Consumers Aren't Rushing to Adopt Financial Services

Despite the successful adoption of online trading, most Web-based financial services have yet to win acceptance among consumers, according to a report by Mercer Management Consulting.

The study, “Digital Business Designs in Financial Services,” which assesses the impact of the Internet throughout the financial services industry, found that since July of 1999, online traffic of new customers or visitors at the Web sites of financial services firms has increased 150 percent, more than twice as fast as overall Internet usage. The study also found that consumers make online purchases of insurance, loans, and mortgages far less often then they buy computer hardware, books, travel, clothing, and other consumer goods and services online. A Mercer survey of more than 1,200 consumers found that only 5 percent of respondents had purchased insurance online. Only 3 percent had taken out loans and mortgages.

“Consumers still prefer to conduct a large percent of transactions over ‘non-digital’ channels,” said Mike Riley, a Mercer vice president. “Even a mature channel such as ATMs shows a surprisingly low adoption rate of 50 percent. This reluctance continues despite the fact that substantial segments of consumers — in some cases more than 40 percent — express openness to the idea of purchasing financial services online.”

The report focuses on “digital business designs,” which are not about technology, but rather, about leveraging digital capabilities to create unique offerings to customers in order to improve productivity and increase profits. According to Mercer, brokerage and banking companies have been best able to translate digital capabilities into value creation. The insurance industry has been the least successful.

Far fewer customers visit their insurer’s Web site than in banking, and those visiting insurance Web sites spent a fraction of the time there, compared to banking or brokerage customers. June 200 data also showed insurance company Web sites to have the lowest customer retention rates. Banks, in turn, have the highest.

According to Mercer, the average time spent online was highest at the Web sites of “old economy” firms such as Merrill Lynch, Charles Schwab, and Fidelity. These companies have successful digital business designs offering customers ample information and choices. In contrast, new financial services entrants are frequently single-product companies hindered by lower customer acquisition expenses resulting from costly Web alliances.

Mercer’s data also suggests that opportunities exist for financial services companies.

“Despite their reluctance, consumers are open to buying financial services online, given a competitively priced product from a reputable, accessible source,” Riley said. “Companies that will be most effective in this market will be those incorporating the keenest awareness of the consumer into their digital business designs.”

While Mercer’s report found the insurance industry to be trailing other financial services in Internet offerings, International Data Corp. (IDC) found that the Internet will influence 37 percent of all personal property and casualty premium sales purchased in 2004. The findings indicate that, despite the low volumes of insurance being purchased directly online today, the Internet is already significantly influencing how consumers shop and buy insurance.