I'm heading home from my 14th Retail Delivery Show, sponsored by BAI. The show has evolved over the years but at the core, still remains a huge technology conference. With more than 5,000 in attendance, equally split between the buy side and the sell side, it's a one-stop shopping experience for just about any piece of software, hardware, or expertise you'll need for all your retail channels, online, branch, ATM, call center, and especially this year, the mobile front (note 1).

Mobile rules
For the second year in a row, mobile delivery was a hot subject, with a number of great presentations on the subject. I didn't attend them all, but here are highlights of what I saw:

• Bankinter demonstrated how the mobile channel has as much utility, if not more, than Internet banking. My favorite stat from its presentation: 20% of the bank's retail interest rate swaps, about 200 per month, are initiated via cellphone.
• South Africa's FNB, Absa, and other banks are having such success with the mobile channel that they expect mobile banking customers to surpass online customers sometime in 2008.
• Richard Crone, Crone Consulting, was mobbed like a rock star after his presentation the first day; people crowded five deep around the podium to hand over a business card in exchange for a copy of Crone's presentation. 
• Firethorn CEO Tripp Rackley announced at an invitation-only breakfast-gathering that his company had been acquired hours earlier by Qualcomm for a cool $210 million.
• Bank of America disclosed it had attracted 500,000 active users to its mobile banking service launched 6 months ago. Although, that's more mobile users than all other U.S. financial institutions combined (note 2), it's only 2% of the bank's 22.8 million active online bankers. According to TowerGroup, 90% of those who tried mobile banking at BofA have remained active with 99% checking balances, 87% looking at transaction history, 10% making funds transfers, and 5% paying a bill.

Online banking is a virtual no-show
While the big online banking vendors were out in force, fewer small companies were out touting online banking solutions. Only 28 of 350 exhibitors listed "online banking" as one of their product areas, compared to 41 showing CRM solutions and 70 with branch banking products. 

There was even less activity in the educational sessions. It wasn't until the second-to-last session of the conference that "online" was included in a session, The Next Generation of Online Banking: Profiting from Untapped Markets, by Forrester's Cathy Graeber, and Washington Trust's Michael Rauh (see BAI coverage here). 

Alt-payments on stage
On the first day, Steve Mott of BetterBuyDesign chaired a panel discussion, Debit - The Next Generation of Profitability, with PayPal's Dan Schatt (formerly of Celent) and HSBC's Daniel J. Eckert discussing Tempo (formerly DebitMan). The session barely touched on traditional debit and was much more focused on what's now called "decoupled debit" and its potential to disrupt the Visa/MasterCard/AmEx/Discover hegemony (see HSBC article below).  

More information
—BAI's online coverage included blogs, podcasts, and longer articles (here).

—American Banker Technology Editor Steve Bills filed several reports from the conference (subscription required):

• Greenspan: Don't Blame Regulators
• Mobile Shift: Payments a Key Next Step
• HSBC Card: Decoupled, with a Twist
• Mobile Banking's Buzz Finally Matched by Marketing

Notes:

1. Mobile consultant Richard Crone counts 76 mobile vendors operating in the United States plus at least four more operating in stealth mode.

2. Online Banking Report estimate, also same conclusion reached by TowerGroup in recent report.

During 11 years of publishing Online Banking Report, we've written about 500 words on so-called "mobile banking."

Even though it was a much-hyped topic in the late 1990s, our answer when asked about mobile banking was, "Fix your Web-based banking, add email alerts, and mobile will take care of itself."

But it looks like times may be a-changing. Cingular is throwing its considerable muscle into a phone-centered service using Firethorn's <firethornmobile.com> new platform (see homepage right), and the U.S. market for wireless services is enormous (per MasterCard & Cingular during their Nov. 16 presentation at BAI's Retail Delivery Conference):

• 2 billion mobile phone users worldwide, including 218 million in United States (per Cingular)
• Nearly 80% of U.S households own one (per Forrester)
• $660 billion of revenue for voice, messaging, and data services
• 75 million U.S. mobile phone users sent a text message in September (per M:Metrics, 20 Nov. 2006)

Even more interesting, ClairMail shared market research showing that nearly two-thirds of U.S. consumers aged 18 to 34 have used text messaging during the past three months, demonstrating that even in the laggard U.S. market, a core group of consumers is ready, willing, and able to use the phone for more than just voice calling.

Analysis
There are three main reasons why mobile banking's time has arrived:

1. It works on common phones: Previous generations only worked on a subset of high-end PDAs; now most mobile phones can handle mobile banking.

2. It has a business case: Mobile banking can both increase fee income by being a core component of a Premium Online Banking service (see Online Banking Report #109) AND lower costs by migrating voice calls away from the IVR and into self-service.

3. The youth movement: Younger consumers interact with each other in real time via text and instant messaging. There is little doubt that they will value the same type of interaction with their bank.

We'll be looking at this subject in much more detail when we publish our first exhaustive report on the subject in January (see Online Banking Report in late January or early February).

BAI's Retail Delivery Conference continues to offer an excellent array of speakers on almost every delivery topic, from the "branch experience" to "optimizing multi-channel delivery." But one area that's barely covered is loan originations. 

Only one session, out of 36 total, dealt with lending issues this year. And it was a last-minute replacement, not even in the program guide, substituting for NetBank and UPS's Banking on Brown, scrubbed after the announcement last week that the effort was being shuttered (see our coverage here).

Cornerstone Advisor's Steve Williams presented Consumer Lending: It's Not Just a Transaction Anymore. Although lightly attended, due to its placement at the closing moments of the show, he discussed a number of great ideas for improving loan originations, both online and in other channels. We'll look at some of them in more detail in coming weeks.

The presentation is available via email from swilliams@crnrstone.com. 

Update: The 2-for-1 offer is no longer available through this link. However, you can still save $350 ($700 for two) before Sept. 5 — enough for a snazzy new monitor for your desktop anyway. But first, check your inbox for an Aug. 2 or 3 email from BAI with the 2-for-1 offer. You should still be able to claim it with your promo code.

If your team is headed to Las Vegas in November to take in BAI's <bai.org> bank-tech extravaganza, you better jump on this offer before Sept. 5: two admissions for the price of one (main conference only). That will save you nearly $1,700, enough to put that new plasma display in the conference room. If you are going by yourself, you'll still save $350 with this offer.

Here's the link:  http://www.bai.org/retaildelivery/

--JB

Break out the bubbly. Twenty years after online banking became widely available, and ten years after it migrated to the Internet, more than half of U.S. small businesses (sales between $500,000 and $10 million) bank online. And one-third of the laggards say they'll move online within the next year.

Online banking usage
Here's the breakdown of online banking usage by business size as reported by BAI Research at the company's recent TransPay Conference:

Small business
48% >>>$500k to $1 million
51% >>>$1 mil to $5 million
54% >>>$5 mil to $10 million

Mid-size
61% >>>$10 mil to $50 million
67% >>>$50 mil to $100 million
89% >>>$100 mil to $250 million

Satisfaction with online banking
These companies are relatively satisfied with the service. Only 2%, a remarkably low number, report dissatisfaction. However, there is room to move users into the very satisfied category occupied by 44% of the sample.

Here's the breakdown, again courtesy of BAI Research:

44% >>> Very satisfied
46% >>> Somewhat satisfied
8%   >>> Neither satisfied or nor dissatisfied
2%   >>> Somewhat dissatisfied
0%   >>> Very dissatisfied

Online banking features
And what are they doing online?

91% >>> Deposit tracking
86% >>> Balance reporting
48% >>> Wire transfers
45% >>> Stop payments
38% >>> Tax payments
36% >>> Initiate ACH transfers

Finally, if you need some market sizes for your spreadsheet, click on the link below to see a good breakdown in payments by business size.

We spent the past few days at BAI’s TransPay Conference <bai.org>. It featured much talk about the displacement of paper checks with electronic transactions. This is not a new story, but the implications for banks make good fodder for presentations. We'll cover a few of the key points in this and subsequent articles.

Retention Benefits of ACH
Common sense tells you that if bill pay is good for customer retention, then preauthorized debits would be even better. They are usually more difficult to setup and much harder to unravel. However, we'd never seen numbers to back this up until yesterday. In a presentation by Fiserv’s Mark Sievewright, he cited internal figures from a national retail bank first presented by Dove Consulting <doveconsulting.com> that quantified attrition rate by type of ACH payment used:

                               Annual           Annual Net
    ACH Usage      Attrition Rate  Income (pre-tax)
No ACH activity            37%                $190
ACH deposit only          7.9%               $360
ACH deposit and pay    3.4%               $470

Implications
It costs just a few pennies per month to process preauthorized direct debits, whereas pay-anyone bill payment can cost as much as $5/month. If you have 25,000 bill-pay customers, you could add $1 million to your bottom line by reintroducing a $3.95/mo fee for the privilege. However, it won't be easy putting the free-bill-pay genie back in the bottle. You'll have to go slow, introducing fees to certain segments, such as lower-balance checking customers, or checking customers who have not opted in to electronic statements.

For more on alternatives to free bill pay, see Online Banking Report #109, "Pricing."

--JB

If there was one universal recommendation from BAI's TransPay Conference it was this:

Offer remote deposit capture NOW!

Remote deposit capture, the scanning and depositing of checks from the user's own location, rivals online banking in terms of utility for businesses of all sizes. In an interesting general session yesterday, three small business principals from companies in the $5 million to $10 million category were on stage with two bankers. When the subject of remote deposit capture came up, two business owners were ready to install the system immediately. The third only received a few checks each month and wasn’t interested, however he said his spouse who runs a retail operation is very interested.

The business owners were willing to pay a considerable fee since it would save many hours of labor each week. And maybe more important, they liked how it made remittance processing easier to manage. With small staffs, they often have to find replacements to make the "bank run." And sometimes checks sat idle for days at a time when someone was unexpectedly sick.

Main Street Bank <mstreetbank.com> features check scanning in its Main Street Connect package.

The predicted remote deposit capture adoption curve resembles online banking in the late 1990s. Celent estimates there will be 100,000 remote locations by the end of this year, about 5% penetration of the corporate market. In five years, the research company predicts more than 1 million business locations will use the service, along with a quarter million branch locations for 1.4 million total locations in 2012 (see below).

Source: Celent, 5/06

So far, only 50 or so banks are offering, but all top-20 banks either have it now or are in the final testing phase. By this time next year, as many as 500 banks may offer it, and it will soon be an expected part of a full-service, business-banking offering.

--JB

Several interesting tidbits surfaced from today's presentations at BAI's SmartTactics conference in Las Vegas:

Citibank online account acquisition
In 2002, 6% of Citibank's new checking accounts were generated online; in 2005, the number was 20%.

Our comments: Keep in mind that Citi's experience is unique. It has a huge brand and relatively small branch network, so many of its new accounts have no choice but to open online, or over the phone. And part of the growth can be attributed to non-checking products, such as its high-yield savings, that REQUIRE a companion checking account.

Bank of America's SiteKey rollout
The rollout of mandatory two-factor authentication is complete, except in Oregon and Washington where it is expected to go live in June. Prior to becoming mandatory, users had a period of time where it was an optional feature; however, only 8% opted in during this phase. When the PassMark-powered system became mandatory, users were served notice during their first two logins that they needed to sign up before it became required on the third login. Only 4% signed up during the first two warnings, and 96% put it off until the third try.

Note: PassMark was acquired by RSA Security today.

Our comments: Taken together, only 12% of users opted for stronger security before it was required, far below the 60% or so that say they want more security in consumer-research studies.

Zions remote deposit-capture results
Zions Bank has grown its remote-deposit client base from 364 in January 2005 to 3,697 in January 2006, and they are adding nearly 100 clients per week. The bank has bagged more than $200 million in incremental deposits and has increased loans and fee income. The Utah bank is now looking for new business worldwide with clients in 49 states and five countries outside the United States. It has clients of all sizes, from the Fortune 500 to small businesses that use it for just one check per month.

Our comments: If you needed ammunition to move this up the priority list, keep your eye on Zions: It said that its main problem now is just keeping up with the all the requests.

Research results from Yahoo Search Marketing
A Forrester study of all U.S. banking customers (not just online bankers), commissioned by Yahoo and OgilvyOne Worldwide, found that 61% of all banking-product research is being done online vs. 5% via phone and 30% in branch. Similarly, 64% of account monitoring is now down online vs. 16% via phone and 13% in-branch. But account opening at branches still dominates at 84% of new account openings, compared to 14% online and 2% via phone. 

Yahoo also said they expect 50 million online credit card applications in the United States this year.

Our comments: Wow, time to pull out all the stops in your online account-opening initiatives.

The biggest banking show of the year, BAI’s Retail Delivery www.bai.org was held Nov. 16 to 18 in Las Vegas. Here’s what caught our attention this year.

1.   Channel integration: As mentioned on page one, we were smitten with the “teller assist” hardware from Source Technologies www.sourcetech.com . Its vision: teller lines soon look like airport check-in counters, a mix of touch-screen automation with human support. One teller can do the work of two or three, as the customers do most of the work feeding deposit items into a terminal that scans them and displays an image on the screen for verification. The company says payback is one year.

2.   Security issues: Jim Van Dyke Principal of Javelin Strategy delivered two sessions on the three Fs: fear, fraud, and phishing. His new safety scorecard even made the Wall Street Journal the day before he spoke (see WSJ, Nov. 16). Of the 39 banks surveyed by Javelin, Bank of America came out on top with a 71 score on the 100-point scale (see Table 3 below).  One of Van Dyke’s key themes: eliminating mailed billing and financial statements. It’s the one avenue of fraud and identity theft that’s relatively easy to avoid while saving the financial institution a substantial amount in paper and postage. Users should be allowed to turn off paper statements and should be encouraged to avoid putting any paper into the system by using debit at the point of sale and using electronic options to pay bills. You can access a synopsis of the research at www.javstrat.com  or purchase the entire report for $2500.

Table 3

Top Scoring Financial institutions on Javelin’s Identity Fraud Scorecard

maximum regular score = 100

Source: Javelin Strategy & Research presentation at BAI Retail Delivery, 11/18/04

*39 financial institutions evaluated by mystery shoppers across 44 criteria; scores ranged from 12 to 70.5,
max=105 including potential 5-point bonus, see below

**Wells Fargo had the top score of 73 across the three evaluation categories; however they received a five-point deduction for using the social security number as the default username; financial institutions could also receive a five point bonus for not allowing nine-digit numerical usernames (so users couldn’t use social security number); other than Wells Fargo, we do not know if any of the above financial institution received bonus additions or deductions. If so that could mean that their component scores were different that what we deduced above.
 

3.   Account-to-account transfers: CheckFree (see also number 7 below), Yodlee, and CashEdge were on the floor discussing their latest improvements to interbank transfers. CheckFree’s new bill payment platform includes interbank transfers, quick payee setup, and user-input payment reminders. CashEdge, the leader in the burgeoning A2A field, even landed another top-10 bank at the show. They now power Citibank, Bank of America, and several yet-to-be-announced large banks. By next year’s show, the company expects to be powering A2A for five of the top 10 U.S. banks.

4.   Prepaid cash: American Express and WildCard Systems www.wildcardsystems.com  along with Visa and MasterCard of course, were on the floor pitching prepaid gift and travel cards. A great opportunity for online banking operations to monetize their user bases. To see the future of gift card delivery online, check out payment processor iPay’s system  https://www.billpaysite.com/adv/giftpay/main.asp

5.   Branchless banking: Deloitte director Michael Raynor who co-authored The Innovator’s Solutions with Clayton Christensen, used ING Direct as an example of a potential disruptive technology in the area of branchless banking. He said the jury was still out, but banks would be wise to keep an eye on the ramifications from ING’s success. We couldn’t agree more. And imagine if an ING Direct-like company sprinkled a few Source Technologies truly automated tellers (see #1) around town, it could be a viable business model. One that functioned as a true branchless bank servicing transaction accounts as well as savings deposits.

6.   Automatic savings: ShareBuilder was on the exhibition floor again, with a nice location. They are really on to something by providing a low-cost way for investors to get involved in equity markets while simultaneously introducing them to the power of automated savings. ShareBuilder is marketing slick new account kits complete with a book, Smart Money Magazine subscription, and $30 in cash for the first investment (see screenshot below). It’s a great product to market during the holidays as parents, grandparents, and others love the ease and value of this politically correct gift. Wells Fargo and ShareBuilder have been emailing well-designed holiday sales messages for the past few years.

Wells Fargo is selling a ShareBuilder “Investor Starter Kit” which includes a subscription to Smart Money, a Wall Street Journal book, and $30 cash to invest. Total cost is $24.95, an excellent value.

7.   New CheckFree “bill management” platform: CheckFree continues to improve its widely used platform with the goal of making it a complete “bill management” center. Additions coming in version 4.1, available in Q2 2005 include:

•          user-entered payment reminders
•          integrated inter-institution transfers
•          quick payee-setup that can be set up with just a payee phone number
•          integrated checking account balance

Still lacking: security preferences for setting up a “firewall” around the user’s payment system.

CheckFree’s consumer site leads with a powerful benefits-oriented graphic and headline,
”Delete: Paper bills. Add more life.” Then immediately to the right is someone reading a book on the porch, obviously enjoying their extra leisure time.