As a followup to our pre-Thanksgiving post, here's what the ING Direct website looked like on Black Friday (the day after Thanksgiving).

ING Direct Black Friday homepage (27 Nov 2009, 1 PM Pacific)

Black Friday deals landing page <ingdirect.com/blackfriday>
Note: All the "Learn more" links went to the regular product pages

ING Direct wasn't the only one with a Black Friday promotion (yesterday's post).

Portsmouth, NH-based Service Credit Union also took advantage of the U.S. vacation day to promote a special 10% APY 3-month CD ($1,000 max deposit) and 1% off loan rates (promo page). But unlike ING Direct, the CU's special offers were redeemable only in its branches, which opened at 5 AM to mimic giant retailer early-morning specials.

The offer was promoted in a rotating banner on the homepage (see inset and screenshot below). And it had its own landing page (see screenshot below).

I like the creativity, so I'll give them an A for effort. But seriously, opening at 5 AM? Maybe they were hoping for PR exposure, but it's just not right (note 1). I understand (sort of), heading to Best Buy in the middle of the night to save a couple hundred on a TV. But who would go to their bank at 5 AM to make an extra $20 on a CD (note 2) or apply for a car loan (note 3)?

But there was one offer in the fine print that was more valuable for a typical Black Friday shopper, fee-free gift cards until noon. Although, I'm not sure why they limited the number to five per customer. 

Hat tip: Bank Deals blog

Service Credit Union Black Friday promo page (link, 27 Nov. 2009, 9 AM Pacific)

Service Credit Union homepage

Notes:
1. Now if you have in-store branches, it's another matter. Desert Schools FCU opened its 24 WalMart branches at 5 AM along with the retailer.
2. Extra interest on a $1000 CD for 3 months is about $7 per month, or $20 total. And that's before tax.
3. The almost unreadable type on the bottom of the small banner mention great prizes and giveaways, but the landing page makes no mentions of prizes. Now, free stuff would make it worth a trip to the branch, so I wonder why the CU didn't mention that on the promo page? Maybe they didn't want people to show up only for the prizes? 

The ink's barely dry on the news that ING Group will divest its U.S. bank, ING Direct, within the next 48 months (note 1), when someone else has already launched a direct bank with a distinctive orange theme (note 2):

The new brand: Incredible Bank from River Valley Bank, an 18-branch, $900 million (assets) bank headquartered in Wausau, Wisconsin.

The strategy: Like the original orange bank's Electric Orange account, Incredible Bank offers a high-yield checking account, currently paying 2%, that's 100% electronic. No paper checks (note 3), no paper statements. And unlike the hundreds of rewards-checking products, this one comes with no strings attached. The full rate is paid on all balances up to $250,000, then it drops to 1%.

Other account features:

• Debit card
• Free online bill pay
• Unlimited ATM reimbursement
• Overdrafts are $34 each with max 10 per day
• Incoming wires are $5 each, outgoing are $20
• Mobile banking (which is highlighted on the home page, see below and note 4)
• ACH in/out (coming soon)

Analysis
I've always wondered why, other than ING Direct and Kiwi Bank, only the U.K. direct banks seemed capable of a light-hearted brand positioning online (see update below). While we've seen many good social media and microsite efforts using humor, few financial institutions have dared use this approach on their core websites. Leave it to those spirited cheeseheads in Wisconsin to break the mold finally (note 5).

Initially, it's the 2% rate that will bring cash to Incredible Bank. But longer term, for any direct bank to add value to the parent's franchise, it must create loyal customers who won't bolt to the next newcomer offering a 15-basis-point rate advantage. This is a good start for River Valley, but they'll need a lot more than this bare-bones website to create long-lasting relationships.     

Hat tip: Bank Deals blog.

Update 9 Nov: The Financial Brand's Jeffry Pilcher reminded me of two good U.S. examples, GMAC's Ally Bank and (how could I forget?) Redneck Bank.

Incredible Bank homepage (9 Nov 2009)

Notes:
1. In his Retail Delivery presentation, always one of the highlights of the show for me, Second Curve principal Tom Brown said ING Direct would be an attractive acquisition for any number of deposit-seeking large financial institutions; however, he did not name any.
2. Full disclosure: I have a strange weakness for the color orange, perhaps the result of many trips to Florida as a child. So, take anything I say in this post with a huge grain of salt. 
3. Normally, I think paper checks should still be made available, even if they are discouraged with fees. However, in cases where the direct brand will cannibalize deposits at the parent, it can make strategic sense to cripple the direct brand's checking account in this way. That way, fewer River Valley customers will simply move their entire checking account over.
4. The bank has created a mobile site with shorter URL: ib4you.com. 
5. While Incredible Bank is quite different, the main River Valley Bank brand remains typically conservative, at least in its online presence. They don't even dare mention the Incredible brand anywhere on its website.
6. See our Online Banking Report: Growing Deposits in the Digital Age for a dozen more strategies.

Checking account profits are being attacked on several fronts. Near-zero short-term interest rates have destroyed the profitability of the balances. Regulators and activists are putting pressure on penalty fees. And consumers are loath to pay monthly charges for what's been positioned as a free service for so long.

So how is it that Fifth Third Bank is able to bundle a service into its checking account that typically costs consumers $12 or more per month? They are bringing back the monthly fee (see note 1), charging either $7.50 or $15 per month for a so-called package account (see options below). It's a strategy right out of Marketing 101: figure out what customers want, then build the  product, package it right, promote it well, and price it for the value delivered.

I believe Fifth Third has taken the right tack with its checking accounts, though it should go even further (see analysis). The bank offers two non-interest checking account bundles (PDF comparison here), neither of which are free of charge no matter how high the balance (note 2). Instead of offering fee waivers, the bank has bundled full-service three-bureau credit report monitoring and identity theft services powered by Affinion (link to Fifth Third Identity Alerts). And the monitoring is available for BOTH names on a joint checking account (note 3). 

• Secure Checking at $7.50/month, comes with free credit report
  monitoring and identity theft protection (valued at $9.95/month per person)
• Gold Checking at $15/month, comes with the same free ID protection &
  monitoring plus free nationwide ATM access

Analysis of Secure Checking
Now more than ever, customers are craving security and safety in all things financial (see yesterday's post). Bundling identity theft/credit report monitoring in checking accounts is an excellent way to address customer concerns AND differentiate your account in the marketplace. And naming it Secure Checking helps drive home the key benefit.

I like what the bank has done. It would be even better if it highlighted more of its current security features available in mobile and Internet banking (note 4):

• Email alerts
• Mobile text alerts
• Secure storage of estatements
• Transaction monitoring for fraud and error
• Other security protections as outlined on its security page

• Out-of-band authentication via text message
• Disposable credit/debit account numbers
• Long-term (7+ years) secure transaction archives
• Enhanced fraud protection guarantees
• Dedicated security reps on call 24/7 to help out in the case of a suspected problem
• Software and tools to safeguard online banking (e.g., Trusteer, Authentium, Check Point)

Fifth Third Bank non-interest checking accounts (link, 2 Sep 2009)

Secure Checking landing page

Notes:
1. Ref: Is This the End of Free Checking?, SmartMoney Magazine, 31 Aug, by Kelli B. Grant
2. The bank does offer an interest-bearing checking account with its $15 monthly fee waived with a $2,000 average balance in checking or $20,000 across all deposit and investment products. The bank also has a free non-interest checking account option.
3. I'm not sure the bank gets enough mileage out of covering BOTH account holders to justify the additional costs. To improve profits, the bank should consider a modest additional fee (approximately $5/mo) to cover joint account holders. 
4. These benefits are hidden behind a tab that most consumers, including myself on my first two passes, will likely miss (see second screenshot above).
5. For more info on how to package security benefits into your services, refer to the following Online Banking Reports: Marketing Security (June 2005) and New Techniques for Securing Online Banking (Sep 2008).

In June, we reported on USAA's upcoming iPhone app that will support remote check deposits. But it looks like they were beaten to market by tiny WV United FCU headquartered in Charleston, WV. Haven't heard of WV United? They have just six employees, $11 million in assets, and 3,000 members.

But somehow they were able to pull off something that no other financial institution has yet to accomplish, accepting paper check deposits via a native iPhone application (iTunes link, see note 1 and 2). The application was added to the iPhone App Store on July 4, and the CU wasted no time in heralding the innovation with a homepage banner (see screenshot below).

The application could not be simpler. Users take a picture by pressing the button on the left (see inset), verifying that the image is readable, then uploading with the button on the right. WV United uses the member's mobile phone number to apply it to the correct account. The latest iPhone OS 3.0 is required.

The credit union also accepts deposits via in-home scanners using secure file transfers powered by LeapFile (co-branded site here).

It appears both services simply send images to the credit union where an employee manually converts them to ACH items. According to the E-Deposit customer agreement, the first 10 items each month are free; a $1 fee per item for the remainder of the month is charged. This allows for collection of a bit of fee revenue from small business members, while enabling most consumers to use it free of charge.

Certainly, fraud possibilities exist. But the CU's normal deposit-processing controls should mitigate most of the risk (see E-Deposit funds availability policy here). 

Mitek Systems introduced a mobile remote-deposit system last year (post here), but it's not yet in production at any financial institutions. 

Analysis: Although not a feature that will see widespread usage, mobile check deposits will prove convenient for certain customers, especially mobile small businesses. More importantly, it helps differentiate between online and mobile services.

So, for raising the bar in mobile banking, we are awarding WV United with our first OBR Best of the Web award for 2009 (note 3). In the 12 years we've given the award, WV United is by far the smallest financial institution to win. 

WV United FCU homepage with iPhone banner (11 July 2009)

iPhone app landing page (link)

Notes:
1. Sometimes it's nice to be small. WV United has six employees total, according to NCUA data. Most large banks would have a project team larger than that just to do the feasibility study on mobile remote-deposit capture.
2. For more info on the importance of iPhone applications for financial services, see our recent full report: Online Banking Report: Mobile Banking via the iPhone.
3. OBR Best of the Web awards are given periodically to companies that pioneer new online and mobile banking features. It is not an endorsement of the company or product, just recognition for what we believe is an important development. WV United is the 74th recipient of the designation since we began awarding it in 1997.

Maintaining one of the highest rates in the country, currently 2.75% (see note 1), SmartyPig's deposits have grown ten-fold since January (see chart 1, below). And the company plans to continue its aggressive pricing and marketing, hoping to grow another five-fold to a half-billion by year-end (see chart 2, below) or 50x what they started the year with.

Deposits in the United States are held by part owner, Des Moines, Iowa-based West Bank. Australian deposits are held by SmartyPig partner ANZ Bank.

To help fund their growth objectives, SmartyPig announced today that Red McCombs, co-founder of Clear Channel Communications, has invested an undisclosed amount. McComb Enterprises lists one other financial services company in its portfolio, asset-based lender, Propel Financial Services.

Founder Jon Gaskell is pleased with the aspect of goal-based saving at SmartyPig. In an email yesterday he told me:

Of our customers who have reached a goal, more than 80% of them have started a new goal. The average SmartyPig goal length is nearly 4.5 years, and our average user is depositing a little more than $200 per month toward his or her goal. Fifteen months after launch, our data suggests that a vast majority of our customers are staying focused on their predetermined goals, and the deposits are "CD-like" in nature.

The half-billion-dollar question, assuming they meet their 2009 projection, is how sticky are the deposits when rates come down off the top of the chart?   

Chart 1: Actual deposit growth at SmartyPig

Chart 2: Expected deposit growth through Dec. 2009

Source: SmartyPig, 25 June 2009

SmartyPig homepage (24 June 2009)

Notes:
1. In Bank Deals weekly list of highest savings rates, SmartyPig was number one on June 20 at 3.05%. The rate was lowered on June 22 to its current 2.75%.

After viewing my credit card statement (personal and business) I was greeted with the following retirement planning pitch from Bank of America. I've recently seen similar banners on the bank's homepage (though not today).

It's not easy getting consumers interested in looking at their retirement situation when they are in the middle of an Internet session. There's always something more pressing or entertaining to be done than worry about some distant event. 

So it takes extra effort to entice clicks. BofA has a good approach. The "Stop Guessing About the Future" hook is a good way to grab attention. And the colorful slider-based tool is easy to use and, most importantly, takes only a few seconds to deliver some meaningful results.

1. Bank of America logoff screen (2:25 PM, June 16)

2. Landing page of promo (link)

The BofA tool uses a short bit of audio to get your attention and explain how to complete the short, five-step wizard. Users may turn off the audio using the button in the upper right. 

3. Step 1 of 5

4. Results page

• Calculates your "retirement number," the amount you need to have to bring your cash income during retirement to 85% of today's value (similar themes have been used by Wells Fargo (here) and ING (here))
• Shows range of possibilities based on a range of potential investment returns
• Has two handy boxes showing when you'll run out of cash and how much you need to add to your monthly savings to avoid that (also expressed in ranges)
• Action plan in the lower right leads to some suggested courses of action, that the bank can help with, such as rolling over a 401(k)

Note: For more information see our Online Banking Report on Selling Behind the Password, published in April.

Chase Bank is sparing no expense in launching its brand in former WaMu strongholds, particularly Seattle, the previous headquarters of WaMu. The bank is remodeling the branches, hanging new signage, taking full-page ads in the Seattle paper, running radio spots, and bidding for the top spot on Google.

Analysis
The Chase Washington State microsite is gorgeous, really impressive. The graphic design is eye-catching, serene, and uplifting. Chase's logo is superimposed where the sun would be, creating a nice effect and great first impression of the bank, which is new to Washington state (see screenshot 1 below).

While the website designer scores an A+, the online app gets an incomplete (as in, I couldn't get it to work), at least for the checking account I tried to purchase (note 2). 

My first issue with the application, and this is more of a nitpick, is the location of the compare accounts links. Chase lists four main checking choices plus two student-oriented accounts (see screenshot 2 below). Since the account names provide no help in selecting the right one, I looked for a way to compare accounts. But my eyes were drawn to the Get Details and Open now buttons, and I never saw the links in the upper right corner. Since most users will need help selecting the right checking account, the Compare option should be at least as prominent as the Get Details button.

The much bigger issue prompting me to write this article is that online account opening didn't work, at least for the account I selected, Chase Premier Platinum Checking. After completing the first page of the online app (see screenshot 3 below), I was greeted with a cryptic message telling me to visit a branch for help (see note 1). And this is from a bank introducing its name in a new market.

Lessons for financial institutions:

• Make sure you test all the options in your online application (see note 3)
• If there are valid reasons why you cannot open the account online, explain them to your customer in detail (and don't lead them to believe the account can be opened online if it can't)
• Provide more options for help than just "visit your branch;" for example, online chat, telephone numbers, Web-based inquiry form, and a call-me button
• APOLOGIZE and thank the customer for their application attempt. Chase does neither. The bank's entire message (see screenshot 4):

   Unable to Continue: We are unable to open a Premier Checking account
   online. Please visit your local Chase Branch for assistance.

1. Chase Bank's Washington-state transition site main page (1 June 2009)

2. Chase checking account options

3. First page of Chase's online loan application

4. Fail screen displayed after hitting next on previous screen 

Notes:
1. I had selected "not a Chase customer" so I thought perhaps I was having trouble because the bank's cookie's showed me to be a Chase card holder. So I tried it on another machine, with the cookies erased, and the same thing happened.
2. The problem seems to be with Premier Platinum Checking. I was able to start the app process just fine with Chase Checking.
3. Chase isn't the only one with online account-opening problems. I am researching account opening for an upcoming Online Banking Report, and just today I reached a complete dead-end in the online application at a large credit union, and was forced to abandon the app late in the process, after I'd been through credit-bureau validation. 

We are always on the lookout for examples of U.S. financial institutions charging fees for value-added services online (see note 1). In the past seven or eight years, the sightings have been rare. 

But today, we have a great one. And like most brilliant ideas, it seems pretty obvious in retrospect. The new service from Mercantile Bank of Michigan is called Funds Manager (PDF FAQs here) and it's not only a great service innovation, but also promises to bring fees back to online banking.

How it works
Funds Manager is basically a consumer version of positive pay, a standard offering in commercial banking. In the commercial version, clients look at checks and electronic items being presented for payment, and can nix any that are fraudulent.

Mercantile launched similar capabilities for its retail customers, allowing them to peek at their pending checks and ACH items a half-day before they are withdrawn from their account (see note 1).

Between 11 AM and noon, the bank posts the checks that will be processed that evening, giving customers a few hours lead time to make a transfer to avoid an upcoming overdraft. Customers have until 5 PM to make a branch deposit or 7 PM to make an online transfer to cover a shortfall.

Mercantile's online and mobile banking are powered by S1.

Business case
Sure, the service would impact OD/NSF income. But the bank makes up for that by charging a small fee, $4/mo, for the service. Given the type of customer who'd be drawn to this service, $48/yr should more than cover any lost OD income. And it provides a service that improves customer satisfaction and differentiates the bank from others. Business customers pay $30/mo, a potentially lucrative small-business service.

According to an article in Friday's American Banker, the bank has signed up a quarter of its retail online banking customers for the service (558 of 2,361). While the $27,000 in annual revenues to Mercantile barely covers costs, if Bank of America experienced similar penetration, it would be worth more than $250 million per year, a nice boost to the online banking P&L.

Opportunities
Not only is consumer positive pay a nice standalone service, it could be the cornerstone of a premium online banking option that could be priced at $5/mo or more. 

It would be even better if users received email or text-message alerts whenever they had items to review. And it would be a great addition to an iPhone/mobile app where the items could be reviewed, and transfers initiated, right on the phone.

Notes:
1. Please email other examples to me or add them to the comments.
2. The advanced look does not include branch deposits, ATM transactions, wire transfers, or telephone transfers.  

I spent the past few weeks looking at cross-selling efforts from within the secure online banking zone. But unfortunately, I came across the following example too late to be included in our report (see note 1). 

When I logged in to pay my Chase consumer credit card online (note 2), I was greeted with the following interstitial page (aka "splash screen") inserted before the main account-management area (see first screenshot).

Chase is offering a $125 incentive to open a WaMu-branded free checking account (note 3). This offer may have something to do with the fact that I'm located in Seattle, the former headquarters of WaMu. The same creative was used in a statement insert and a banner ad across the main account-management page (see third screenshot).

Lessons:

1. Serving "more info": In this example, Chase handles the info-serving process a bit differently than others I'd looked at recently. When selecting More Info on the splash screen, the bank opened a new tab (in Firefox 3) for the landing page (see second screenshot below). And while the user read the offer details on that page, the original tab automatically loaded the original destination (account management page), and the interstitial ad disappeared.

On the one hand, it's convenient for the user to be able to look at the offer details and then quickly navigate back to the area they were originally logging in to. However, for more experienced users expecting a pop-up screen that can be quickly closed after reading, it can be momentarily confusing. There's a risk the user will inadvertently close the entire browser session by clicking the upper-right "x," necessitating an annoying restart and re-login.  

I'm not sure there's a single right answer, but another variable worth testing - something I'd prefer - is a popup running in a smaller window in front of the original Chase page.

2. Branch-only fulfillment: I was surprised to see the offer can be redeemed only in branch. There is no way to sign up online. The landing page is actually actually a coupon users are encouraged to print with the page-dominating blue "print" button (see second screenshot below).

I can understand the rationale for pushing people into branches where they can be upsold other services. But in this quick-start age, I'm surprised there isn't at least an option to apply online. Perhaps this is a test to see how a branch-only offer compares to online-only ones.

Chase Bank splash screen (interstitial) immediately after login
(30 April 2009, 1:40 PM Pacific)

Landing page/coupon (opens in second tab in Firefox 3)

My Accounts page

Notes:
1. The results are compiled in our latest Online Banking Report: Selling Behind the Password. 
2. Tiny rant: I owed $2.45 left over from some extra finance charge even though I paid my bill in full online last month. It's not so much that Chase didn't earn the $2, that's fine. What's irritating is that they made me pay it right away by setting my min payment to $2.45. Come on Chase, I've had this account since the 1990s, you can float me the $2 until the next time I have a charge.
3. Interestingly, I already have a small business checking account at WaMu. Either the bank's householding algorithm missed it, or Chase is making the offer to everyone in my Zip, or it still wants me to open a personal account to go with my biz one.

We just posted our latest Online Banking Report.
It will be mailed to subscribers tomorrow. It's also available online here. There's no charge for current subscribers; others may access it immediately
for US$395.

---------------------------------------------------------

Selling Behind the Password
Unlocking the marketing potential within
online banking

48 pages (published 21 April, 2009)

In this report (abstract), we go behind the login screen and report on the marketing and cross-selling practices of 15 financial institutions and card issuers.

Even among large banks, there's a huge disparity in the amount of cross-selling efforts within online banking. Wells Fargo is the most prolific, with nine marketing messages and product placements alone on its main account-management page. The bank also uses login and logoff activities to display promotions (see screenshot below). On the other hand, US Bank has just a single link to an "offers page" buried below the fold. Most FIs fall somewhere in between.

We looked at the opportunities within six different areas:

• Interstitial pages (splash screen) inserted after performing any online activity, especially after the initial login.
• Banner and keyword promotions within the secure online banking area
• Product placement within online banking and bill pay
• Transactional upgrades
• Page displayed after an online banking session has concluded (either through logout or inactivity)
• Product/shopping/discount portals and third-party ads

The following financial companies were analyzed by logging in to actual accounts and documenting their sales and marketing efforts:

• American Express business gold
• Bank of America online banking
• Chase credit card
• Citibank business card
• Citibank online banking
• Discover Card
• Everbank
• First Tech Credit Union
• ING Direct
• Jwaala (demo only)
• Mint
• Netflix (non-financial)
• PayPal
• Revolution Money
• US Bank
• WaMu
• Wells Fargo

Wells Fargo promotion displayed after logging out from online banking
(27 March 2009)

Two-and-a-half years after USAA was first to offer remote deposit capture to consumers via standard scanners (post here), it appears the technology has failed to gain much of a following outside business circles (notes 1,2).

Quoted this month in Digital Transactions magazine (PDF here, pp. 58-62), John Leekley, founder of RemoteDepositCapture.com, estimates that only 75,000 consumers (and apparently 1 cat, see inset) use the service, less than 0.001% of all U.S. households.

Some other numbers from the article by Jane Adler:

• After 14 months, EasCorp, a CUSO out of Burlington, MA, has just 24,000 registered users across its 30 credit union installations, or 800 per CU (see previous post)
• Other EasCorp metrics:
  • Average deposited check = $900
  • Average deposits per session = $1,200
  • Total amount deposited in past 14 months = $80 million
  • At $900 per item, that amounts to about 90,000 checks processed, or about 4 per end-user
  • Cost per deposit for CU clients is $0.25 per item for "higher volume" customers
• The initial experience at First Command Bank is more encouraging: Since launching in November, First Command Bank has registered 1,600 users for its Deposits on Command across its online customer base of 65,000, for a 2.5% penetration rate (note 3). First Command has a total of 85,000 customers online and offline, so the overall penetration rate is about 2%.
  • Total remote deposits per month are 1,200; slightly under 1 per registered user per month
  • There is no fee for the service, but you must be an estatement user or have an investment account to qualify. Daily deposit limit = $5,000

First Command Bank homepage (14 April 2009)
Remote deposit capture (Deposit on Command) is one of two items that rotate in the top banner-ad slot 

Notes:
1. We are referring here to CONSUMER remote deposit, not to be confused with the very successful business remote deposit.
2. In the same article, Fiserv was cited as projecting growth to 1 million users by the end of 2009, although there was no indication as to when the prediction was made or whether it included business users.
3. If Bank of America had similar usage, it would be well on its way towards 1 million registered users (625,000).
4. Photo from CheckFree/Fiserv

CD laddering is a great way to increase yield without sacrificing liquidity. Sophisticated savers have used the strategy, often at the suggestion of personal or private bankers. It's not rocket science, but it takes a bit more planning.

It's a trivial bit of logic to program a ladder tool into a computer or website, so it's surprising that it's rarely featured on banking sites (note 1). That may be because most financial institutions have dozens of product lines to nurture, and it's difficult to justify the resources for speciality features.

That's just the kind of thinking that creates market opportunities for startups like MoneyAisle from neoSaej. The Boston-area company, which made its public debut at Finovate 2008 (demo video here), is totally focused on deposits and can justify the investment in advanced features. In fact, their livelihood depends on it.

So it makes sense they'd be first to market with an automated CD-laddering tool. But what makes it especially impressive is that MoneyAisle users can run up to 30 simultaneous auctions placing funds in up to 30 different financial institutions (see note 2).  

In our test of a relatively simple, but typical, four-rung ladder (see below), four different financial institutions won the bidding:

• MetLife paying 2.1% for a $25,000 3-month CD
• First National Bank of Florida paying 2.3% for a $25,000 6-month CD
• Wainwright Bank paying 2.5% for a $25,000 9-month CD
• KeySource Commercial Bank paying 2.93% for a $25,000 12-month CD

And by distributing our funds into four different maturities, 3-month, 6-month, 9-month, and 12-month, we were able to increase the yield by 0.36% compared to putting it all into 3-month certificates. And we are still able to withdraw 25% of our funds every 3 months without penalty. To further increase yield, the shorter-term CDs could be reinvested into longer-term CDs at maturity, e.g., each CD could be rolled into one-year CDs at maturity to create a ladder of four 12-month CDs with one maturing every 3 months.

Advanced option: The advanced ladder is designed for users that want to spread their deposits around. The money designated for each CD maturity can be spread to two or three different banks if desired. Users may also choose up to 10 banks they want excluded from the bidding.

Simple CD ladder tool at MoneyAisle (11 Feb. 2009)

 Results from the above auction: Four $25,000 CDs of varying maturities
(11 Feb. 2009)

MoneyAisle's Advanced laddering tool (11 Feb. 2009)

Notes:
1. Bank of America has a Java-based laddering calculator here as does Citizens Bank (here) and Safe Credit Union (here).

2. The maximum number of simultaneous auctions in the simple ladder program (shown above) is 10.

3. For more information on MoneyAisle and other new lead-gen programs, see our Online Banking Report on Lead Generation and our recent report on Growing Your Deposits Online.

It's so refreshing to have some real numbers to go on, even if they are self reported. Aside from Prosper, Lending Club (here), and most recently SmartyPig (here), few of the startups we track provide meaningful metrics on their operations. That's why we use Compete website traffic estimates as a proxy for success.

Yesterday, MoneyAisle, the reverse-deposit-auction marketplace from neoSaej, released the following results for fourth quarter 2008 (press release): 

• $1.65 billion in auctions run by consumers, up three-fold from Q3 2008 (note 1)
• $100 million in deposits generated

That's not a lot, but we can make a few estimates from that info (note 2):

• Assuming 80 active bank partners, the average take per bank in Q4 was $1.25 million
• But applying the 80/20 rule to those results means that 16 banks generated about $80 million in deposits, or $5 million each
• And conversely, the remaining 64 banks brought in just $300,000 each
• Assuming the average deposit balance auctioned was $20,000, five thousand separate auction winners funded a deposit
• Assuming a commission of $37 per funded auction (note 2), neoSaej would have generated $185,000 in commission income in Q4, this is in addition to license fees and monthly maintenance fees

And for those of you who still want traffic numbers, MoneyAisle's website usage (monthly unique visitors) has been trending upwards after suffering a post-launch dip in November. In December, visitors totaled just under 20,000. 

Bottom line: It's a promising start for the company which earned an OBR Best of the Web this summer, was picked by the audience as Best of Show in October's Finovate (video here), and was recently chosen as a top-10 innovation of the year in our most recent Online Banking Report (here).

When MoneyAisle adds integrated online account opening (powered by Andera), results should be even stronger. 

Notes:
1. Deposit-generated total is 6% of total auctions run, because consumers are not obligated to make the deposit after they run the auction.

2. My speculative estimates, not provided from the company.

3. We outlined the company in a June blog post and in the pages of our Online Banking Report on New Models for Lead Generation and Online Banking Report on Growing Deposits in the Digital Age. 

SmartyPig, which launched its social savings program in March 2008 (previous post) and debuted at Finovate Startup (video here), hit the world stage Dec. 16.

The company, operating out of world headquarters in Des Moines, Iowa, partnered with ANZ Bank to launch SmartyPig in Australia. ANZ was able to lay claim to being the first to offer social savings down under (see note 1).

The site is nearly identical to the stateside version, but ANZ has a smidgen more branding (see screenshot below). Also note the new emphasis on being 100% free, a benefit echoed on the U.S. site as well.

However, unlike U.S. partner and part owner, West Bank (note 2), which has the SmartyPig logo plastered all over its site (see screenshot below), the ANZ site has no mention of the product, it even draws a blank using ANZ site search.

Social savings metrics from SmartyPig
Because SmartyPig's sole emphasis is on goal-based savings, its results provide unique insights into the market. While the company has not released account totals, its partner, West Bank disclosed that total deposit in the program amounted to $5.6 million at the end of Q3.

While that's less than $1 million per month since launch, since many accounts start very small, it could be a healthy number of accounts. And with the requirement of automated savings additions, the growth potential is excellent. Assuming a $1,000 average account balance (note 3), the company would have attracted more than 5,000 total accounts during its first six months.

After the initial launch spike, site traffic has been steadily increasing to 25,000 monthly visitors in December (see chart below).

SmartyPig has made available information on the savings goals made by users. The data is through Oct. 2008 (except total deposit amount) and includes only the totals from the U.S. site. 

Total amount on deposit (30 Sep 2008, per West Bank 10Q): $5.6 million

Primary account holder by age*:

18-25 >>> 30%
26-35 >>> 37%
36-45 >>> 20%
46+ >>>>> 13%

*By law, primary account holders must be 18 or over,
so children’s goals are owned by their parents

Average goal amount across all holders on the following dates:

April 1 >>>  $3,900
May 1 >>>> $7,300
June 1 >>> $7,400
July 1 >>>> $7,400
Aug 1 >>>> $7,900
Sep 1 >>>> $7,700
Oct 1 >>>> $8,600

Goal amount by category:

Travel >>>>>>>>>>>>> 21%  (Avg = $4,400)
Holiday spending >>> 12%   (Avg = $900)
Electronics >>>>>>>> 10%    (Avg = $2,500)
Home improvement >> 6%  (Avg = $12,900)
Unspecified >>>>>>>>> 5%   (Avg =  $9,800)
Weddings >>>>>>>>>>> 5%   (Avg = $7,900)
House down payment or addition >>> 4%  (Avg = $22,200)
Emergency fund >>>>> 3%   (Avg = $6,600)
Babies >>>>>>>>>>>>>> 3%   (Avg = $5,100)
Home furnishings >>>> 2%   (Avg = $3,500)
Car or car expenses >> 2%   (Avg = $6,800)
College >>>>>>>>>>>>> 1%   (Avg = $9,700)
Other >>>>>>>>>>>>>> 26%  (Avg $10,700)

Average projected time until goal met based on savings rate: Just over 4 years

SmartyPig ANZ Version (13 Jan 2009)

USA partner West Bank's homepage (14 Jan 2009)

Traffic chart from Compete (14 Jan 2009)

Notes:
1. See our most recent Online Banking Report: Growing Deposits in the Digital Age, for more info on social savings, along with 16 other strategies.

2. Des Moines, Iowa-based West Bank owns 18% of SmartyPig according to its 30 June 2008 SEC filing.

3. My guess, not a number that has been disclosed.

Remote deposit capture (RDC) via mobile phone has to be the coolest way to make paper checks disappear from your office and reappear in your account. But from a usability standpoint, it leaves something to be desired, limiting its appeal to geeks with a check to deposit every once in a while. 

Businesses with several checks or more every week need something more convenient and easy to use. Proprietary scanners connecting to PC-based software apps work well, but require installation and training, not to mention $30+ per month in service fees.

Enter FAXTellerPLUS, a new solution from Hawthorn, NY-based EFT Network, that uses the common fax machine for the input mechanism. The bank runs the software on its end freeing the user to get back to their business once the fax transmits.

Today's press release says the four banks using the system are processing "thousands of transactions per month."

How it works:

1. Bank sends customers a special sleeve that holds up to 3 checks to be transmitted and includes info on the customer so deposit can be directed to the correct account.
2. Customer transmits the check (front and back) to the bank via standard fax machine.
3. Bank sends confirmation back to customer via fax or email.
4. Funds are deposited in customer's account and images viewable online.

If this works as billed, it could put RDC into the hands of micro- and small-businesses as well as consumers with access to fax machines at home or work. If any readers have used or tested the system, please let me know your experience by commenting here or emailing.

Every banker talks about the importance of core deposits, but in most years it's hardly front-page news: 2008 changed that.

As demonstrated by the shocking downfall of WaMu, Wachovia, and others, a stable deposit base is crucial to your profitability, your brand, and even your viability as an organization.

As a result, deposit product marketing is on the forefront of many bank and credit union marketing plans for 2009 and beyond. With that in mind, we offer the latest issue from Online Banking Report:

Growing Deposits in the Digital Age:
Seventeen smart strategies for gathering core deposits while building your brand

The report includes 72 pages of ideas, tactics, and strategies to expand retail deposits in 2009 and beyond. It was written by guest author Jeffry Pilcher, a branding and marketing guru who recently launched his own brand consultancy, ICONiQ. Pilcher joins OBR Editor Jim Bruene in looking at seventeen promising deposit-building strategies. Many are tried-and-true techniques, such as sweepstakes and rewards, updated with a digital touch. While others, such as bidding on deposits at auction at MoneyAisle, are pure Internet-enabled inventions.

Online Banking Report subscribers may download the report (here) free of charge. Others may purchase (here).

The seventeen strategies explored in Growing Deposits in the Digital Age:

• Customizable accounts
• Debit savings rewards
• DIY online-only accounts
• Deposit auctions
• Gen-Y checking
• Green banking
• High-yield/big rate
• Instant online depositing
• Mobile savings apps & online widgets
• Online savings buzz
• Rewards checking
• Savings automation & incentives
• Social savings contests
• Socially conscious banking
• Sweepstakes & giveaways
• Social "friends & family" savings

I go online at a Tully's coffee shop every few weeks, but I don't recall ever being pitched something outside the usual Costa Rican blend when logging in to its free Internet connection.

But today, Charles Schwab owned the Tully's landing page, with three banners running across the page touting its High Yield Investor Checking among other things (see below). The two on the right have financial questions that, when clicked, take the user to an article on the Schwab.com site (see last screenshot).

The banner lower-left is more interesting. Little squares scroll across the banner in a very Web 2.0 way and, when clicked, additional info is delivered directly within the banner. Users stay on the Tully's page unless they click the Open an Account Today button.

The three scrolling graphics include:

• ATM fee graphic leads to an ATM calculator (see below)
• The High Yield Investor Checking graphic (not shown) leads to a description of that product
• The map leads to a short animated audio visual piece promoting ATM access and the High Yield account

Comment: This type of grassroots marketing can be done by financial institutions of all sizes. Just find a local coffee shop or cafe and see if they'd like a little cash to subsidize that bandwidth each month.

Schwab banner ads on Tully's landing page displayed after logging in to free WiFi at a coffee shop (Seattle, 3 PM, Friday, 5 Dec 2008)

Clicking on How much do ATM fees cost you? in the banner above opens the following tool in the window. >>>

Users can move to the slider to calculate the cost of a foreign ATM.

Schwab landing page after clicking on question in right-hand banners
(link, 5 Dec 2008)

I noticed a new graphic on the ING Direct homepage today, "We, the Savers" in the upper-right corner. It leads to a banking version of the Clue Train Manifesto called The Declaration of Financial Independence operated by the bank at <wethesavers.com>.

At the microsite visitors can read the 10-point declaration and sign the manifesto online. The U.S. map includes orange balls in each state that when moused over reveal the number of signers. So far, more than 5,300 consumers have signed since it went live Oct. 10th. All signers can be viewed at the site, but you have the option of leaving only your last initial for privacy.

When you sign the declaration, a little orange ball bounces over to the map and updates the state count in real time. As a final touch, signers qualify for a free "I save" bumper sticker from the bank's online store.

The effort is well conceived and well executed, as we've come to expect from ING Direct.

Wethesavers.com microsite from ING Direct (28 Oct 2008)

"We, the Savers" link on ING Direct homepage (28 Oct 2008)

Next up is MoneyAisle from NeoSaej. Mukesh Chatter, president & CEO, will demonstrate.

The Burlington, MA-based company launched its auction-based deposit service this summer.

MoneyAisle demonstrated a reverse auction for a CD with a winning bid of 4% APY by Commerce State Bank. The company emphasized that it's fully transparent with no ads, and the consumer can choose at the end whether they want to accept the bid and purchase the deposit.

In the year or so that they've been widely available, so-called reward checking, those high-yielding accounts that require a hefty number of debit card transactions (see note 1), have attracted quite a following.

But besides the number of blog posts and press mentions, we've had few other metrics upon which to gauge their success. Until now. In an email to me yesterday, the company behind many of the accounts, BancVue, laid out the total rewards checking results across its client base:

• 381 financial institutions live
• 610,000 reward checking accounts
• $5.5 billion on deposit in the accounts
• $9,000 average balance
• Opening more than 13,000 accounts per week (700,000 annual run rate)
• Average of more than $14 million in deposits per financial institution
• Average of 1,600 accounts per financial institution

Although $5 billion isn't even the rounding error across the entire $3-trillion U.S. retail deposit market, it's real money to the smaller banks and credit unions offering the program.  

Notes:
1. Most accounts require 10 to 12 debit transactions per month in order to earn the high yield. For more info, see our previous coverage and Finovate Startup video here.
2. Upper-right graphic comes courtesy of First State Bank, Gainesville, TX.

After a solid decade ignoring the financial management features of online banking (see note 1), we now have two banks doing very interesting things melding transaction accounts with personal financial management.

Frost Bank is the latest visionary, launching its Momentum Account this week (press release). The account melds high-yield checking, goal-oriented savings, and financial management into one online offering. Unlike PNC Bank's VirtualWallet, which is clearly aimed at the youth market (see previous coverage), Momentum goes directly to the online sweet spot, 30- and 40-somethings trying to manage their money in a more systematic way.

The account
Basically, it's a fee-free, interest-bearing checking account with the usual freebies: debit card, online banking, bill pay. After the first three months, balances of $15,000+ earn 3% and those under $15,000 earn basically zero. However, the bank has added an interesting twist they call "DIY APY (see screenshot below). For every 10 monthly debit card transactions, they add 5 basis points to the interest rate, up to a maximum gain of 0.25% (for 50 debit card transactions).

That's a piddling amount, earning about a buck a month (pre-tax) for someone with $25,000 in the account typically doing 10 to 19 debit card transactions monthly. Yet most consumers like the feeling of winning the rewards game, so it should be good for marketing and retention.

Like PNC's VirtualWallet, online account opening is powered by Andera.

The innovations
Besides the DIY APY gimmick, the new account is noteworthy because it incorporates goal-oriented savings and transaction tracking into the interface. Users can allocate funds to one or more savings goals and set up automated transfers to the savings sub-accounts.

The interface also includes budget-categorization features using the folders metaphor. And the usual charting and graphing functions are available. Unfortunately, there is no online demo, so I could see only the features in the bank's demo video. 

Is it trendworthy?
I'm not ready to say that two examples make a trend, but given all the interest by investors and the press in online personal finance, I think this is the beginning of an interesting period in online finance product development.

Frost Bank homepage announces "DIY APY" (30 July 2008)

Note:
1. See Online Banking Report: Personal Finance Features for Online Banking for more information on the pros and cons of various personal finance features.

Just when you thought Mint, Wesabe, and Geezeo had a lock on all the headlines for Gen Y personal finance, along comes a truly inspired effort from a major U.S. retail bank. Furthermore, it's not from Wells Fargo, Bank of America, Chase, or even ING Direct.

Pittsburgh, PA-based PNC Bank, the 15th-largest U.S. retail bank with $83 billion in deposits (see note 1), today launched a new online combo account called PNC Virtual Wallet.

The account comes with a checking account, bill payment, and two types of savings accounts. It also features several unique personal financial management features with an emphasis on functions most likely to appeal to a 20-something audience:

• Cash flow: debit card, checking, online bill pay, financial calendar, recent transaction report
• Savings: two types of savings accounts, automated savings options, wish list, and a random video-game-inspired savings tool called "punch the pig" (see below)

Finally, the account is priced well:

• No fees (except $0.50 per written check after the first 3 per month and the usual penalty fees)
• Free overdraft protection among linked accounts
• 3% APY on the growth savings component
• ATM-free rebate (but only if there's a $2000 average monthly balance in the checking account portion)

What's innovative? (note 2)

• Package of three deposit accounts: Spend Account (e.g., checking), Reserve Account (e.g., savings) and Growth Account (e.g., high-yield savings or money market deposit account)
• Ability to move money among the three accounts by moving a slider across the screen, called the Money Bar
• Automated savings function called Savings Engine that allows users to set up time-triggered (e.g., once per week) or event-triggered (e.g., each debit card use) automatic savings transfers
• Savings game called Punch the Pig, a video-game-inspired savings gimmick: Each time the pig appears on screen, users can elect to "punch" it to automatically move money from checking to savings
• Wish List with savings goals and progress reports

What can be improved?
Four areas that are noticeably absent, or at least not mentioned:

• Mobile functionality, especially text banking and alerts
• Online customer support: Customer can apply online through the Andera-powered app; however, there is no link to any online-support options such as chat, IM, text, or even a Web-based input form or old-school email address
• Social aspects: forums, reviews, blogs, or even testimonials (note 4)
• Credit: credit cards, line of credit, auto loans, and so on

The website design is impressive and very un-banklike, yet it lacks some basics:

• No demo: There are several Flash instructional videos that show most of the key features, but there is no all-encompassing demo for users wanting a tryout before buying.
• Lame homepage videos: Granted, I'm not in the Gen Y target market so I could be wrong, but if I think the videos are lame, what do you think a 22-year-old will make of them? I say lose the "man on the street videos" or reshoot them in a less-scripted manner. 
• Extensive FAQs: The FAQs need to be expanded tenfold. Currently, only 16 questions and answers are up, but with so many unique features, that number doesn't come close to answering many basic questions, such as "Are there account alerts?" or "What's the rate of interest on the reserve account" (note 3), or "How long are transactions stored?"

PNC Bank virtual wallet homepage (14 July 2008)

Explanation of "Punch the Pig" savings feature

Notes:
1. Deposits as of 31 Dec 2007; deposits were up 25% compared to $66 billion as of year-end 2006.

2. PNC has applied for a patent on the account and tools.

3. Eventually, I did find a link to interest rates and fees on the "how to apply" page

4. See Online Banking Report on Social Personal Finance for more info

The deposit-auction site MoneyAisle, which we wrote about last week, has reached its first milestone, $1 million in deposits. Assuming $25k per account, that's only 40 customers, but it's a decent start for a novel way to chase rates online. The company also said it had signed 7 new bank participants, bringing the total to 72.

The company has attracted good press coverage, especially in the Boston area, where MoneyAisle Chairman Ray Stata is the well-known co-founder and current Chairman of Analog Devices. There was a good interview with Stata posted at NECN.com last week.

FirstROI, a division of Austin, TX-based BancVue (previous coverage here) launched its CheckingFinder service June 2. FinovateStartup attendees received a sneak peak in April and rewarded it with a Best of Show award (video here). The innovative service helps consumers find the best BancVue-powered rewards checking account based on geographic location, APY, or total return (see second screenshot below).

How it Works
The first challenge is getting customers to the site. FirstROI is investing heavily in Google AdWords to get the word out. For example, a search on "checking accounts" at Google today (note 1), displayed CheckingFinder in second place, trailing only BofA (see screenshot below).

As a relative newcomer to AdWords, the company's bid price would have to be high to score the second slot over such big names as Schwab (#3), HSBCdirect (#4), Key Bank (#5), WaMu (#6), Chase (#10) and Wells Fargo (#11). CheckingFinder may very well be paying more than BofA, depending on how Google's ad-positioning algorithm weighs its relevance.

Clicking the AdWords link results in a list of banks presorted by closest distance to the IP address used to search Google (see next screenshot). Unfortunately, the closest participating BancVue client, Altra Federal Credit Union, is 1043 miles away
(see note 2).

You can also sort the results by rate (APY) or plug in an estimated checking account balance and ATM usage and have the results sorted by highest annual return
(see note 3).

After selecting the account you prefer, users land on a page that lays out the offer in more detail and includes a bright green "open now" bar at the bottom of the page and another open button in the webpage bullseye, the upper-right corner. The online account opening process is powered by Andera.

Summary
Overall, it's a good "micro" search engine, helping users quickly find the best checking account from the company's client base. The big downside from a consumer perspective is that it's currently limited to just 60 participating BancVue reward-checking clients. It will be more effective if they can get more of their 400+ banks and credit unions on board.

While I think most consumers will understand that they are searching a subset of available checking accounts, I think BancVue should disclose a bit more about its relationship with the financial institutions listed. That fact is touched on in the About Us section, but the FAQs don't address this, nor are there any direct links back to BancVue or FirstROI. 

Notes:

1. Google search conducted from Seattle IP address at 1 PM Pacific time, 17 June 2008.

2. Verity Credit Union, which is about 4 miles from my home, is a BancVue client, but their reward-checking account, Velocity Checking, is currently paying a short-term teaser rate of 6.75% to celebrate its 75th anniversary (APY updated 20 June per Shari's comment). When Verity returns to its normal 5% APY, its account will be available through CheckingFinder. There is also a slightly closer California bank participating, Tri Counties Bank, but it is not marketing to Seattle residents, so I don't see it in my CheckingFinder results page.  

3. Jeffry Pilcher, who recently left Weber Marketing to found his own consultancy, ICONiQ, is also blogging at The Financial Brand. He cautions that the days of differentiating your brand with "reward checking" has passed in many markets.

In an interview in the Charlotte Business Journal (here), Wachovia's Savings Director Kathryn Black reveals that the bank has added 650,000 Way2Save accounts since its launch four months ago, and are "well ahead of our goal to have 1 million Way2Save customers by the end of (2008)." She also said they are looking at expanding the service: 

We consider (Way2Save) generation one. We're continuing to think through what's next -- how do we make this product better? How do we add on to this idea for other segments who have different needs?

   -- Kathryn Black, Wachovia's Savings Director, 30 May 2008

The Way2Save account offers up to 15% APY in the first year on a maximum average annual balance of $600, built up through automated savings of up to $100/mo. That works out to a maximum of $90 in interest the first year (not including the golf bonus detailed below), about $70 more before-tax than you can earn on other high-yield accounts. For more details, see our previous coverage here. For small savers, it provides above-average returns and helps them sock away cash without thinking about it.

Way2Save Golf Bonus
In addition to the maximum 15% first-year rate, Wachovia ran a promotion in May tied to this year's PGA tournament Wachovia Championship (see screenshot below). All Way2Save customers, new and existing, will earn a rate of interest in June, July and August pegged to the number of strokes under par scored by the tournament winner. With Anthony Kim beating the course record by 3 strokes, for a 16-under score, Wachovia is now paying 16% interest for the next 3 months. For the savers that started their $100/mo contributions in February, it will be another $15 in extra interest. For those just getting started in May, it's only $5 more before tax. It also means that the first year's blended rate -- (16% x 3 months) + (5% x 9 months) -- is just under 8% (see note 1).

Analysis
So it's no wonder Wachovia has attracted a slew of accounts. It's been live for about four months, so it's adding about 150,000 accounts per month. The most anyone could have amassed in the account so far is $400 plus a buck per electronic transaction. Assuming average balances of $200 per account, the product has attracted approximately $130 million so far.

Whether the new account pans out for the bank is yet to be seen. Assuming it pays out an average of $60 extra to each new Way2Save customer, Wachovia will have invested more than $60 million to attract a million low-balance savings accounts. And that doesn't include the marketing or customer-service expenses or the cost to open 15 new checking accounts for one person so they can open 15 Way2Save accounts (see previous post). It will be years before Wachovia knows if this product has a positive ROI. 

Granted, a bigger strategic issue is at play here: creating awareness of the Wachovia brand. It could be a huge success if the bank opens up hundreds of thousands of new customer relationships due to the promotion.

Note:
1. The 16% rate applies to accounts opened before May 30th.

Change Sciences, publishing under the moniker of its new Kantuit research service, just released its latest financial services website evaluation. The report uses proprietary user-experience modeling to rate, rank and compare 18 leading banking sites on how easy it is to find, select, and open a new deposit account online (see Table 1, inset).

Citibank and WaMu were ranked one and two and scored significantly better than the others. Wachovia was third, scoring about 20% higher (the lower the score, the better). Bank of America, Fifth Third and BB&T were in the next tier, finishing about 50% higher. Among mega-banks, U.S. Bank had the worst score, more than double the leaders. 

The Change Science score includes various components that show how a consumer may struggle with various aspects of the application process. These individual scores are totaled to come up with the final composite score shown in Table 1 right.

For example, Figure 1 below illustrates the scores for "Effort (expended) finding and learning about deposit accounts" with Fifth Third leading the way with a 0.1 score, compared to Peoples United Bank, the worst of the sample, scoring 19x higher at 1.9

Download an abstract of the research results here (registration required). The full report runs $4,000; a significant investment yes, but you could make that up with just a handful of additional good deposit accounts. 

It's been six months since the last direct bank launch, Provident Direct (coverage here). The latest entry is OnBank from M&T Bank, a $66 billion bank based in Buffalo, NY. 

OnBank passes our strict 25-word homepage standard, joining ING Direct, EmigrantDirect on the short list of financial institutions with Google-like clarity on their home page. It takes just a few seconds to know that this is a place to get a high rate of interest on your money, but you should look elsewhere for a commercial loan.

The user has just two main choices of what to do next (screenshots below):

1. Apply...encased in a trendy lime green button
2. More details...which leads to an equally succinct page that answers the important questions (see last screenshot below):
   - fee free
   - minimum balance of $1
   - FDIC insured
   - quick online opening process

The only thing missing is a comparison to other banks. Given that it's one of the highest savings rates available right now, OnBank should be aggressively showing how it compares to key online rivals, including ING Direct's 3%.

Not only is the bank direct and to the point in its copywriting, it also uses simple, effective graphics, including a gimmick sure to gain attention. To reinforce its 24/7 "always on" branding, OnBank takes a page from the iPhone weather forecast interface, showing the current time in reverse lettering in front of a background image that changes to match the time of day. As you can see in the three screenshots below: daylight (4:42 PM), sun setting (8:58 PM), and nighttime (9:02 PM). Presumably they also have a sunrise background. The bank displays the time according to the user's machine, PDT in my case.

We didn't test the Metavante-powered online application all the way through, but it looked relatively straightforward, although graphically not as appealing as the other OnBank pages.

Thanks to Bank Deals for the find.

OnBank homepage during daytime (17 April 2008)

Evening (16 April 2008)

Night (16 April 2008)

"More details page" (17 April 2008)

USAA is no longer the only financial institution offering consumers the ability to deposit paper checks from the comfort of home using standard home scanning technology (see previous coverage here).

Through DepoZip, a new offering from Massachusetts-based corporate credit union, EasCorp, five northeastern credit unions have recently begun offering remote deposit capture services for their members. In addition, Austin, TX-based Randolph-Brooks FCU is slated to launch it later this spring.

According to its published prices, the cost is $15,000 to implement the program ($5,000 for the license and $10,000 for training), then $100/mo plus $0.40 per active user plus $0.01 per its plus applicable image processing fees which range from $0.03 to $0.14 per item. Compared to manually handling deposits at the teller window, that's a bargain. 

The service was piloted beginning in August last year and launched in November at Sharon Credit Union (see inset image) and Hanscom Federal Credit Union. The latest to roll it out is 300,000 member Digital Federal Credit Union. 

Last week, ING Group's U.S. unit (note 1) made a splash with two major promotional efforts:

• Sponsored free access to the Wall St Journal online for an entire day (see screenshot below).
  
• Launched a TV advertising campaign, INGyournumber.com, aimed at the retirement market (press release here, view the spots here). Update 18 March: The company ran a full-page ad for the program in today's Wall Street Journal (p. A7)

INGyournumber <ingyournumber.com> is remarkably similar to Wells Fargo's Retire Secure Index that we looked at last week (here). The financial services giant created a special site with a Flash-based tool designed to help you find your "number." That is, the total amount you need to save to provide your desired level of retirement income.

Financial institutions should draft behind these well-funded efforts, and make sure your retirement tools are prominently positioned within your website.

ING Took Over The Wall Street Journal Online last Thursday (13 March)

INGyournumber.com Microsite

Note:

1. These promotional efforts from the main ING group, not ING Direct; although the direct banking arm did receive a small link on the bottom of the screen.

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 gift/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 service 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.

ING Direct, renowned for its many contests that have created strong brand-buzz, is offering customers the chance to win one of five monthly $1,000 prizes. Any user with a new or existing automatic monthly deposit of at least $100 is entered into the sweepstakes. In addition to the monthly prizes, one grand prize winner will take home $30,000. The contest runs for six months, so the total payout is $60,000.

Low-cost incentives to encourage automated savings are a win-win (see note 1). The bank gets a stable flow of deposits to its savings products, and customers end up "paying themselves first" and developing a savings habit. We recently covered WaMu and Wachovia's efforts in this area (here). 

ING Direct Transfer Money area within online banking (logged in)

Same area showing second part of animated banner 

Note:

1. Unfortunately, the sweeps ended up costing me $700, although it went to a good cause. Since I'm a sucker for a contest, and I didn't have an eligible auto-debit, I went to the bank's Transfer Money page to set up a new one. In the process, I noticed that the auto debit for our son's allowance had ceased working in mid-2005 (note 2). We owed him 31 months of allowance plus interest. Ouch. After taxes, the $1k in prize money will just about get me to breakeven.  

2. The allowance transfer originates from another ING Direct account, which was likely out of funds in July 2005, so the transfer was canceled. It's up to the customer to reinstate the transfer, which evidently I never did. 

If you are a subscriber to our Online Banking Report (see #150), you know how impressed we are with the work of BancVue and FirstROI. They are the team behind the 400+ rewards checking accounts we first discusssed here in early January (see note 1).

The reward-checking phenomena, largely created by these companies, landed as the sixth most important trend of 2007, according to our year-end report. The Wall Street Journal looked at several BancVue clients in an article last weekend (here).

If you are looking for ideas to spice up your Web-based marketing, take a close look at the FirstROI portfolio (note 2). They are doing some of the most creative work I've seen in 12 years of following the space, rivaling the UK banks, which have long set the bar for online bank marketing.

Case in point: Green Reward Checking from Bank of Hiawassee/Blairsville/Blue Ridge, all part of Georgia's $440 million Chatuge Bank Shares is well-explained in a clever Flash animation (see first screenshot below). Wisconsin's $770 million First Banking Center uses similar Flash techniques with a much more "serious" branding (see second screenshot below).

Green Reward Checking from Chatuge Bank Shares Inc. <www.frogreward.com>  
$440 million-asset bank headquartered in Hiawassee, Georgia

First Banking Center Rewards Checking
<firstbankingcenterrewards.com>
$760 million asset bank in southern Wisconsin

Notes:

1. (2) The credit union that first sparked our interest in the subject, Verity Credit Union, was advertising its reward product, Velocity Checking <velocitychecking.com>, on the radio this morning during Seattle's rush hour. The focus was on the 6% APY.
2. (1) First ROI will demo its latest innovations at our FINOVATE Startup conference April 29 in San Francisco.

Earlier this week, Ron Shevlin wrote about the "disingenuous" (see note 1) advertising from person-to-person lenders (here). He took issue with their claims of facilitating loans primarily for the social good, rather than for a profit motive. That criticism might be a little harsh, but he has a point.

Well if Ron doesn't like P2P ads, I wonder what he thinks of this one from Wachovia? The advertisement in question is for the bank's well-named, and well-intentioned new savings account, Way2Save.

I saw it advertised yesterday, above and adjacent to US Today's popular Super Bowl Ad Meter (here, screenshot below, note 2). According to BusinessWeek, the product is being supported with an eight-figure ad buy. 

Wachovia's ad promises an impressive return, a 5% APY plus a 5% bonus. On the face of it, that's a 10% yield. They'd have $100 billion in it tomorrow if it was that simple.

Here's the fine print:

• Must have a Wachovia checking account (but those are free)
• Limit of one Way2Save per checking account (but you can have more than one free checking account, see note 4)
• The only way to fund the savings account is through automated monthly debits from your Wachovia checking account (and those have to be set up in branch or over the phone)
• Maximum monthly transfer amount is $100, so the most you can add to the account in a year is $1200 (see note 4)
• The savings account has a variable rate and it not guaranteed to stay at 5% over the course of the year; and it is already scheduled to decline to 2% in years 2 and 3 (see detailed disclosures here)
• The bonus in year 2 and 3 falls to 2%
• A hard inquiry is posted to your credit bureau when opening a new checking account
• After the first year, the savings account has a $5/mo fee if there are no automated deposits

Analysis
For a small saver who can sock away $1200 over the course of a year, earning a 5% bonus, or $60, is an excellent deal, amounting to 15% return on the average annual balance of $600 ($30 interest @5% plus $60 bonus = 15%). While that's a fantastic APY, the $600 balance limit means the total extra earnings are only $5 per month, before tax, hardly a strong motivation for most savers.

The other part of the account that has created more confusion is the $1 transfer to savings with every debit card purchase, automated debit, and online bill pay. Some consumers, and even a few bloggers, have assumed Wachovia is paying a $1 bonus on each transaction. Now that would be a deal, if it were true. The $1 is simply a transfer from the user's checking account to his/her savings account. Wachovia will apply the 5% bonus to those $1 transfers, but that's only $0.05 per debit, or $1/month pre-tax for an active electronic banking user making 20 transactions per month. Again, not a strong motivator for most savers.

The semi-disingenuous advertising
Overall, we like the account. But we are not so thrilled with some of the advertising. Our main complaint: the landing page overplays the $300 maximum reward amount, which is virtually impossible to reach. Many visitors will initially believe that a $300 maximum payout means they can drop $6,000 in the account. However, that's not the case since it's limited to $100 month contributions, yielding a $60 bonus.  

Where does the other potential $240 come from? (This is the disingenuous part.) Answer: From the $1 funds transfers every time a Wachovia debit card is used. So the average visitor might think, "wow I'd have to make 240 debits to come up with the $240." Wrong again. The $1 is just a funds transfer from checking to savings (note 3). At the 5% bonus level, Wachovia only pays a nickel per transfer.

So how do you get a $240 annual bonus from that? You'd need 400 debit card transactions EVERY MONTH. That's not a typo, 400 transactions per month, or 4800 per year in order to earn the $300 shown in the headline of the Wachovia landing page. And that's in the first year. In the second year, with a 2% bonus, you'd need 1250 transactions per month to reach the $300 mark.

Final verdict
Ignoring the advertising, I say it's a deal for the customer. The product makes sense for beginning savers, a cross between Bank of America's Keep the Change (coverage here) and WaMu's Saving for Success (coverage here). I like the focus on automated savings, and the $1 per debit gimmick seems harmless, so long as it's better disclosed.

However, I'm not sure it's such a deal for the bank, at least not worth a $10-million ad campaign (note 5). Many Wachovia customers drawn in by the advertising will go away disappointed due to the fine print. In addition, thousands and thousands of zero-balance checking accounts will be opened to game the system, then closed at the end of the year, wasting bank resources and putting pressure on 2009 sales. 

Wachovia advertising on USA Today Super Bowl Ad Meter (6 Feb 2008)

Wachovia landing page from USA Today ads

Notes:

1. I knew it wasn't a compliment, but I had to double check that one in the dictionary for the precise meaning: "lacking in candor or sincerity" or "pretending to be unaware."
2. I was disappointed to find that E*Trade's ads finished outside the top-10 (#13 and #14). 
3. Although it's not addressed in the Wachovia's FAQs, apparently the $1 automatic funds transfer will be canceled if there are insufficient funds, so it can't trigger a $30 NSF fee. 
4. The folks posting at FatWallet are sharing account details to game the system. According to several posters, the bank allows up to 5 accounts per person in the household, but only one Way2Save can be linked to a single checking account. One poster says he opened 15 checking accounts and 15 Way2Save accounts and will transfer $100 per month into all 15 accounts, resulting in an $18,000 year-end balance and a $900 bonus. Then he'll close all 15 accounts and move on to next year's hot rate. One poster said, the branch people seemed happy to set up five new checking accounts since they appeared to get a bonus for each one. To avoid the "FatWallet effect," make sure you always have account limits and sales incentive limits.
5. Granted, the $10+ million is more to promote the bank' image than for the product itself. And being associated with savings is good branding these days.

Although, remote deposit capture has captured a significant share of larger businesses, consumers have had fewer options:

• USAA has offered in-home scanning, called Deposit@Home, for more than a year (previous coverage here), but its customer base is limited to current and retired members of the military.
• DepositNow, a unit of BankServ, allows anyone to use remote deposit services, but it's geared towards businesses and costs at least $29/mo, far above what consumers or even smaller businesses will pay.
• A number of banks also make it available to small businesses and the very wealthy, but consumer rollouts have been nonexistent. The cost of a dedicated scanner makes it uneconomical for the mass market.

CheckFree aims to change that with a new service targeted to consumers and very small businesses (press release here). The key is using existing consumer scanners and multi-function printers. USAA has proven that this technology does indeed work, so we expect CheckFree's service will pass technical hurdles.

It's hard to predict consumer demand, but given that around 20% of U.S. households maintain a full- or part-time business endeavor, we expect strong demand if the price is reasonable and technology is extremely easy to use.

Remote deposit services could be used as the cornerstone of a premium online banking offering (note 2) attractive to microbusiness (note 1) owners and consumers who still receive paper checks a few times per month.

Notes:

1. We define a microbusiness as one with $50,000 or less in annual revenue, typically a part-time, home-based business. For more information see Online Banking Report #107/108: Small and Microbusiness Banking Online.
2. See Online Banking Report #109 for ideas on how to create a premium online banking channel.

While not the first bank to experiment with eBay auctions (see note 1), Zions Direct is the first to open a dedicated site within eBay and the first to sell "new-account vouchers" (see screenshots below).

Apparently the vouchers, listed in the gift certificate category, skirt eBay rules against auctioning financial services. The buyer of the certificate can redeem them for a cash deposit into their Zions Direct brokerage account. Zions Direct also auctions CDs every week directly on its website (see previous coverage here).

Bidding starts at $0.99 for the vouchers which range in value from $500 to $1,000. Bidders can pay via PayPal or check. The amount of the voucher is deposited directly into the buyer's Zions Direct account, which is required to redeem the voucher. So not only are buyers receiving cash at a discount, they also can earn frequent flyer miles and a free grace period if their PayPal account is connected to a rewards credit card. There is no requirement that buyers be new customers, nor are their limits on how many certificates can be purchased. In fact, bidder shecdoggy bought 5 of the vouchers totaling $4,000 at a total discount of $72.50.

So far the bank has sold 16 vouchers worth at total of $12,800 to 9 unique bidders for an average of $12.50 less than face, a discount of 1.6%. And there are currently 10 vouchers up for auction (see screenshot below). As more people have caught on, the spread has been reduced to less than 1% on recent auctions (see past and present listings here, Zions Direct eBay store here).   

Analysis
From a marketing perspective, this is brilliant, at least in the short run. For a cost of $15.95/mo for a basic store, and $30 to $40 per voucher (mostly in eBay/PayPal fees), the bank gets its name on eBay, numerous mentions in blog posts and press stories, a cool ad on its homepage (see screenshot below), positions itself as innovative and provides customers a nice little spiff.

Long-term, however, the terms will have to be adjusted or the bank will just be handing over easy money to the "gamers." The certificates will be purchased at face, or slightly over, by existing customers who rack up frequent flier miles and a do a little interest arbitrage during their credit-card grace period. The bank will need to lower the amount of the vouchers to $100 to $200 to reduce the potential for gaming, or if possible, restrict purchases to one per customer. Another cost reduction tactic would be to disallow PayPal payments, but that would reduce the effectiveness of the promotion. 

Zions Direct Auction Listing

Zions Direct eBay Store

Zions Direct Homepage (18 Jan 2008)

Note:

1.  In the late 1990s PNC Bank was the first to try CD auctions. In 2004, WaMu used eBay technology in a market test (see previous article here).

For someone whose job it is to stay on top of innovations in financial services, I hate to admit I'm late to the party on the so-called "reward checking" phenomena. Last year, I'd noticed a number of smaller financial institutions launching high-yield checking accounts, but I hadn't realized it was a national trend primarily powered by a single bank tech supplier, Austin, Texas-based BancVue (see note 1).

According to a November BankRate article, more than 350 U.S. banks and credit unions now offer so-called "reward checking accounts" powered by BancVue with 30 new ones coming on board each month. These checking accounts usually pay high rates of interest, typically 6%, if users meet high levels of electronic banking activity each month.

Typical requirements to earn the high yield:

• 10 to 12 debit card transactions each month
• Electronic statements (no paper)
• Online banking usage

Typically, the following benefits are paid ONLY when the above requirements are met:

• 5% to 6% interest on the first $25,000 to $40,000 in balances
• ATM refunds up to $10 to $15/mo

And most seem to include:

• No monthly fees regardless of activity or balance levels, so the account can be marketed as "free"

Marketing
Another distinguishing characteristic of these accounts is the innovative marketing and website design. With the help of BancVue, smaller banks and credit unions are able to offer a level of design and pizzazz that meets or exceeds the typical megabank high-budget program.

Here are some of the more interesting BancVue-powered programs we've looked at (screenshots follow):

• Velocity Checking <velocitychecking.com> from Seattle's Verity Credit Union
  Earn 6.01% on balances up to $40,000 and receive ATM refunds up to $25 when meeting the following monthly requirements:
  - 12 debit transactions
  - 1 online banking login
  - electronic statement in lieu of paper
  
• Turbo Checking <turbochecking.com> from New Mexico's Charter Bank
  Earn 6.01% on balances up to $25,000 and ATM refunds when meeting the following monthly requirements:
  - 10 debit transactions
  - receipt of 1 direct payroll deposit or other automated ACH deposit
  - 1 login to online banking
  - electronic statement in lieu of paper

And our favorite, which substitutes iTunes downloads for the high-yield benefit:

• FreeTunes Checking <freetuneschecking.com> from Oregon Community Credit Union (see note 2)
  Earns 4 free iTunes downloads each month provided the following are met:
  - 12 debit transactions
  - 1 login to online banking
  - electronic statement in lieu of paper

Screenshots

Velocity Checking from Verity Credit Union

Turbo Checking from Charter Bank

FreeTunes Checking from Oregon Community Credit Union

Notes:

1. I began researching this area after reading Verity Credit Union CMO Shari Storm's recent blog post (here) about how she'd changed her payments behavior to make the 12 monthly debits required for its Velocity Checking.

2. Oregon Community Credit Union also offers a high-yield version, Remarkable Checking, that substitutes a 5.05% APY on all checking account balances instead of the free music. Monthly account requirements are the same. 

A full-page ad in the front section (page A8) in yesterday's Seattle Sunday Times/PI alerted me to WaMu's latest offering called Savings for Success (see note 1).  

It's not a new invention, essentially a 1-year CD funded with automatic monthly deposits instead of a one-time deposit (see note 3), but WaMu uses its marketing prowess to dress it up like a super-high-yield savings account with an attractive 5.5% yield. It also delivers the ultimate marketing coup: turning what is normally a negative, not being able to get your money out for a year, into an account FEATURE, saying that the savings is "out of sight and out of mind" for the one-year CD term.

According to the Bank Deals blog, the savings account has been made available in select markets as far back as July. At that time the rate was higher, 7% in Illinois and Texas and 6% in Washington and Georgia (note 1).

It's great marketing that plays right into the new year's resolution mindset this time of year. Surprisingly, the account is not mentioned on the bank's website, even though the call to action (below) includes the bank's Web address. Also, WaMu has not used search marketing to support the print ad. Google searches do not lead to the the bank and a site search at wamu.com leads nowhere. 

This is a great product and a good fit for online banking users. Assuming it pencils out in the four test markets, look for the account to debut nationwide in 2008.  
 

Notes:

1. Apparently, the same ad has also run in the Houston Chronicle, but with a 6.5% APY. In the disclosures on that ad (reprinted here), the offer was said to be available in Illinois, Georgia, and Texas. The Seattle Times/PI ad says the offer is only available in Washington.

2. Here's the text in the main paragraph of the ad above:

Your checking and savings needs are officially over. To complement our WaMu Free Checking account, we've created Savings for Success. It's simple. You choose the amount you'd like to save each month - by automatically transferring as little as $25 and up to $500 from your WaMu Free Checking account to your Savings for Success account. There it is kept out of sight and out of mind, earning big interest, and helping you save without even having to think about it. After one year, it's yours to access when we sweep the savings into any savings account you choose. So save like never before and still get free checks for life, free ATM cash withdrawals, and all of the other features of our WaMu Free Checking account. It's banking bliss. To learn more stop by a WaMu near you, call 1-866-808-1396 or visit wamu.com.

3. Update Jan 8: The product, with the 6.5% rate, has also been advertised in The Dallas Morning News (link to the ad here). Also, I neglected to mention that the account can ONLY be funded with automatic debits with a miniumum of $25 per month to a maximum of $500 per month, so it's not an account aimed at large depositers. 

Zopa US opened a private beta Saturday morning, emailing selected customers that had previously signed onto its mailing list. Both of our listed email addresses received invites.

We'll look closer at the new service in our upcoming Online Banking Report on P2P lending, but what stands out is the business model: part P2P lender, part deposit-taking financial institutions, part charitable organization, part broker, and part lead-generation site. I'm not positive you can be all of those things at once, but it will be fascinating to see if Zopa and its partner credit unions can pull it off.

How it works
To understand how the Zopa US system works, you must first realize that all loans and all deposits are held at the six partner credit unions (see list below). So in that way, Zopa is a pure lead-generation play.

Zopa "investors" put their money in fixed-rate, 1-year certificates of deposits held by a credit union partner. Borrowers take out 5-year fixed-rate personal loans, again from a credit union partner. This part is pure depository financial institution, with Zopa as a broker. 

Finally, the P2P/social finance aspect comes into play with the requirement that all depositors must choose to "help" at least one borrower by reducing the borrower's loan payment. The depositor has the choice of accepting the highest rate of interest, currently 5.1%, and making a token donation, or sharply reducing the APY on the Zopa CD in order to provide more financial assistance to Zopa borrowers. Depositors select who they want to help from the listed loans. An obvious scenario would be a grandparent investing a substantial sum into low-interest Zopa CDs, so that a child/grandchild could take out a 5-year loan to help with a down payment on a house. But depositors may also help a stranger whose story they find appealing. 

Our preliminary take
Zopa has removed much of the uncertainty from the P2P lending process. But by eliminating the risk, they've also reduced available returns. Marketing Director Wade Lagrone, with whom I spoke Saturday afternoon (as Zopa engineers hammered away on the final tests), believes that U.S. investors overwhelmingly prefer low-risk, fixed-income investments and will prefer this P2P model.

I'm not convinced yet. It seems like a somewhat convoluted path to buy a simple CD. First, you must set your deposit rate, choose one or more borrowers to help, and finally join one of the six credit unions. The website makes the process relatively straightforward, but it's not the same as simply dropping a few grand into an online bank. 

On the other hand, the ability to donate all or part of your deposit's interest-yield could appeal to certain investors, especially the well-heeled looking to help family members obtain below-market-rate loans for defined purposes (home purchase, education, business expansion, etc). And eliminating lender risk removes the huge chore of keeping lenders happy and informed about their book of loans. 

Another potential problem is lack of transparency for borrowers. To obtain a Zopa loan, prospective borrowers fill out a nonbinding "loan quote." Not until after this application is made, and a credit inquiry logged, do borrowers find out if they will receive the lowest rate of 8.75% or the highest of 16.99%. And borrowers have no idea whether they will receive "help" from investors to lower their payment, and effectively reduce the APR of the loan.

Screenshot: Zopa CD setup (1 Dec 2007)
Zopa investors (aka lenders) select the rate of return for their 1-year CD and then choose a borrower to help by offsetting a portion of their Zopa loan payment.

 
Appendix: Credit Union Partners
The six U.S. credit union partners of Zopa US:

• Addison Avenue Federal Credit Union
• Affinity Plus Federal Credit Union
• FirstTech Credit Union
• FORUM Credit Union
• Provident Credit Union
• USA Federal Credit Union

For some time, Bank of America has been offering its credit card customers a cash bonus for opening a new checking account. Today, with $75 dangled in front of me, I decided to take advantage of the offer and went ahead and opened up a free MyAccess Checking account online. Below is a screenshot of the main credit card page with the offer strategically placed in the upper-left quadrant.   

While the online account opening process was relatively smooth, there are a number of things the bank could do better, starting with pre-filling the application with my personal info. Even though I have two Bank of America credit cards and I responded to the offer from within the secure online banking environment, I still had to start the application from scratch.

And taking a queue from online retailers such as Dell, the bank drops a number of cross sells into the application process.  I'll have a full analysis of the account opening process in our upcoming Online Banking Report on online account opening to be published in first quarter. 

According to story in Wednesday's American Banker, Provident Bankshares, a $6 billion Baltimore, MD-based bank, has opened a direct bank to help reduce customer defections to other online banks (see screenshot below). In testing now, the new unit is slated for official launch in 2008. And unlike many other regional programs, Provident intends to market the new bank within its home market. It even plans to advertise to select visitors on its main website, <web.provbank.com>.  

While the bank risks cannibalizing its own deposit base, it feels that the direct bank, combined with the reputation of the parent, will help stem deposit outflows. The new bank will operate at <provident-direct.com>.

Analysis
I'm not convinced slapping a "direct" on your name and boosting savings rates ten-fold is all that compelling of a strategy (note 1). Sure, FNBO was able to add $1.5 billion in deposits, but only by offering a way-above-market 6% rate until just a month ago (see previous post here).

Dueling websites create channel conflict. Depending on how they are compensated, branch staff will either move everyone into the online-deposit account, or keep it a secret and hope never to be confronted by an angry customer wanting to know why they are earning 75% less in the branch than if they moved their money online.   

However, if Provident can keep costs down, operating the unit as more of a "virtual direct bank," with little additional expense other than a small website and a few dedicated sales/support reps, and figure out how to manage channel conflict, it could pencil out. And the bank can also use the unit to test new products and pricing without impacting its larger customer base.   

Note:

1. Actually, the high-yield rate at Provident Direct is 15 times higher than its 0.3% standard savings rates. But for higher balances, at least $25,000, the parent bank already offers a 4.0% APY money market account, just a half-percent under the high-yield rate. 

First National Bank of Omaha has attracted $1.5 billion in deposits through its Internet subsidiary, FNBO Direct, launched in February (previous coverage here). 

The numbers were chronicled in a NY Times article earlier this month (here) about the so-called rate chasers, depositors that move money around online seeking the absolute highest rate, even if it means moving the money many times each year.

Total deposits: $1.5 billion

Total accounts: 36,000

Average per account: $42,000

Number of mega-depositors (with $400,000+): several thousand

Deposits of the mega-depositors: approx $1 billion

Deposit of everyone else: $500 million in 33,000 to 34,000 accounts

Average per "normal" account: $14,000 to $15,000 

Now that the 6% APY has dropped to 5.05% (effective Sep. 28), it will be interesting to see how many deposits the bank retains.

I'm not sure how new it is, but Bank Deals Blog had its first posting yesterday (here). NewBank from Elk Grove, CA-based Stockmans Bank coincidentally was purchased by PremierWest Bancorp while I was writing this blog post yesterday.

It looks like another deposit play, offering higher rates through the online brand to help it keep rates at the parent relatively low (see comparison below). The direct bank is also offering a $50 bonus for new checking accounts opened with at least $2,500 (see screenshot below).

Here are the rates for a $20,000 balance:  

                             Stockmans      NewBank    Advantage

Interest checking >>> 0.50%         3.50%            7x

Savings >>>>>>>>>>>> 1.35%          4.00%           3x

Money market >>>>>> 2.30%           n/a            1.5x (vs savings)

6-month CD >>>>>>>> 4.30%          5.25%           +22%

First National Bank of Omaha used this approach to bag $1.5 billion in deposits at its Internet subsidiary, FNBO Direct, since its February launch (see previous coverage here). 

Thanks to Bank Deals Blog for the tip (here).

Earning interest is a great incentive for kids to save. Even a couple bucks in "free" money earned on their deposit is a great motivator. But with many savings rates below 1% annually, it doesn't add up fast enough for lower balance levels. At US Bank's 0.10% rate, my son's $1,700 in savings would only earn him $1.70 per year, or 14 cents a month. There is no incentive there.

But at Patelco Credit Union, with its kid-friendly "gr8 r8" account (see note 1, 2), he would earn 8% on the first $1,000 and the going rate on the rest (1.51%). And the 8% is guaranteed through the end of 2008. So his annual return increases to $81, or almost $7 per month, 50x the US Bank return. Seven bucks extra a month is real money to a pre-teen, and gives him a good taste for the benefits of saving and investing for the long-term. Even more important, it positions the CU as family friendly, impressing the parents and maybe hooking the kids as future members as well.

Granted, the business case is tricky. Does subsidizing junior to the tune of $5/mo really benefit the credit union and its members. If the CU had 20,000 of these accounts, that's an extra $1.2 million per year in interest expense. Might the credit union's other 220,000 members prefer an extra $5 in their accounts at the end of the year? I'm guessing most members would support efforts to instill savings discipline in today's youths. And the marketing and PR benefits are excellent. The CU even features the account on its homepage (see screenshot below).

So, overall I r8 it gr8. Thanks Trey (see note 2).  

Patelco CU homepage (19 Oct. 2007)

Notes:

1. Must be under 21 when account opened. No maximum account balance, but only the first $1,000 earns 8%. The special rate is good through the end of 2008, when the account reverts to a regular savings account.

2. I just realized the account name, gr8 r8, is a double entendre, not only being SMS-speak for "great rate," but also with an eight-percent rate. [My family has to spell these things out for me.]  

3. Thanks to Trabian's Trey Reeme for the tip (here). And I agree with him, gr8 r8 savings absolutely must have an SMS component, at minimum a message each month when the "free money" (interest) is added to the account.

With the personal finance news full of reports of falling deposit rates, EverBank strikes back with an eye-catching email overview of its high-yield deposit choices:

• Yield Pledge Money Market
• Yield Pledge CDs
• FreeNet Checking

The bank's yield pledge, to always offer a rate in the top 5% nationwide, helps take the customer's mind off the actual rate itself, which may not be as high as they'd like (see screenshot below). Not that EverBank isn't competitive on rates. The bank still offers 5% APY's in a number of key deposit products including its Money Market account and most CDs. And it sweetens the pot for new customers with 3-month introductory rates of 6%.

Analysis
Nicely done email with an appropriate, and eye-catching graphic, to-the-point copy, personalization, the yield pledge, and links to all the right places.  

Grade: A

Email header 

Sent: Tue 9/25/2007 2:04 PM
From: EverBank News [service@everbank.com]
To: <your email address>
Subject: 3 high-yield accounts - to fit your style

Personalization: First name in salutation

Email body

I received a mailer yesterday at my Seattle home address announcing ING Direct's upcoming launch in Seattle (see scan below). This version at least was sent only to existing ING Direct customers. Note the inside headline with an appropriate local touch, "Seattle's Getting More Bean for its Buck." 

There are not many specifics in the orange self-mailer, other than "You'll soon be seeing us all over the city—from Puget Sound to Lake Washington— spreading the savings message." I'll keep my camera handy to capture big orange visuals as the company arrives on the scene.

So, it doesn't sound as if we're getting a famous ING Cafe (see inset, the newest one in Chicago). However, I do have the opportunity to earn a $10 referral bonus by handing out the two detachable cards that came with the mailer (see note 1). The new account holder also earns a $25 bonus. Customers can sign up through the mail using the card, or go online to a special landing page <ingdirect.com/seattle> (see screenshot below).   

Seattle mailer front

Seattle mailer back

Landing page for Seattle offer <ingdirect.com/seattle>

Note:

1.  On the above scan, you can only see the top portion of one of two identical perforated referral cards designed to be given to family and friends. Sorry, my 8.5 x 14 scanner didn't capture the entire self-mailer.

Along with 550,000 other followers of Web 2.0 happenings, I'm a regular reader of Michael Arrington's TechCrunch, although it's harder to keep up with these days as the blog has gone from a couple posts per day to seven or eight. Although I usually read it in an RSS reader, I visit the site once per week or so to read comments.

This week for the first time I noticed financial services advertiser Bank of America, a hardly newsworthy occurrence as Bank of America spent $43 million advertising online last year (here). But the content of the banner proved most interesting (screenshot below); here's what the bank's ad says:

A little knowledge is a powerful thing.
Online Banking Service: Check your balances and account activity so you can help prevent fees.

And the blue button on the right says "Know More Now."

The banner leads to a landing page (here) that discusses a number of topics, but opens to a discussion about overdraft-protection options in the middle of the page (screenshot below). It's very interesting to see a large bank take on this controversial issue in its advertising. It's a good sign that the banking industry is taking the criticisms seriously and is working to educate users on how to avoid fees, even if does impact short-term fee income (see my discussion of how mobile alerts can be used to keep users informed, here).

Some companies are so innovative, you take them for granted. Five that come to mind, in no particular order:

• Yodlee: account aggregation, credit card-based bill payment, mobile banking
• Vancity (Canada): microcredit, green banking, blogging, community involvement
• Wells Fargo: simple expense tracker, blogging, Second Life
• PayPal: email-based payments, confirmation via twin deposits, integration into eBay (before it was part of eBay)
• Prosper: Social lending, open API to most of its aggregated data, groups, auction style, Facebook app (game)

These companies are all relatively famous, but one that doesn't get nearly as much press, but has long pushed forward on a number of fronts is Everbank. From its website design (here), product marketing (here), to its foreign-currency certificates of deposit (here), the Jacksonville, FL-based bank continues to shine in an increasingly crowded online space (all previous coverage here). 

My inspiration for this post (see note) was the bank's marketing email today announcing its World Energy Index CD, a multi-currency certificate pegged to the currency of four western countries with better-than-average energy resources: Norway, Canada, UK, and Australia. I have no idea if this CD is a good investment, but I do know that Everbank has proven that even the narrowest niches can be profitable using the reach of the Internet.

Everbank Email

Header:
   Date/Time received: July 17, 4:07 PM (Pacific)
   From: Everbank News [service@everbank.com]
   To: James [jim@netbanker.com]
   Title: A new CD with a powerful combination - energy and currencies

Customer type: Current checking account customer

Personalization: First name in salutation

Landing page: none (homepage link only) 

Other offer: Third-party investment newsletter offer (link on right-hand side goes directly to newsletter publisher, Agora Financial Publications, landing page here)

Note: I have had an account for ten years at Everbank. Therefore, I see more of their marketing material and tend to write about them more frequently.

Bank of America and Chase, two of the three largest U.S. banks, are putting an online spin on free checking offers using online banking, security, and other benefits to encourage applications. On the surface, Bank of America's approach appears much more effective. And with no direct-deposit requirement, it surely generates more new accounts. However, without knowing how the free accounts convert to profitable relationships, it's impossible for an outsider to recommend one approach over another.    

Bank of America
Bank of America's free checking offer (see note 1) is difficult to overlook (screenshot below).  The top-of-the-page banner has animations that showcase the major benefits:

• online banking
• bill payment
• "Keep the Change" debit card savings program
• SiteKey security

The teaser "We're redefining Free Checking" creates interest while the bright blue "open an account" and "special online-only offer" further entice prospect to click through the banner.

The landing page (screenshot below) reiterates the online benefits and features a large laptop to reinforce the high-tech nature of the account. Two additional benefits are added to the list:

• Free debit card with security protections
• Free ATM access at 17,000 BofA machines 

Notes:

1. The free checking banner appeared in a visit to the homepage from a Seattle IP address at 10 AM Pacific time today. It did not appear on afternoon searches from several computers.

2. The bank uses a live chat popup after lingering on the application for a short time (click on image right for closeup).

Chase Bank
Chase's homepage banner uses the "kitchen sink" approach with an image of an ATM machine, debit card, paper checkbook, laptop, and PDA along the top. The mobile phone is a good addition, but the ATM machine and laptop are so small, they aren't easily recognizable in a quick scan (see screenshot below).

Another problem: the paper checkbook, which is centered and slightly larger than the others, seems to get an inordinate amount of attention. I'm not sure that the checkbook or the debit card add much value. U.S. consumers pretty much realize those are included in a checking account.

Chase's landing page leaves a lot to be desired. The benefits are listed in small, gray type that is relatively hard to read. And the only call to action, if you can describe it as one, is the last line in small blue type, with an underlined "apply online." No buttons + no color + no large font + no offer = no interest.  

It's been a few months since a direct bank launched. The last one we've been tracking is FNBO Direct that launched in February (coverage here). FNBO has been in the news lately, with a video interview with Business Week (here).

The latest is Element Financial <element-direct.com>, a unit of Irwin Union Bank. The simple homepage layout includes an icons across the top that gives it a modern look (see below). 

Unlike most direct banks pitching high-yield savings, Element features certificates of deposit. The lead product is a 5.44% APY CD. Rates are displayed on a unique rate table with tabs across the top listing typical deposit sizes, $5,000, $25,000, $50,000, or $100,000 (see inset).  

For more on direct banking, see our previous coverage here or refer to our Online Banking Report, Lessons from the High-Rate Deposit Marketers (here).  

I just received an email (inset) from ING Direct announcing a 1% cashback promo for its Electric Orange debit card. Not surprisingly, the rebate applies only to signature debit, where interchange fees cover the cost.

Initially I thought it was a permanent feature of the bank's new paperless checking account. But after clicking through to the landing page (see screenshot below), I discovered it's just a two-month promotion, running June 1 through July 31.

Given ING Direct's staunch consumer advocacy positioning, I am a little surprised it is not a bit more upfront about the two-month time period. Perhaps it's just an oversight, or maybe they are testing different copy treatments.

The 1% offer is also shown on the bank's main Electric Orange product page (here). Again, there is no mention that it's a promotion until you click through the "1% cashback" banner.

Analysis
Overall, it's a good promotion. A clear benefit for the customer and limited duration for the bank. And it helps build awareness that ING Direct supports debit card use at the point of sale, a relatively new feature for the direct bank. See previous coverage here.

Landing page (here)

Citibank has the top spot this morning if you Google "checking accounts" from a Seattle IP address (see below). Wachovia and US Bank are the lucky recipients of the free advertising that goes with being in the top-two organic results. Two smaller institutions purchased well-placed ads with Alaska USA Federal Credit Union landing in the number four spot on the right-side column (#7 overall) and Viking Bank at #5 on the right (#8 overall).

Citibank's landing page emphasizes the rate on its savings account, with a passing mention of EZ Checking (see screenshot below). The landing page is gorgeous, but is it missing the point by soft-pedaling what the searcher was looking for? Only Citi and its analytics team knows for sure. My guess is that it does pretty well since the bank's been using this basic design for more than a year now (see previous coverage here).   

One of my favorite Sunday pastimes is seeing which bank dropped $25,000+ on a front-section full-page Seattle Times print ad. Over the years, there have been fewer and fewer sightings. And usually, it's BofA, Key Bank, or US Bank making the bold print buys in our market.

But today, Boeing Employees Credit Union, or BECU as they refer to themselves now that they allow anyone in the state to join, bought the entire page A10 and used most of it to say:

Shouldn't you profit from your bank rather than the other way around?

That's an attention-grabbing headline, especially in Seattle with plenty of anti-big-business sentiment. But it won't drive sales unless the CU can back it up with tangible benefits. And it does, with a large reverse-type rate offer for Member Advantage Savings & Checking (bottom section of print ad at right):

7.50% APY on your first $500  

Analysis
This is a great approach for going after mainstream consumers. Why?

• They bash the banks to gain attention, always a popular strategy...even the banks do it (see here).
• They don't waste space, or risk customer confusion, by going into detail about their credit union status; in fact they don't even use the words credit union, other than the CU in their name, instead using the generic "bank" in the headline. 
• They pay 2%+ more on savings than even the highest-rate online bank...but it's only on the first $500. Now that won't bring in the $25,000 deposits, but it will bring in new checking accounts and relationships.
• The extra 6% BECU pays out on the $500 balance, only costs them $30 per year...a small price to pay for a new relationship, which requires an electronic connection, either direct deposit, online bill pay, or electronic statements (of course, the Seattle Times ad drives the acquisition price up considerably).
• The same headshot of "Cyrena S." runs in the lower-left of the print ad and in the middle of BECU's homepage (see screenshot below), nicely tying the website to the print-ad strategy.

A few areas could be improved, mostly within the Web portion of the call to action: 

• The online signup option is buried at the bottom of the Member Advantage landing page (here), and uses a generic link and understated small maroon button, rather than the large red/orange "Apply Now" graphic used by most retail financial institutions. 
• The online app appears in a small popup window and is an old school all-text version powered by uMonitor. If you want to drive online sales, the application should be more user friendly and graphic-rich. Despite the shortcomings of CashEdge's online application design (see here), its layout is easier to follow. 
• The go-to rate after the first $500 is just 1.75%; that's a bit less than one would expect from someone spending so much money pitching "earn more" in 48-point type.
• Although BECU appears as the top organic result in Google searches involving the credit union's actual name, it doesn't show up on the first page for generic searches for "seattle savings accounts" or even "seattle credit unions." BECU should consider supporting its print buy with search engine advertising.  
• The 7.50% advertised APY is identical to the 7.50% APR used by US Bank to promote its home equity product a few pages earlier in the same Sunday Seattle Times section. It might help to show a competitive comparison against other savings rates to emphasize that this is a fantastic DEPOSIT rate, not merely a competitive lending rate.

Several banks, including PNC in the bubble days and WaMu through eBay in early 2004, have tried auctioning certificates of deposit (see Online Banking #104). Those first attempts were aimed at retail depositors, an unlikely audience for a several reasons. First, the demographics of retail CD buyers is decidedly older and they tend to be fiscally conservative, not the right group for a new-fangled way to buy from the bank. On the other hand, CD auctions are a great way to introduce a bit of Web 2.0-style innovation into what is mostly a commodity.    

So Zions Bank, through its Zions Direct division, has chosen a different path. Instead of creating an eBay-like environment for retail investors, it is using its non-bank investment division to sell CDs like the Treasury Dept sell t-bills. The certificates are sold at a discount to par, resulting in an acceptable yield for the bidders. 

Analysis
While PNC and WaMu's efforts were clearly just market tests that were shuttered after a few months, the Zions auction platform is full-featured. It appears to have staying power provided the bank is comfortable with the prices its paying. 

Clearly, this is not a retail playground. There were 20 bidders making a total of 28 bids with a median bid dollar amount of just $10,000. However, there were three huge bidders, all playing with $2 million in cash, that set the final prices. Most likely it was someone in a large company treasury department looking to increase its yield on excess cash by a basis point or two.   

But even though the big money sets the rates, the small depositors can still win since everyone received the same "market-clearing" rate. For example, four of the 14 winning bidders in the March 27 auction were small CDs of less than $5,000:

Winning bidders by size of deposit:

• 4 had $1,000 to $4,000 
• 5 had $8,000 to $20,000
• 2 had $90,000 to $100,000
• 1 had $200,000
• 1 had $536,000 (partial fill of $2 million bid)
• 1 had $1 million (they also had non-winning $2 million bid)

It makes sense to set rates for large deposits this way. It mimics the way the capital markets already function. And it allows motivated smaller depositors to join the "action," receiving what they are likely to perceive as a fair price since it was set on the open market. Some day, the majority of CD dollars will be sold this way.

Finally, an added bonus for the first-mover, it positions Zions as innovative, fair, and looking out for its customers. The word of mouth and press attention should quickly pay back the investment Zions made in the platform.

More information:

• Press release here
• American Banker article here
• Online Banking Report #104 here

-------------------------------------------------------------------------------------------------------------------

Zions March 27 CD Auction Results
(see screenshot right or view archived page here) 

Product: $2,000,000 in 5-month CDs

Bidders: 28 bids from 21 bidders

Final Price: 5.506% rate

Start date: 20 Mar 2007

End date: 27 Mar 2007 (6 PM EDT)

Discussion: Two $2 million bidders tied at the market-clearing rate, one ended up with a partial funding of $537,000 and one ended with zero, so had Zions made more money available, it could received total deposits of $3.6 million at 5.506% rate.

The FDIC database has been updated with Q4 numbers, allowing all the data miners to slap on their hard hats and get to work. Since reporting on the tepid third quarter of ING Direct (U.S.) (here), we've been looking forward to the year-end data.

The biggest surprise is that the bank not only reversed the Q3 account run-off, it managed to add 220,000 new accounts, its best fourth quarter ever. However, things weren't so rosy in terms of deposit balances, which increased just $800 million, the lowest Q4 increase since 2001 when the bank had less than $3 billion in total deposits.

For the full year, ING added $7.2 billion in deposit for an 18% increase, the first time the bank had less than 40% year-over-year growth. And almost the entire increase came in first quarter. The bank essentially had no deposit growth in the final nine months of the year (see table below).  

It will be interesting to see what impact its new high-rate Electric Orange checking account will have on deposit and account growth. The account was growing rapidly during the final stretch of the invitation-only launch period, growing from $1 billion on deposit Dec. 31, to $2.2 billion by mid-February (see coverage here).

I don't know how I missed this yesterday. The Bank Deals blog, which routinely gets this stuff first, was the first to note that ING Direct's much-discussed new paperless checking account is now visible on its website (see below). The full launch follows a 4-month invitation-only period (see our previous coverage here).

However, the account is not currently running on the homepage, which tonight was rotating through three product offers:

• 4.5% Orange Savings
• 6.0% Orange Mortgage
• Orange retirement accounts: Traditional and Roth IRAs  

ING Direct, along with Everbank, are currently running ads on Google for "electric orange" and "electric orange ING Direct" (see inset). The landing page, shown below, includes a Jane Kim Wall Street Journal clipping.  Interestingly, the ING Direct landing page still says you must first open a savings account to qualify for the checking account. The Website carries no such restriction.   

We'll have more info on the account as we run it through its paces.

ING Direct product page

ING Direct landing page from Google AdWords ad

The folks at BAI, using research by Raddon Financial, ran the numbers on new checking account sales per branch and found that Bank of America is opening 31 new checking accounts per branch per month, or just about one per day (article here). WaMu did better with 39 per month or 1.3/day. The article said community banks typically get only about one-fifth that,  just 2 new checking accounts per week per branch.

I'm not sure exactly what those numbers mean, but someday in a meeting when you are trying to make a case for new investment in your website, you can counter the, "but customers love the branches" with, "sure they do, but even BofA, who spends more than $200 million/year advertising, only manages to sell one checking account per day per branch" (see top 2005 advertisers here). It still might not mean anything, but it makes it sound like you've done your homework.

The problem with comparing branch-account openings to online-account openings is they are not separate ecosystems. Would the account have been opened online without a nearby branch? Or did that account, opened at the branch, come as a result of research conducted online by the customer? In the U.S., you need both channels for the foreseeable future, unless you sell a financial product that doesn't need physical support, like a savings account (see note 1).

Another wild card: How do you gauge the impact of increasingly prominent website offers like this one currently running on the checking account page at <bankofamerica.com> (see note 2)? Naturally, to get the $50 you have to open the account online.

Notes:

1. For more information on the future of the online channel vs. branch, see our report, The Demise of the Branch, published spring 2006 in Online Banking Report (OBR 128).

2. The offer was presented to a non-customer browsing the main Bank of America site from a Seattle IP address and indicating their state of residence was Nevada.

According to eCheck.org, the "modern" check dates back to the early 1500s; that is, if you don't count chiseled IOUs from the Roman era 2,000 years earlier (see history here).

Five-hundred years ago, I'm sure a "user customizable" piece of paper you could trade for a goat was an exciting new way to pay for something. But there hasn't been a whole lot of innovation since then. As a matter of fact, the paper check-writing practice has all but disappeared in most countries.   

That's why it's newsworthy when someone puts a new spin on a five-centuries-old product as ING Direct is attempting with its new Electric Orange (EO) checking, currently in invitation-only trial, but soon to be released to the entire country. And they are having some early success, landing more than 60,000 accounts as we mentioned here, and creating some online buzz as Ron Shevlin points to here at Marketing ROI.  

What are the features of Electric Checking? 

• Cool name
• Great user interface for payments (see screenshots below)
• Same-screen initiation of electric (ACH) or paper payments
• 24-hour payment delivery for $15 fee
• High-payment limits: $100,000 for paper, $25,000 per day on debit card, $5,000 for ACH, and $1,000 per day on ATM withdrawals
• Good branding with the ING Direct no-nonsense design, colors, and copy
• 100% fee-free (other than a few rare items)
• 4% to 5.3% interest depending on balance (see note 1)
• 30-second account setup for existing ING Direct customers
• Easy-to-use website and online access
• No paper checks

Analysis
Electric Orange is an outstanding product, with one major exception which I'll discuss later. The online integration of electronic and paper payments on the same screen makes it intuitive to use and perhaps the best bill-pay suite on the market (see screenshot below). With 32,000 free ATMs, high interest rates, and a MasterCard debit card, this account competes fairly well with old school checking accounts that also come bundled with unlimited free access to 5,000-square-foot human-powered branches. 

But I take issue with the account's most unique feature, "no paper checks" (see note 2). While I understand the marketing advantage of this anti-paper non-benefit, it's actually somewhat limiting for account holders. Instead of not supporting paper at all, why not simply charge a hefty transaction fee for paper checks while keeping electronic items fee-free? Sell me bright orange checks for $5 per 100 and charge a quarter per cleared check. That'll keep the volume down, while allowing customers the convenience of the old-fashioned paper check. And ING Direct gets the "viral marketing" benefit of those bright orange negotiable instruments being literally flown across the country.

I'd be willing to give up preprinted paper checks if a good subsitute were available. Reading earlier descriptions of the account before its introduction, I thought the bank had invented a new in-home process for printing checks, like printing through Quicken but a whole lot easier. Unfortunately, the paper option is good old online bill pay, complete with five-day mailing delays. That won't cut it when you need to pay the lawn guys standing in your front yard with a truck full of toxic liquid (see note 3).  

The last missing piece in EO is electrification of the deposit process. Since the bank opened its doors in late 2000, it's been exceptionally easy to ACH money into the account. That's been one of its key growth drivers. But now that it offers full checking services, the bank should adopt remote deposit capture technology so EO customers could zip paper checks to them over the Net (see USAA's remote deposit service here).

ING Direct Electric Orange main payments screen
Select electric or paper checks

Electric Orange "send paper check" interface
Looks just like a "paper" check, and no need to have the payee set up prior to creating the payment (see next step)

ING Direct "add payee" interface
If the payee in the previous step is new, users simply "address" this virtual envelope to set up the payee; users also have the option of not saving the payee info.

Notes:

1. In online forums and blogs, some confusion has been expressed about what happens within this account when more than six transactions are made in a single statement period. In the account disclosure, ING Direct says that each Electric Orange account is divided into a savings account and checking account, and that the bank will direct deposits into the appropriate account as it deems appropriate, but that after six transactions, all funds will be put into the checking subaccount. However, all monies EARN THE SAME RATE OF INTEREST, so there is no impact on the customer, nor does the customer even see these transfers. It's a technical manipulation that saves ING Direct from having to maintain transaction account reserves on most balances, thereby cutting costs. 

2. Actually ING Direct does offer "remote paper check" initiation via the online bill pay function where users choose from electric or paper checks (see screenshot above). The bank just doesn't allow users to have the paper in their own hands.

3. The bank does offer a quicker ACH payment function, but you need to have access to the bank account number of the recipient, which is not readily available from most people/businesses to whom occasional checks are written. And ACH usually takes 48 to 72 hours to post in the recipient's account, unless they are ING Direct customers.

Yesterday, Money.com posted an article (here) citing new account totals for ING Direct's Electric Money checking account:

• 60,000 accounts, a 1.5% penetration of the
  bank's 4 million accounts
• $2.2 billion in new deposits, a hefty $37,000
  per account*

Two weeks ago (Feb. 1), the bank said it had attracted 42,000 accounts (see post here).

The inset is an actual Electric Orange MasterCard debit card. 

*An average of $37,001 if you ignore my $100 account

Much virtual ink has been spilled over ING Direct's Electric Orange account, and the new checking account isn't even available to the general public. From its Internet cafes to subway sponsorships, this is a bank that knows how to generate buzz, which really isn't all that easy with checking and savings accounts (see here for previous coverage of ING Direct).

Searching for <"Electric Orange" + review> on Google, we found six full-scale reviews of the product among the first 100 organic listings (10 pages of results using the default settings). All were blog postings. Most were moderately positive, and only one took shots at the bank calling the rates "too good to be true" (see Watch Your Wallet below).

It illustrates an interesting new phenomena, the power of the personal finance blogosphere. Most top-ranked search results belong not to mainstream press accounts, but to bloggers writing from various levels of knowledge about banking and finance. Most of the top-ranked blog reviews were thorough, factual, and relatively unbiased. But a few bits of misinformation creep in now and again, such as the rumor that the account stops paying interest on the sixth transaction in a statement period (false, by the way). Financial institutions should monitor these postings and jump in with a comment and/or email to the author to correct any factual errors.

Here's a list of what the personal finance bloggers are saying about Electric Orange:

1. Highest-ranked review on Google (#2 overall)

Getting-Green.blogspot.com

Date: 13 Feb. 2007

Verdict: Positive

URL: http://getting-green.blogspot.com/2007/02/banking-reviews-ings-electric-orange.html

2. Second-highest ranked blog review (#4 overall)

MyMoneyBlog.com

Date: 2 Dec. 2006

Verdict: Positive

URL: http://www.mymoneyblog.com/archives/2006/12/ing-direct-electric-orange-checking-account-feature-review.html

3. Third-highest blog review (#5 overall)

TheSunsFinancialDiary.com

Date: 30 Nov. 2006 (#7 overall)

Verdict: Positive

URL: http://www.thesunsfinancialdiary.com/2006/11/30/electric-orange-ings-paperless-checking-account/

4. Fourth-highest blog review (#33 overall)

BankDeals.Blogspot.com

Date: 29 Nov. 2006

Verdict: Neutral

URL: http://bankdeals.blogspot.com/2006/11/ing-directs-new-checking-account-now.html

5. Fifth-highest blog review (#46 overall)

NextCU.com (Callahan)

Date: 4 Dec. 2006

Verdict: Neutral

URL: http://www.nextcu.com/2006/12/electric_orange_covering_the_b_1.html

6. Sixth-highest blog review (#65 overall)

WatchYourWallet.blogspot.com

Date: 28 Dec. 2006

Verdict: Somewhat negative

URL: http://watchyourwallet.blogspot.com/2006/12/ing-directs-new-electric-orange.html

According to an American Banker story last week (here), as of Feb. 1, ING Direct had cross-sold 42,000 (see note 1) checking accounts to its 4.3 million savings customers, a penetration of 1%. Keep in mind, the new checking account has been slowly rolling out over the past 60 days to current customers only (see note 2), and is not yet mentioned on the bank's website. It is expected to be launched to the general public within the next 30 days. 

You can view these initial results in two ways: 

Glass is half full -- Even with just 42,000 accounts, ING Direct may have the largest "Internet only" checking account base, at least when measured by the number of active accounts

Glass half empty -- Because ING Direct's checking account pays 50 to 80 basis points (0.50% to 0.80%) more than savings on $50,000+ balances, many (most??) of the new checking account customers simply moved large balances into the checking option, providing few incremental deposits.

Notes:

1. Make that 42,001 accounts. I just opened one this morning. It took all of about 30 seconds to do it. Existing customers simply choose an account nickname, enter the dollar amount they want transferred into the account (from the pre-existing link from an outside account), and agree to the disclosures. See below for the confirmation screen.
2. I received my invitation to open an Electronic Orange account last week (screenshot here). I've had an account there since 2001.

For the first time in its short six-year history, ING Direct's U.S. division showed declines in both total deposits and customer accounts during third quarter, the latest data available (see the table below, originally published in our year-end industry forecast, Online Banking Report #137). Although the runoff was relatively small – $600 million in deposits, or about 1% from the peak, and 150,000 accounts, or about 4% from the peak – it's a clear indicator that the entry of Emigrant Direct, HSBC Direct, and especially Citi Direct have taken a toll on the direct banking giant.

Looking at quarterly results below, you can see that average account balances began declining in Q1 2005, as some of the hottest money, large balances held by extremely rate-conscious consumers, moved to better paying accounts; still, total deposits and customers continued to grow rapidly through 2005 and into 2006. However, in the second and third quarters, deposits began to flatten as the number of accounts grew only 230,000 compared to 560,000 in the same period a year earlier.

ING Direct appears to have deliberately slowed growth by maintaining deposit rates 50 to 100 basis points lower than the new entrants. With its marketing muscle, the bank could choose to grow deposits if it closes the rate gap. The bank's new checking account, gradually rolling out to current customers, may help stem the tide, with higher rates for larger balances (see coverage here).

Table: ING Direct Deposit and Customer Totals: 2000 to 2006 (click to enlarge)

PDF version of this table here.

Everbank launched its "What are you waiting for?" campaign today by giving away 2,500 free subway tickets at 6:01 AM in lower Manhattan. The time was chosen to coincide with the 6.01% APR promotional start-rate on its FreeNet checking account (see Note 1). 

The campaign targets ING Direct's soon-to-be-released Electric Orange checking account, which currently pays beta users 3% on balances under $50,000 and 5.3% on balances greater than $50,000 (see Note 2).

Everbank launched a microsite called <whyruwaiting.com> with direct comparisons to ING Direct (see screenshot below).

Clicking the large Compare Banks button in the lower right leads to a comparison to ING Direct and several other major competitors (see screenshot below):

The campaign has not been extended to the Everbank website, which shows a banner for the 6.01% offer, but no mention of "Why are you waiting?" (see screenshot below). 

Clicking through the banner leads to the following page:

Notes:

1. The 6.01% is a promotional "teaser" rate is good for three months, then resets to the "regular" rate which are currently as follows: 
      Under $10,000 = 3.25%
      $10,000 to $25,000 = 3.30%
      $25,000 to $50,000 = 3.60%
      $50,000 to $100,000 = 4.00%
      More than $100,000 = 4.41%
   
   The minimum deposit is $1,500 and the maximum that earns 6.01% is $100,000.
2. ING Direct customers can also easily transfer funds into the companion savings account which pays 4.5%. ING's Electric Orange account began rolling out in waves to its 4 million savings account customers in December (see coverage here). Coincidently, I received my invitation yesterday (see screenshot below). 
   
   

In a Jan. 1 case history published in Direct Magazine (article here), HSBC Direct says it has attracted 350,000 customers since the launch of its high-yield savings account just over a year ago (Nov. 2005).

Assuming typical high-yield balance levels of $8000 to $10,000 per account (our estimate), the bank has attracted more than $3 billion in deposits. The bank has marketed its 5%+ APR account heavily, so it's not likely that the new business is making much of a profit contribution yet. 

Based on the bank's reported online ad spending, its acquisition costs were $75 per account from the online spending only, not including what it spent in other media to support the direct business unit (see note 1).

The bank said it is working on new products to offer through the direct bank. This is a crucial step in the evolution. There just aren't enough customers with $10,000 savings balances to feed all the financial institutions looking for new deposits. HSBC's ability to sell other services to its 350,000 new customers will determine the long-term success of the direct banking initiative. 

Thanks to former Forrester senior analyst, Ron Shevlin, now VP at Epsilon, for the link in his Marketing ROI blog. 

Notes:

1. According to data from TNS published in American Banker here, HSBC spent $20 million online during the first three quarters of 2006. To calculate the acquisition cost we annualized the online spending and divided by 350,000. This calculation excludes the portion of non-Internet advertising that went to support the direct unit. The bank's total ad spend was $42 million during the first 3 quarters of 2006.

Kiplinger published an article on the state of online banking (see article here). It's an interesting read, but it's the WT Direct ad in the upper-right corner that I found most interesting (see screenshot below). WT Direct is the new direct banking arm of Wilmington Trust (see coverage here).  

It's a Flash animation that's part parody of the whack-a-mole banner ad and part a direct shot at ING Direct.

Viewers are directed to:

"Hit the ball and get a really great rate."

That's when the humor begins. Attempting to move the cursor over the ball causes the ball to move away. So there is no way to actually click on the ball. After a few seconds a new screen appears with two words, "Give up?" It's a not-so-subtle dig at  ING Direct rates which are revealed on its homepage usually after an orange ball bounces across the screen. ING Direct is currently paying 0.75% less than WT Direct on a $10,000 balance (see note 1).   

Then finally, it's revealed who is sponsoring the ad, WT Direct: 

The landing page reinforces the banner ad with a direct comparison to ING Direct's payout with the animated graph in the lower-left corner (see screenshot below).

Nicely done.

Notes:

1. After the first 60 days, balances of less than $10,000 earn just 0.6% at WT Direct. ING Direct pays 4.5% on all balance levels.

Thursday night, as my son was Tivoing his way through the commercial breaks on The Office, I noticed a Key Bank logo at the end of the commercial break. I had him go back and play the 5-second spot which was teaser style with a brief voiceover, logo, and the URL:

KeyBank.com/saveday

Expecting to see an interesting web-based savings account marketing effort, I typed "key bank save" into Google and came up empty handed (see note 1). The first link was to a Key Bank loan application, and there were no sponsored results.

Next, I tried connecting directly to the bank using what I remembered of the URL show in the TV spot, <keybank.com/save>. I realized that was the wrong address when all I saw was an error page, which unfortunately contained no guidance on what to do next (see inset). Finally, I went to the Key Bank homepage and found a large banner announcing the program aimed at encouraging users to curtail their discretionary spending on a designated day (your "Save day") each week (see second screenshot below).

Analysis
I'm like the idea of creating an interesting program to spur savings. For example, even though I didn't much like it initially (see post here), Bank of America's Save the Change does have a certain amount of appeal, at least from a marketing standpoint (see note #2).

And Centra Credit Union's <centra.org> new prize-based savings plan deserves a second look (thanks Doug True for the original post on this, here; see screenshot in note #3 below).

However, there isn't much to like about Key Bank's Saveday effort. The television spots may work as image advertising, but the website execution left a lot to be desired. Not only did the bank fail to support its television buy with search advertising, the landing page has little of interest besides the standard suite of savings calculators (see screenshot in note #4 below). There are no incentives, contests, or benefits to motivate a consumer to do something as unpleasant as giving up their daily latte.

While the bank does offer a handy PDF worksheet that can be printed out to calculate a monthly budget, there are no links or discussions of automated savings plan. Putting savings on auto-pilot is a much more powerful saving system than trying to get customers to sacrifice their caffeine one day per week.

There's also no interactive elements that might help get someone started. For example, why not send customers a text message to their phone or email each Saveday to encourage them to save.

However, the biggest blunder, is calling attention to the bank's incredibly low savings rates. For example, for a $10,000 saving balance, a typical amount in high-yield savings accounts, Key's three options paid a paltry 0.10%, 0.20% and 1.24% (see note #5). And no, those are not typos, that's two-tenths of a percent, in the KeySaver account, or a grand total of $1.66 per month, before tax. Not even enough to buy that cup of coffee the bank wants you to forego on your Saveday.

It takes a $25,000 balance to get above 1.24% in any of Key's savings accounts (note #6). And anyone who's managed to stash away that much in liquid savings probably doesn't need a Saveday.

Notes:

1. Later we tried, "key bank saveday" and the first link was a press release on the promotion, but it was at a csrwire.com URL (see release here). Searching from a Seattle WiFi IP address in Seattle.

2. Bank of America has recently been touting the Save the Change debit card benefit in its usual excellent television ads.

3. Centra Credit Union Super Savings page

4. Key Bank Saveday landing page

5. Rates quoted on Keybank.com for zip code 98115 on 22 Jan 2007

6. Update Jan 30: According to a bank employee, a $25,000 deposit now pays 3% in Key Ultra Money Market which I confirmed online. And in markets where Key Bank doesn't have a branch presence, the rate is as much as 5.25% through Key Direct (see screenshot below).

I am a sucker for holiday graphics on websites. It doesn't have to be dramatic, a few snowflakes or candy canes in the background is fine. For example, Citibank's e-Savings banner on its homepage today (see inset, click to enlarge). Just like a holiday wreath on the door of the branch, it shows your customers and employees that you have some holiday spirit.

Unlike two years ago (see prior post here), this year many banks and credit unions are running holiday promotions for gift cards and other products (see rundown