Competition is Cool for Consumers, Especially in Online Banking

moneyBanking fees: I hate them. More and more of these fees are getting added onto my banking statement and it is bothersome. It’s getting difficult to find a bank that does not have some kind of fee associated with its banking products. However, one bank is making online banking easier and less costly for the customer, and doing so with restrictions placed upon it by the government. With Compete’s data we can see just how far it has come.

On March 31st Ally Financial filed for an initial public offering (IPO), expecting to pay back the bulk of its TARP money to the U.S. Treasury. The Treasury at the moment holds a 73.8% majority share after GMAC financial needed a bailout during the financial crisis of 2008. The former finance unit of GMAC is not just looking to repay their loan, but with interest and while doing so become a leader in the online banking space. Ally’s marketed rates have not been the highest in the industry, however, Ally has seen substantial growth during 2010 and into 2011. Recently, Ally has expanded the products it offers online to include auto loans.

ING Direct has for long been a leader in the online banking space. Ally has a business model similar to ING Direct. Comparing these companies in the chart below from Compete.com, we can see Ally has been gaining steam, closing the gap, and is now attracting almost the same traffic to its domain as ING Direct.

unique visitors to ally vs ingdirect

By initially offering above average rates, Ally increased traffic until around Aug and then as their rates slid so did their traffic. The traffic remained flat from September to December. Then in mid-December/January, it increased with the introduction of their auto finance arm.

ally autoThe introduction of auto loans to its website in December also helped to improve traffic to the checking/savings section of the site, as Ally drove auto loan customers to open a checking/savings account to enable easy payment of the auto loan. Features of Ally checking that make it appealing include: no fee/free accounts, $0 minimum balance on accounts, no ATM fees, and all your banking can be done online. To understand the impact, lets again compare Ally and ING Direct using Compete’s data. The chart below illustrates online volume of shoppers for checking accounts.

unique shoppers to checking products for ally and ing direct

Compete’s data shows a significant growth for Ally checking shoppers. Comparing with ING Direct over the past 6 months, it is clear that Ally has become an extremely competitive rival in the online banking space.

It will be interesting to see if Ally can maintain this advantage of cross-selling and providing customer friendly features. It will also be interesting to see how customers respond to banking fees while online banks like Ally make it enticing for customers to switch from traditional branch-based banks, which may require fees, to a more online-centric world of free banking.