How Consumers Select and Purchase Financial Products "

How Consumers Select and Purchase Financial Products "

What They Want " The constant question on the mind of financial marketers is, what do consumers want? To find out, Rob Rubin, managing director at Novarica, launched a website called findabetterbank.com that matches consumers with financial institutions using answers to a short quiz about banking preferences. Consumer responses collected over time provide valuable insight into the mindset of the 21 st century consumers. The results are somewhat surprising; convenience features like online billpay and mobile banking rank high, while interest on balances, usually thought of as a primary account differentiator, ranks relatively low. Free checks, another common perk, is hardly valued at all. Percent indicating feature is a Must Have " Online Billpay Free ATM access Mobile Banking OverdraH Protec*on Free Linked Accounts Interest on Balances Unlimited Checks ATM Fee Rebates Free Checks Debit Rewards Ac*vity Download 0% 5% 10% 15% 20% 25% 30% Source: 55,999 unique searches on findabetterbank.com in Q2 2012

Who They Are" Financial consumers can be segmented in a million different ways: young, old, male, female, wealthy, poor, educated, uneducated, single, married, etc. One of the more useful ways to segment consumers, however, is by how they prefer to interact with your financial institution. In their 2012 US Multichannel Customer Research Report, Rise of the Virtually Domiciled the research and consulting firm Novantas segmented consumers into the three categories based on their channel preferences outlined below. Three Types of Financial Services Consumers" Branch Traditionalists" Multi-Channel Consumers" Virtual Domiciles" About 25-40% of the US Population They rely on the branch as their primary channel and tend to make 3-4 visits per month They tend to value relationships with branch staff more than the average consumer They are slightly lower income than the average consumer About 35-45% of the US Population They rely on both the branch and the online channel to conduct transactions, visiting the branch about as often as the branch traditionalist but also interacting through digital channels They tend to keep slightly larger deposit and loan balances They tend to be slightly younger than the other two consumer segments About 25-35% of the US Popula5on They conduct most of their transactions either online or via a mobile device They are, on average, cheaper to serve because they require less staff time They can only be crosssold through digital channels Source: Novantas 2012 US Multi-Channel Customer Research Report based on a survey of 3,263 US respondents

How They Shop " Increasingly, consumers are shopping for financial products online, which means that that your website, your online advertising and marketing strategy, and the search engine rankings of your product pages are increasingly important. Your website serves two purposes: first, it should drive direct sales through a link to an online application, and second, it should provide necessary information and compelling messaging to convince consumers who prefer to open accounts in the branch to make a visit. Research channel preferences by product type" Product Type" Deposit Account Mortgage Online" 70% 61% Branch" 14% 19% Advice" 14% 19% Phone" 3% 2% Branch Traditionalists" 25-40% " Multi-Channel Consumers" 35-45%" Virtual Domiciles" 25-35%" Branch Traditionalists most likely rely more on person-to-person channels to research, including the branch, the phone, and advice from friends & family. Multi-Channel Consumers most likely research primarily online, but may also research elsewhere, especially for more complex products. Virtual Domiciles most likely research almost exclusively online, although they may seek more information or eventually buy in another channel. Source: Novarica research

Where They Buy: Online" Consumers who shop for products online often choose to apply for those same products online, provided that the website they re shopping on provides sufficient and compelling information and links to an online application. Javelin Strategy & Research estimates that 88.5 million Americans started online applications for financial products in 2012; it s safe to assume that Virtual Domiciles or Multi-Channel Consumers made up the majority of that 88.5 million. Between 15-20% of consumers who apply online do so from a smartphone or tablet, reflecting the increasing importance of mobile in financial services. Branch Traditionalists" Do not buy online Multi-Channel Consumers" Sometimes buy online Virtual Domiciles" Often buy online Percent of online deposit account applications accessed from a mobile device " 18% 16% 14% 13.9% 16.3% 12% 10% 8% 6.7% 9.5% 6% 4% 2% 2.6% 2.9% 4.2% 0% Jan-June 2010 July-Dec 2010 Jan-June 2011 July-Dec 2011 Jan-June 2012 July-Dec 2012 Jan-June 2013 Source: Andera Google Analytics data from over 4.5 million online applications, 2010-2013

Where They Buy: Branch" Although more and more consumers are choosing to open accounts online, most still end up opening them in a branch. Consumers may choose the branch because they enjoy the person-to-person interaction, but more often they prefer it because financial institutions do not make all of the information consumers need to decide to apply for financial products available online. The more complex the product, the more likely consumers are to turn to the branch; even Virtual Domiciles may apply in person for products like mortgages or commercial loans. Branch Traditionalists" Buy in the branch Multi-Channel" Consumers" Often buy in the branch Virtual Domiciles" Sometimes buy in the branch Channel preferences for mortgage shoppers" Preferred Research Channel Preferred Channel to Open 68% 14% 8% 7% 3% Branch 19% Phone 2% 26% 24% 37% 11% 3% Online 61% 37% 46% 9% 4% 4% 50% 27% 12% 3% 8% Advice 19% Branch Phone Online Mail Visit Source: Novarica research

Customer & Member Transactions" After consumers become customers or members, the incentive to come into the branch decreases for many. Over the last few years, transaction banking has seen a significant shift towards digital channels. More complex transactions are more likely to provoke a branch visit, but new technologies, like full-service ATMs and remote deposit capture, are continuously reducing consumer dependence on the branch. Virtual Domiciles rely most on online and mobile, Multi-Channel Consumers use all channels, and Branch Traditionalists transact primarily in the branch. Channel preferences for banking transactions" 100% Branch/In Person ATM Phone Online Mobile/Tablet 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Check Account Balance Transfer Funds Withdraw Funds Replace a Card Resolve Issue Pay Mortgage* Deposit Funds Get Financial Advice Source: Novarica research

Customer & Member Cross-Sell" Most financial institutions rely on customer and member branch visits to cross-sell additional products and deepen relationships, and are not effective at cross-selling through digital channels. Virtual Domiciles, who comprise 25-35% of consumers, tend to be particularly underserved, because they visit the branch least often and therefore receive the fewest cross-sell offers. Survey data shows that consumers prefer to receive cross-sell offers through email or through the mail, although this may be because they can more easily ignore messages that do not require a person-to-person interaction. Channel preferences for cross-sell " An email message A letter in the mail A message appearing upon login to bank website An attachment to my monthly statement A text message A notification from my bank app At the branch when I m in line for the teller A phone call to my home number A phone call to my cell number At the ATM A phone call to my office number I would not like to be notified 0% 10% 20% 30% 40% 50% 60% 70% Source: Novantas 2013 US Multi-Channel Customer Research Report Based on a survey of 4,813 US respondents

Looking at the Big Picture" Perhaps the most useful way to think about 21 st century consumers is in terms of a sales funnel. First, consumers enter the funnel, usually through online research. Some percentage of those consumers open accounts or apply for loans, online or in the branch or call center. Some percentage of applicants become customers or members. Tracking consumers through the funnel, and trying to widen it at each point, is the best way to win more customers and members. Branch Traditionalists" 25-40% " Multi-Channel Consumers" 35-45%" Virtual Domiciles" 25-35%" To hear tips and tricks for marketing your products, improving your online presence, and driving more online applications, download Andera s recent report 5 Secrets of Bank Marketing Superstars. Site Visitors Started Applications Submitted Apps How many consumers enter the funnel? How many consumers actually start applications, either online, in the branch, or through the call center? How many started applications become submitted applications? To learn more about how to increase throughput in online applications, download Andera s report Seven Reasons Applicants Quit. Customers and Members How many application submits become approved and funded open accounts? (What is your application throughput rate?)

Learn More " Rob Rubin rrubin@novarica.com 212-401-5277 Andera info@andera.com 888-365-1100 More Reports & Studies from Andera REPORT: The Future of Account Opening REPORT: Seven Reasons Applicants Quit CASE STUDY: Randolph Brooks Federal Credit Union CASE STUDY: Consumers Credit Union REPORT: Five Secrets of Bank Marketing Superstars VIDEO: 8 Habits of High Performing Financial Institutions VIDEO: Responsive Web Design in Account Opening and Lending Read our blog: blog.andera.com