Features & Benefits

Anyone can provide a virtual transaction account: bank, non-bank, credit card company, Web portal, your uncle Louie. All it takes is ten key features. You can bet the 290 some non-banks currently applying for a thrift charter have Web-based transactions on their agendas.

Source: Online Banking Report, 7/99

100% Fee-Free Transaction Accounts

If you follow events in cyberspace, it probably goes without saying that plain vanilla bank accounts will be fee-free on the Net. You’ll make money primarily from the spread on credit products, as well as a narrow spread on deposits, commissions from investment products, and fees for premium services such as electronic safe deposit boxes, automated asset allocation services, and fully automated bill payment such as that offered by CyberBills, PayTrust, and PayMyBills.com .

One discouraging result online is the high acquisition costs, even for the well-publicized first movers, Net.B@ank, TeleBank, NextCard, and
E-Loan. Marketing costs are in the same magnitude as dirt-world companies (although if you factor in the cost of the bricks and mortar supporting typical account acquisition, the Net companies probably have a cost advantage).

Acquisition Costs for Net-Only FIs
 

Sources: brokers: CS First Boston, 6/99; lenders: S-1 stmts., 4/99

*Marketing expenses divided by new accounts. Does not include the cost of premium rates or other discounts used to attract new customers.

**Does not include the cost of processing credit requests for the 95% to 96% of applicants that are declined; also does not include fulfillment costs for new accounts. Combined, these two costs averaged $50 per new account during both periods.

One way to lower acquisition costs is to develop a product that is so compelling it travels the Net via word-of-mouth. This isn’t easy to do, but we think the creation of the first 100% fee-free (including NSF/OD) checking account could create quite a splash online.

Customers dislike banking fees, and often perceive that they are being nickel and dimed by their bank. We think consumers would embrace a 100% fee-free message, perhaps in the same way they loved the AT&T Universal Card Services product nine years ago.

I was a credit card product manager in March 1990, and I remember the AT&T launch quite vividly. They took the country by storm with a free-for-life credit card offer, one that had a definite time limit to qualify. Word of mouth was a powerful force during that first year. I remember discussing the pros and cons with my father and brother. My dad, who has been banking at the same branch for 40 years, even signed up for the card, and has been using it ever since. For an overview of the launch, see The Discipline of Market Leaders (Treacy & Wiersema).

What if a Net bank did the same thing? A free-for-life bank, if you sign on during the charter period, specifically:

•  no monthly fees for an unlimited number of accounts
•  no fees for unlimited ATM use worldwide
•  no overdraft/NSF/stop payment fees (your customers will have OD credit lines anyway)
•  no fees for unlimited check writing
•  no fees for unlimited POS debit card usage
•  no check printing fees (for basic style)
•  no fees for unlimited electronic bill pay
•  no money transfer fees
•  no loan fees
•  no credit card annual fees (penalty fees OK)
•  no fees for unlimited email alerts/messaging
•  no fees for lifetime mortgage loan monitoring
•  no fees for unlimited reminders via email
•  no fees for unlimited stock quotes

To keep from attracting a bunch of zero balance accounts, a direct deposit or automatic monthly ACH could be required for the fee waivers. Also, all free accounts could be required to maintain an overdraft line of credit. After the charter period, a modest annual fee (up to $100) could be introduced for new accounts.