On-line financial services struggle to win consumer acceptance

The study carried out by US-based Mercer Management Consulting assesses the impact of the internet throughout the financial services industry.

The study found that since July of 1999, on-line traffic of new customers or visitors at the web sites of financial services firms has increased some 150%, more than twice as fast as overall internet usage. However, it also found that consumers make online purchases of insurance, loans, and mortgages far less often than they buy computer hardware, books, travel, clothing, and other consumer goods and services online.

A survey of over 1200 consumers found that only 5% of respondents had purchased insurance online. Only 3% had taken out on-line loans or mortgages.

“Consumers still prefer to conduct a large percent of transactions over ‘non-digital’ channels,” said Mike Riley, a Mercer vice president. He sees a reluctance in consumers to embrace digital channels, adding that “this reluctance continues despite the fact that substantial segments of consumers – in some cases more than 40% – express openness to the idea of purchasing financial services online.”

Of around 50 companies studied by Mercer, brokerage and banking firms were identified as the industry’s e-business leaders.

“The truth is that relatively few financial services companies have been able to translate digital capabilities into superior levels of value creation,” Riley says. “Companies emerging as winners are those with the most effective digital business designs.” Riley notes that digital business designs are not about technology. “They’re about leveraging digital capabilities to create unique offerings to customers in order to radically improve productivity and increase profits, ” he says.

According to Riley, there are opportunities for financial services companies. “Despite their reluctance, consumers are open to buying financial services on-line, given a competitively priced product from a reputable, accessible source,” he says, adding that “companies that will be most effective in this market will be those incorporating the keenest awareness of the consumer into their digital business designs.”

The findings of the report

• Brokerage and banking companies have been best able to translate digital capabilities into value creation.
• The insurance industry has been the least successful.
• In all industry sectors studied, “Old Economy” names hold the greatest promise as e-business competitors.

The average time spent online was highest at the web sites of “Old Economy” incumbents such as Merrill Lynch and Charles Schwab. These companies also have very successful digital business designs, emphasising “multiple products,” “multiple channels,” and “open architecture” offering customers ample information and choice. In contrast, new financial services entrants are frequently single-product companies hindered by lower customer retention and higher customer acquisition expenses resulting from costly web alliances.

• Business design, not technology, will generate profits.

Mercer’s study cites the success of brokerage firm Edward Jones, which emphasises relationship marketing to its clientele and is decidedly low-tech. Edward Jones leverages a business design built around relationship management focused on a specific target market to produce one of the industry’s fastest-growing firms.

• The on-line market is smaller than originally forecast.

Mercer research indicates that the market for financial services purchased through on-line channels is much smaller than originally forecast.