A new research report reveals retail financial institutions are unnecessarily losing nearly $1 billion in potential revenue as consumers walk away from the online account opening process frustrated.
In a study from Javelin Strategy & Research, “2011 Online Account Opening,” the firm says that faulty online account opening processes hobble financial institutions in their battle for customers and profitability.
“First impressions are everything,” said James Van Dyke, President of Javelin. “Financial institutions risk their reputations and relationships with customers when the online application process goes awry.”
Two-thirds of those who tried to become a new customer were unable to complete their applications online.
“Successful online account opening is key for all financial institutions, especially for smaller community banks that tend to draw a higher percentage of newcomers, yet suffer higher failure and abandonment rates,” Van Dyke added.
According to Javelin, one in four consumers tried to open an account online last year, with applications ranging for everything from checking and credit cards to auto loans and mortgages. In 2011, 5.8 million people attempted — and failed — to open accounts online.
Only 53% of applicants were able to successfully open and fund their account online. The other half abandoned the process, were forced into a branch, couldn’t open the type of account they wanted, or faced other issues.
Most people apply for accounts online because they expect it to be faster and more convenient than doing it over the phone or visiting a branch. But once a customer encounters a roadblock, they either shift their application to other more costly channels, take their business elsewhere, or just give up entirely.
“A consumer’s chance of successfully opening and funding an online account is a virtual coin toss,” notes Mark Schwanhausser, a Senior Analyst at Javelin. “Consumers that experience problems will go elsewhere, and financial institutions will miss out on revenue and cost-savings opportunities.”
Javelin conservatively estimates the cost to retail banks and credit unions to total at least $873 million in lost revenue, perhaps much more.
For the report, Javelin used a team of “secret shoppers” to try out the online application process for various types of accounts at the 10 largest US financial institutions, plus five technologically-oriented smaller banks and credit unions. The study also integrates data collected from more than 5,000 consumers.
Most of the problems with online account openings are related to how the process is structured, not necessarily technological breakdowns. For instance, one of the issues Javelin unearthed while assessing Citibank’s online home equity application included a cycle of frustrating links that forced the user to call a bank representative on the phone for help.
“I was a bit disappointed because I expected it to be an instant gratification process, similar to online shopping,” complained one frustrated customer who only identified himself as Bob. “Instead, it can take a couple of weeks and involves snail mail.”
“if they are going to ask you to snail-mail them a copy of your ID, they could say that upfront instead of keeping you in the dark for days until you get a letter in the mail,” Bob added.
“The online applications seemed to disappear into a black hole, with the only acknowledgement being ‘We’ll let you know when your application has been approved’.”
Javelin’s Van Dyke says the online account opening process leaves a lot to be desired. “Despite online account opening having existed for quite some time, there’s still tremendous room for improving what is effectively the welcome mat or barred-door to the online branch,” Van Dyke noted.
“There’s a host of reasons why online account opening succeeds or fails with a particular institution’s customers, and for anyone who’s serious about improving the process I’d recommend starting with who consumers rate as being best or worst, and then benchmarking your own requirements (or current product) against what your top competitors offer.”
You can download a brochure about Javelin’s study and purchase the “2011 Online Account Opening” report here.