Online banks are having a tough time attracting and keeping customers. According to a new study, approximately one-third of US online-bank customers discontinued their accounts during the past 12 months.
In a study released yesterday, Cybercitizen Finance, a division of online market researcher Cyber Dialogue, finds that the growth of online banking trails far behind that of other financial services.
From July 1998 to July 1999, the number of customers of online stock brokerages shot up 53 per cent, those using online insurance services soared 47 per cent and online credit card applicants increased 27 per cent. The number of online banking customers, however, grew a mere 2 per cent during the same period. And though 3.2 million people have opened online bank accounts since last July, another 3.1 million have stopped using theirs altogether, according to the report.
"Fifty per cent of the people who discontinued their use of online banking indicated they found the sites to be too complicated or the customer service dissatisfying," says Michael Weiksner, manager of finance strategies for Cyber Dialogue.
The dismal statistics come at a time of uncertainty for the online banking industry in general. While brick-and-mortar banks are desperately trying to establish sustainable online business models, Internet-only banks without established brand recognition are struggling to gain market share. The longer it takes them to figure it out, it seems, the more people will abandon them altogether.
On Monday, Citibank opened its virtual doors to a long-awaited financial services portal called Citifi, with plans to increase the company's online customers, which number less than 1 million today, to 1 billion by 2010. The company's e-Citi business unit has had an army of some 850 people working on the initiative for more than a year. The soft launch was accompanied by no promotional effort on behalf of Citibank.
One inspection of the site revealed that even the soft launch was perhaps a bit premature: Citifi.com, which is unavailable for Macintosh users, didn't introduce any notable new products or services. Rates offered on interest-bearing accounts were comparable to brick-and-mortar banks; Internet-only banks, on the other hand, generally offer better rates as a result of lower overhead.
The Citifi offering follows the well-advertised Wingspanbank.com launch from Bank One. In an aggressive and unprecedented move, Bank One chose, in effect, to start over by launching a Net-only bank with its own brand. The offline bank continues to offer online banking services at regular rates for customers of its brick-and-mortar parent. It's too early to tell how the industry will receive Wingspanbank.com, but the massive marketing campaign funded by Bank One to get it off the ground gives it a leg up on the competition.
Another interesting fact from the Cybercitizen Finance study reveals that 54 per cent of the online users polled would want all their financial services provided by one company. Of these, 16 per cent would prefer to receive services from banks rather than credit-card companies, brokerages or third-party online providers.