Virtual products, real money

Many Internet users research financial products online, but not all of them buy, particularly when it comes to major commitments such as mortgages

About 2 million people in the UK (13 per cent of UK Internet users) have arranged to buy a financial product over the Internet, according to research conducted in July this year by MORI Financial Services.

The research monitors the British public’s financial holdings and use of new technologies, and indicates that almost half of Internet users have used the Web to seek information on financial services.

According to MORI, 33 per cent of consumers aged 16 or over claim to use the Internet. This equates to approximately 15 million people.

The Internet is now established as an important source for gathering information on financial products and services. Nearly half of Internet users (43 per cent) – around 6.5 million people – claim to have used it to seek information on financial services.

In particular, car insurance is the financial product most widely researched online – 19 per cent of Internet users have done so. For more complex life assurance and personal pension products, consumers are far less likely to use the Internet as an information source.

Obviously, only some of those who use the Internet to seek information about a particular type of financial product will actually go on to arrange that product online.

Some financial products are clearly better suited to online purchase than others. The survey provides strong evidence that while consumers are happy to arrange “commodity” products such as credit cards or car insurance via the Internet, they are far more cautious when it comes to more complex products such as mortgages or personal pensions.

A striking illustration of this distinction can be seen by comparing the take-up rates of credit cards and mortgages. Of those who used the Internet to obtain information on credit cards, almost two-thirds (64 per cent) subsequently took out a card, with 45 per cent arranging via the Internet and 19 per cent via another channel.

In contrast, only a third of those who used the Internet for information on mortgages went on to take out a mortgage based on that research – with just four per cent arranging via the Internet, compared with 30 per cent who used another channel. It would seem that consumers are still in need of reassurance and advice when it comes to “once in a lifetime” products such as mortgages.

Another explanation for the wide variation in online purchase rates for financial products is that price advantages are not always apparent compared with other channels. Credit cards such as Egg and Smile often have a better offer than many competitors, which may account for the relative success of such products on the Internet. However many other products which can be purchased or serviced on the Internet offer no significant price advantage – the convenience factor may in itself be insufficient to outweigh concerns about security or worries about making mistakes.

There are, of course, other consumers who may have arranged a financial product via a channel other than the Internet, but who nevertheless use the Internet for product “servicing” – checking balances, paying bills or transferring money between accounts.

Data from the latest Egg/MORI “Embracing Technology” report (September 2001), reveals that 34 per cent of Internet users – about 5 million people – have either arranged or serviced a financial product online.

While it is likely that an increasing proportion of online consumers will use the Internet to control their personal finances in future, it may be that digital TV will eventually have a greater impact. MORI says that growth in consumer use of the Internet has slowed down in the past year, while digital TV ownership has continued to grow rapidly, as yet showing no sign of tailing off. Digital TV penetration has overtaken Internet penetration, with 34 per cent of British consumers now claiming to have digital TVs in their homes.

Consumer usage of digital TV for personal finances is still in its infancy. However, 40 per cent of those with digital TV claim to be able to access financial services on screen (such as account balance and bill-paying facilities). MORI concludes that if those able to access such services begin to use them in the way that many consumers have taken to the Internet, then digital TV is set to be a major distribution channel for financial services in the future.

Factfile is edited by Sonoo Singh. Alex Lewis, associate director at MORI Financial Services, contributed

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