The online shake-up of the Financial Services Industry – Consumer Choice and Convenience (Part 1)
The Financial Services industry is being transformed by the growth in e-commerce. The advent of the Internet and then the World Wide Web coupled with innovation in communication technologies is allowing faster data transfer over improved networks, within and between businesses, their partners and consumers. This has enabled the retail banking sector the opportunity to reduce the cost of service transactions and increase revenue whilst providing more convenient banking services to their customers. Financial services such as online trading and online foreign exchange are now prevalent on the web as well as banking tools such as an online currency converter fed with real-time exchange rates data.
Financial services such as Internet Banking have not only encapsulated traditional banking services such as account opening and balance inquiries, but also offered new ones such as online bill payment facilities and the ability for customers to manage their own bank accounts and funds online. The major change for consumers however, is not only the convenience of these new services but the range of choice that is now available to them. This has been enabled through the restructuring and streamlining of retail banking processes for online servicing and the commoditisation of financial products ranging from credit cards to current accounts, loans, mortgages and insurance, savings and investment products.
Information – online currency converter, mortgage and insurance comparisons
Consumers are far more aware of what they are looking for, how much it costs and how much they expect to pay. They are empowered by choice in an ever-increasing price-based market particularly for insurance, mortgages and credit card products. Consumers expect information to be freely available online over a range of different financial products and they can search for preferable alternatives. This has meant that businesses within the financial sector have had to offer more personalised products to consumers and differentiate the pricing and benefits of particular products targeted to a range of consumer needs – quickly moving away from a one-size-fits-all ethos.
Online financial information and news coupled with comparison and rating services inform consumers of the relative advantages and disadvantages of varying complex financial products such as insurance and mortgages. The process of purchasing insurance and mortgage products is renowned for being branch-based and broker-serviced. The growing array of information sites on the web allows consumers to search for mortgage lenders and their rates and insurance providers and their premiums. Banking tools such as online mortgage calculators then allow customers to calculate their potential repayments and evaluate their ability to spend before ever having to approach a branch-based broker. Coupled with this information is the prevalence of information about the quality of the suppliers as well as their products. This affords consumers the opportunity to make their own purchase decisions before ever having to approach a branch-based broker or sales person and as such, it is important for suppliers to market heavily online to compete in the offline world.
New business entering the financial market such as telecom providers, supermarkets and utility companies offering financial services has also shaken up the financial services industry as the barriers to entry in this market have been lowered and consumers are already familiar with these trusted brands. As such, for certain products, competition in the market has increased and the need for suppliers to differentiate between the products they offer and those of competitors has become imperative. This is particularly seen with products that have a high profitability gradient such as with the credit card.
Whilst the credit card industry has been strongly competitive for some time, online applications have offered new benefits to suppliers and consumers. Online credit card applications have cost and time savings for the supplier and the consumer. The online replacement of facilities and services such as credit card applications offers advantage to the supplier by reducing the need for paper processing and reducing the risk of human error. For the consumer, selecting a product is faster and more profitable as web-based companies that aggregate information about, compare and rate between products display consumers the top choices in the current market environment. Applying for credit cards online often provides consumers with an immediate decision over the outcome of their application whilst saving the supplier human resource overhead as the consumer inputs their own personal information into the system.
Other banking tools such as the online currency converter offer a similar range of choice advantages to the consumer. However, the new benefit to consumers of online foreign exchange is the time-based focus of the foreign exchange business. Whilst exchange rates rise and fall as foreign currency is bought and sold, consumers can shop around for the supplier that offers the best exchange rates in real-time.
