Online Account Opening Maturing with Plenty of Growth to Go
BOSTON -- Online account opening is a maturing technology, but there's plenty of room for growth, experts say.
The credit union space is particularly prime for that, according to research from Boston-based Aite Group, which found that 80% of the top 20 banks and 60% of the top 20 credit unions offer the service. "What these numbers do not show is that there are literally hundreds of smaller institutions without online account opening solutions today," says Aite Group analyst Eva Weber. "Competitive pressures and consumer demand will eventually convince these institutions to provide the functionality." She says several vendors have told Aite Group that they are experiencing "a burst of activity" from mid-sized and smaller credit unions.
Charlie Kroll is having that experience. The CEO of Andera, a Providence, R.I.-based provider of account opening tools for banks and credit unions, has seen his company add more than 20 customers in recent weeks, bringing to more than 100 the number of banks and credit unions Andera serves. (More than 85 are credit unions, Kroll notes.)
"Online account opening is maturing but it's far from mature. We have a long way to go not just in terms of industry penetration but in terms of technology," he says.
"Between us and our closest competitors, we have maybe 300 to 400 clients. There are more than 15,000 financial institutions out there, about half banks and half credit unions," Kroll says. "There's a lot of potential growth out there."
Weber and Kroll say credit unions present a lot of that potential for a lot of reasons.
"They tend to have a different story than banks," Weber says. "They often have members scattered across the country without convenient access to branches, for one thing, so the cost factor and the convenience factor are both big reasons more and more credit unions are going to be considering going to online account opening."
Demographics are another big factor, Kroll says.
"Every credit union, every bank wants to attract the younger consumer. More and more, the younger demographic considers account opening online to be a requirement for joining a credit union today," the Andera CEO says.
Aite Group canvassed vendors, banks and credit unions and found that 12 of the 20 largest credit unions offer online account opening, up from seven a year earlier.
Meanwhile, the think firm projected IT spending on account opening technology to grow from just under $30 million in 2006 to more than $35 million in 2009.
To facilitate this growth, vendors have built relationships with third-party data providers, created integration with commonly used core systems across delivery channels, and increased functionality in such areas as making it easier to move accounts from one institution to another and then cross selling products.
Andera is doing that, with eFunds, a fraud and risk management services provider, now re-selling Andera's online account opening services with eFunds' ChexSystems data and decision solutions.
Kroll's company also is working with companies such as Digital Resolve to ensure online security and compliance, adding marketing campaign modules, and helping credit unions customize their systems to accommodate small-business accounts.
While larger credit unions are still leading the way, Weber says that "assuming a compelling business case can be made, there could be a lot of demand for these systems among smaller credit unions in the near future."
She says the business case for online account opening is largely driven by costs. Aite Group estimates each account costs about $15 to open online versus $65 for a traditional, manual opening.
The savings add up, Weber says. For instance, a credit union with 150,000 members that averages 1.5 accounts per member, sees 15% new accounts in a given year and opens 3% of those accounts online would save $50,625 a year, she says.
"Even on the low end of the assumptions, these hard dollar savings should be compelling to institutions," Weber says.
"While there are other considerations that do not show in the cost-per-case figure, such as implementation costs and risks, there are also soft dollar savings that virtually every institution mentions. The ability to make service improvements, fight off competitors, and increase market agility are important," the Aite Group analyst says. --firstname.lastname@example.org