Internet Can't Match Branch Banking

Bank branches and other traditional channels are here to stay, despite Americans’ growing comfort with technology and Internet use, according to research by TowerGroup.

A study by TowerGroup’s Primary Market Research service examined consumer attitudes about traditional financial services channels, online banking and online account aggregation. Despite the Internet reaching a critical mass of use among U.S. consumers, the bank branch remains the core of financial services, according to the survey. Ninety-two percent of all U.S. households have used a bank branch for financial services transactions within the past month (including lobby windows/tellers, drive-thru tellers, in-store branches and other branch employees).

While 39 percent of U.S. households say their primary financial services institution offers online banking, only 18 percent have used it. That number drops to 13 percent when respondents were asked to indicate whether they have used online banking within the past month. Among online banking users, 85 percent said that they have used a brick-and-mortar branch within the past month.

The majority of U.S. households use either two (26 percent), three (24 percent) or four (20 percent) different delivery channels to conduct their financial services business, the study found. Sixty-one percent of total U.S. households agreed strongly or somewhat that they would “prefer to have all my accounts appear on one consolidated statement.” But 67 percent of respondents from online households were not aware of the existence of online account aggregation services.

“Irrespective of the fact that the majority of U.S. consumers are now ready for online banking in technological terms, behaviorally they continue to be slow to migrate away from traditional channels like the local bank branch or call centers,” said Michael Weil, TowerGroup’s managing director of Primary Market Research. “Rather than dropping existing channels, consumers use what they know while slowly adding new delivery channels into the mix. The move to online banking-and ultimately to wireless as a delivery channel for financial services-will continue to evolve.”

The TowerGroup research was based on a sample of 3,033 U.S. households, representing the total U.S. population.

Research by Cyber Dialogue also found that online banking and brokerage customers continue to rely on both online and offline channels to conduct transactions, which is not good news for financial institutions that look to the Internet to save on customer service costs.

“To date, the Internet has not displaced offline activity and therefore has not reduced the cost of servicing customers. However, it does enable banks and brokerages to deepen their relationship with high-value customers,” said John Farris, a senior analyst at Cyber Dialogue.

Cyber Dialogue found that those who take advantage of financial services’ multiple channels tend to be the organizations’ most valuable customers. Multichannel traders make fewer trades than online-only traders, but have a net worth that is 29 percent higher than online-only traders. In banking, online customers are more likely to use ATMs or automated phone systems than offline-only customers, but are also more likely to hold high margin products including IRAs, CDs and money market accounts.