Virtual financial services - who wants them

January 03, 2001

A new ESRC-funded study has found little evidence that customers are demanding new technological developments within the financial services sector.

The retail financial services industry is enthusiastically experimenting with the new electronic technologies, supposedly because the public is keen to enjoy the benefits of 'virtual' delivery channels like internet banking. Consumers want 'convenience', 'anytime, anyplace, anywhere' or '24/7' banking, according to the hype. Yet research by Professor David Knights of Keele University finds little evidence that customers are consistently demanding new channels for managing their money.

So, are new technological developments being adopted within the financial services sector because customers demand them or because the industry itself wants them?

The study suggests that financial services companies are driving the changes forward largely for reasons of cost savings, competition and corporate image, especially in relation to the capital markets. It suggests they have been entrapped by the hype in which anything 'virtual' is associated with profit potential, progress and an inevitable future. And despite the demise of many dot-com companies, there will probably not be a change of heart on e-commerce in financial services. The costs savings are huge, competitive pressure to have an electronic delivery channel is strong and few listed companies can afford to be without the corporate image of e-commerce.

If, as is likely, usage of electronic channels grows, it will not be due to customer demand, Knights argues. It will be because customers have been enrolled through relentless advertising, differential pricing and the withdrawal of alternative channels such as the branch. Technology is a means of transferring onto customers some of the costs of carrying out transactions so that staff costs and branches can ultimately be reduced. But the official line is that the companies are responding to what users want.

Electronic delivery channels also assist practices of market segmentation through which companies focus resources on the most profitable segments. Conversely, people from lower socio-economic groups are either more reluctant or unable for reasons of cost, confidence or competence to use these alternative channels to the branch. In contrast to regular internet users, the less affluent are disproportionately disadvantaged by branch closures. So 'virtual' delivery of financial services tends to increase rather than reduce financial exclusion, at least in the short term.
For further information, contact Professor David Knights at Keele University.
Tel: 01782 583603 Email: or
Or, contact Lilian El-Doufani or Lesley Lilley in ESRC External Relations. Tel: 01793 413032.

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