Online banking has moved from the early-adopter fringe into the mainstream, and analysts say this trend is on track to continue. According to Fiserv, a financial services technology company, 80 percent of all U.S. households with Internet access now use online banking, and 40 percent pay their bills online. Financial institutions are enhancing their digital account management and bill-payment capabilities, and many are rolling out web-based and mobile tools that let customers perform tasks like depositing a check without visiting a branch or paying a friend back for lunch.
If you’re a tech-savvy consumer, this might sound like great news. These tools are a huge leap forward in convenience, freeing users from hassles like driving to branches and sending paper checks by snail mail. But here’s a secret: Banks like these digital bells and whistles even more than you do, because they’re the “glue” these companies will use to hang onto their customer base in the future, even as they add fees and cut back on traditional perks.
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Fiserv research shows that roughly half of customers who pay bills online say they’re less likely to switch financial institutions as a result. “The likelihood of attrition goes way down the deeper a customer gets into online services,” says Geoff Knapp, vice president of online banking and consumer insights at Fiserv. The more digital services a customer uses, the less likely they are to switch to another bank or credit union.
“There’s clearly a hassle factor in that once you get that deep, the level of ire you have to have to go through the whole process and unwind is significant,” Knapp says. “It’s not until there’s some very significant event or a material dissatisfaction.”
To some extent, this loyalty is deserved. Online banking customers report higher levels of satisfaction with their financial institution.
The problem is that this loyalty seems to make consumers more complacent about fees and less inclined to shop around. Online banking customers are more likely to have other accounts and use other products offered by their own bank, like credit cards or car loans.
Knapp says banks are trying to find alternate sources of revenue after financial regulation curtailed credit card and overdraft charges. Charging for new digital services like the ability to pay another person directly using your smartphone could be a good way for banks to make up some of those losses.
He predicts banks will try different tactics in the near future, with some breaking out fees for services on an a la carte basis and others bundling several together and charging a flat monthly fee. (So if your bank slaps on a fee for a digital service you used to get for free, shop around, because there’s a good chance their competitors are doing something different.)
There’s also the possibility, he says, that the online and mobile services will remain free but that banks will begin charging for more offline transactions. Some banks are already experimenting with versions of this by offering online-only accounts that come with lower or no monthly charges. ”It’s both carrot and stick,” he says.
Web and mobile banking tools can be a terrific way to streamline your personal finances, but just keep in mind: The more of them you use, the more your bank or credit union expects you to stick around in the future.