Anyone who thought that setting up as an online financial intermediary last year would be a licence to print money has had an educational 12 months.
Last year was all about high hopes and high marketing budgets as several new ambitious websites were set up but the bread-and-butter business of looking after customers and selling has taken over now.
Earlier this month, finance2u.com - one of last year's most high-profile start-up financial services websites - closed down and a creditors' meeting was called for last week. It had only been in business since November and was backed by an initial investment of £1.7 million (€2.2 million).
A common stumbling block that many online intermediaries come up against is that very few people actually complete sales online. This is partly because the process of applying is not as straightforward as it may seem, particularly for more complex products. However, it's mainly because consumers want to talk to someone at some point if buying the product is a major decision for them.
Website operators have had to learn from their experience and many have modified presentation, structure and product ranges to encourage enquiries and facilitate completing business by telephone.
Online financial intermediaries fall into several categories and it remains to be seen which formula will be the most successful. Even though the number of Irish operators is still quite small, Internet consumers have a choice of styles and levels of service. Execution-only sites are ideal for the investors or financial consumers who know what they want to buy and are looking for efficiency and value. There is no hand holding here, just processing of applications. The attraction of this type of service is that the product will be cheaper and the site will do the shopping around for you. Sites such as LAbrokers.ie and discountinvestmentsireland.com offer discounted commissions.
Such sites do not handle client funds, they merely place business with the insurance company or other financial institution.
The second category of online intermediary offers an element of advice and back-office support. These sites are good resources for comparative quotes, although they have been criticised for not always coming up with the best quotes. For this reason, it's worth getting a quote from two or three sites.
Solmon.com, which has a brain-in-the-tank logo, was set up last October. It has about 50 agencies, and sells home and car insurance, mortgages, pensions and investments, including the Government savings scheme.
According to Solmon managing director Mr Adrian Daly, the site deals with visitors on three levels - information, advice and transaction.
The most common traffic for most sites is visitors who spend time seeking information on products. They may or may not progress to making contact or filling in application forms.
People seeking advice on particular products and requiring personalised advice by e-mail or telephone need to give some information on themselves.
This might take the form of filling in an online questionnaire about their investment profile. Solmon.com responds to these queries within 24hours. But the final commitment to purchase a product or make an investment is usually based around telephone contact and even old-fashioned mail.
A popular site that differs from solmon.com is 123.ie. It is operated by a previously wellestablished firm of insurance brokers, Richardson Insurances. Both Solmon and 123 have freephone numbers. Creating awareness of these financial sites takes time and money. Marketing costs can be significant, particularly at the beginning. Word of mouth contributes to success but it is hard to measure.
Getcover.com is another example of an existing brokerage setting up an Internet arm with its own brand. Managing director Mr Finbarr Crotty decided to specialise in standard non-life policies that do not require indepth advice.
Even so, almost 40 per cent of Getcover sales involve some form of contact with staff. The site offers low-price travel, possessions and mobile phone insurance.
The tone of online financial intermediaries is fairly subdued at this point and some admit they are just ticking over. The collapse of finance2u.com is a reminder that financial consumers are not flocking to the Net as quickly as anticipated.
Ms Aideen McMahon of discountinvestmentsireland believes that the whole climate has changed in the past year from building an Internet company through which to sell, to building a viable business.
"We didn't have a huge advertising spend and the site was inexpensive to set up. What we wanted was to be in there as an established brand when the market is ready." In the meantime, Ms McMahon and her business partner are keeping up the day job.
Most intermediaries have yet to set up websites to compliment their traditional businesses. Some have opted for one-page greeting sites while others have fairly elaborate offerings of information and quotes.
Providence.ie is the Internet presence of Providence Financial Services Ltd and, although it is well developed, the company does not place much importance on it as a sales outlet. Managing director Mr John Lowe sees the website as an information tool for clients, which lends credibility to the company. "It's important to have that presence into the future but we have yet to get a cold application online."
It seems certain that financial consumers will use the Internet increasingly as a navigation tool through the maze of products that's available. Good value, good service and a good reputation are the main motivators to buying online and the sites that can sustain all three are in with a chance to survive.
