Financial institutions lost at least $873 million, conservatively, in potential revenue, as 5.8 million customers attempted—and failed—to open accounts online, according to research by Javelin Strategy & Research.
Encountering failure, consumers switched to an application process that was more costly for FIs (e.g. at a branch) or abandoned their efforts and took their business elsewhere. The report is based on data collected from more than 5,000 consumers, as well as examination of online account offerings at the ten largest U.S. FIs and five technologically oriented smaller banks and credit unions.
First impressions are everything, and FIs risk their reputations—and relationships with customers—when the online application process goes awry. The desire to save time was the consumer’s primary motivation to apply online for a checking account. However, only 53% of these applicants were able to successfully open and fund their account. The other half abandoned the process, had to go into the branch to complete the rest of the applications process, couldn’t open the type of accounts they wanted, or faced other issues.
“With 50/50 odds, a consumer’s chance of successfully opening and funding an online account is a virtual coin toss,” says Mark Schwanhausser, senior analyst, Multichannel Financial Services at Javelin. “Successful online account openings reduce acquisition and servicing costs for FIs, launch new customer relationships, and deepen online relationships with more profitable, tech-savvy, self-service consumers. Consumers who experience problems will go elsewhere, and FIs will miss out on revenue and cost-savings opportunities.”
Javelin found that 68% of the tech-savvy Moneyhawks—who use online banking, pay bills through their primary FI, and use mobile banking—were able to open and fund their online accounts. This means that almost one-third of Moneyhawks was unable to open and fund a checking account online, a cause of concern for FIs that don’t want to lose their relationships with this most profitable consumer group. FIs also risk losing revenue from the two-thirds of potential applicants who wanted to become customers, but were unable to complete their applications online.
“Successful online account opening is key for all FIs and especially for smaller community banks that tend to draw a higher percent of newcomers, yet suffer higher failure and abandonment rates,” says James Van Dyke, president, Javelin. “Our report provides insight into how to improve the odds of successful online account applications for all consumer segments and establish effective online relationships with customers.”
Selected findings include:
• Nearly one-fourth of consumers applied online to open an account in the previous year, topped by checking, savings, and credit card accounts.
• A secret-shopper survey of 15 banks and credit unions reveals that applications for other types of accounts are lower in part because FIs typically do not offer a full menu of accounts online.
• Mobile account opening is the next frontier.