focuses more on the consumer side of the process rather than security and fraud risks. Banks could do no account verification by limiting the initial deposit or placing longer holds on the customer s funds, but doing so risks alienating applicants. Using microdeposit authentication reduces the fraud risk but stretching the application process over several days boosts the odds that applicants will simply drop out and bank elsewhere. And offering only account aggregation could spook security-minded applicants who are wary of turning over their online log-in secrets. Such pros and cons underscore the need for flexibility that will enable your 12

13 institution to employ different risk-management methods that appeal to different consumer segments or are more applicable under different risk scenarios. Narrow your selection list to vendors like CashEdge and Andera/Yodlee, which offer all three options. Javelin s preference: Provide account aggregation for verified funding within a single session. A primary goal of online account opening is to minimize the risk of fraud, open the account in a single session, and put the customer in position to make transactions immediately. Account aggregation tools from CashEdge and Andera/Yodlee offer the most timely funding data available on unfamiliar applicants, a crucial factor for financial institutions that are intent on funding larger accounts during the application process. In contrast, data from third-party vendors may be quite adequate for account verification, but it may be riskier for funding verification because it is weeks or months old. Account aggregation also enables the immediate funding of the account, while traditional microdeposit authentication can delay the process for days, causing too many applicants to abandon the process in the home stretch of the process. Although flexibility in deposit verification increases acquisition, aggregation currently is the best option available if you are limited to a single solution. Tip for vendors: Share the risk. There is an opportunity for a vendor to offer a zero liability insurance guarantee to protect banks and credit unions against such fraud losses in accounts that are opened and funded simultaneously. First phone call: Your core provider. Core financial services providers play a leading role in any technology upgrade. Tier-one institutions have the financial means and internal know-how to be able to invest more heavily in new products, while mid-tier and smaller institutions typically are more constrained by available resources. Smaller institutions depend upon their core providers to develop new products and perform due diligence on the vendors to ensure that new products will plug into a financial institution s system. That relieves smaller institutions of a significant burden of overseeing a technology vendor. By buying through a core provider, the infrastructure and support are already in place, online account opening can be added easily to existing contracts, and the core provider can act as a primary go-between to ensure that services will be maintained. If your needs are more complex or cutting edge, call CashEdge and Andera/Yodlee. One risk of buying through a core provider is that it might sell the same basic product to hundreds of other institutions, and customization might be limited. Institutions with greater resources or greater ambitions for innovation and customization should put CashEdge and Andera/Yodlee on top of their short lists. These firms stand apart because of their expertise, variety of packages, opportunities for customization, and funding verification by aggregation tools. Yodlee s innovative online bill-pay switch kit also stands alone for closing the deal by prodding and enabling applicants to sever ties with their previous bank or credit union. 13

14 HIGH FAILURE RATES UNDERMINE AN ESSENTIAL SERVICE Washington Mutual s collapse last September the biggest banking failure in U.S. history triggered an exodus that sent customers running for the doors. The once mighty bank could do little as customers drained $53 billion in deposits starting in June including $17 billion in the two weeks before regulators seized WaMu and sold most of its operations to J.P. Morgan Chase. Days later, regulators were forced to step in as well at Wachovia, where jittery depositors had siphoned off $29 billion in a three-month span. Those devastating depositor runs served up an opportunity for financial institutions that were seen as safer havens especially if they could boast of an online account opening process that could enable depositors to open accounts and shift their savings with a few clicks of the computer mouse. One top 10 bank told Javelin that it saw online account openings jump 15-fold during that anxious period, and scores of banks and credit unions enjoyed a sudden influx of deposits because of such account-opening capabilities. The benefits of an efficient online account opening process are hardly limited to times of depositor fear, however. In calmer times, efficient online account opening products can pay off in numerous ways, including by: Smoothing the way for new deposits. Trimming the cost of opening and servicing accounts. Expanding a bank or credit union s footprint beyond its physical network of branches and ATMs. Serving as a building block for online and mobile banking. Freeing up tellers to focus more on selling profitable products and services. 14

15 Javelin consumer survey data underscores another compelling key finding: Customers who open accounts online are particularly attractive customers who can boost bank profits. Not only are they more likely to buy certain bank products, but they also have strong desires to continue banking online, they regularly use sticky services such as financial alerts and mobile banking, and they are much more likely to make expedited, last-minute payments to avoid higher late fees charged by billers. Furthermore, it is a means to reconnect with lost customers; about 23% of online applicants were lapsed customers who sought to renew ties. Javelin estimates that the labor-intensive process of manually opening accounts costs banks and credit unions about $60 per application more than double the cost of automated online applications at approximately $15. Vendors profiled in this report cited costs that ranged from $3 to $8 using Online Resources product, to $10 to $20 using CashEdge and to $11 to $25 using the Andera-Yodlee combination. Average costs also can decline as institutions handle higher volumes of applications and amortize the cost of software licenses. More Cost Efficiencies Can Be Captured With Better Online Processes Figure 2: Efficiency Cost Savings Gained for Accounts Successfully Opened Online in Javelin Strategy & Research 15

16 Such evidence builds a compelling case for why it is essential for financial institutions to implement an onlineaccount opening process. A Javelin scorecard in indicated that 84% of 25 leading U.S. financial institutions based on deposits had installed online account opening. Economies of scale may not provide as persuasive a reason for adoption at smaller institutions, and this is where implementation and servicing costs move to the forefront of the analysis. With the primary online vendors counting their clients by the hundreds, it is far from a standard feature at most banks and credit unions. And some institutions rely on bare-bones offerings that do little more than enable applicants to fill out a form so a bank or credit union employee can contact them later. The upshot is that even financial institutions that have installed advanced systems still struggle with frustratingly high failure rates because too many applicants give up or unnecessarily fail to pass through the screening processes. Too often, online applicants were left disappointed by processes that were clunky, frustrating slow or overly stringent. This experience runs counter to the expectations that opening an account would be fast and simple. All told, about 39% of consumers and a worrisome 54% of female applicants who attempted to open a checking account online were unable to complete the process without making a trip to a branch or phoning the financial Female Applicants institution. Encounter More (See Figure 3.) Obstacles In essence, that is (See Page 25. ) like barring the door to two out of five applicants who seek to enter what could be a bank or credit union s most productive branch. Anecdotally, some banks and credit unions complain their failure rates run as high as a staggering 70%. High Failure Rates Leave Bad First Impression Figure 3: Opened a Checking Account Online Without Needing to Phone or Visit Bank 39% Failed Successful 61% Q21: Considering the last time you attempted to open a new checking account, were you successful in opening and funding the account online, without ever nedding to call a CSR or go into a physical branch? Select one only. March 2008, n = 336 Base : Consumers opening an account online Javelin Strategy & Research Banking Identity Safety Scorecard, Javelin Strategy & Research, November

17 Financial institutions often have sound reasons for rejecting potential customers. For starters, financial institutions want to screen out applicants who are known shysters or have a track record for mismanaging their money. Furthermore, banking regulations require financial institutions to know your customer, which is cause for understandable conservatism in a process that theoretically involves no face -to-face contact with the applicant and must rely on oftenflawed credit data. Nonetheless, the application processes at many banks and credit unions are weak and flawed creating a poor first impression for a segment of banking customers who are active and profitable but also are discerning, tech-savvy and critical of disappointing online services at their previous bank or credit union. Inadequate products and cost considerations also have left financial institutions using products that suffer from high abandonment rates and can crimp the size of the initial deposits. Javelin data indicates that 15% of households attempted to open a checking account online in 2008, while another 30% have done so in previous years. (See Figure 4.) Put those two segments together and it means that nearly half of the nation s households have logged on to try to open a checking account underscoring the potential value of this It s a Given: Many Consumers Want to Sign Up Online Figure 4: Last Time Attempted to Open Checking Account Online (All Consumers) 15% In the last 12 months More than 12 months ago 30% Never 55% Q17: When was the last time you attempted to open a new checking account online? March 2008, n = 2,256 Base : All consumers Javelin Strategy & Research 17

18 service as financial institutions expand its use into a broader range of accounts and improve the experience for existing customers who seek to add accounts to their financial portfolios. Generation Y consumers led the way, with about 30% applying online double the rate of consumers overall (15%). (See Figure 5.) And interest was higher still at 35% among 18- to 24-year-old millennials, providing undeniable evidence that future generations of self-service banking customers will expect online account opening. Gen Y Opportunity: They re Twice As Likely to Try Applying Online Figure 5: Last Time Attempted to Open Checking Account Online (By Generation) Gen Y 30% Gen X 14% 35% of Millenials (18-24) attempted online account opening Baby Boomers 12% All Consumers 15% 0% 5% 10% 15% 20% 25% 30% 35% Q17: When was the last time you attempted to open a new checking account online? (In the last 12 months only, other options available) March 2008, n = 448;867;840;2,256 Base: All consumers Javelin Strategy & Research 18

19 It is also noteworthy that only one-third of the applicants were strangers to the bank or credit union. The majority of applicants either already had an existing account with the institution (41%) or were seeking to revive a lapsed relationship (23%). (See Figure 6.) Existing customers should be identified early in the process, and the online opening procedures should be adapted and made easier for this group. Most Online Applicants Already are Familiar With the Bank Figure 6: Online Applicant Relationships With the Bank 36% No, I had never had accounts with the institution Yes, I had other accounts at the same institution 41% No, but I was a customer in the past 23% Q23: Considering the last time you attempted to open a new checking account online, did you apply for a new checking accounts at an FI you had other accounts with? March 2008, n = 336 Base : Consumers opening an account online Javelin Strategy & Research Javelin Takeaway: Mid-tier banks, community banks and credit unions that hope to compete with the banking giants in the online banking have little choice but to implement a smooth account opening process. To date, account opening products have focused on welcoming new customers and efficiently screening newcomers using outside data sources. But Javelin s data underscores the critical need to install a product that also can satisfy existing customers, starting with the ability to streamline the process by approving applications based on internal data or at least prepopulating applications with information the bank has on file. 19

20 But the high failure rates and other obstacles can leave consumers with an unsatisfactory first impression that runs counter to their hopes and expectations. About one out of four consumers who attempted to open a checking account online were motivated by two simple desires: to save time (25%) and to avoid the hassle of visiting a bank or credit union branch (23%). Close behind, 19% said they applied online because they do not live near their bank. Financial institutions might not get a second chance with this last group, which likely includes far-flung rate-shoppers and transient Gen Y consumers. (See Figure 7.) Applicants Expect a Quick, Hassle-Free Experience Figure 7: Consumer Motivations for Applying for Checking Account Online I wanted to take advantage of a high interest checking account 28% I thought it would be faster 25% I didn t want to go into a branch 23% I don t live near my bank 19% I wanted to try something new 15% Other, please specify 15% 0% 5% 10% 15% 20% 25% 30% Q18: What was most important in motivating you to go online to open a new checking account? Select up to three. March 2008, n = 2,256 Base : All consumers Javelin Strategy & Research 20

21 The primary motivation to apply online shifts significantly, however, depending on whether the applicant is an existing customer, a past customer who is trying to renew ties, or is a stranger to the bank. (See Figure 8.) Existing customers are most interested in a speedy process (37%), double the rate for previous or new customers (17% each). Past customers are more likely to be compelled to apply online because they don t live near a branch (33%), double the rate for existing and new customers. New customers are motivated primarily to lock in a high rate of interest (32%), double the rate for past customers. Note: The Other responses at 15% for all consumers varied with such responses as fees too much, money incentives and opened a high interest savings account. Primary Motivations Vary Among Existing, Past and New Customers Figure 8: Motivations for Applying Online (By Relationship to Bank) I wanted to take advantage of a high interest checking account I thought it would be faster I didn t want to go into a branch I don t live near my bank I wanted to try something new Other, please specify 3% 8% 19% 29% 28% 17% 17% 25% 23% 26% 21% 23% 15% 14% 19% 18% 13% 14% 15% 31% 15% 32% 37% 33% Existing customer Past customer Never a customer All Consumers Q18: What was most important in motivating you to go online to open a new checking account? by Q23: Considering the last time you attempted to open a new checking account online, did you apply for a new checking account at an FI that you had other accounts with? 0% 10% 20% 30% 40% March 2008, n = 336,138,78,120 Base: All consumers opening an account online in the last 12 months Javelin Strategy & Research 21

22 Many applicants encountered a disappointing experience, however. The primary complaint was that the process broke down. To finish the process, financial institutions required nearly one out of three applicants to either visit a branch (21%) or phone a call center (11%). In addition, many applicants grumbled that financial institutions took too long to fund and wouldn t let them immediately withdraw money from their new accounts (17% and 14%, respectively), while 14% said the process was too cumbersome. (See Figure 9.) Note: The Other responses at 25% were not significant enough to be grouped individually but included having to mail in information, did not trust and no challenges. The Main Consumer Complaint: Process Required Visiting Branch or Calling Bank Figure 9: Consumer Challenges When Opening Account Online I was required to go into a branch to finish the process. 21% I wasn t able to fund the account immediately. 17% The process took too long and I didn't have the time. 14% I couldn t get immediate access to the funds. I was required to call a CSR to finish the process. 11% 14% (32%)1 out of 3 applicantsneeded to visit branch or phone the bank The process required information I was not willing to give. 10% I did not trust the Web site. 10% The process required information that I couldn't find. 8% Other, please specify 25% 0% 10% 20% 30% Q22: What were your challenges in opening a checking account online? (In the last 12 months only) March 2008, n = 336 Base: All consumers opening an account online Javelin Strategy & Research 22

23 The good news is that despite the high failure rates, consumers were likely to consider the process to be relatively simple and secure. Overall, 53% of consumers rated the process of opening an account online to be easy five times the 10% segment that rated it hard. Financial institutions seeking to target Gen Y customers also can take heart that 73% of the comparatively tech-savvy 25- to 34- year-old applicants gave the process an easy grade, nearly 15 times the 5% segment who considered it hard. (See Figure 10.) Similarly, 51% of applicants gave their financial institution good grades for safeguarding their private information, vs. 10% who felt their information was at risk. Most Applicants Say Application Process is Easy Figure 10: Ease of Process (By Age) 65 or older 6% 30% % 44% % 53% % 60% % 73% % 43% All Consumers 10% 53% Easy Hard 0% 20% 40% 60% 80% Q19: Considering the last time you attempted to open a new checking account online, how would you rate the ease of the process? On a 1 to 5 scale, let 1 represent "Very hard" and 5 represent "Very easy".(1 and 2 combined, 4 and 5 combined, other options available) March 2008, n = 336 Base : All consumers opening an account online Javelin Strategy & Research 23

24 In the broad universe of consumers those who apply offline as well as online nearly half (46%) said they would prefer a face-to-face visit at a branch to verify their identity. That willingness is not evident among those who initiate the process online, however. Instead, they prefer identityverification techniques that could be applied on the phone or online. About 27% preferred to confirm details contained in credit reports and other public records, while 22% preferred This suggests that many applicants who succeeded in opening an account online might view a trip to a branch as a deal-breaker. Just 15% of successful applicants prefer that means of verifying identity, ranking it far down their list at No. 4. Instead, 33% said they would prefer to answer indentifying questions only they would be likely to know the answers to, 22% would prefer to use their Social Security number, and 19% prefer a phone call from the bank. relying on their Social Security number. Visiting a branch ranked third for online applicants at 19%. (See Figure 11.) Unlike Consumers in General, Successful Applicants Balk at Visiting Branch to Confirm Identity Figure 11: Preferences for Verifying Identity When Opening an Account Online I prefer to go into a branch for final verification 15% 19% 26% 46% By answering questions only I would know the answer to based on my credit report I prefer to receive a call from the bank for final verification Using my Social Security number 18% 21% 19% 12% 16% 14% 22% 21% 22% 10% 27% 33% Successful in funding account Unsuccessful in funding account All Online Applicants All Consumers 0% 10% 20% 30% 40% 50% Q24: If you were attempting to open a new checking account online, how would you prefer to verify your identity? Select one only.(top four results only,other options available) by Q21: Considering the last time you attempted to open a new checking account, were you successful in opening and funding the account online, without ever needing to call a CSR or go into a physical branch? March 2008, n = 2,256;336,205,131 Base: All consumers Javelin Strategy & Research Javelin Takeaway: Financial institutions puzzle over whether online applicants represent net new business. At the heart of the issue is the question of whether they must invest in online systems if applicants would have been willing to visit a branch anyway. These findings underscore that it is shortsighted to take a branch-only or branch-centric approach. Significant numbers of potential customers live outside the bank s footprint, strongly prefer the convenience of the online channel, and chafe when the process breaks down. Many would be unlikely to do business with the bank if they discovered that the door provided by online account opening was bolted or jammed. 24

25 FEMALE APPLICANTS ENCOUNTER MORE OBSTACLES More than half of the women who applied online to open and fund a checking account were unable to do so without phoning the bank or visiting a branch an alarmingly high rate that is verging on twice the failure rate of men (54% vs. 30%). Though income rightfully is a central factor, Javelin s data suggests that women apply online for different reasons and encounter tougher hurdles than male applicants. These are issues that financial institutions are wise to keep in mind to ensure that they are not inadvertently treating women inequitably. Women Fail Much More Often Than Men Figure 12: Success Rates for Completing and Funding Application Entirely Online (By Gender) Men Women 30% Failed Successful 54% Failed Successful 46% 70% Q21: Considering the last time you attempted to open a new checking account, were you successful in opening and funding the account online, without ever nedding to call a CSR or go into a physical branch? Select one only. March 2008, n = 208 Base: Men opening an account online Javelin Strategy & Research Q21: Considering the last time you attempted to open a new checking account, were you successful in opening and funding the account online, without ever nedding to call a CSR or go into a physical branch? Select one only. March 2008, n = 208 Base: Women opening an account online Javelin Strategy & Research These findings highlight areas that bear further scrutiny: Convenience motivates women, but geography and rates motivate men. Women applicants said the No. 1 reason for applying online was to avoid a trip to a branch (32%), followed closely by the expectation that it would be speedier (28%). In contrast, 35% of male applicants tried it because they did not live near a branch, followed by a desire to open a checking account with a high interest rate (24%). It is interesting to note that 33% of men who failed to complete the application process online said they had been motivated to try something new, double the 17% rate for women who failed to make the cut. Tough hurdle for women with current and former accounts. Most women who failed to complete the process entirely online either were or previously had been a customer. In contrast, 47% of the men who failed had no previous relationship with the bank. The failure rate for women with current accounts was double that of men with existing accounts (49% vs. 24%). 25

26 Lower incomes rightfully play a key role. About 57% of female applicants had incomes of $35,000 or less, compared with only 42% of male applicants. Similarly, 63% of women who failed to complete the application online had incomes in this range, vs. 52% of the men who failed. Income is a key variable, but the higher failure rates for women suggests that financial institutions should examine whether screening processes make it harder for lower-income women to make the cut. Women and men encounter different obstacles. Male applicants said their No. 1 challenge was collecting the required information. That was a stumbling block for 23% of male applicants overall, and 32% of those who failed to complete the process online. This was closely followed by a lack of trust in the Web site s security (22% of all male applicants, and 29% of men who failed.) In contrast, female applicants were more likely to cite the inability to fund the account immediately, the hassle of visiting a branch and the lack of trust. Those answers applied to 14% to 19% of female applicants, both successful and unsuccessful. Men are more likely to carp about security. Applicants who fail to complete the process online have heightened concerns about online security, but anxiety is higher among the men. For example, 22% of failed male applicants said the process was unsafe, double the 12% rate among women. Javelin Takeaway: Applicants who encounter difficulties in completing the process entirely online are more likely to distrust the process and emerge with an unfavorable impression of the process. This backlash underscores the importance of implementing an online process that stays online and does not run counter to consumer expectations by forcing them to phone or visit the bank or credit union. 26

27 SUCCESSFUL APPLICANTS ARE MORE PROFITABLE A key question is whether applicants who apply online are worth the trouble and investment. In short, do they make better customers than those who open accounts through offline channels? The short answer is they do. The highlights: They use more banking products than the average consumer providing a rich source of cross-selling opportunities They actively interact with their bank or credit union. They frequently visit branches, but they are inclined to use lower-cost self-service channels and services, too. They are more sensitive to banking fees, and they respond to higher rates. One big gripe: They want more online services. They Have an Appetite for Bank Products One compelling finding is that successful online applicants are strong candidates to use more bank products and services. This inclination means there is an opportunity to deepen the relationship by cross-selling other profitable products or services. From the product side, the relationship typically includes a checking account (75% vs. 71% of consumers), but they are often looking for places to invest or park funds. For example, successful applicants are more likely to buy CDs (29% vs. 21%) and open business bank accounts (23% vs. 15%). Some of those business owners undoubtedly opened an account because they had been hunting for higher returns on their idle cash. (See Figure 13.) 27