Oscar Ties Health Insurance Premiums to Fitness Tracker

By Jim Bruene on December 10, 2014 3:47 PM | Comments

imageAs we speculate about the usefulness of wearables in payments and money management, an insurance startup has already launched a direct tie-in. Buzzy health insurance startup Oscar is paying customers $1 per day, up to $240 annually, when they hit their step goal tracked on a Fitbit-like tracker from Misfit.

imageOscar has attracted $150 million in venture capital and is looking to bring modern ecommerce thinking to the massive health insurance market. The company is looking to be on the forefront of insurance tech trends such mobile help from physicians, easy access to records, digital communications, and transparent costs (see app here).image

How it works
Customers who buy health insurance through Oscar (available in NJ/NY only, but coming to California and Texas in 2015), are given a free Misfit step tracker (retail value = $50, currently discounted 50%). The tracker syncs to Oscar's mobile app (see inset) and credits customers $1 each day they hit their step goal. Goals start at a relatively easy 2,000 to 3,000 per day and ratchet up to the 8,000 to 10,000 per day recommended by fitness experts.

The bonuses are paid in Amazon gift certificates in increments of $20. The Amazon credit is likely bought at a discount to par value, reducing costs to Oscar (more details here).

Significance for FIs
Oscar can pay out $200 per year because it's selling a big-ticket item, health insurance. And it stands to benefit from healthier customers who use less medical care. Unless you are in the health insurance business, you can't copy this dollar for dollar. The important thing is making a game out of healthy habits by keeping score and delivering tangible rewards (previous post).


Gift Card Season Off to the Races: Square Places New Bet, Starbucks Goes All-In, Banks Stuck at Starting Gate

By Jim Bruene on November 21, 2014 3:43 PM | Comments


image This week, digital poster child Square jumped into the plastic gift card market. Unlike many of its new endeavors, old-school cards were met with a decided lack of enthusiasm in the tech press (and my Twitter feed). Many recalled the company's failed efforts with virtual gift cards (which I liked then, and still do). Most people in the tech press (and even more so in my Twitter feed) want their iPhone to handle all transactions, loyalty points, and payments. But that's not quite how the world works yet. Even Starbucks, who claims 90% of all U.S. mobile payment (pre Apple Pay of course), just launched a major holiday plastic initiative (see below).


How Square Gift Cards Work

The Square offering is compelling for its core small business clients. The cards are drop-dead simple. Merchants order from their Square dashboard which is powered by eCardSystems. Cards cost $1.50 per card with a minimum order of 125 and are shipped in 3 business days. Merchants load by swiping through Square's POS dongle or Register, and users are good to go. The merchant receives the entire load amount immediately (less Square's 2.9% cut).

The cards are heavily merchant branded. The merchant's name is printed on the front in a choice of fonts and colors and the merchant's contact info is printed on the back. The card design can be one of 20 generic designs (see screenshot) or can be customized with any image uploaded by merchant (cost is the same, but minimum quantity rises to 500, and turnaround time is 15 business days, so almost too late for Holidays 2014). The only Square branding is a small logo in the lower right of the card's back (see top of post).

The cards are reloadable, so they can be used as a loyalty platform, with rewards based on load amount. For example, my favorite coffee shop adds an extra 10% of value for each load.


 Starbucks Unveils In-Store "Card Collection"

imageOne of the the Starbucks flagship stores is in my neighborhood, so we occasionally see merchandise being tested. So, I'm not sure if this over-the-top gift card display is in wide use (see its Nov 12 press release). But the Seattle U-Village main Starbucks has two of these is massive display cases near the queue (the back side has the usual holiday beans and merchandise). Apparently, there are more than 100 different designs.

It's no surprise, last year the company reported that $1.4 billion was loaded to cards during 4th quarter and an astonishing 1 out of every 8 U.S. adults received a Starbucks card. It looks like they are going for 1 in 7 this year.


Bank Opportunities

I've been following bank efforts in gift cards for 10 years and have found little exciting to report (see archives). While there has been a few bursts of activity around the holidays the last few years (previous posts), banks seem content to let their customers pick up cards at Safeway. Even Chase, which has a great card that my son uses, and was the highest rated big-bank card in Consumer Reports (Aug 2013 Prepaid Buying Guide), has zero merchandising for "gift cards" on its website (see third screenshot below). 

Few banks are going to emulate Square's approach and build gift cards for acquiring clients. But I do see an opportunity to develop a retail gift card marketplace offering both plastic and virtual cards with distribution via online, mobile, in-branch and even ATM. It's on my short-list of ways FIs could turn a buck from their presence (see post).


#1: First step in ordering plastic gift cards from Square's merchant dashboard


#2 Choose your card design (or upload your own image)



#3 Searching for "gift card" at Chase Bank



Six Digital Myths Hampering Banks' 2015 Strategic Planning

By Jim Bruene on November 18, 2014 10:35 AM | Comments
wrong turn signs.JPG
In late summer, I published a two-part post detailing the most important retail banking projects for next year (here and here). I've got another installment or two in the pipeline, but since it's already starting to feel like we are making our final descent into 2015, I wanted to take a step back and explain WHY those projects rose to the top. 

So here, in semi-prioritized order, are six myths that continue to hamper the strategic planning of retail banks (at least in the United States). 

Myth 1 >> Bank branches are needed for "complex" financial matters

: Branch banking is on the way out.

Prediction: The U.S. brick-and-mortar footprint will fall 30% to 40% by 2020.

  • I get that people like the local branch. My wife loved Blockbuster. My grandparents operated a much-loved corner grocery. But neither survived when the economics turned against them. Bank branches will survive in my lifetime, but their footprint (square feet & staffing) will decline 5% to 10% per year for the foreseeable future. 

  • Name one thing done in a branch that can't be done more efficiently and/or more effectively through digital means or an ATM (let's assume that the customer believes resolution can be obtained from either method). Sure, people still go to the branch for advice and problem solving since that's a long-standing tradition and it's comforting to talk to a nice person in a pressed blue shirt. But it's also an inefficient way to get things done, for both the bank and the customer. My last trip to the branch was to open a college checking account at the bank we've held accounts for seven years (and whose associates know us by sight). It took an hour! And that doesn't include the travel time for two trips to the branch (we forgot to bring a SECOND picture ID). It all could have been done in a few minutes online or via mobile had that option been available. 

Myth 2 >> Desktop online banking is still needed for "serious" work

TruthBanking by the desktop has peaked, too. 

Prediction: The amount of time spent banking online via desktop will fall 20% to 30% by 2020.

  • Many people still think that "important work" requires a browser and the real estate of a 13-inch screen. I agree for writing or design tasks, that's true. But the average banking interaction amounts to looking at a few two- and three-digit numbers and typing a search term every now and then. Those things can be easily done on mobile. 

  • In fact, by building the UI mobile first, designers are forced to focus on the most important data elements, creating a better experience. 

Myth 3 >> Marketplace (P2P) lending won't be used by "our" customers

Truth: Consumer and SMB lending could be disrupted by new players (but that's far from a given). 

Prediction: Marketplaces take 5% to 10% share by 2020

  • I'm not one to throw "disruption" around lightly. In fact, it has never appeared in a title in my 10 years of blogging. Why not? Because I've been working in the online banking industry for 22 years and have seen nearly ZERO market share shift in the U.S. banking system over that time. The only major U.S. Internet-only success was ING Direct (now Capital One). And they don't count because it was a division of a huge legacy player expanding their geographic reach. (Note: There has been market share shifts in the acquiring side due to PayPal, Square and others, but that was mostly wrested away from non-banks.)

  • But marketplace lending (aka P2P) is the first thing I've seen that actually is taking share away from legacy players. Lending Club is over $2 billion; Prosper and Zoka are over $1 billion; and SOFI is probably there as well. And there are more than 100 equity and debt crowdfunding companies funding small and medium businesses. While this is still small change in the multi-trillion consumer and SMB lending market, there are signs that these companies are posed to grab meaningful share. 

  • What makes the lending marketplace model potentially disruptive is that they can bring together large pools of capital with very different risk tolerances and price the loans dynamically, this is much harder for traditional players to do (though regulation is a wildcard here as marketplaces could end up with draconian "safeguards" that would render their risk-based pricing advantage moot)

  • But I don't count out the big players yet. While it's not easy, they can and probably will, copy the marketplace lending model, and perhaps continue their role as primary credit providers. However, having been a lending-product manager at a major bank, I can attest that it is extremely difficult to change historic patterns in loan underwriting. 

Myth 4 >> Consumers gravitate to best-of-breed providers for every financial need

Truth: Consumers HATE to proactively work on their finances and will often settle for what's most convenient. 

Prediction: The primary "financial institution" (which can mean many things) will gain share of wallet going forward IF they integrate other services into online/mobile banking.

  • Ever since I've been involved, it's been debated whether banks could be "the one-stop shop" for financial services. In the pre-Internet era, it was prohibitively expensive to put world-class mortgage bankers, investment advisors, insurance experts, remittance providers, SMB services, and so forth into the branch-based delivery model. 

  • But in today's interconnected "API" world, that is not the case. The financial provider with the most trust -- or as Richard Crone says, "The company that enrolls, controls" -- can deliver the best of everything related to money management, retirement planning, value investing, and risk management/insurance. Consumers actually do gravitate towards one source if they believe it's delivering value across disparate items. Case in point: Amazon.com. (Note: I penned my favorite report of all time around that theme, Building the Amazon.com of Financial Services (original in 1998, updated in 2000.)

Myth 5: Consumers trust YOUR security (it's the others that keep letting them down)

Truth: Your customers are VERY AFRAID you'll cause a nightmare scenario security-wise. Why do you think people log in so many times each week? 

Prediction: You can thank Apple for making biometrics mainstream.

  • I'm not sure how banks have gotten away with such lax consumer/SMB-facing security for so long. It's a testament to the strength of their core businesses that they can cover billions in losses every year. 

  • It's also an unintended consequence of offering all digital banking services free of charge. Every tweak to the website and mobile app are new costs without any tangible revenue bump (see Myth 6 below). 

  • But we are finally reaching the end of the username/password era with better authentication via smartphone, far more sophisticated back-end fraud monitoring, and seamless biometrics (aka TouchID). I for one, will be able to sleep better, knowing our business isn't constantly on the brink of a devastating cybertheft.

Myth 6 >> Consumers won't pay for digital banking value-adds

Truth: A lucrative segment of the population prefers deluxe or premium versions of goods and services. 

PredictionFinancial institutions are leaving BILLIONS on the table each year due to their lack of creativity in charging for value-adds. I give up trying to predict when it will happen, but once one of the Big-4 launches Platinum Digital Banking, the entire industry will rush to copy. 

Thoughts: I've written about this so many times, I'll just oint you to the most recent post (here).


Since our comments are broken, hit me up on Twitter @netbanker with your thoughts. 


Picture credit: Get your six-pack of wrong turn signs on eBay

Neo-Banking is Just Getting Started

By Jim Bruene on November 12, 2014 2:42 PM | Comments

Definition: Neo-Bank
Delivering banking services without touching the funds


This morning, Celent's Stephen Greer published a post called, The Challenges of the New Neo-Bank, where he states:

In recent months, the neo-bank model (e.g., Simple, Moven, GoBank) has hit a few stumbling blocks that call into question the promise of the digital-only model...

Stephen goes on to lay out four scenarios for the future of neo-banks:

1. Neo-banks are acquired and assimilated into larger financial brands

2. Larger brands start their own digital "neo-bank-like" brands

3. Neo-banking fails to become a viable business model, but nevertheless influences the industry

4. Neo-banking becomes the dominant method of accessing underlying accounts held at traditional banks

My thoughts: We already see #1 and #2 happening, so the question comes down to whether we are headed long-term towards #3 or #4. Like most analysts, I'm firmly in the "it depends" camp. But I'll go out on a limb a bit. I believe we will see dozens, if not hundreds, of neo-banks launch in the next few years. Here's why:

image1. Simple's $100-million exit to BBVA 
I'm not sure how much equity the founders held at the end, but it must have been a multi-million dollar payday for five-plus years of hard work. While that's not enough to make the cover of Forbes, it's a huge win for most entrepreneurs. 

2.  Marketplace lending provides a path to profitability
The problem with the neo-bank model in an era of low deposit rates and shrinking interchange, is that those traditional income sources are not enough to pay competent developers, execs and customer service folk. With consumers loath to pay fees, most startups end up forced into the ad-supported model, which strains their credibility with customers. 

But with the growing popularity, and proven profit potential, of marketplace lending (aka p2p lending), neo-banks can partner with or build their own loan platforms to profitably put those deposits to work (sounds less "neo" and more "banking" doesn't it?). So I envision the day where neo-banks allow you to store your funds in the prepaid account for no interest, or put it to work in a lending marketplace to earn a few percentage points on the funds, with the neo-bank pocketing a bit of the spread.

3. Third-party financial watchdogs become trusted services 
Another advantage of being an independent neo-bank is that it's easier to become an unbiased watchdog over all things financial. The neo-bank can track all your accounts (Mint/Yodlee), find areas where you are overpaying or have potentially been defrauded (BillGuard), monitor your credit score (Credit Karma) and even analyze the effectiveness of your 401k (Brightscope).

Right now, it's still almost impossible for third-party startups to get to scale because customers just don't trust them. But that will slowly change as the newcomers gain brand recognition (for example, Intuit's Quicken, Quickbooks, and TurboTax brands).

4. It's much, much harder to launch a real bank
Ten years ago, we were seeing about 10 new banks launched every month. Due to all the failures brought on by the Great Recession (and I would argue, way too much deposit insurance), there has only been one new bank launched in the past three years (through end of 2013). So, if you want to get a banking business started, you have little choice but to go with a non-bank model.


Comments? Give me a shout @netbanker  

Picture credit: Article from NY Times, 20 Feb 2014 (link); sign in background from Simple HQ

Categories: Bank Simple, Strategies

Treating Loan Applicants with Respect

By Jim Bruene on October 23, 2014 5:47 PM | Comments

image I've been denied credit twice.

The first time, I understood. Sort of. I was starting my first job and had little, if any, credit history. But still, it hurt that my Fortune-50-employer's credit union wouldn't give even a $500 credit line to a freshly minted engineer. Luckily, the first big bank I tried had no such qualms and promptly sent me a MasterCard with a $2,000 credit line.  

The second time, 25 years later, made zero sense. I'd received something like 100 direct mail preapproved offers from this issuer before I finally said yes to one. Yet, I was rejected online when I went to accept it and again when I called to appeal. They wouldn't say why, but it was likely related to that curse of the loan applicant, self-employment (see note 1). 

So, as a consumer and especially as a small biz owner, I've always had a bit of a love-hate relationship with banking credit departments (note 2). Having worked in credit/loan product management, I am sympathetic to the tricky underwriting concerns behind the scenes. Granting credit is like being a parent. You have to learn to say "no" a lot.

But also like a parent, you must say it tactfully and respectfully to maintain a healthy relationship. And that's where many financial institutions lose points.

The reason I bring this up is that I'm in the middle of a refi with a top-10 bank. I originally chose them for my home loan five years ago because of its world-class online mortgage application process and great reputation. But that original note comes due in February, so I must refi once again. I've been happy with this company, so I decided to stay with them, even though they weren't the lowest rate. I hoped that being a long-time customer (14 years) with three deposit accounts, a business credit card (4 years), a personal credit card (3.5 years), and a mortgage (4.5 years) would ease the process.

And maybe it has. But boy do they sure make me feel like an idiot along the way. The mortgage process began two months ago, via a phone application. And trust me, it could not have been a more cookie-cutter deal in terms of LTV, debt-to-income ratios, credit scores and such. The only complicating factor, underwriting wise, and I guess it's a huge one, is that I own a substantial stake in a small business.

During the past two month I've uploaded 23 documents including explanatory letters, tax returns, and so forth. But here I am at day 66, and I still have no idea if the refi will go through, especially given that it's past the original lock expiration, a situation they've been "looking into" for 4 days (note 3).

Not once has the bank reached out through email to apologize for the delays, or to thank me for continuing through the maze of documentation, or even to provide a simple loan status report (note 4). I have gotten a couple voicemails from the original sales rep asking me for more info, and generally he's done a good job of being upbeat.

I understand the documentation rules for conforming loans are onerous these days and the bank is not making the rules, only enforcing them. But I feel completely disrespected at this point. And even if this one eventually goes through (note 5), I would be highly unlikely to do another loan with them, nor would I recommend them to someone else. And this is a company that I've lavished praise on both in private and in public for a decade and a half.

It doesn't have to be that way. Here's how to be a good partner when your customers ask you for money:

1. Educate

Declined someone's loan applications can create huge relationship problems. I've never seen the research, but I think it's safe to say the attrition rate of declined customers is higher than approved ones. So the best way to save declined customers from leaving, is to stop them from applying for the loans in the first place (note 3). Good consumer education, including specific information on the applicant's credit score and likelihood of being approved, is important. 

2. Say thanks

Even though customers are asking you for money, this is actually what keeps the lights on at most banks, so THANK CUSTOMERS profusely in multiple channels.

3. Keep in touch

No one asks for a loan just for the fun of it. And in most cases, time is of the essence. If you have to say no, do it fast. If you are saying, yes, then help them understand the process, deadlines, and expected closing date at every step of the way. If you can swing it cost-wise, maintain real-time status online AND more communicate every business day as to where the loan stands. It costs approximately ZERO to email your customers. Why would you not?

 4. Offer alternatives

If you have to say no, offer alternatives. When my credit union turned down 22-year-old me for a credit card, they could have retained my business if they had offered a co-signed card option and/or a secured imagecard with a migration plan to unsecured credit. If there are no reasonable alternatives within your product set, send them to others who may be able to help.

5. Be empathetic

Applying for a loan is a humbling activity. No matter who you are, you can still be rejected (see Ben Bernanke's recent experience). Sure, it may not be your fault. The secondary market investors, having been burned in 2008/2009, are MUCH stricter on the documentation front. And it's understandably frustrating for banks and their mortgage employees. But don't pass that irritation on to your customers. You are the trusted advisor. Act that way.


Picture credit: eBay

1. Along the same lines, our company has been stonewalled when seeking commercial lines several times. The bank doesn't outright say no, they just keep asking for more documentation until we finally lose interest.

2. That said, I don't want to sound completely ungrateful. The mortgages, home equity loans and so forth, have allowed us to purchase a home that has appreciated nicely and to drive cars that don't need repairing. So overall, I'm grateful to the credit grantors that have taken us under their wings.

3. Because they bank has been so slow in making underwriting decisions, the original 60-day lock has expired and they want an extra $1200 for a lock extension, even though I've met every paperwork requirement on schedule. It's 100% their fault for taking so long. My request for a waiver of this penalty was "sent to management" a few days ago, but naturally I've heard nothing.

4. They do have an online mortgage system that helps track what's going on, but it doesn't appear to accurately reflect the real status. Several of my doc uploads show a big "rejected" flag, but no one has asked me about them.

5. WARNING: This is a regulatory minefield. You have to be super careful not to show any bias in the application process, especially when discouraging a consumer from applying.


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