Reports of imminent death aside, checks aren’t vanishing, and banks need to deal with a future still filled with paper.

For one thing, people—and, especially, businesses—will keep writing them. And the efforts in the banking world have been more to electronify checks than replace them with electronic payments. So while the various methods of squeezing paper out of check processing are making progress, the day when there are no checks is far away, says Alenka Grealish, manager of Celent Communications’ banking practice.

“I don’t think we’re going to be around” when checks vanish, says Grealish, so check processing will persist. “Somebody has to be around to be the last resort—the person processing the last 100 checks.”

While people and businesses continue writing checks almost unabated, fewer of them are being processed every day: According to Grealish’s research, check processing, which has declined by 7.5 percent on a compounded annualized growth rate (CAGR) since 2002, will further decline by a 9.5 percent CAGR between now and 2010.

But even when 90 percent of checks are electronically processed, and Grealish expects that day to come by 2010, plenty of checks will still flow through the system—at least 20 billion, or 80 million a day, compared with about 33.5 billion in 2004, she estimates. So even under the most optimistic scenario, banks will need to be able to process paper checks well into the future: The event horizon for a checkless world is, at best, indeterminate.

Not to say that pressure won’t keep building to minimize paper checks: Among other factors militating against paper checks, processing costs will keep rising, and transport options will keep shrinking, until the sheer economics of check processing will drive much processing into the hands of a few third-party outsourcers with enough volume to make a living out of a business that was once the average bank’s meat and potatoes.

But meanwhile, and try as they may, banks won’t be able to punish their customers enough to stop all of them from writing checks. Ghoulish as it may sound, the banking system qua system is going to have to wait until check writers who are now 50 or 60 die off, which guarantees that on the retail side alone, checks have at least another 20 years of life in them.

Meanwhile, getting businesses to stop writing checks is almost a fool’s errand. For one thing, the game of treasury management is built around checks, the post office, and float. For another, the accounts system of the typical business is still what you could call a paper-rich environment, and not every business is big enough to profit from the agony a wholesale switching to computerized systems entails. Also, even if every large corporation switched to a fully computerized accounts system tomorrow, rivers of paper checks would still flow from the nation’s small businesses. And lawyers are very attached to paper receipts, whether or not electronic ones are admissible in court.

Banks are just as bad as check writers, she adds. Business checks are a fee-generating cash-cow for banks, and even the most enthusiastic advocate of electronic payments would be hard put to convince a typical bank to abjure business check processing in a period when almost every revenue source is under attack by technology and non-bank competitors.

Still, Grealish says there are ways to encourage even businesses to write fewer checks, and eventually whittle down the volume. “There are carrots and sticks,” she says. “Banks can offer economic incentives to customers to move to electronic payments. And I think the big cash-management banks will develop products that reflect the attributes of a check, but are electronic,” like a procurement card that replicates controlled disbursement and replicates the float.

There are other factors working against a long, prosperous future for checks, she thinks. While no bank has to pay a penalty for accepting only paper payments, notes Grealish, three significant trends are conspiring to discourage the practice, aside from rising processing costs.

These include the aforementioned decline in the number of air couriers specializing in checks: Grealish expects costs to skyrocket as much as 10 percent per year as a result. Also, she points out, rising short-term interest rates inflate the cost of float: She estimates that 50 extra basis points in the federal funds rate means an extra $50 per $1 million in float for a bank.

Added to this will be that generally increasing processing cost: The Federal Reserve, for instance, has been trimming check processing facilities and raising processing prices for the past several years. Costs like that should increase as much as 23 percent by 2010, she estimates. Also, says Grealish, third-party processors will gradually stop supporting paper-based processing technology over the next five years. The result of all these pressures will be a marked diminishment of paper in the system within four years, she says.

Don’t expect paper checks to vanish, though. Paper checks, diminished in numbers or not, will be with us for a long time. It’s like what actor Art Carney’s character said in one of his last movies, Harry and Tonto: “Nothing ever changes in this town—they just move the names around.” (Contact: Celent Communications, Alenka Grealish, 503-228-0878)

In the latest in what seems an unstoppable march, DataTreasury Corp. settled its outstanding patent infringement litigation in the U.S. District Court for the Eastern District of Texas with NCR Corp., paying DataTreasury a fee and agreeing to license the Melville, L.I. company’s check imaging technology. DataTreasury said NCR had been infringing on DataTreasury’s patent rights. It’s the latest in a series of settlements stemming from a number of similar suits that DataTreasury filed in 2002.

DataTreasury, which has already settled its litigation against JP Morgan Chase & Co., Ingenico Group, and other firms that it says also infringed on its patent rights, is still suing several other big financial services firms-- including First Data Corp., Citigroup, SVPCO and Bank of America, among others—on the same grounds.

Continue reading "DataTreasury, NCR Settle Patent Infringement Case" »

On a late-night flight from Atlanta to Seattle, coming home from BAI’s Retail Delivery 1997, a light bulb clicked on. In a nutshell, it went something like this:

Web + ACH = Virtual Checking Account

Anyone could build an effective checking account with some HTML coding, an entry point into the ACH system through an existing bank, and a processing agreement with a bill payment company (Checkfree, M&I, Call Me Bill, or others). This fictional entity, let’s call it mychecking.com, could mimic many functions of a checking account without ever having to deal with the messy details such as cashing $1 rebate checks from Pillsbury, delivering cash to ATMs on Sunday, and soothing irate customers charged $27 for bouncing $6 checks to the dry cleaners. Recommended reading: OBR 7/98, Creating the Amazon.com of Financial Services.

To add more value and improve the revenue stream substantially, a credit card could be added to the mix to create a transaction account that works both online and offline:

Web + ACH + MasterCard/Visa = Virtual Transaction Account (VTA)

But why would anyone build an account that didn’t hold deposits, especially the much-coveted noninterest-bearing variety? Because consumers aren’t going to give up the local convenience of their hometown bank or CU anytime soon, but they may migrate the majority of their transactions over to a Web-based entity. Virtual checking can be used to gain control of the “payments process,” while leaving the messy and largely unprofitable paper and branch-based checking services for existing players to fight over. The VTA provider would have a lock on the valuable ecommerce information stream spun off from bill payment and credit card purchases, while the local checking account would still foot the bill for the expensive brick-and-mortar distribution system.

www.PortraitCheque.com

Would you accept this check? If AnyBank USA was replaced by Citibank, American Express, or Visa, you probably would. Downloadable traveler’s checks could be a short-term solution for remote cash access, at least
until rechargeable-at-the-desktop smart cards become common.

The Company: PortraitCheque.com is a privately held start-up based in Evergreen, Colorado. The company began operations in January, but the concept has been used in New Mexico for more than a decade at founder Thomas K. Reed’s Santa Fe company, Vivigen, a health services firm which paid employees a portion of their salary in PortraitCheques. The check’s were guaranteed by United New Mexico Bank of Santa Fe and were widely accepted in the local market. Reed is a long-time entrepreneur, having been involved in 24 start-ups.

Newly appointed President, Brent Abrahm, briefed us on the concept. He’s trying to take the it national with priority number one: signing a big-name backer, such as American Express, to guarantee the checks and add much-needed credibility. He’s also been gauging interest among potential distributors, especially the Net-only banks looking for a way to differentiate themselves and meet the cash needs of remote users.

But the key person on the team may be patent attorney LeRoy Hahn, who will likely be called in to protect the company’s provisional patents, should they be approved, and the product takes off.

The Product: The company has created a patented process by which customers can print out their own “traveler’s checks” via desktop or Web-based software. Users would countersign the checks in the presence of the merchant to use in lieu of cash.

The Patents: The company holds two provisional patents on the downloadable traveler’s check concept:

Pricing to User: Approximately $0.50 per check in lots of 100 for $50 (four per page).

Pricing to Distributors (banks): negotiable

The Business Model: The company expects to make money selling the check stock at approximately $0.50 per check as well as licensing the concept to distributors, both financial and non-financial companies. A financial institution that steps forward to guarantee the checks on a national/international basis is likely to garner the lion’s share of float and lost check revenue. But this company will also be on the hook for the lost, stolen, and fraudulent checks successfully passed to merchants.

Security Features:

•  SSL encryption during authorization process
•  watermark and fraud deterrents in paper stock
•  user’s picture and signature on check

How it Works: Online demo available at www.portraitcheque.com/demo/members.html .

•  Users submit signature, photograph, and checking or credit card account info to bank or other agent.
•  Agent authorizes the user.
•  User installs client software on PC (Web version coming).
•  When user wants “cash,” they send a request to the PortraitCheque.com server with username, password and social security number.
•  PortraitCheque authorizes the transaction after checking for funds availability, debits customer account, and sends encrypted instructions back to user’s PC authorizing the transaction.
•  User prints the check on their desktop printers using PortraitCheque check stock, preprinted with the user’s picture and signature.
•  User takes the check to any retail location where it is countersigned in front of the merchant and used in lieu of cash or personal check.
•  Merchant deposits the PortraitCheque in its bank along with other paper items.

Contacts: Brent Abraham is Pres., (303) 670-6818, babrahm@portraitcheque.com ; Thomas Reed is CEO, (505) 983-8299, treed@portraitcheque.com . LeRoy Hahn is Patent Attorney at Christie, Parker and Hale, (616) 795-5843.

The conventional wisdom is that some day smart cards, rechargeable from the desktop, will free Net banking customers from the drudgery, and expense, of using ATMs to get cash. PortraitCheque.com proposes to move that day forward by a decade or so (at least in the United States) with an interim paper-based system. But significant hurdles in merchant and user acceptance remain. And a big-name guarantor of the checks must be found before the product moves off the drawing board.

PortraitCheque.com’s Web site is relatively low budget, but they’ve only been in business since January.

There are also major control and fraud issues yet to be resolved. Under the current system, users don’t actually fund the checks until they initialize an authorization and printing process via their PC. This takes place after the user has received the check stock. There are obvious concerns with forgery and the passing of bad checks.

Although the picture and signature would provide some safeguards, the system is by no means fool-proof. Since the checks represent guaranteed funds with no point-of-sale authorization, they will have to be treated much like a Visa Check Card (off line debit): provided only to good credit risks, with ATM-like maximum daily limits (e.g. $500 per day in downloaded checks), and with an expiration date of
a year or less. It’s also unknown what consumer protection regulations would apply to the instrument.

If and when these hurdles are overcome by PortraitCheque.com or someone else, there could be an advantage to being first in your market offering “instant cash from the desktop.” It could differentiate your online product, deliver value to end users, create a buzz in the media, and cut your foreign ATM expenses. There could also be modest revenues from paper check sales.

Realistically, most of your remote users will prefer to get their cash through ATMs and POS cash-back. We see only a small minority of subscribers willing to bother with Web-based traveler’s checks. But, as a copy point and marketing tool, it has considerable appeal, at least while it is new.

Just as non-banks are using the Web to encroach on your turf, you can build new Web-based businesses that wouldn’t have been feasible just a few years ago. One such business if automated financial management and bookkeeping services.

Eventually, it won’t be enough to simply offer robust cash management and online balance reporting to your business clients. With the Web as the ideal platform for building industry- and customer-specific service offerings, you’ll need to be more creative to make a name for yourself in the small business banking marketplace, circa 2001.

You can bet the big banks will be creating killer small business Web sites to make up for any perceived service disadvantages. In turn, community banks will need to fight back with online offerings that enhance their level of personal service delivered to local businesses. Luckily, vendor offerings will make even the most complicated Web-based service affordable to the smaller financial institution.

Whether you are small or large, we think you must pay attention to the accounting and billing needs of your business clients. Intuit has made tremendous strides in serving that need, and as they move into offering more and more financial products to their accounting software customers, banks will feel the pinch. Banks should consider teaming with Web developers to build small business financial and customer management systems that could be deployed in the next 18 to 24 months. By then, bill presentment will be picking up steam and can be incorporated into your Web-based solutions. Intuit will have it. Yahoo! will have it. You should too.

Looking at the big picture, we see strong synergies between banking and accounting. Prior to the Web, there wasn’t a cost-effective way to bridge the gap between financial data housed in your mainframes with that housed in the PCs of your small business clients. Today, the Web is the ideal medium for tightly integrating your banking services with your clients’ accounting activities.

Intuit has already built impressive software-to-bank linkages for QuickBooks and Quicken customers. To some extent, the shrink-wrapped software is a Trojan Horse, positioning Intuit-controlled links to its partner banks right on the desktops of your best clients. You can fight back by incorporating billing, accounting, and financial management functions on your Web.

We think businesses would be very receptive to Web-based financial management services running on encrypted, secure and trusted servers controlled by the bank. The services would encompass these areas:

*Approximate. Price would depend on a number of factors, including size of company, competitive offerings, quality of service, etc.

You may be thinking, “We’re a bank not a software company. How can we compete with Intuit or Netscape in creating a compelling virtual CFO?”

Answer: You may not have a choice. The big Web companies are moving into your turf in partnership with large financial institutions. Witness the sweeping alliance Netscape recently inked with Citibank. And that’s just the beginning according to Edward Horowitz, the head of the bank’s advanced technology group. We expect to see Citibank integrating payment and banking functions into the Netscape’s virtual office.

Deciding when to launch a novel small business service is more difficult. All the cliches are running through your head: stick to the knitting, walk before you run, stay away from the bleeding edge, and so on. Why rush into an unproven area such as Web-based accounting?

Answer:

•  You can be the first to integrate banking functionality into small business management software. The virtual offices we’ve previewed primarily deal with team collaboration and communications functions, e.g. virtual intranets to help employees work together. And we can’t find anyone offering virtual accounting or bookkeeping services, yet.
•  By focusing on back office banking and accounting issues you will be able to differentiate yourself and offer services highly complimentary with your core banking services.
•  If you can successfully pioneer a robust Virtual CFO product, you could license it to other banks, recouping your investment and then some.
•  You can head off further inroads into your revenue base from Intuit partner banks.

The electronic checkbook is the foundation of any small business banking Web offering. Like foundations in the real world, it’s fundamental to the stability of your Web services, but there isn’t much you can do to differentiate it from other banks. It’s what’s on top of the foundation that will attract buyers.

Nevertheless, a good virtual checkbook must include the following functions:

•  balance inquiry across all business and personal accounts maintained at your bank
•  transaction history including basic look-up/search capabilities to find all transactions by date range, by type, by check number range, and by transaction amount
•  bill payment
•  email to and from the bank

Other desirable features:

•  different authority/access levels for each account
•  templates for common reports such as transactions by quarter, transactions by check number, etc.
•  email integrated with bill pay including:
  • forms for creating payee communications quickly
  • filing system that stores all previous communications with the payee
  • search function for finding text strings in previous messages to payees
•  fax/email statement
•  balance notifications
•  transaction confirmations
•  wire transfer and ACH initiation
•  downloadable directly into personal finance, spreadsheet, and/or accounting software programs
•  email notification when bills are presented
•  email forms for communicating different matters to the bank quickly
•  permanent storage of all communications with the bank with search capabilities

An example of Netopia’s virtual office from Netscape nvo.netopia.com . This particular template is for a mortgage broker who could create a 10-page Web site complete with downloadable application in a few hours. Cost? Just $20/mo, or $200 for a year. Netscape also offers templates for 14 other business types.

Create a place within your Web for small businesses to set-up a home base for work and collaborating on the Web. These services are commonly called virtual offices or intranets. We also like the names virtual desk, briefcase, or banker. The Web services could also be marketed to the estimated 39 million U.S. households with a home office (source: IDC/Link, 1995). ð

There are a number of virtual office vendors on the Web. The most visible is Netopia, which provides private-branded offices for users at Netscape’s NetCenter, GeoCities, and others. Netopia’s product currently focuses primarily on communications, offering real-time chat, email, IP telephony, and so on (see screenshot on previous page).

The most full-featured offering is HotOffice www.hotoffice.com profiled in this issue . The program has many desirable features that bank customers could use, but some of the most useful are lost amidst all the fancy bells and whistles that wouldn’t be used by the average small business. For instance, HotOffice is cluttered with collaboration tools so geographically diverse teams can “meet” on the Net to discuss issues, post documents, communicate with each other via message boards or real-time chat.

We think banks could create their own simpler and easier to use virtual offices integrated with banking and financial matters. A further emphasis on local content/links could keep you ahead of the competition. Here are the features we recommend:

•  Calendar/datebook/reminder service integrated with bill payment (OBR 6/98).
•  Virtual safe deposit service that automatically stores financial and other files in secure, encrypted, off-site back-up files not accessible by anyone but the owner (not even bank personnel); can be retrieved on CD for disaster recovery (OBR 3/98).
•  Free email with emphasis on secure communications with bank (OBR 3/98).
•  Email notification services (OBR 8/98).
•  Virtual receptionist that tells visitors how to get in touch with someone at your business.
•  Company message boards.
•  Ability to post documents to the Web that can be shared with everyone or just authorized employees and/or customers.
•  Unified messaging service which provides a single Web page where users can send and retrieve email, faxes, and voice messages (for more information visit the Web site of JFax www.jfax.com and VirtualPlus www.messagepoint.com )

Side Note: You also might consider setting up virtual offices for your own loan officers and other customer-contact personnel.

Time Direct is a virtual time card for employees and contractors to track project hours, submit them for review, and receive payment (if applicable).

The Virtual Bookkeeper expands on the functions of the Virtual Checkbook and office.

•  Billing statements and invoicing via email, fax, or snail mail; includes reminders, and confirmations.
•  Online cash-based accounting functions including data entry, categorizing, and basic report generation.
•  Bill payment/accounts payable monitoring functions such as email notification when payment transactions are awaiting authorization by business owner; email flags when payment transactions don’t clear in a reasonable time.
•  Autopay function that pays certain bills automatically each month when presented or when preauthorized by client (now supported in software from Edify www.edify.com ).
•  Full interbank transfer capability to and from any financial institution supporting ACH payments.
•  Statement integration functions across bank and non-bank accounts (see MileageMaximizer
  OBR 8/98).
•  Virtual credit card terminal with integrated email and hooks to accounting systems.
•  Lock-box service for paper check processing with full integration to client’s accounting system (see Accounts Receivable: Other).

• ð

Just like the real world, the Virtual CFO takes the data entered by the bookkeeper and puts it into a broader perspective that allows a business to be more profitable. The following features could be added to those already offered in the Virtual Bookkeeper, Virtual Office, and Virtual Checkbook modules:

•  Online payroll with paper or direct deposit paychecks, and electronic payroll tax payments.
•  Online federal and state tax return preparation and filing.
•  Full-fledged double-entry online accounting services.
•  Complete disaster recovery services including a redundant data center. Here’s an area that banks have a great amount of in-house expertise that could be turned into a profit center.
•  Complete Web-based customer file management and communications services including integrated:
  •  invoicing/billing with Web integration
    (e.g., bill presentment)
  •  payment services/inquiry via the Web
  •  email/fax/voice messages automatically confirming payment
•  Access to a CPA-on-call to handle questions. The CPA could deliver advice publicly on your Web, privately through confidential conversations with your business clients, or both.
•  Automatic excess funds allocation to minimize interest expense and/or maximize interest income. For added value, the funds “sweep” could go to investment and loan accounts at any financial institution (not just yours).
•  ECommerce services for hosting secure transactions (more on that next month).
•  Accounts receivable management that automatically notifies the business owner and/or customers when accounts are past due; includes linkages to Web-based payment window (below).
•  Virtual payment window that clients can display on their Web site to accept credit card or check/ACH payments online; includes integrated messaging confirming orders.
•  Extensive management reporting easily customizable using drop-down menus; for example, revenue reports by customer, accounts receivable aging, quarterly P&L; etc.
•  Mail merge capabilities that works across any medium, email, fax, page, voice message, or snail mail; option to outsource snail mail services to a mail house; label printing utility.
•  Retirement plan administration including Web views for participants; includes email statements.
•  Project tracking module integrated with reminders and other Virtual Office services.
•  Employee expense reporting, approval routing and reimbursement services (see Expense Reporting below for more detail).

State Bank of Hildreth

www.statebankofhildreth.com

nFront is also the service provider behind the smallest bank with Internet account access, State Bank of Hildreth (Hildreth, NE; $22 million), which has just 700 checking accounts. Not bad considering its home base is a town of 346 residents. The bank conducted research which resulted in 13% of survey respondents (6 of 45) saying they would use the new service. Though we’re a bit surprised to see a financial institution with just 700 checking accounts opting for full-bore Web account access, it demonstrates the cost effectiveness of the Internet. CEO Ross Knott says the cost of going online is approximately equal to the salary of one employee.

State Bank of Hildreth uses the nFront template.

Before you reach beyond your customer base with the marketing techniques described on the previous seven pages, make sure you are maximizing the loan business among your existing customers. Here are 40 tactics to help you defend your current portfolio from the online poachers.

New Loan Originations

1. Rate Search/Rate Watch: Users select the loan type(s) they are interested in and you provide a comparison table with rates, points, monthly payments, and other loan details. Offer an option to be kept up to date via e-mail.

2. urrent Loan Analysis for Refinance/ Trade-in: Users input the details of their current loan (amount, month it closed, current home value, APR, variable rate info), then choose from a list of attributes they are seeking from a new loan (lower rate, fixed rate, cash-out, etc.). Then your server returns a list of loan programs that fit their needs. Provide a “trade this loan in” button for users to act on the advice. Offer an option for continued e-mail updates to the analysis.

3. Loan Recommendations for Existing Homeowners: Same as above but for users interested in a new loan, rather than a refinance.

4. Loan Recommendations for First-Time Buyers: Same as above but with an emphasis on rent vs. buy analysis.

5. About Your Company: Provide as much information about your company as you can find, especially if you are originating mortgages. These are complicated, risky deals, and users want to know they are dealing with an established/successful firm. On the Web there is no such thing as too much information, only poorly organized info. Organize the details into a pyramid, with a single page of key facts on top (such as licenses, affiliations, FDIC insurance, etc.) and allow users to drill down for more. Hire an intern to spend a month digging up information and transferring it to HTML.

6. Use a Two-Step Loan Approval Process: For most loans, concentrate on prequalifying the applicants as fast as possible, ideally while they are still on your Web. Make the approvals conditional on verifications of collateral value, employment, etc.

7. Make the Loan/Prequal Application Interactive: On the Web you will no longer have such a thing as a “standard” loan application. It will be dynamic, changing as each user fills it out, so that only the key questions are presented. A simple example: If the applicant doesn’t own a home, skip the mortgage payment questions. A more advanced application: Do a credit score during the first part of the application, if the result is marginal, ask more detailed questions about other credit references and household income sources.

8. Lock-in a Rate: Offer a rate lock-in button for both new and existing applicants. Pressing the button would take existing applicants to a summary of their loan application and the choice to lock in now or continue to monitor the market. For new applicants, the button would link to a prequalification application that included the option to lock in today’s rate.

9. Lead-Generation Devices: Put something on your Web of value that requires loan shoppers to identify themselves. For example, Salem Five’s online coupon for $100 off closing costs (see previous page).

10. Provide an Instant Prequalification Letter Online: After an application is approved online, offer users the option of printing a prequalification letter for use in home/car shopping. The letter should be on your letterhead with a digitized signature. Also send an e-mail for further proof of the applicant’s prequalified status.

Cross Sales to Existing Customers

For your line of credit and credit card products (i.e., revolving credit), the road to a profitable customer is two-fold. First, you must book the new account, then get the line activated. Your Web site provides a number of cost-effective ways to increase usage/outstandings from your existing portfolio.

11. Balance Transfer Form/Special Offers: Allow revolving credit customers to transfer balances online with a few keystrokes. Incorporate an
e-mail confirmation so users know the balance transfer was properly executed. Test balance-transfer rate specials delivered online (via Web/e-mail).

12. Online Bill Payment/Credit Card Checks: Allow revolving credit customers to write online checks directly from their credit accounts. Incorporate an e-mail confirmation as above.

13. Skip Payment Application: Allow users to apply online for permission to skip a payment. If possible, give the user an instant answer based on past account performance. At least, provide an answer by
e-mail within 24 hours.

14. Line Increase Application (emergency and permanent): Same as above except for temporary and/or permanent line increases. Use e-mail to confirm.

15. Line Increase Notification/Usage: Whenever you increase a credit line, whether the user applied for it or not, post a message of congratulations on the Web and offer options for accessing the new credit amount. You might also consider an “opt out” option so users could click on a button if they don’t want the line increase.

16. Installment Loan Increase Application: To increase outstandings and profitability, it may be useful to think of your installment loans more like revolving credit than fixed obligations. Let loan customers apply online to access the paid-down portion of an installment loan and/or increase the size of the loan. The additional loan amount could be accessed online.

17. Installment Loan Rollover Application: Along the same lines as number 16, think of your installment loans as portable. For example, if the user is thinking about trading in the car you’ve financed, allow them to simply roll over the existing loan balance while applying online for any additional amount needed to cover the new car. Naturally, you would reserve the right to reset interest rates to current market rates.

18. Ancillary Loan Services Sign-up/Offers: Sell your fee-based services online (credit insurance, card registration, credit bureau monitoring, etc.) with a simple “one click” sign up. Consider offering a new kind of credit insurance that provides better value to the more financially savvy individuals likely to interact with you online.

19. Annual Insurance Check-up: Each year, remind loan customers to login to your Web for an insurance check-up. Users would compare their existing coverage vs. recommended levels, and purchase additional insurance if needed.

Don’t skimp on the customer service portion of your loan origination Web. Make sure it does a good job of highlighting the services you provide on- and off-line. Many loan shoppers will check out the customer service area before proceeding with the loan application.

20. Twenty-Four Hour Online Loan Service Center: Even if it’s just being staffed by your regular loan center group, we think it’s important to give prospects the sense of your commitment to online customer service. Include simple check-box forms to handle routine customer service queries. Confirm every e-mail received with an immediate “we’re working on it” e-mail response. A few days after a question is resolved, at least from your end, you might consider sending a follow-up message asking whether the matter had been resolved to the user’s satisfaction.

21. Online Service Guarantees: Back up your marketing hyperbole by putting your service standards in writing. For example, “e-mails answered within four hours,” or “or line increase applications approved within 15 minutes.” In a world where no one wants to commit to anything in writing, this alone could make your loan services stand out from the competition.

22. Loan Status Reports: For loans in process, post loan status reports on the Web and send daily e-mails until the loan is closed or the user opts out.

23. Account Access: Allow users to login to see current balance, available credit, loan disbursements, payments credited, next payment due date, previous year and YTD interest paid (for tax returns), escrow account balances/transactions, and any other loan transactions.
24. Online Payment: Allow users to make loan payments online. Include a checkbox to indicate whether the user is paying only the minimum due, or the entire balance, or something in between. A link to a calculator would be helpful here. Users could also be given the option to set up autopay (preauthorized debit) by checking a box on the payment form. Finally, a link to the skip-pay application would be appropriate.

25. Payment-Due Reminder: Post payment-due reminders on the Web, and more importantly, send reminders via e-mail. Consider allowing payment to be authorized by replying back to the e-mail.

26. Payment Confirmations: Post payment-received confirmations on the Web and send via e-mail.

27. Collection Reminders: Use the Web/e-mail to gently remind users when payments are overdue. Provide one-click payment options including charge to a credit card.

28. Balance/Overlimit Alerts: Post alerts on the Web when the loan balance reaches a preset maximum dollar amount or line utilization percentage. Also send via e-mail.

29. Activity Alerts: Post alerts on the Web when loan transaction activity is more than a preset maximum level. For example, more than three charges received on a credit/debit card during a 24-hour period. Also send via e-mail.

30. Extra Principal Payment Option: Allow users to make extra principal payments online. Send an e-mail to confirm the extra payment amount.

31. Personalized Amortization Table: Allow users to generate a complete amortization table for their loans. Integrate the table with a payment calculator to run “what-if” calculations on additional principal payments, lower interest rate, higher loan amount, etc.

32. Refi Watch: Allow users to set a rate and points target for refinancing. Then send an e-mail when prices hit the target. Though you may be cannibalizing your higher-rate loans, you’ll have saved a customer.

33. PMI Insurance No Longer Needed Notice: Post a notice on the Web when mortgage insurance is no longer required. Also send
an e-mail.

34. Searchable Loan Agreements/ Disclosures: Post the actual loan agreement and any additional forms signed by the customer when the loan was originated.

35. Credit Bureau Monitoring: Include information/links to the major credit bureaus to assist users in monitoring/evaluating their own credit history.

36. Credit Counseling Services: Post information and links to legitimate credit counseling services available on- and off-line.

37. Home Value Reports: Provide links to Web-based services that provide home values based on a search of public records.

38. Real-Time “Chat” Customer Service: Offer real-time customer service via “private chat mode.” For example, users could enter a virtual service booth, type in a question (or click on a form), and receive answers immediately on-screen from a real person.

39. Personal E-Loan Reps: Private banking customers have someone on call to attend to their every borrowing need. Online customers could have the same type of service, provided it was highly automated. Set up new customers with a real rep they can reach online via e-mail or Web form. This real person would provide individualized answers using a large database of prepared e-mail responses. This level of personal service could be made available in the VIP center described below.

40. VIP Online Service Center: Create a “VIP lounge” on your Web for your best customers. The lounge could be hidden from other customers via a special URL only provided to VIP members. Or it could be highly visible on your regular Web to encourage whatever behavior is necessary to join the club. Services could include: real-time customer service via online chat; discounts on ancillary services; loan rate discounts; higher line sizes; more payment flexibility; etc. Delivering premium services online has the potential to be far more cost effective than through traditional direct mail. Essentially you can clone your regular Web, add some new graphics, drop-in a couple VIP services, and you’re in business.

CheckFree
www.checkfree.com

CheckFree’s bill payment user base is rising rapidly, growing six-fold during the past five quarters. The company is projecting 1.8 million subscribers by June 30 as it begins processing for Wells Fargo and Bank One.

The P&L is not quite so rosy. The company did book record revenues of $50.2 million for its third quarter ended March 31 compared to $21.7 million for the same quarter of 1996. However, CheckFree reported a net loss for the current quarter of $142.9 million compared to a net loss of $97.5 million a year ago. For the nine months ended March 31, CheckFree reported a loss of $155.9 million compared to a loss of $97.8 million in FY 1996. Results for the current quarter include the operations of Intuit Services Corporation beginning on January 27, 1997. FY 97 revenues for the nine months ended March 31, 1997 were $121.4 million, compared to $47.4 million for the same period in FY 1996. Wall Street loved the numbers, bidding the stock up from its 52-week low in the mid-$9’s to the $16-17 range. 

Contacts: Mark Phelan is EVP; Hugh Fraser is VP & Director Retail Financial Services, 614.825-3000.