DIRECT BANKING CONTINUES TO GROW AS COMPETITIVE THREAT

Direct or Internet-based financial institutions are growing in usage among consumers, according to a recent survey by SYNERGISTICS Research entitled, Redefining Direct Banking. Currently, somewhat more than one-third of Internet households responding to the survey indicate their household has an account with an Internet-based organization – defined as one having no branches and with which business is conducted online, via email, by telephone, and using electronic transactions. The extent of market penetration has somewhat widened since measured in a previous SYNERGISTICS 2013 study, The Outlook for Direct Banking, in which three in ten reported direct banking relationships. Direct banking relationships are wider among 18- to 49-year-olds, narrowing among older consumers. Incidence widens on a directional basis with household income.

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Genie M. Driskill, COO of SYNERGISTICS, stated, “Online or direct banks, although still seen by many as a recent innovation, actually have a significant history and are now a solidly established and important element in the financial services marketplace. Given the attraction of this provider channel to younger consumers – those in the early stages of their household formation and financial lifecycle – it is incumbent on all financial institutions to in some way compete in this space. Operating a direct bank is, of course, a clear and straightforward strategy. Traditional banks may have a strong online presence that stops short of being a direct bank, but this approach entails competitive pricing pressures that still must be addressed. Choosing not to emphasize online offerings is not a viable option for any financial provider that wishes to survive in the ongoing shift to a digital environment.”

These are among the findings from SYNERGISTICS study, Redefining Direct Banking, featuring 1,012 online interviews with consumers age 18 or older. This study examines direct banking and assesses the scope of these relationships. It also determines the competitive strength of Internet-only or direct banks.