By 2004, in the UK, 3.5 million customers will use Internet services in retail banking

Citation

(1999), "By 2004, in the UK, 3.5 million customers will use Internet services in retail banking", European Business Review, Vol. 99 No. 6. https://doi.org/10.1108/ebr.1999.05499fab.010

By 2004, in the UK, 3.5 million customers will use Internet services in retail banking

Keywords Financial services, Internet

According to a new report produced by Datamonitor for Reuters Business Insight, the Internet is set to transform the distribution of financial services products over the next five years.

The report, UK Financial Services on the Internet warns that financial services companies without Internet strategies risk missing out on its huge potential for reducing costs and breaking into new markets. The report reveals:

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  up to 31 per cent of UK consumers are prepared to use the Internet when dealing with their financial services provider;

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  provision of an Internet service will be key to winning new customers;

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  product familiarity amongst consumers will determine which develop most quickly in the Internet channel.

Up to 31 per cent of consumers are prepared to use the Internet when dealing with their financial services provider

A recent consumer survey commissioned by Datamonitor reveals that significant market potential exists for the distribution of financial services products using the Internet. Customers were asked their attitudes towards the purchase of different product types over the Internet. The results revealed that up to 31 per cent of consumers would be prepared to use the Internet for the purchase of certain types of financial services product (see Figure 1).

Figure 1 Consumer attitudes towards the purchase of financial services over the Internet vary by product

The survey showed that the product types currently viewed as most suitable for distribution using the Internet were current accounts, car insurance and content insurance, with 31 per cent, 22 per cent and 20 per cent of consumers respectively stating they would be willing to contract these products over the Internet.

Whilst consumers are willing to embrace the advantages of the Internet, significant amounts of education and promotion are required. Even the most suitable products to Internet distribution, such as motor insurance and banking, will take time to fulfil their potential. In 1998, approximately 9,000,000 adults in the UK (20 per cent of the adult population) have surfed the Web and only a small proportion of these are prepared to use their credit card to purchase goods through this medium.

However, attitudes towards Internet commerce and access to online PCs are rapidly developing to the good (see Figure 2). Forecasts contained in the report anticipate that almost 21 per cent of households will have a modem by 2000, rising to 30 per cent in 2002.

Figure 2 Proportion of UK pc households with a modem 1997-2002

High profile entrants will accelerate the shift to Internet buying

The cost savings and marketing advantages of the Web channel over other direct means have in the last year encouraged numerous companies to enter the market; Citibank, Prudential (EGG) and Barclays amongst others.

According to the report, early entry into Internet financial services secures a number of key advantages for providers, such as:

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  attracting younger customers;

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  allowing the business model to be developed in stages; and

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  establishing a brand associated with service and innovation.

Ben Dutton, author of the report, commented: these three factors underpin Prudential's strategy in its launch of EGG. The choice of a separate brand name is recognition that the demands on a direct financial services provider are different. EGG is designed to appeal to the typical Internet user rather than customers who purchase through the independent financial adviser channel or Prudential's own salesforce. Once a significant customer base has been established in the core banking product offerings, and customers are satisfied that the service works, other Prudential products will be added to the range. A separate operation also avoids the stigma which may be attached to other delivery channels.

Adopting a follower strategy in providing Internet financial services could result in companies missing the window of opportunity

The report concluded that leading financial services providers cannot afford to compromise their reputation for customer service by not offering Internet facilities. Utilising Internet technologies, both as a direct link to customers, and as a channel of internal communication, is more than recognition of the channel's sales potential - it demonstrates a forward-looking company's desire to utilise new opportunities. Amongst all financial services providers the future impact of the Internet is not questioned; the issue is when companies will profitably reap the benefits.

UK Financial Services on the Internet is available from Reuters Business Insight at a cost of £495/$795.