Opening Up: Banks Expand Customer Reach With Online Account Opening

The potential savings for financial institutions from online account opening is compelling, according to a new report from Boston-based Aite Group. The study found that online account openings cost banks $15 each, compared to $65 for a traditional account opening. Even if just 5 percent of an institution's new accounts were opened online, the $50 cost improvement per client could generate between $84,000 and $281,000, Aite reports. As a result of the savings and consumer demand, "Online account-opening functionality is quickly becoming a competitive must-have," the report asserts.

"We're now reaching the point where [online account-opening] solutions are no longer simply nice to have," according to Aite analyst Eva Weber, author of the report. "They are part of what customers expect from their providers." Weber notes that online account opening is compatible with both customer needs and institutional strategies, such as increasing automation to improve speed of service and reduce costs.

Charlotte, N.C.-based Wachovia ($700 billion in assets) first introduced online account opening in 2000 and, as of August 2005, was opening 15,000 accounts online per month, equivalent to the volume of more than 150 branches, according to the company. Further, a Wachovia spokesman says the number has "dramatically increased" in the past year and a half. And during a September investors conference, Seattle-based Washington Mutual ($348 billion in assets) chairman and CEO Kerry Killinger said WaMu currently opens about 700 new checking accounts per day over the Internet.

"The drivers behind online account-opening capabilities ... boil down to two things: cost and customer reach," Weber says. "On the cost side, financial institutions are looking to cut costs by decreasing the effort it takes for a customer rep to manually open a new account. Online account opening is an important first step in the automation process. Customer reach is all about tapping new markets more easily and making yourself available to clients who might not be near a branch or who prefer to do things online."

Funding Functionality

The ability to fund accounts is an important component of the online account-opening process, Weber adds. "Automated funding is critical because it completes the process in real time," she says. "Funding makes it an end-to-end process, which is really what customers ... are looking for."

According to Weber, however, there still are many banks that do not offer online account-opening capabilities. "There is still significant market-growth potential due to the large number of institutions in the lower tiers," she says. But, "Competitive pressures and consumer demand will eventually convince these institutions to provide the functionality," Weber notes, adding, "Even top-tier institutions have significant opportunities to improve their solutions by rethinking usability issues and customer needs for convenience."

As a result, spending on online account-opening technology will reach $101 million during 2007 through 2009, up from $78.2 million during 2004 through 2006, according to a related report from Aite. While Wachovia relies on CashEdge (New York) as its technology provider, other vendors in the space include Automated Financial Systems (Exton, Pa.), Scivantage (Jersey City, N.J.), eFunds (Scottsdale, Ariz.), S1 (Atlanta), uMonitor (Memphis), Accenture (New York), IBM (Armonk, N.Y.), Andera (Providence, R.I.) and Infosys (Bangalore).