Update March 6: I added two clarifications pointed out in the comments. First, that normal ACH deposits to your own SmartyPig account are free of charge. Second, that the retailers bonus on withdrawals to their gift cards is UP TO 5% (not a flat 5%). 

How about this recipe? Take a basic FDIC-insured savings account, spice it up with automated electronic transfers and email communications, mix in g

ift/debit cards, wrap the whole thing up in a social network, and top it with a memorable name. What do you have? SmartyPig, the most innovative financial s

ervice we've seen since Prosper launched two years ago.

The site is in the final week of private beta. To register, you still need an invitation code. The company asked me not to publish it, but it's OK if I distribute by request via email. Send a note to info@netbanker with "SmartyPig" in the subject line. Or simply wait until after this weekend when the site goes into public beta.

How it works:

1.  Users create savings accounts at the site. Deposits are held at West Bank, a Des Moines, IA- based financial institution with $1.3 billion in assets. Funding is through ACH (electronic) transfers from outside bank accounts. SmartyPig currently pays a high, 4.3% APY on deposits. 

2. After the account is established, users are encouraged to create savings goals funded through automatic monthly ACH transfers until the goal is met.

3. Now here is where SmartyPig diverges from a typical bank account. The savings goals can be made public or kept private. Public goals can be funded in part, or entirely, by outside contributors. Think of grandma and grandpa contributing birthday money to help junior buy a new bike. Contributions are funded through credit card charges with a maximum charge of $500 and a per transaction processing fee of $4.95. To make sure grandma's $50 doesn't go to a Mario game, the money cannot be withdrawn until the savings goal is met (or canceled by the primary account holder).

4. After goals have been met, the user can elect to take the funds out in the form of a MasterCard debit card or a gift card from a retail partner such as Amazon.com. Participating retailers add up to 5% bonus to the savings goal so that $1000 saved for the plasma TV is worth $1,050 if redeemed via Amazon gift card. That's a great added incentive to use the service.

Gift Cards
SmartyPig also sells gift cards that can be redeemed towards new or existing savings goals. These cards, issued in denominations of $25 to $500, are meant to be given as gifts or employee incentives. They cannot be redeemed outside the SmartyPig system. Physical card are produced and delivered for a processing fee of $4.95 plus delivery fees of $5.95 or more. Or consumers can deliver a virtual card through email to eliminate the delivery charge (but the $4.95 processing fee remains the same). 

Summary of Fees

• Your own deposits: Free (via ACH transfer)
  
• Public contributions: $4.95 flat processing fee for each contribution made by an outside contributor. Contributions can be from $25 to $500 and are funded via credit card.
• Gift cards: Gift cards incur a $4.95 processing fee and an optional $5.95 shipping fee. The shipping fee can be avoided if a virtual gift card is chosen which is fulfilled via email.

Analysis
Although, not everyone is going to want to go through the extra steps to save this way, we are impressed with SmartyPig and are awarding it our first OBR Best of the Web award for 2008 (see note 1). We like how it's part gift registry, part savings account, and potentially a big help in getting users in the habit of saving for larger goals. The look-and-feel is very Web 2.0 and should resonate with teens and twenty-somethings.

There are a few rough edges that need better explanation and/or minor redesign. For instance, there is no way to simply add funds to a savings account without first setting up an automatic funding plan. But the site isn't even officially launched yet, so these issues should be ironed out during the beta period. 

The processing fee for outside contributions of $4.95 per transaction is a bit on the high side (there is no fee for funds transfers from your own bank account). One could argue that it's worth price of a triple mocha for the convenience and benefits of the savings account. But for smaller deposits of $50 to $100, it's a pretty high percentage of the overall deposit.

It would be nice if the company could lower the fee, perhaps by creating an ACH funding option. Another way to reduce costs is to lower the 4.3% APR. I'm not sure the savers attracted to this account really need that high of a rate. A lower interest rate combined with lower fees might make the service more palatable overall.   

The company may have to tweak its business model going forward. But the real lesson here is that savings accounts can be made stickier with automation and incentives. Leave it to the Iowans to show us the way (note 2). 

Screenshots

1. The main account screen: I set up a savings account for my son. Then set a savings goal of $300 for a new bike. SmartyPig requires that the savings goal be funded in equal monthly withdrawals from the linked checking. It would be helpful if you could opt out of the automated savings plan so that the savings goal could be funded manually. 

2. Public goals: If you opted to make your savings goal public, anyone can find it by searching via email address under the "Friends' Goals" tab on the top (you can see this one by searching for jim@netbanker.com). 

Users can publicize their goals with a widget (see inset, and link at bottom of screen above) or by sending email to friends.

After making a contribution, the following screen is displayed.

Note:

1. Online Banking Report (OBR) Best of the Web awards are given for products that "raise the bar" in online financial services, usually for pioneering a new feature. Recent winners are covered here. Five awards were been handed out in 2007: two for Wesabe, and one each for Jwaala, Buxfer and Obopay. In the past 10 years, 67 companies have won the award.

2. Full disclosure: I was born and raised in Iowa and my brother lives within a few miles of the SmartyPig world headquarters.

KeyPoint Credit Union is the first financial institution to launch full-fledged account access through Facebook. Using its mobile banking engine powered by mShift, members can view account balances within their Facebook account (see screenshot below).

To view their balance within Facebook, users must add the KeyPoint application to their Facebook account. The first time it's used, users must log in to their Key Point account using their normal username and password. On subsequent visits, balance info is automatically displayed with no login, provided the user is logged into their Facebook account.

In addition to balance info, the KeyPoint application displays content taken from the credit union's homepage.

Analysis
Even though the application is relatively simple, we are giving it our OBR Best of the Web award, the second one this week, and the sixth in 2007 (see previous coverage here). Placing account balance info within Facebook is a great way to demonstrate commitment to social networking members. There are privacy issues with displaying data without a banking login (note 1), but it's reasonable to let your customers decide for themselves if they are comfortable with this setup.    

Screenshots
KeyPoint Facebook application prior to first authentication session:

After initial authentication, account balance info is automatically displayed:

Note:

1. Other Facebook users cannot see the balance info, but someone sharing the computer might see it.

We first discussed the usability advantage of direct-to-the-desktop information delivery in the 1998 Online Banking Report, Creating the Amazon.com of Financial Services  (see note 1). We called it a "meter" instead of today's widget or gadget, but its essential function was to show balance levels on the user's PC without requiring a login each time.

Last week, Wesabe became the first company to implement that concept with its Mac Widget shown below (Wesabe link here). The widget displays the balances in the various accounts tracked through the company's personal finance platform:

Several other personal finance companies have previously launched widgets including ClearCheckbook which released a Google Gadget on March 14 (here) and  Mac Widget a few days later (here). Other financial widgets are offered by billQ, Buxfer and Mortgagebot (see previous coverage here and here).

However, Wesabe is the only one streaming real-time balance updates thanks to its automated downloading of account data from linked financial accounts (aka account aggregation). Without the automatic updates, a widget is more window dressing than functional tool.  

Therefore, we're giving Wesabe its second OBR Best of the Web this year in recognition of its new widget which once again raises the bar for financial information delivery (note 2), if only for Mac users. 

Notes:

1. We last covered desktop technologies in a 2002 Online Banking Report, Grabbing Desktop Mindshare (# 85).

2. Recent OBR Best of the Web winners are covered here. Five awards have been handed out this year: two for Wesabe, and one each for Jwaala, Buxfer and Obopay. In the past 10 years, 67 companies have won Online Banking Report's Best of the Web awards. Only five companies prior to Wesabe have won the award twice: Bank of America, Citibank, E*Trade, Everbank, and Wells Fargo.

Last week, I promised to provide more details on the conclusions in our latest Online Banking Report, Social Personal Finance: Will social networking revolutionize personal finance? It was mailed to subscribers last Friday, so it should be making its way through inter-office mail as we speak (or download here). 

Here are the major themes/conclusions from the report:

1. Social networks are the new main street; so banks that want to be where their customers are should NOT ignore social networks.
2. There are many ways to bring social networking concepts into mainstream banking sites, for instance blogs and forums allow conversations to take place with both customers and employees participating.
3. The leaders in the space now are startups such as Wesabe and Lending Club. But what they gain in social networking savvy, they more than give back in lack of trust. So financial institutions are still incredibly relevant in social personal finance.
4. In the future, social networks may become so trusted that they can function as a virtual credit union, bringing together members to provide each other with financial services (e.g., P2P lending) or using their clout to negotiate deep discounts with financial providers (e.g., affinity credit cards).

 Social personal finance innovators profiled in the report include:

• Buxfer -- Named OBR Best of the Web in the report for several pioneering features, including login via third-party APIs, transaction input via email, file appending, Google gadget, and budget alerts
• Wesabe -- Also named OBR Best of the Web for its integration of personal spending records with the wider community

We also looked at Mint, Geezeo, Lending Club, Wells Fargo, and Intuit's new Personal FinanceWorks and Small Business FinanceWorks.

----

For more information on the report see the landing page here or download the abstract here. And for Colin Henderson's take at The Bankwatch, go here.

When researching new mobile banking launches (see our earlier post here), we ran across one of the more innovative financial institutions in the country: Austin, TX-based Amplify Federal Credit Union <goamplify.com>, a $400 million asset institution with 40,000 members. The CU's tagline, Bank less. Live more. is right on target for the majority of financial consumers. 

It's possible that Amplify uses more of the ideas we've featured in Online Banking Report and NetBanker than any financial institution we've come across. For example, cafe branches with free WiFi, mobile banking (WAP), Web 2.0 look and feel, high-yield checking (up to 5.1% APY), online chat, fee-based ($5.95/mo) value-add checking account (Amplified checking) loaded with online and mainstream features, and a host of other services from college planning to eBay bidding (see menu here). One surprising omission: no blog.  

OBR Best of the Web
But our favorite feature, and winner of our fourth OBR Best of the Web 2007,* is Amplify's new personal finance management program, MoneyTracker. MoneyTracker uses natural language search so members used to Googling there way through the day will feel right at home. Instead of using slower drop-down search, a customer wanting to review recent Costco purchases simply enters "costco this year" in the search box.

The program was developed by Austin startup, Jwaala, which announced it in November. Amplify, which went live March 5 (press release here), is Jwaala's first installation.

MoneyTracker also includes an account aggregation engine so accounts at any financial institution can be tracked. And like eBay, it allows users to turn any search into an automatic alert with the option of receiving the information via email, SMS, or an RSS feed (see inset). As far as we know, Amplify is the first financial institution in the U.S., if not the world, to institute personal RSS feeds for its customers, and it is the basis for the Best of the Web designation.

Amplify posted a series of six videos (here) that do a great job explaining Money Tracker, an important part of gaining trial. The style, copywriting, on-screen talent, and staging, are among the best we've seen online.  

Amplify's Main MoneyTracker page (link here):

 -----

*OBR Best of the Web awards are given out occasionally for features that raise the bar in online financial services. It is NOT necessarily and endorsement of the company or its full product.

Bank of America is the first major U.S. bank to provide full online personal financial management (PFM) within its online banking service. It's an important development and one we predicted in our detailed look at online personal finance (Online Banking Report #131/132, published in September). So, in conjunction with our sister publication, we are awarding it the fifth and final OBR Best of the Web for 2006 (click here for other recent winners).

The bank uses its Yodlee-powered My Portfolio account-aggregation service to deliver the PFM functions. BofA is the first financial institution to use Yodlee's new MoneyCenter module since its launch six months ago (see our coverage here).

The bank has chosen to offer the full MoneyCenter suite with Net Worth Summary, Investment Detail, Transactions, Rewards, Email, and Search on the main page (see screenshot below).

My Portfolio also includes basic personal finance functionality, including budgeting, categorizing and a nice array of preformatted reports including:

• Cash Flow Analysis
• Expense Analysis
• Budget vs. Actual
• Credit Card Utilization
• Get Transaction Reports
• Set Budget Goals

See Online Banking Report 131/132 for more details on Yodlee's MoneyCenter.

Analysis
Overall, we believe the new PFM functions are a great addition to the bank's online banking program. However, it still feels a bit "bolted on" to the core online banking service. For instance, My Portfolio does not yet warrant a place on the primary top navigation bar. Instead, users must click on a link in the middle of the main Account Overview screen.

Once the Yodlee-powered service has loaded (which took 10 to 15 seconds in our tests at broadband speeds), it's relatively well integrated. A second My Portfolio navigation bar is loaded under the main online banking navigation. Finally, a third row displays the options available for each function in row two (see screenshot below).

The pages load relatively fast as long as you stay within the My Portfolio area. However, moving back and forth between BofA-served online banking functions and Yodlee-served My Portfolio functions is a bit clunky with the 15-second delay. But the overall experience will be fine once My Portfolio is incorporated into primary navigation.   

The main My Portfolio page is automatically pre-filled with applicable BofA accounts; however, in my case, I was unable to update older credit card information. When clicking Update All Accounts in the upper right, error messages indicated that my Bank of America credit cards could not be updated (see screenshot below).

For the past few months, I've been more or less obsessed with RSS feeds (see our latest full report on the subject here). All of a sudden every information-delivery problem seems solvable with a feed.

And there is enormous potential for feeds in everyday banking which primarily involves simple information queries: What's my balance? Did my check clear? Was my mortgage paid? 

The first account-specific financial feed
I've been on the lookout for the first financial institution with account-specific feeds. That search continues, but a non-bank has been using feeds for bill-payment-status updates: previous OBR Best of the Web winner billQ <mybillq.com> (see previous coverage here).

The company has an "RSS Feed" option on its list of automated bill-payment-tracking mechanisms which also include an iCalendar subscription, an Apple OS X widget, or a toolbar applet (see screenshot below for billQ subscription options).

When using the RSS feed option, bills automatically appear in the user's newsreader software. Below is an example using the Newsgator Web-based reader:

Our most recent OBR Best of the Web winner (NB Sep 1), Seen Creative's billQ, has achieved another industry first, a bill payment-tracking widget for Apple Mac users (here's where you can download it from Apple's site).

The widget allows Mac users to drop a small billQ screen right onto their desktop (see NB 2 May 2005). It allows users to see what bills are due and mark them as paid without ever leaving their desktop.

The widget can also be downloaded at billQ's website <mybillq.com>.

In the latest from Online Banking Report, "Personal Finance Features for Online Banking," we've awarded an OBR Best of the Web 2006 to a new Web-based bill management service. It's the third winner of the year,* and 53rd since the first recipient in 1997 (here's the list).

And the winner is, drum roll please, billQ <mybillq.com> a new Web 2.0-inspired bill manager from Seen Creative Group <weareseencreative.com>, a relatively new website-design firm based in Rochester, NY. The company was chosen for raising the bar in three areas:

• User-interface design (click on screenshot below for closeup; see more screenshots by clicking the continuation link at the bottom of this article)
• "Add this bill" browser-toolbar button
• Publishing bills through RSS and iCalendar feeds

Read the entire review, along with a look at a dozen other online personal finance applications, in this month's Online Banking Report (#131/132).

--JB

*Previous 2006 winners include E*Trade Bank for its Mileage Maximizer airline card mile aggregator (NB 7 Dec 2005) and Prosper for its person-to-person lending platform (NB Feb. 5 and others).

Appendix

Welcome screen prior to setting up bills (see above for main screen after bills have been enabled)

Set-up reminders

Set-up feeds

Set-up feeds

While person-to-person (P2P) lending will never create the buzz or user base of eBay's PayPal or Google's GBuy, it passed a milestone yesterday with a favorable article in The New York Times. The short article looked at UK-based Zopa <zopa.com>, a recent OBR Best of the Web winner (NetBanker Dec. 1) and a similar service being hatched in Silicon Valley, Prosper <prosper.com> (formerly CircleOne).

Prosper, like many Internet startups before it, bears watching not only because of its relatively minuscule user base–currently, just 12 transactions are pending–but also because of its VC backers, Benchmark Capital, Accel Partners, Benchmark Capital, Fidelity Ventures, and Omidyar Network, along with its famous founder Chris Larsen, who launched E-Loan nearly a decade ago. The company has raised $20 million according to its website. Click on the screenshot, right, for a closeup of its homepage.

We'll look at both companies in more detail in the next Online Banking Report (Number 127), due out at the end of the month.

--JB

Credit card companies have been poaching revolving balances from each other for years primarily through direct mail. It helped boost the share of early movers, such as Capital One. But once the tactic was widely copied, it dragged margins down for all.

The same technique has been used online with dedicated balance-transfer microsites posted by Bank of America and others beginning in 2003. The online balance transfer is better than paper because it can be interactive, prompting the user to make additional transfers, or to correct errors in the information input. However, it still requires the user to make a trip to the website to make the transfer.

Enter E*Trade's new Mileage Maximizer program, launched with a page-dominating color ad in Tuesday's Wall Street Journal. With the Mileage Maximizer, the bank encourages users to make purchases on their existing non-E*Trade rewards card, then have the balances AUTOMATICALLY swept to an E*Trade 8.9% APR line of credit each month. The bank's website is used to initiate and maintain the transfer process. But like recurring bill payments, once the sweep is established, it will occur each month with no interaction by the user.

E*Trade may well be the most innovative online financial services company. Here are some of the industry firsts they've logged over the years:

• 2001: MyLoanTeam from E*Trade Mortgage (OBR 73)
• 2003: Real-time funds transfers (OBR 96/97)
• 2005: 7-year online transacation archives (OBR 118)
• 2005 (March): First U.S. bank offering security tokens for online access (NetBanker 2 March 2005)
• 2005 (December): First virtual rewards card, Mileage Maximizer

--JB

Editor's Note: Mileage Mazimizer was awarded an "OBR Best of the Web" in our report on online lending published Jan. 31, 2006 (OBR 126).

It's fitting that the financial company most targeted in phishing attacks, Citibank, would be the first to introduce a new email format that goes a long way towards helping users identify legitimate email messages.

The personalized emails (click on inset to enlarge) include not only the name of the recipient, but also the last 4 digits of the user's ATM card. While simple personalization with the customer name would help many users identify legitimate emails, it's far from fool-proof.

First, there's the relatively common practice of including first name and/or last names in email addresses. Also, some phishers are using direct marketing tactics and first running email addresses through various databases to append actual names and other info to the email record in order to develop a personalized pitch (see ZD-Net article).

Citibank's new email format was announced to customers through a short message on the top of the online banking screen in early May. It is also now mentioned in the bank's main FAQ page.

Analysis
This is a great first step in winning back the confidence of users. Eventually email standards will evolve so that the email client will be able to readily identify legitimate emails, but that could be years in the future.

If you are considering a similar approach, you might want to let users choose the name and identifying information that appears in the personalization box. In February, we reported on a UK security initiative that took that approach.

For more information:

• Previous NetBanker post on eBay's personalized email strategy
• Security & Privacy from Online Banking Report (#93/94)

-- JB

Editor's Note: Citibank received an OBR Best of the Web award for this and other security features in Online Banking Report #119, "Marketing Security."

Bank of America wins the race to be the first with a viable plan to secure consumer online banking accounts. In an announcement today, it becomes the first major U.S. bank to endorse multi-factor authentication for consumers at login.*

The system, already in use at Stanford Federal Credit Union, is called SiteKey. The clever approach from Bill Harris's PassMark Security provides several layers of security to defeat phishing and keylogging attacks. The company calls it two-way two-factor authentication because not only does the end-user authenticate themselves to the bank, the bank authenticates itself to the user to defeat phishing schemes.

Here's how it works (click on inset below for BofA page):

1. User provides username
2. BofA verifies that the login request is coming from the user's previously registered computer; if NOT, user must successfully answer a challenge question based on previously registered shared secrets
3. After passing steps 1 and 2, the user is shown their previously selected image, so they know they are logging into the true BofA server
4. User enters their password

The service launches in mid-June in Tennessee with full roll-out by the end of the year.

Analysis
Even though it's long overdue, we applaud Bank of America for moving the industry forward. While the program won't be available system-wide until year-end, we're giving it an Online Banking Report "Best of the Web" now because it's the biggest development in U.S. online banking for several years.

The BofA/Passmark system is ingenious for several reasons:

• Unless a user logs in from a new computer, there is little extra work involved; just a two-step login with username, followed by the password
• Requires no hardware or out-of-channel coordination by the end-user; shouldn't cause a major increase in customer service expense
• Defeats phishing by displaying a personal image prior to asking for password
• Defeats keylogging with the rotating challenge question

If you are at one of the other 15,000 financial institutions in the United States, the clock is now ticking. As your customers find out they are not among the 13+ million consumers (BofA's current online base) receiving extra protection, they will be demanding the same from you. And if you thought BofA was aggressive in its free bill pay promotion, wait until you see the marketing blitz on this one. Extra authentication simply MUST BE in your 2006 plans.

-- JB

*For several years, ING Direct has asked for a third bit of info at login, but the necessary info is relatively easy to obtain (for example, zip code). Also, earlier this year, E*Trade launched security tokens for its high-rollers. But BofA is the first with a broad, secure, and non-hardware-based approach.

Just when you thought the banks were gaining an upper hand in the electronic bill payment battle, up pops a newcomer with a fresh approach. Take a moment to check out Billeo. An odd name, but so is iPod, and it seems to be working pretty well.

We haven't used it yet, so these comments are preliminary, but "on paper" this company and its approach appear to be winners. (One caveat: the business model is unknown, and the privacy policy is a bit ambiguous when it comes to the issue of adware. We'll keep you posted on what we find out.)

Billeo is a free toolbar-resident application that plays "virtual assistant," enabling more convenient and controlled direct bill payment at vendor sites. The toolbar also serves as an e-wallet simplifying online point-of-sale transactions.

Analysis
The toolbar contains several unique features, one of which is extremely impressive, the ability to save screen captures of transaction receipts. The application also includes payment reminders, a payment register, and a personal "bill payment" email address for users.

There are several familiar names associated with the startup. Nancy Langer, a former exec at Metavante, is the president. The advisory board includes Eric Dunn, formerly with Intuit, Shankar Srinivasan co-founder of Cyberbills, and Scott Loftesness of Glenbrook Partners.

We'll dissect the new service in Part 2 of our upcoming Electronic Payments Report in Online Banking Report.

--JB

Editor's Note: Billeo was named "OBR Best of the Web" in the second part of its series on E-Payments (OBR 119) published in June 2005. 

The credit card giant offers online payment of outside bills even if the merchant payee does NOT accept credit cards.

MBNA ($142 billion, 40 million cardholders) offers something we’d been expecting for years, a bill payment program that draws payments from a credit card. The company even posts the transactions as cash equivalents, offering the same 15- to 45-day float afforded regular card purchases. However, bill payments do not earn points in MBNA’s reward programs. Furthermore, payees are limited to those that can be paid electronically by CheckFree, although that’s now covers 70% of the processor’s volume.

Consumer Benefits

Pros

•       Added float, as one message board poster said, “why worry whether you get a few days float (from your bank), when MBNA provides a whole month”
•       Convenience of tracking more expenditures through the card-management system.
•       Ability to repay over time.
•       Option of charging bills to an MBNA card or debiting from any checking account.
•       Free, so long as the cardholder initiates at least two payments per month from their card account (see fee schedule opposite)

Cons

•       No real drawbacks, except for the confusing price schedule. Consumer advocates might argue that it encourages cardholders to take on more debt, but they could already do that by paying bills with convenience checks.

Financial Institution Business Case

We’ve long maintained that loan generation is the most important institutional benefit of online bill payment because. Why? If given the opportunity, users will likely charge several bills per year to an integrated credit line .

While you will lose money on convenience users who repay the charges each month, revolving balances should more than compensate. For example, in our back-of-the-envelope calculations, we estimate a total net profit of $60 per year per user of credit card bill-pay, or $600,000 annually across a 10,000-user customer base. 

The Most Confusing Fee Schedule in the World:
MBNA’s Bill Pay Choice may be among the most flexible online, but its fee schedule is utterly confusing. Perhaps the company should consider charging a nominal flat fee that’s waived if charging 2 or more bills.

Of course, any new credit card program must be monitored closely for abuse, both outright fraud, by setting up a phony electronic merchant, and less sinister gaming of the system where a user becomes an electronic merchant on CheckFree’s system and pays himself each month to earn the float. However, since no reward points are awarded, there is far less incentive to play games.

Card issuers could limit their exposure by setting a maximum monthly amount of bill payments, especially for new cardholders.

How it Works

MBNA cardholders must first register for online access at MBNA’s NetAccess www.mbnanetaccess.com  After that, they register for Bill Pay Choice. Users can pay bills either by charging to their MBNA card or debiting any U.S. checking account. MBNA does not offer its own checking account; however, payments can be drawn from MBNA’s money market account.

The service is free unless the user pays bills only from their checking account, in which case the fee is $0.75 per transaction. Users may qualify for unlimited free checking-account bill payments provided they charge at least two bills to their card each month.

Table 13
Mini Business Case: Card-based bill payment

monthly benefit, assuming 6 payments totaling $1000

Source: Online Banking Report estimates, +/- 33%, 2/04
Revenue assumptions: 1 out of every 10 bills will be revolved (10%); revolving balances will be repaid in equal installments over 12 months (6 months average life); interest rate spread = 5% (net of charge-offs)

Innovative Upost@home provides real-time credit for mailed deposit items

In a remarkably simple yet highly innovative service Pennsylvania State Employees Credit Union (Harrisburg, PA; 290,000 members; 160,000 online users) www.psecu.com  gives qualified members immediate credit for items “deposited” online. Users logged into online banking simply choose the Move Money tab and follow the simple instructions. Members then have 10 days to get the deposit to the credit union via U.S. mail before the items are backed out. There is no fee.

To limit fraud and errors, only about 20% of the CU’s member base is eligible for the program. These 65,000 eligible members start with $1500 in deposit credit, but it can be increased at the discretion of the credit union to as much as $8000 based on usage. Deposited funds are immediately available for use and earn interest from the day of the online deposit entry.

History

PSECU has long used a similar system for ATM deposits offering credit as high as $20,000. The online version Upost@home, the brainchild of VP Tom Ruback, was launched in November 2001. However, until recently it hadn’t been publicized widely outside its member base. Four months ago a second CU, Pentagon Federal Credit Union’s  http://www.penfed.org/   launched a service modeled on PSECU’s.  Pentagon Federal’s Trust In You program has tighter limits, beginning with only $750, and increasing to $2500 based on usage.

Results

The CU already had experience with real-time credit of ATM deposits, suffering minimal losses across its 68,000 users (making about 180,000 deposits/month). So it was confident members would continue to be trustworthy through a similar online system.

The online version’s volumes are lower, but are building. In December, nearly 11,000 members made 24,000 deposits, worth $10.5 million. In the first two years, more than 19,000 members have made deposits of $125 million, $83 million of that in 2003. More importantly for anyone thinking of recreating the program, the service has lost only $2000 to fraud, while saving the CU more than $100,000 in interchange.

Active users average two deposit sessions per month, with each session containing slightly less than two items, for a total of 3.8 items per month. At an average of $260 per item, total monthly deposits average $1000 per active user.

Consumer Benefits

Since it’s an unusual benefit, members often need coaxing to try the feature. PSECU sends online banking users a letter explaining the service. Follow-ups to non-users contain a $1.37 check that can only be deposited through the Upost service. Repeat usage is high once members experience the benefits.

Pros

•       Added convenience of simply dropping deposits in the mail; no trip to a branch or ATM, no waiting in line
•       Peace of mind knowing an image of each item will be available in case of dispute
•       Earns interest immediately
•       Can immediately withdraw cash or make payments with the virtual deposit
•       A record of each deposited item is viewable within the check register
•       Preaddressed envelopes are available at no charge (NOT prepaid)

Cons

•       Must order or provide envelopes and locate and pay for stamps
•       Must remember to mail within a few days
•       Failure to mail deposit could result in negative balance and bounced checks

Business Case

For a credit union serving 290,000 members through two branches (10 total teller windows) and 20 deposit-taking ATMs, the remote deposit program is a win-win. Members like it for all the reasons mentioned above, and the CU saves more than $0.70 per deposit compared to foreign ATM interchange fees.* The CU can continue to minimize its bricks and mortar costs (90% of its members have never set foot on PSECU property) while offering an innovative benefit to online banking users.

*The CU estimates each Upost deposit cost $1.16 to process including an “inflated” value for lost float. In comparison, it pays about $2 for each deposit put into a non-PSECU ATM.

Table 19

Deposit Float

calendar days to receive online deposits, 2003

Source: PSECU, 1/04, deposits processed Jan through Nov 2003

How it Works

Initiating a deposit online is a simple process:

1.    Within the CU’s online banking area, members then choose the Move Money tab (screenshot