(10/23/96)ONLINE BANKING BARRIERS

ONLINE BANKING BARRIERS(10/23/96)

SUMMARY:

With 9.2 million households now using online financial services nearly 40% of personal computer owners say they have no need or simply arent interested in online banking, about 50% feel online privacy issues are a big concern and 48% of PC owners believe the Internet will never be secure enough to fully trust for electronic financial services. The findings come yesterday from The American Home Financial Services Survey conducted jointly by the Emerging Technologies Research Group of FIND/SVP and Jupiter Communications. The survey also found that 41% of current PC households are interested in using bundled electronic financial services typically keyed to banking services and that 75% of those interested households are willing to pay about $10 per month for bundled EFS. Despite the privacy and security concerns, one out of five PC owners stated their intentions to begin using online banking in the next 12 months. The survey tallied 2.1 million households currently banking online, with 2.5 million households very likely to begin banking online and 4.7 million households somewhat likely to begin banking online within the next 12 months.

FULL STORY:

THE AMERICAN HOME FINANCIAL SERVICES SURVEY(10/23/96)

FULL STORY:

Introduction

The American Home Financial Services Survey:

A multi-client research study designed to identify key consumer behaviors and trends in computerization of home finances, including use of interactive financial services via the Internet and Commercial Online Services (COLS)
Co-developed by the Emerging Technologies Research Group of FIND/SVP and Jupiter Communications
Sponsored by major companies involved in financial services including banking, credit cards, investing and insuranceas well as PC, software and online companies, such as:

Advanta Corp. InsWeb
America Online KeyCorp.
Fidelity Investments Price Waterhouse plus others

Research Methodology:

Based on three phases of research completed in September:

1. Consumer focus groups in major U.S. cities

Focus groups were conducted with two consumer categories: technology adoption "Leaders" and "Followers", to study indepth the dynamics of how consumers today view and conduct their household finances and to explore their perceptions and attitudes about adopting computers and electronic financial services.

2. A preliminary screener from FlND/SVP's American Internet User Survey

Interviewed 3,255 random digit dialed households to benchmark basic consumer PC ownership, Intemet and online service usage from home

data error interval = +1.68%

3. Detailed Telephone Household Survey

In-depth interviews with 1,200 randomly selected home PC owners and households that intend to purchase a PC in the next 6 months defined as the PC-centric near-term target universe for electronic financial services.

- data error interval = +2.83%

The Consumer Need
Many consumers told us they are working to gain better control of their personal/household finances,. Primary needs include:

Better record keeping in all financial categories

A common first step is to gain control of records by categorizing spending for tracking and tax purposes. PCs are seen by many as powefful tools for this purpose.

Faster, more personalized access to relevant investment information

This need was found to be very great among both Baby Boomers trying to save for retirement and younger consumers just beginning to save for the future. Traditional brokers are not perceived as "customer friendly," especially to novice investors. Electronic services are widely perceived as timely and increasingly personalizable.

Simpler ways to comparison shoP for financial services, especially for insurance

Banks are often selected based on proximity, but electronic services expand consumer choices. Investing and insurance companies offer an increasing array of products and services that often create confusion and concern for consumers. Are they getting the best deal? More effecVve comparison shopping tools are desiredonline and Internet services offer perceived benefits in these areas.

Improvements in customer service

Customer services in all financial sectors suffer variously from declining consumer satisfaction. Bank consolidation, distrust of brokers, product proliferation and waiting time on the telephone plague many users. Consumers are recepVve to innovative solutions that provide secure "do it yourself" access to accounts, automated "help"' end email access to customer reps.

Home PC Usage Baselines
Random sampling was used to benchmark financial acti vities and to identify home user baselines for PCs and related services:

Home PCs are now found in 37% of U.S. telephone households, a 1% gain over 1995.

- 34.8 million PC households, up from 33.2 million

Modems are now found in 23% of U.S. households, up from 17% in 1995

62% of PC households own modems
21.6 million modem households, up from 15.0 million

55% of PC households use the PC to help manage personal finances, up from 45% in 1995

19.1 million households (up from 15.3 million)
Home finances now rank 3rd in home PC popularity behind only games and children's educational activities
Helps set the stage for growth in online/lnternet financial applications

Home Internet & OnLine Usage Surging The survey found very dramatic growth in home use of the Internet and commercial online services (COLS) the last 12 months:

15.1 million U.S. households now report that they use the Internet and/or COLS from home

16% of U.S. households, up from 10% last year
68% average annual increase from 9.0 million online/lnternet households in 1995

Home use of the Internet now surpasses use of COLS

14.7 million households now report using the Internet from homeup from 6.2 million in 1995
138% average annual increase in Internet user households
8.9 million households report using COLS from homeup from 6.9 million in 1995
28% average annual increase in households that use commercial online services

What's Driving Home Internet Use?
Several key factors help account for recent dynamic growth. A powerful fundamental is consumer desire to gain control over the information explosion and their personal finances:

Most email users have now tried the web. Last year, many emailers had not yet tried the web.

12.8 million households have adult home emailers, vs.
12.0 million adult home web users

Business users clearly spill over into the home to learn more about the Internet or.` their own time.

This pattern has been seen before e.g., when Microsoft introduced Windows
Creates a huge multiplier effect, because spouses and partners (and children) learn from the home PC "leader"
1.56 adult users per Internet using household yields a - projected total of 23 million adult home Internet users
17.5 million adult users from home "in the past week"

Consumers are increasingly attracted to flat-rate ISP pricing for Internet access.

Emerging Market Segmentation
In addition to the 10% of U.S. telephone households that use online/lnternet financial services now, another 24% of households were identified that place high value on Electronic Financial Services (EFS).

Valuation of EFS features was scored by asking respondents to rate the usefulness of 25 EFS features in four financial categories on a 1-10 scale where 10 = "most useful."

The four categories covered were:
-Banking
-Investing
-Credit Cards
-Insurance

22.2 million households rated various combinations of EFS features as a "9" or "10."

Willing to Pay - But Which Platform?
Consumers showed interest in using bundled electronic financial services and expressed significant willingness to pay.

41% of current PC households are interested in using bundled EFS typically keyed to banking services because banking is the most common household financial "chore."

3 out of 4 households survey.ed were willing to pay an average of approximately $10/month for bundled EFS.

Remarkably, 21% of PC households ranked the TV ahead of the PC as their preferred platform for accessing EFS. This segment was typically:

- Younger and more likely to be single - Less likely to have multiple phone lines - More likely to use cellular phones - Least likely to go online today at 28.8 Kbps+ - Least likely to use commercial online services

Barriers to Adoption Persist
Some consumers feel they don't have enough need to justify using online banking, while others remain concerned about online privacy and security.

Nearly 40% of PC owners say they have no need or simply aren't yet interested in online banking. Many simply don't know enough about online banking features to make an assessment.

Nearly half of PC owners feel online privacy issues are a big concern although 34% say these issues are overblown.

48% Of current PC owners believe the Internet will never be secure enough to fully trust for EFS an opinion shared even by one-third of current online bankers!

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