The Future of Account Opening Why Online Applicants Can Be Your Most Profitable Customers Table of Contents o o o o o Executive Summary: The Future of Retail Banking How Many Apply? The Scale of Online Account Opening Who Are They? The Demographics of Online Account Openers What Are They Worth? The Value of Accounts Opened Online Conclusion: The Power of Choice 1 2-3 4-6 7-9 10
Executive Summary: The Future of Retail Banking In 2004, Andera opened the very first bank account online for Bank Rhode Island, and since then we have processed millions of online applications for hundreds of institutions. We have watched online account opening grow from a novel solution pioneered by innovative institutions to mainstream banking software, and we help new financial institutions implement online account opening solutions every day. The rise of online account opening reflects a larger trend in retail banking: the rise of consumer choice. Innovation in online and mobile technologies combined with the preservation of branches and call centers has allowed consumers to choose when and where they interact with their financial institution. In today s increasingly competitive landscape, institutions that do not allow consumers access to banking services through multiple channels risk losing business to institutions that offer choice. At Andera we hear stories about exciting new technologies every day, but we also know that retail banking has a long way to go before it realizes the full potential of the digital (let alone the mobile) revolution. Many banks and credit unions concentrate their limited resources on the branch and call center and still have not implemented an online customer acquisition solution. This report will discuss the scope and growth of the online channel, analyze the demographic characteristics of online applicants, and show you why online applicants can be your most profitable customers.
How Many Apply? The Scale of Online Account Opening Online Banking is a Stepping Stone to Online Account Opening Convenience rules contemporary retail. Store too far away? Visit the site online. Can t access the site from your smartphone? Consider another vendor. Brick-and-mortar locations used to dominate the customer experience, but now the name of the game is choice. According to the Federal Reserve, 68% of consumers use online banking services i. A McKinsey & Company report on Banking on Multichannel released in 2010 predicted rapid growth for the online channel, moderate growth for call centers, and stagnant growth for branches and ATMs ii. The report also estimated that by 2012 the total dollar value of banking transactions conducted online would exceed the value of transactions conducted at the branch or via an ATM combined. Retail ecommerce began when brick-and-mortar stores started advertising and offering customer service online, and gradually expanded to become a complete online shopping experience. Likewise the banking industry is transitioning from offering only online account management services to total internet banking. It s only a matter of time before consumers who manage their existing accounts online become consumers who open accounts online as well. The transition has already According to Javelin Strategy & Research, 1 in 4 consumers have applied for an account online, and that number is growing, started; in 2010, Javelin Strategy and Research reported that one in four US adults have started an online account application iii. Results from a 2009 Javelin report indicate that one in four translates to half of all households and many primary household accounts iv. More consumers are applying online, and financial institutions are reacting; an Andera survey in 2011 found that the majority of responding institutions aim to grow the percent of accounts they open online by
20-50% by 2015, either by launching an online account opening solution or by driving traffic to and optimizing their existing solution. Expanding Institution Reach, Expanding Consumer Choice Many financial institutions use online account opening as a strategy to grow their geographic footprint. With online account opening, community banks and credit unions without the resources to open new branches can attract consumers from across the country with a website, allowing them to compete with national and internet-only banks. Online account opening allows consumers to access applications from mobile devices, if they choose. Andera used Google analytics to see how many consumers applying for accounts with our 15 largest clients accessed our online account opening workflow from a smartphone or tablet v. We found that the use of the mobile channel in account opening has more than tripled over the last two years, indicating that consumers are increasingly willing to conduct complex banking business through the mobile channel. Our results complement trends found by the Federal Reserve in their 2012 report on Consumers and Mobile Financial Services. i The technological sophistication of consumers is growing, and banks and credit unions need to redouble their efforts to reach them through all channels. 12.00% Percent of Applications Accessed from Mobile Devices 10.00% 9.55% 8.00% 6.00% 6.72% 4.00% 2.00% 0.00% 4.15% 2.59% 2.84% 1/10-6/10 7/10-12/10 1/11-6/11 7/11-12/11 1/12-6/12
Who Are They? The Demographics of Online Account Openers We compared our data on 29,000+ online applicants with data on the general population and discovered that online applicants are on average younger, wealthier, more educated, and more likely to have children than the average applicant. That s good news for financial institutions with online account opening, who can expect longer relationships, larger relationships, and more opportunities to sell family-related products like mortgages and college saving accounts. The last point is supported by another study; in 2009 Javelin Strategy found that online applicants on average purchase more financial products IV. These patterns might appear because key demographic segments are particularly likely to use online account opening. Educated, high-income consumers are more likely to be tech-savvy than low-income consumers, as are members of Generation Y (18-35 years olds) who present a greater lifetime opportunity. New parents in need of new financial products have less time to travel to a branch and apply for an account, and especially value the convenience that online account opening affords. Younger 18-24 25-35 35-44 45-54 18-24 25-35 35-44 45-54 55-64 65-74 75+ 173 195 132 Online account openers are 95% more likely to be between 25 and 35 Error Margin: +/- 15% 55-64 65-74 91 75+ 0 10 20 30 Online account openers are 85% less likely to be over 75 65 32 15 Online Account Openers General Population
Wealthier Under $15,000 $15,000-$19,999 $20,000-$29,999 $30,000-$39,999 $40,000-$49,999 $50,000-$74,999 v $75,000-$99,999 $100,000-$124,999 $125,000-$149,999 $150,000 and Over 0 5 10 15 20 25 Online Account Openers General Population More online account openers earn more than $50,000 than the general population 46 54 69 68 88 140 135 125 119 121 Error Margin: +/- 15% More Educated Less than High School High School Diploma Some College Bachelor Degree Graduate Degree 0 20 40 60 General Population Online Account Openers Less than High School 49 High School Diploma Error Margin: +/- 15% 80 Some College 123 Bachelor's Degree 137 Graduate Degree 117 Online account openers 37% more likely to have graduated college More Likely To Have Children No Yes Yes No 0 20 40 60 Online Account Openers General Population Information not available for all applicants Online account openers are more likely to have children 54 138 Error Margin: +/- 15%,,
What Are They Worth? The Value of Accounts Opened Online Less Expensive to Acquire We ve shown you that more consumers are choosing to apply online, and that online applicants are on average wealthier, more educated, and buy more products than off-line applicants. But in order to fully understand the value provided by online account opening solutions, we need to compare costs. The 2010 McKinsey & Company study reports that the average cost of acquisition is 43% lower online than in the branch for a checking account, 32% for a Savings account and 45% for a credit card. ii CorePROFIT Solution realized similar figures from an indepth analysis of the cost to open an account for three different deposit products at four community banks: Product Channel Unit Cost Checking Branch $219.97 On-Line $93.56 Savings Branch 177.47 On-Line $103.35 Less Expensive to Service MMA Branch 183.32 On-Line $92.91 Percent Difference Online Branch 57% Lower 41% Lower 49% Lower Cost savings in the online channel continue past the point of sale. A separate CorePROFIT study of five credit unions found that members who open their accounts in person tend to rely on the branch to process transactions, check balances, and resolve issues more than members who open their accounts online. CorePROFIT analyzed each credit union s 100 most profitable and least profitable members, and found that the 100 least profitable members cost $30,000 or 1.9 times more to service than the 100 most profitable members because of their reliance on
branches. While many of the products owned by both sets of members were similar, the key cost difference was attributable to channel selection: as a group the 100 least profitable members opened all of their accounts at the branch, completed almost all of their deposit or withdrawal transactions at the branch, wrote checks instead of using bill payment services and made all their loan payments at the branch. The 100 most profitable members opened 85% of their new accounts online, paid all loan payments via bill payment services and used ACH or direct deposit services. In short, members who used alternative channels, especially on-line account opening services, were less costly and more profitable. Easier to Cross-Sell Online account opening also delivers value by increasing cross-sell efficiency. Bankers tend to believe that the best place to cross-sell is the branch, where trained representatives can point customers or members toward the right products and insure a positive overall experience. In reality, branch personnel tend to sell products that they are most familiar with, not the most profitable products. Online account opening platforms allow financial institutions to automatically prequalify applicants and make cross-sell offers based on rules defined by the institution, lowering the potential for human error and ensuring that all applicants receive appropriate offers. High Performing Financial Institutions Embrace the Online Channel An Aite Group survey in 2011 that analyzed the habits of high-performing banks found that highperformers spend more on information technology and are specifically more likely to purchase software-as-a-service (SaaS) platforms and pursue paperless initiatives and mobile initiatives. vi While most banks cut or kept IT spending steady in 2010 during the recession, two-thirds of high 25% of high performing financial institutions use SaaS vendors for account opening, compared to 9% of other institutions performers increased their IT budgets, and 40% of high performers have always relied a lot on SaaS compared to only 20% of other financial institutions. 25% of high performing financial institutions use SaaS vendors for account opening, compared to 9% of other institutions. Other services that high performers employed SaaS for much more frequently than other financial
institutions include credit card issuing (33% to 13%), debit card issuing (29% to 14%), electronic bill payment (46% to 16%) and consumer mobile banking (21% to 6%). Online account opening makes an entirely paperless banking relationship possible. Many online account opening platforms, including Andera s, record the applicants personal information directly into the core banking system without any need for paper archives. New customers or members can automatically enroll directly in online account opening, keeping the process paperless from start to finish. Reducing paper and postal costs can save financial institutions thousands of dollars over a fiscal year. In addition, online account opening platforms offer a natural bridge between online and mobile customer acquisition solutions, as consumers can choose to access applications from a traditional desktop or laptop computer or from a mobile device, such as a smartphone or tablet. Online account opening software is constantly evolving to improve usability and customer experience, add more features, add more products, and integrate with more core banking systems, data providers and other software vendors, and should be a piece in every institution s long-term IT strategy..
Conclusion The Power of Choice Online account opening can expand your financial institution s reach beyond your branch spread, cut your cost per acquisition and your servicing costs by up to 50%, help your institution crosssell more efficiently, and win you customers that will on average purchase more and stay around longer than off-line customers. These reasons alone make a strong case for purchasing an online account opening solution, but they exclude the most important reason: as financial institutions continue to adopt new online and mobile technologies, the service paradigm will shift to emphasize choice. In the past, consumers have always come to branches, but in the future, financial institutions must learn to meet them where choose. Consumers who prefer an in-person interaction with their banker will visit the branch or use a call center. Consumers who prefer the convenience of online or mobile may never set foot in a branch, and financial institutions should be glad to serve them on the cheaper channel. On all channels, financial institutions do their best to ensure a positive experience and keep their customers coming back. We believe that online account opening, and indeed all technology, should be part of a larger strategy to allow customers to interact with their institution when they want, where they want and how they want. That is the power of choice.
References i Board of Governors of the Federal Reserve System. Consumers and Mobile Financial Services. March 2012. ii McKinsey & Company Financial Services Practice, Banking on Multichannel. November 2010. iii Javelin Strategy & Research Online Account Opening Consumer Analysis and Vendor Ranking: How to Minimize Abandonment and Maximize Adoption. May 2010. iv Javelin Strategy & Research, Online Account Opening Consumer Analysis and Vendor Comparison: How to Optimize Efficiency, Enrollment and Risk. May 2009. v Andera Inc. Mobility Trends Press Release. September 2012. vi Aite Group, CIO Survey 2011: Eight IT Habits of High-Performing Banks. November 2011. Consultation provided by Graber Associates.