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Fee Income Archives

2015 Digital Banking Strategic Planning (Part 1)

By Jim Bruene on July 31, 2014 5:12 PM | Comments

imageI was on a call today with the digital strategy committee of a large U.S. bank. It was clear from their line of questioning that they are grappling with how to prioritize among the many major opportunities on the digital side.

I won't list any of the specific topics here, but you could guess most of them (though one would surprise you I think). But the conversation got me thinking about what I'd recommend for next year if I was working in a bank, credit union or consumer fintech company.

In semi-prioritized fashion, here are my first three recommendations for 2015. More will follow.

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1. Insurance
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How are you going to replace NSF fee income once the CFPB gets around to capping it? (Timing hint: There's a big election in 27 months.) One place to look: Insurance. It's one of the last frontiers for retail banks, especially in the United States. FinovateSpring 2014 alum Insuritas (demo here) says it can launch your very own insurance store within 90 days. So if you move fast enough, you could have this running by end of year.

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2. Lifetime transaction archives
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I believe digital services will increase bank loyalty two or three-fold. So instead of accounts turning over every 7 years or so, it will be 15 or 20 years for digital-first households. Why? Once banks come to their senses and start archiving all your transactions like Google does for email, it will be much more of a pain to move.

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3. Subscription fees
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Back to the Gmail example. How much could Google charge me now that I have 100,000 messages archived there? $100/year easy. Probably more. Banks should be thinking the same way. Get #2 done, then charge $4.95/mo for a Peace of Mind package that includes lifetime archives, mobile document/receipt capture, priority customer service, and so on.  

 

To be continued...........

Comments

Winning Checking/Deposits from Established Small Businesses

By Jim Bruene on July 24, 2014 4:17 PM | Comments

imageI was asked recently what it would take for me to move my business deposit relationship. My immediate answer, "there is nothing you could do to get me to move."

We have only changed banks once in our 20-year history, moving to Washington Mutual (now Chase) in 2007, in order to get a better line of credit (which ironically, was never granted, as WaMu was about to go into a death spiral).

We've been happy with Chase for the most part, and now have so many services and payees connected to it, that I can't imagine going through the headache of changing. Even if another bank or CU offered a fee-free account that matched Chase feature for feature, it's just not worth the considerable investment in time and energy to switch.  

But a few minutes later I changed my mind. Yes, there is one thing that would make me move my entire business account. And it's so basic that it seems ridiculous that I'd even have to ask for it.

It's the one thing that Chase, or any bank that I know of, isn't currently delivering to small business owners:

Guaranteed safety of our funds against all fraud/theft

Chase has state-of-the-art security as far as I can tell (e.g, two-factor authentication for all the risky moves). And we've never had a problem. However, every time I read about some non-profit or small business having their account drained after a successful key-logging attack, I get that queasy feeling.

And I'm not even asking for the fraud guarantee to be free. I'd be more than willing to pay for it. How about $25/month for the first $100,000 covered, then $10 to $15 per $100,000 thereafter? That should be enough to make it a decent profit center for the bank and I could sleep better (note 1). A win-win.

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Note
1. Two years ago, I was encouraged by the new offering from EFTGuard (see post). They were offering coverage of $100,000 per account up to $500,000 total per customer. Insured customers were required to use fraud monitoring software from Trusteer, Iron Key or Webroot. The price was $25/mo to the end-user with $10 of that pocketed by the bank distribution partner. But I haven't run across any banks currently offering it.

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Create Subscription-Based Banking Services for Frequent Travelers

By Jim Bruene on July 22, 2014 8:17 AM | Comments

image Having just returned from an all-too-short vacation, I continue to believe that banks are missing a lucrative opportunity to help customers reduce their financial anxiety while away from home. Following is are the financial travel services I'd love to buy as a package priced at under $10/mo (not including insurance which would likely be sold on as-needed basis).

Not only could travel services be a solid source of fee income, it puts the bank in a great position to sell add-on insurance and credit services to road warriors and frequent travelers. 

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1. Easy-to-set travel flags
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Most travelers have been trained to inform their bank about international travel plans to avoid unnecessary declines. It's a perfect feature for mobile banking, but many (most) banks still require a tedious phone call to the call center. I've written about this before (here and here) and I'm seeing some improvements, though I still had trouble earlier this month with my bank of 20+ years (see note 1 for details). I'd also like to receive an "all clear" notice upon expiration of the flag.

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2. Financial management services
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While spending like crazy on holiday, it would be nice to have the option of seeing a running total of all travel expenses (at least those that weren't prepaid). That would help us pace ourselves to keep from overspending and/or running out of cash before before we get home. Ideally, it would be nice to set up the "vacation ticker" at the same time we set the travel flag (see #1). The info should also be emailed/texted to travelers at the start of each day.

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3. Personal trip journal
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There are already some great services for managing reimbursable expenses on the road such as Expensify. But I want the same thing for personal travel. Sure, my perfect self would keep a neat journal of all the cool places we visited and dined at. But realistically, that's just not going to happen. But I'd love my card app to help me keep a "spending journal" that would be a good substitute. As each expense occurred, the app would prompt me to snap a photo and/or jot down a few words to annotate each expense as they happened. And the bank would store this "travel journals" within secure online/mobile banking for the life of the account creating a powerful retention tool. 

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4. Special travel service reps (concierge)
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Normal customer service reps aren't always that savvy on the nuances of card usage while on the road, especially overseas trips (case in point, see #1). Provide a special email/text/phone number to "financial travel specialists" to get questions answered and problems resolved.

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5. Convenient travel insurance that covers financial transaction
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Not all the opportunities are around spending. There are important avenues of risk reduction available to savvy FIs. Due to a previous bad experience, I'm always a bit concerned about the safety of my personal belongings on the road. So, I'd like to buy travel insurance that covers:
-- My personal belongings at the hotel or on my person (includes lost luggage)
-- Fraudulent use of my card details
-- Rental cars damage (not covered by my existing auto policy)

And the whole area of travel interruption is another possible avenue (see previous post).

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BONUS: Chip-and-PIN prepaid cards for USA cardholders traveling abroad
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Last week, I was that guy at the A9 toll booth making everyone back up to get over to the cash lane since none of my US cards would work in the card reader (though they did earlier in the day). This included my fancy new BofA chip-and-signature card. We had more trouble than ever with U.S. credit cards in our latest trip across the Atlantic. So, please US card issuers, sell me a prepaid card that really works in Europe. I'd pay a $100 fee (at least) just to avoid another toll-booth incident.

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Note:
1. I called my bank from the airport departure lounge to inform them I'd be using their ATM/debit card in Europe. The CSR insisted that I had to provide the last 4-digits of my checking account number before she could place a travel notice on my account. Since I was sitting at the airport without that info, we were at a standstill. Only after I asked for a supervisor did she come back and agree to do it for me.

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Categories: Fee Income, Travel

4 Amazon Fire Smartphone Features that Should Be Used in Mobile Banking

By Jim Bruene on June 18, 2014 6:33 PM | Comments

imageSeattle was abuzz today with the launch of Amazon's long-rumored smartphone, dubbed Fire. Naturally, I look at everything through a digital banking lens. So here are its innovations that could be leveraged or imitated for mobile banking.

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1. Tilt to scroll
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imageDescription: Fire users can tilt or swivel the phone to navigate through an app. For example, on the Kindle app, users can advance the page by tilting the phone so they don't have touch the screen every time you get to the end of the page.

Mobile banking use: Tilting would make a convenient way to page through transaction records. It could also be used to open additional functions such as tagging transactions or initiating a payment (e.g., Starbucks "shake to pay").

Verdict: Until I get my hands on the phone, it's a little hard to know how useful this feature will be. But it sounds like a nice useful UI improvement (note 1).

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2. Mayday button
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image Description: Like the Kindle Fire, the Fire smartphone has one-button access to 24/7 video customer service with response time measured in seconds. Amazon calls it the "mayday" button. 

image Mobile banking use: Most mobile banking applications include telephone integration for a voice call to the call center. Instant video conferencing could be a good premium feature for high-value and/or fee-paying customers.

Verdict: While video customer support is not a killer feature, it has a nice ring to it when listed on your feature/benefit list. Certainly, banks should work on quicker response times for various types of products and/or customers.

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3. Unlimited cloud storage
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image Description: Amazon raised the bar for photograph storage, promising unlimited storage for all the pictures snapped from your Fire's camera.

Mobile banking use: Unlimited cloud storage for all transactions and statements.

Verdict: I know your compliance team gets queasy when discussing long-term data storage. But it's time to rise above all that and invoke one of the best customer-retention tools imaginable, unlimited secure storage of all banking records (see note 2).

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4. One year of Amazon Prime membership
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image Description: Fire smartphone buyers get one year of Amazon Prime membership free of charge. This savings of $100 covers half the cost of the 32GB phone ($199 with 2-year contract).

Mobile banking use: Premium channel

Verdict: Digital banking channels need an identifiable revenue stream to help pay for needed innovations and specialized services. A $4 to $5/mo "bank prime" membership program would go a long way in making digital a profit center (see previous post, note 2).

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Notes:
1. For more info, see our latest OBR Report on advanced mobile features (published June 2014, subscription). 
2. For info on fee-based financial services, see the Online Banking Report (subscription) on fee-based online services (May 2011); paperless banking and online storage (late 2010); and lifetime statement archives (2005).

Comments

Is it Time for Digital Banking Subscription Fees?

By Jim Bruene on May 21, 2014 5:58 PM | Comments

image Now that we are 30 years into the online banking era (and nearly 20 years of web banking), it's time to start making the channel pay its way (or at least contribute something). Even though your customers might think otherwise, there is no rule that says all your online and mobile banking must be free of charge.

Yet, across 10,000 U.S. banks and credit unions, only a handful are still charging for digital value-adds (other than expedited and/or P2P payments). The biggest outliers (all previously covered):

  • Regions Bank's variable mobile deposit fee dependent on speed of funds availability (post)
  • MyVirtualStrongbox (from DigitalMailer) deployed at 11 credit unions including Belvoir Credit Union; generally free, with optional fees for extra storage (post)
  • US Bank's per-item $0.50 charge for remote deposits (post)
  • Mercantile Bank's $4/mo consumer positive-pay service (post)

Please tweet new examples to @netbanker.

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Make Digital Banking a Profit Center
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Most digital innovations of the past 15 years have been justified with a combination of soft dollar benefits (aka intangibles) such as retention, customer satisfaction, competitive pressure, etc. Those are vitally important. But without profits/revenues, customer satisfaction is moot. 

So let's put an end to the "100% digital banking subsidy" and start charging something to those most likely to pay -- your digital power users.  If that segment coughed up an optional $3.95/mo for your Digital Gold account, you'd be earning a half-million dollars annually per 10,000 subscribers. That's money that'll come in real handy when the CFPB caps ODs at $15 each.  

What type of services might be included in this "gold/platinum/VIP/premium" account? It depends on your brand and market, but these could be relatively cost effective:

  • Priority service (4-hour turnaround time)
  • Dedicated email/text message address
  • Expanded "Help" hours/availability
  • Expedited funds availability
  • Higher limits
  • Additional security assurances/alerts/monitoring
  • Lengthier statement/image archives
  • Free intra-family transfers
  • Special edition (different skin) mobile banking app
  • Random membership perks (local deals, 2-for-1 dining, etc.) 

Check out more ideas in the Netbanker archives or refer to our annual planning report (subscription).

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Note: I run a variation of this topic every year or so, along with the occasional full report.

Comments
Categories: Fee Income, Pricing

Billpay: After 20 Years as a Loss Leader, Check/PageOnce Shows Path to Profitability

By Jim Bruene on April 24, 2014 4:07 PM | Comments

image

In the United States, banks have squandered $10+ billion providing free billpay during the past 12 years. But that's about to change, if the model from Palo Alto-based Check (formerly PageOnce) takes hold.

First, a history lesson for anyone born after 1980....

For the first few years of the online era (mid-1990s), "electronic bill payment" was offered by banks and credit unions with monthly fees of $5 or $6. That made it roughly breakeven, at least if you didn't count the sometimes heavy burden on customer service to solve problems caused by the very analog back-end of the so-called "electronic" service.

But then in 2002, Bank of America ruined even that by offering free billpay and advertising it widely on television (note 1). It even released internal data purporting to prove that what the bank gave up in fee income was more than compensated by intangibles such as higher deposit totals and lower customer churn (note 2). I like to kid myself think that if Bank of America had read their OBR more closely, it would be booking an extra $300 million per year in fee income (note 3); but I digress....

Back to present day. American consumers have grown accustomed to free billpay and I don't think that will change. But that's what makes Silicon Valley's mobile-billpay upstart so intriguing.

Let me introduce you to Palo Alto-based Check (still better known as PageOnce) which originally launched as a personal scheduler (hence the original name). It quickly morphed into the first native mobile PFM, landing on the scene in 2008, just a year after Mint launched.

But given the difficulty of monetizing budget-and-spending PFM, Check has tried several ways to earn revenue including offers, credit bureau monitoring, subscription billpay, and now transaction-fee-based billpay. Apparently, the last has the most promise, so the company rebranded as Check (with URL check.me), a big risk given the prominence of its PageOnce brand.

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How it works
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1. Choose biller from previous entries or add a new bill (see screenshot #1)

2. Enter account number with biller OR enter username and password and Check will download for you (screenshot #2)

3. Choose amount (screenshot #3)

4. Choose speed of payment (screen #4):
- Scheduled
- Send now: Standard
- Send now: Expedited

5. Choose payment type: Credit card, debit card or bank account (screen #5)
(Note: credit card option not available for paying other credit cards, which is a Visa/MasterCard rule according to the company).

6. Confirm and pay (screenshot #6)

And now for the twist. Were you imagining this service displayed across your spacious desktop browser? No way. This is mobile-only and works like a charm, though the fees are a little confusing (see below).

The mobile interface is great, using state-of-the-art technology tricks to cut down on data entry:

  • Mobile camera used to import card details, powered by Card.io (see screenshot #8)
  • Account aggregation to gather billing info (note 4)
  • Comfortable mobile layout for selecting payment options

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Pricing
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Check has free billpay of course. Just enter your bank account details, schedule the payment at least a week in advance, and you are good to go. However, for those not quite as organized, or who don't like revealing their checking account number, users can choose to pay a 4% fee (min $4.99) to pay via credit/debit card within 2 to 3 days. Or for $6.99 (flat), the payment can be made the next day.  

Here's the freemium pricing model:

   3-to-5 day ACH >> Free for any size payment (subject to account-specific maximums)
   2-3 day debit/credit card >> 4% service fee (minimum $4.99)
   Next-day debit/credit card >> $6.99 flat-rate service fee (note 5)

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Analysis 
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Check's billpay system is designed for the mobile channel. For the most part, it works. Allowing users to easily choose payment source and delivery date (including next day) is critical to making billpay valuable. Banks would be wise to use a similar design (or license from Check), to increase fee revenues. I think it's entirely possible, billpay becomes a standalone profit center under this model (note 6).

That said, with three or more payment sources combined with three payment speeds, scheduling new payments can get confusing, especially trying to determine tradeoffs between speed, source and price. When I originally set up the account, it seemed relatively straightforward. But when I went back the next month, it was hard to re-engage.

The company also needs to help users choose the payment method providing the best bank for the buck (optimizing price, speed and convenience). The company recently added a pop-up box (screenshot 7), that helps. And the applicable service fee is clearly shown at every step of the process, albeit in fairly small type (screenshot 6). I understand the company needs expedited and/or card-based payments to make a profit (similar to how PayPal defaults users to bank transfers instead of credit card payments). But users need to fully understand their options throughout the process (note 7).

Long-term the Check service is more valuable if its users become accustomed to paying all their bills from the site, even if most are free bank transfers. That way Check becomes the go-to spot for billpay, and are more likely to be remembered when users need expedited payments or a credit card charge when funds are low.  

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Screenshots
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#1 (left) Bills due list
#2 (right) Add a biller form

image           image 

#3 (left) Choose amount
#4 (right) Choose payment speed

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#5 (left): Choose payment source/type
#6 (right) Confirm payment screen (with fee disclosed)

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#7 (left) Clicking on "?" on screen 6 launches a box with the fee schedule
#8 (right) Add credit and debit cards via scan

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Notes:
1. For more details of the history of billpay pricing, see our post from 2004 and OBR #109, Pricing Online Services (subscription, Aug 2004).   
2. I have read dozens of these case studies and I still don't believe that anyone has proven that billpay CAUSES those results. Everything I've ever seen proved CORRELATION. Yes, billpay customers are more profitable and more loyal. But they would have been anyway without without subsidizing them with a costly, trouble-prone service. I still maintain that lifetime statement archives would be a better retention device, and far less expensive than free billpay (see OBR 118, Lifetime Statement Archives (subscription, June 2005).   
3. Assume Bank of America would have 5 million active billpay customers paying $5 per month x 12 months = $300 mil 
4. Hopefully, it's only a matter of time (and a licensing deal with Mitek), before Check imports the billing statement directly into its app.
5. Due to its various payment provider contracts, Check's expedited payment pricing doesn't always seem logical. For example, the company charges a flat fee of $6.99 for next-day delivery of any size payment. But for 2-3 day service the charge varies by payment size (4%) with a minimum of $4.99. So, for any payment above $175, it's cheaper to send overnight than via the slower 2-3 day service. On a $500 payment, that's a savings of $13 to send overnight. To pay my current statement balance, it cost $90 to send via 2 to 3-day service or $6.99 overnight, a whopping $83 savings. And Check does not mention this when you cue up a $2,000 payment.    
6. Besides fees based on transaction speed and payment source, we also believe there are significant potential revenues from credit lines used to cover payment account shortfalls and the newest fee income opportunity, expedited mobile check deposits (see IngoMoney , believed to be powering Regions Bank among others).
7. In the month I've spent testing the service, Check has made the service fee much more transparent, so I believe they are moving in the right direction. 

Comments

Bank Opportunity #307: Online/Mobile Gift Cards

By Jim Bruene on December 13, 2013 9:37 AM | Comments

imageRegardless of the form factor, a favorite holiday gift is money. Some people like to give crisp 20s, the hand-written check still has a certain charm (as long as the recipient has mobile deposit capture), but the biggest growth area has been the plastic gift card (note 1).

Banks should have owned this trend, at least in the United States. Those 100,000 branches would have been good distribution points (note 2), a place that you trust far more than the express checkout lane at Safeway. But alas, that ship has sailed.

The good news? Financial institutions still have an opportunity to be major players in digital gift car distribution, especially mobile. Here's why:

  • Purchase time is reduced to seconds, since you already know the customer
  • Customers trust you to deliver a valid gift card, and if there is a problem, it's relatively easy to find someone to help them
  • Buyers are already logged in to your site; it's super easy to get a promo in front of them
  • Funding the card has almost zero cost with "on-us" funds transfers
  • You can sell a mix of real and/or electronic (see note 3) store cards, prepaid/reloadable Visa/MasterCard/Amex
  • You can save previous info (recipient name, address, birthday, etc.) so customers can purchase again and again with a single click
  • Knowing the user's location and spending patterns, you could deliver targeted card offers
  • Electronic cards can be stored in the bank's mobile wallet and used at the POS

A gift card program is not without costs and risks. But you can choose to outsource most of that by working with third-parties such as the Blackhawk Network (see 2012 Finovate demo; Gift Card Mall screenshot below), CardLab (screenshot below), or others.

Bonus #1: For extra credit, you could get into the gift card exchange game, facilitating the buying and selling of preloaded cards. While a unique and potentially valuable service, it has more customer education, service, and fraud issues. See CardPool screenshot below. 

Bonus #2: Distribute thin gift cards through ATMs, see Better ATM Services (FinovateSpring 2013 demo).

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CardLab offers hundreds of gift card choices at GiftCard.com (13 Dec 2013)
Note: "Design your own" option mid-page

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Blackhawk's GiftCardMall.com

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Cardpool gift card exchange for buying and selling

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Notes:
1. See our July OBR report on prepaid card opportunities (subscription) for more info.
2. Though labor costs would have killed profitability, unless branches invested in POS technology to automate the checkout process    
3. GiftCard.com offers the option of printing out a facsimile of an e-card to wrap up for a real-world gift.
4. See our September OBR report (subscription) for another 499 bank opportunities.

Comments

New Online Banking Report Published: Opportunities with Prepaid & Gift Cards

By Jim Bruene on August 8, 2013 6:20 PM | Comments

image Many pundits like to talk about how banks have dropped the ball in digital (online/mobile). We take a different view. Banks, especially in the United States, have lost essentially zero market share to Internet-based incumbents (note 1). It's a hyper-competitive market and banks have pushed forward to defend their turf from other big traditional brands. Way to go capitalism.

Of course, it's easy to find things that could have been done better. That keeps us in business. But if you compare the pre- and post-Internet market share in banking to almost any other industry, it's amazing just how well the big brands have fared, at least against web-based upstarts (note 2). 

But there are certain product areas where traditional financial institutions have lagged. And one of the most obvious is prepaid/gift cards. Banks have understandably clung to the checking/debit card model with its river of fees, penalty and otherwise. But new regulations are severely restricting the revenue flow, so it's time to look elsewhere. 

There is a multi-hundred billion market for prepaid and gift cards globally, and banks have just scratched the surface. Partly, it's because Safeway and other large bricks-and-mortar retailers have more foot traffic to sell the plastic. But it's also because banks just aren't geared to sell things that don't require a 30-minute session at the new-accounts desk.

But as prepaid card sales, distribution and account management moves to mobile, banks can put themselves back into the picture in a big way. We encourage you to download our latest report to help you make the case to boost your investment in prepaid. Good luck!

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About the report
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New Opportunities with Prepaid & Gift Cards (link)
How banks can best tap into this massive market

Author: Ray Graber, Graber Associates

Editor: Jim Bruene, Editor & Founder

Published: 8 Aug 2013

Length: 28 pages, 9,000 words, 15 tables

Cost: No extra charge to OBR subscribers, US$395 for others (here)

Companies mentioned: American Express, BlackHawk Network, Chase Bank, Chemical Bank, GoBank (Green Dot), MasterCard, Navy Federal, Credit Union, netSpend (TSYS), State Credit Union, U.S. Bank, Visa, WalMart

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Notes:
1. ING Direct is the one exception on the deposit side. Before being acquired last year by Capital One, they'd built an impressive franchise through the online channel. However, they were also an offshoot of a very traditional European bank, so you can't really call ING Direct an upstart.
2. Crowdfunding/P2P lending may well be an area that finally begins to impact traditional banking revenues. But that's still a ways away. See our May 2013 report for more info (subscription).

Comments

Bank Opportunity: Online/Mobile Travel Insurance Sales

By Jim Bruene on June 24, 2013 6:04 PM | Comments

imageWhen your core business has been around for hundreds of years, it's harder to find new sources of revenue. One area ripe for expansion at many banks is insurance. Wells Fargo, for example, put more emphasis on the area by separating insurance from investments in its June 8, 2013, homepage remodel. See our full insurance report for more info on the market size and opportunities for banks.

While auto, life, health and home are the biggest in terms of overall premiums, they are also highly competitive with hundreds of thousands of established sales agents in the U.S. alone. But dozens of niche insurance-markets exist that might make it easier to find a foothold.

Take travel insurance.

You've seen these policies pitched when you are checking out at Expedia or other travel sites. While it's tough to compete with the convenience of buying during the travel-booking process, financial institutions still have an advantage that Expedia doesn't: Trust.

I've been using Expedia for 15 years and have booked 100+ trips there with few problems. So I trust them with travel arrangements. But does that trust extend to insuring my travel? Not so much. It's hard to understand exactly what is included/excluded in their insurance upsells. And the one-size-fits-all approach rarely covers what I'm looking for in travel insurance (which is "no questions asked" cancellation). And often I'm exhausted after making complicated travel arrangements and have no energy left to figure out whether their insurance makes sense.

I'd much rather purchase a policy from a trusted source where I can get answers to specific questions, review policies after the fact, and be able to come back year after year for consistent choices. And since I don't have a direct relationship with an insurance carrier (everything is bought through a small broker), I would be very interested in buying from my bank.

imageI'm not sure how many U.S. financial institutions offer travel insurance, but I suspect it's a small number. But there is one major player with a comprehensive travel insurance offering, BB&T (see screenshots below).

Getting a quote is easy. You simply tell the bank how many travelers you have, their age, travel date and cost. Within seconds, three options are presented (screenshot #1) covering basic trip interruption to one that covers medical evacuation and much more (screenshot #2, note 2). It even allows you to upgrade to "cancel for any reason" for a reasonable additional fee ($63 per person for my hypothetical $3,000 per person trip).

Actually buying the insurance requires a few more fields to be completed (see screenshot #3). But at that point, I already know that it's worth my while and am not put off by additional data entry. And if I was already logged in, these fields should mostly be prefilled.

Bottom line: With a captive audience of authenticated online and mobile users, banks and credit unions could be the biggest providers of travel insurance. And with the added advantage of seeing travel-reservation charges appearing on debit and credit cards, you can cross-sell the service while the trip-reservation process is still fresh in the customers' mind. 

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1. BB&T produces three options for travelers (24 June 2013)
Notes:
1. Live Chat option in lower right
2. Total cost shown for two travelers going on a $3,000 trip that begins 60 days from now

image

 

2. Detailed coverage of BB&T Deluxe Protection Plan

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3. Complete application for each traveler

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4. BB&T is one of a few financial institutions to include "insurance" as a primary navigation item

image

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Notes:
1. See our full Online Banking Report on "Banks in Insurance" here (Dec 2011, subscription)
2. To earn my business, I'd want to mix and match some of these benefits. The policy I want is basic interruption, but with the ability to cancel for any reason and with a deductible to bring the premium down.   
3. Picture credit: 1938 vintage travel poster at eBay

Comments

Op Ed: MRI Study Finds Consumer Interest in Fee-Based Bundles

By Jim Bruene on June 13, 2013 6:26 PM | Comments

by Dr. Dan Geller

Dr. Geller is EVP of Market Rates Insight, which provides competitive research and analytics to financial institutions. He can be reached at dan.geller@marketratesinsight.com.

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imageOne of the most significant findings from our  latest study on banking fee-revenue optimization (see note 1 below) is that the majority of consumers say they will pay monthly subscription fees for value-added financial services (see chart below and list right).

The average monthly fee that more than half (55%) of consumers are willing to pay ranges from $2.17 to $5.06 per month for each service. Of course, these stated amounts are an indication of relative perceived value rather than a pricing guide.

Furthermore, we found that consumers are willing to pay a higher overall monthly fee for the bundle than they would for each of the services individually. For example, study respondents indicated they are willing to pay $3.07 per month for a credit score report, $2.43 for account alerts and $4.27 for prepaid card for a total of $9.77. However, when the three were offered as a bundle, respondents valued them at $10.51, an 8% premium.

Bottom line: We believe there is a path for financial institutions to move customers "from free to fee" by bundling services in the optimal way.  

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Chart: Consumer Interest in Value-Added Banking Services

image 
Source: Market Rates Insight, June 2013

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Note:
1. For more info on these finding, MRI is offering a free webinar on Tuesday June 18 from 2:00 PM to 3:00 PM Eastern Time. Click here to reserve your space. The full report will be available for purchase beginning June 21 at <marketratesinsight.com>.

Comments

Fees: Regions Adds Time-Based Charge to Remote Deposits

By Jim Bruene on April 11, 2013 6:05 PM | Comments

image Retail bankers, we've had a sighting of that very rare bird, the North American Newfee. It was thought to have gone extinct in the fall of 2011, when anti-bankers shot down the last breeding pair, a malformed $5 debit card fee at Bank of America.

But surprise. Regions Bank has gone out on a limb and put a fee on the newest banking feature to sweep the nation, remote check deposit. And the bank didn't settle for the standard per-use fee (in trial at U.S. Bank), Regions got creative with a tiered price dependent on how fast you want the money (see note 1 for exact wording):

  • Immediate >>> 1% to 3% of check amount, with $5 minimum
  • Same night (8 pm cutoff) >>> $3 per check
  • Two days >>> $0.50 per check

There is also a potential $1 additional fee to temporarily raise your daily deposit limit to deposit a large check.

My take: I think Regions is smart to add fee(s) for the huge value mobile deposit delivers, though I think it would be better as part of a feature-laden bundle sold on a monthly subscription fee (note 2).

But tiered pricing is a novel idea worth trying. And I like the three options. But its probably too complicated for new users, at least the way it's presented in Regions FAQ (note 3). Also confusing matters, is the extra buck for checks larger than the user's limit. It's asking a lot for customers to decide among three options, especially when having to decipher jargon and timing rules such as "Funds are available during posting."  

image The multi-choice pricing scheme is an example of the paradox of choice. A theory (and direct marketing rule of thumb) that says you should keep choices to a minimum otherwise recipients become overwhelmed and just give up.

I think the bank would be better off starting with just two tiers, normal and expedited. Then introducing the third tier in v2.0 next year. 

But overall, congratulations to Regions for braving the unknown to see if this newfee has wings (note 6).

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

Notes:
1. Here's how the fee is explained in the FAQ:

image

A somewhat better explanation is included on the mobile banking page:

image

2. For more info on fee-based banking services, our Online Banking Report on fee-based online services (subscription, May 2011).
3. Hopefully, the choices are better explained within the mobile user interface, which I was unable to see.
4. As expected, the initial reviews from Apple app users are harsh. Currently the bank has just a 1.5 star rating on the new version of the app containing mobile deposit. Down from 2 stars previously.  
5. Sorry for the prolonged bird metaphor. Sometimes you get bored at the keyboard (keybored?). It's also our second bird-themed post on fees. What's that about?
6. American Banker: http://www.americanbanker.com/issues/178_66/regions-offers-mobile-deposit-for-a-fee-1058090-1.html?

Comments

Launching: MetroMile Launches Mileage-Based Auto Insurance

By Jim Bruene on December 5, 2012 6:11 PM | Comments

image One of the dumber things I've ever done financially is buy an old two-seat convertible on eBay. Who would have guessed that you just don't get a chance to drive that thing much in Seattle? But next July, when the sun comes out again, I'll be very happy to have it.

In the meantime, I have this nasty monthly insurance bill. Really, $60 per month to have the car sit idle in my garage? It's throwing good money after bad. I should call my agent and turn the insurance off. But what if there's a sun-break this month or our other car is in the shop? Then I'll need it.  

From the insurance company's perspective, they don't want me calling to activate/deactivate insurance multiple times per year (though they love my current zero-miles-per-winter full-pay status). The subsequent labor and fulfillment cost would wipe out much, if not all, the profitability on my account.

So, I'm the perfect candidate for pay-as-you-go insurance, and I'm happy to see it launch in Oregon, thanks to MetroMile, a VC-backed Bay Area startup (note 1). Hopefully, it will make it's way north to Seattle very soon.
_____________________________________________________________

How it works
_____________________________________________________________

imageMetroMile charges a smaller fixed monthly fee, then adds a variable charge based on the number of miles driven (with a cap at 150 miles in a day).

To calculate the mileage fee users plug a small device called a Metronome into their on-board diagnostic port (note 2). It measures miles traveled and tracks GPS location to create a rich history of your touring (see inset & screenshot 1, note 3).

Oregon residents can get a lightening-fast quote (screenshots 2 to 5) and complete the app online (screenshot 6). The quote on my convertible came was $29/mo plus 2.3 cents per mile (screenshot 4). This would be an amazing deal for me, cutting my insurance costs by 50% annually (note 4). I would save money every month I drove less than 1,300 miles. 

_______________________________________________________________

Opportunity for financial institutions 
_______________________________________________________________

It's going to take a massive education process before this new type of insurance becomes popular (assuming state regulators allow it). Show customers that you are innovative and can deliver superior value by introducing them to a financial product that could save them $20 per month for the rest of their lives. And one that delivers a rich history of their car travel (which can eventually be plugged into the bank's PFM).

You could even package it with other bank products (checking, savings, car loans, etc) to continue to remind customers that you helped save them big time. Even more interesting, would be bundling the insurance with mileage-based auto financing to provide an even bigger incentive to save money by driving fewer miles. 

Right now, in the United States, only Oregon FIs could participate (note 5). But as the product spreads nationwide across multiple providers, it could make a nice, profitable product addition to your web and mobile offerings.  

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

1. MetroMile dashboard showing GPS data compiled from tracking device (5 Dec 2012)

image


2. MetroMile homepage features 2-minute quote
(5 Dec 2012)
Note: Unlike virtually all insurance quote sites, no contact info is required to find the actual price. And you for one car and one driver, you can fill out the form in as little as 60 seconds, my actual time the third time I tried it.

MetroMile homepage features 2-minute quote (5 Dec 2012)

3. Step 1: Enter primary driver info

image


4. Step 2: Enter vehicle info

Step 2: Enter vehicle info

5. Step 3: The final price is delivered in the the third-pane of the application

Step 3: The final price is delivered in the the third-pane of the application


6. Finalize online app with contact info

6. Finalize online app with contact info

--------------------------------------------
Notes:
1. Hat tip to Pando Daily.
2. The port is available on all cars built since 1996.
3. The device could also be used to measure average speed, but GPS data collection is optional and is not currently used by the company.  
4. I was comparing my current Seattle price to a Portland quote, so that could be a portion of the difference.
5. We don't know if MetroMile is will pay for referrals at this time.
6. For more on banks offering insurance, see our full report here (Dec 2011, subscription)

Comments

New Online Banking Report Published: Digital Overdraft Protection

By Jim Bruene on October 30, 2012 3:21 PM | Comments

clip_image002I've been wanting to write about overdraft protection for more than five years. It's a $30 billion market (note 1) with a number of serious issues, but I wasn't quite sure how it fit our mission of identifying opportunities in online and mobile banking. I finally realized the always-on digital connection to the customer fundamentally changes the overdraft equation. 

In the pre-digital age, a "bad check" was a labor-intensive process. Manually handling the item with slow snail-mail and/or phone calls to the customer was a hassle and a significant cost. The $8 NSF/OD fee in place when I started in banking (late 1980s) barely covered the variable costs, and certainly wasn't a major profit center.

clip_image002[8]Fast-forward 25 years. With sophisticated balance forecasting ala Simple (note 3), real-time debit authorizations, and virtually free instant customer communications, not to mention a hostile political environment, the days of $30+ penalty fees are numbered.

The transition will not be an easy one for banks. But there are ways to create customer-friendly overdraft-protection services, primarily delivered digitally, that win back a good portion of the lost revenue while making customers MUCH, MUCH more satisfied.

Our new 36-page report includes:

  • 25 promising overdraft-protection enhancements for the digital age
  • Pricing overdrafts and overdraft-protection services
  • Gallery of overdraft-protection websites at banks and credit unions  
  • Profile: Bank of Internet's OD-free checking account
  • Size of the U.S. market for overdrafts

__________________________________________________________________

About the report
__________________________________________________________________

Digital Overdraft Protection (link)
Making it a customer benefit again

Author: Jim Bruene, Editor & Founder

Published: 29 October 2012

Length: 36 pages, 12 tables, 7,600 words

Cost: No extra charge to OBR subscribers, US$395 for others here

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

Notes:
1. United States fee income to banks and credit unions
2. Graphic from Southwest Missouri Bank
3. For more on balance forecasting, see our recent PFM report (June 2012, subscription).

Comments

Bank of Internet Launches No-Overdraft-Fee Checking Account

By Jim Bruene on September 27, 2012 7:00 PM | Comments

imageI've been working on a blog post, "overdrafts in the digital age," for a few days. But it's ballooning to the point where I may turn it into a full Online Banking Report. Or just publish it in several parts here.

Either way, I'm looking for examples of new approaches to overdraft protection. For example, Bank of Internet recently did away with the fee altogether on its Rewards Checking account. The bank won't necessarily honor the check (unless the user is covered by linked-account overdraft protection), but they won't charge a fee if they give it the heave-ho (note 1).

The account also boasts no monthly fee, an APY up to 1.25% (if electronic transaction minimums are met), an ATM fee rebate, Intuit's FinanceWorks PFM with Cardlytics-powered cash-back, mobile remote deposit (Mitek-powered, I presume) and Fiserv's POPmoney P2P payments. It's like a Finovate greatest-hits account.

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Bank of Internet homepage features Rewards Checking (27 Sep 2012)

Bank of Internet homepage featuring no-overdraft-fee checking


Rewards checking landing page (link)

BofI rewards checking landing page

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Note:
1. Bank of Internet won't impose a fee, but the merchant who submitted the check (and who will be dinged by their bank) very likely will. So it's not necessarily a fee-free event.
2. For info, our report on fee-based online services (subscription, May 2011)

Comments

Fee-Based Features: Document Registration and Storage Services

By Jim Bruene on July 26, 2012 9:40 AM | Comments (1)

image Consumers hate fees, of course. But that doesn't stop them from paying $1,000 per year for their iPhones. It's all about perceived value. 

No one will ever confuse a bank with Apple. But there are hundreds of value-added services that financial institutions could offer customers for a fee (note 1).

For example, document registration. There couldn't be a more mundane service than document registration. Yet, it fills a real need for the constantly unorganized, and their heirs.

Four years ago (see May 2008 post), we wrote about FindYourPolicy.com, a startup that had created a service to help people keep better track of their life insurance and beneficiaries. According to the company $1 billion in insurance policies go unclaimed each year due to unknown or lost beneficiaries. Although it sounds simple, tracking down beneficiaries can be a timely and expensive process. Outsourcing some or all of that is an appealing idea.

In 2008, the company was trying to get consumers to pay $25 to $50/year for the service. We didn’t expect that fee to stick and later that year the company abandoned that model. Now they allow users to register life insurance policies free of charge, then assess heirs $9.95 to search the database for potential policies. It would be a good business if it gained a critical mass of users, but that won't be easy.

However, life insurance recording would be an excellent value-add for online banking. It's a bit of a stretch to think you'd be able to get a fee for just that. However, if you expand the service to include more document types such as wills, titles, and contracts, it begins to have more potential for fee income.

imageBut to really bring value to the service, you'll likely want a storage piece as well. Although Wells Fargo shuttered its vSafe service in March (post), several large credit unions are moving into the storage space, including Northwest Federal Credit Union which is providing its 68,000 e-statement users with 100MB of free storage space powered by DigitalMailer (note 2, 3, 4).

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Northwest FCU showcases its new My Virtual Strongbox storage service in a homepage ad (15 July 2012)

image

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Notes
1. For info on fee-based financial services, see the Online Banking Report (subscription) on fee-based online services (May 2011); paperless banking and online storage (late 2010); and lifetime statement archives (2005).
2. We looked at DigitalMailer's new My Virtual StrongBox in our April report (subscription).
3. Members using e-statements get 100 MB free storage and can pay a fee for additional space.
4. DigitalMailer will be demoing VirtualStrongbox at FinovateFall 2012.

Comments (1)
Categories: Fee Income, Safe Deposit

U.S. Overdraft Revenues to Fall 50% by 2014

By Jim Bruene on July 3, 2012 6:48 PM | Comments

image Yes, that headline is pure fiction. 

No one can predict the fallout from the bank-bashing, CFPB-loving, election-year-posturing in 2012. But realistically, overdraft charges are about 100x more important to consumers than debit-card interchange, so it's an area that will be debated in the months and years to come.   

While I'm not predicting Durbin-like NSF/OD price controls, there is a material probability that it could happen. And even if the U.S. government steers clear of explicit price controls, we've likely seen the peak of OD/NSF income. So here's my take:

Best case: Real NSF fees drift slowly downward as penalty fees/pricing become more transparent through technology and various regulatory initiatives.

Worst case: See headline above

_________________________________________________________

Action items
__________________________________________________________________

Hopefully, rising rates, higher home prices, and a healthier lending environment will provide enough revenue to overcome any declines in OD/NSF income. However, those macro factors are completely out of your hands. If you want to control your own destiny, I suggest you consider the following:

  • More overdraft protection credit lines: A credit line with a 12% to 18% APY (depending on credit score), paired with a $3 flat OD transfer fee, can be a very lucrative product. And it's win-win. Instead of hammering consumers with a massive penalty fee, you entrust them to pay it back when they see fit.
  • Fees for value-added services: It's not going to be easy charging fees for online/mobile services. But you are a business facing difficult choices in how to grow revenues, and subscription fees for new, value-added services are promising. 
  • image Insurance products: This is a huge, growing market that is relatively untapped by retail banks and credit unions. And distribution has yet to be moved to the online/mobile channel. So there is a huge opportunity for banks to be the ones to do that. At FinovateSpring, I was impressed by a startup, CoverHound, that has really interesting ideas on how to put a much-needed Web 2.0 spin to the product (demo here). We explored this in great detail in a December report. We also moved it to the number 1 priority for 2012 in our January report (note 2).
  • Offers and lead generation: Major banks already book major revenues through various third-party programs, such as credit monitoring, auto insurance, and statement inserts. The latest idea, which has attracted more than $200 million in venture capital, is tying merchant discounts and offers to credit and debit cards (note 3).
  • Branch right-sizing: I'm not saying that branches must go away, rather that the good ones morph into smaller, more efficient financial stores, with a big emphasis on small business, lending and yes, you guessed it, insurance. 

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

Notes:
1. The neighbor test: Would you rather explain to your neighbor why you charged their daughter $36 for buying one too many lattes on their debit card, or would you rather tell them about your $3/mo "oops" service that warns parents when their child is about to do something stupid with their money. We write about value-added fees all the time in Netbanker, but the last full report is here (May 2011, subscription).
2. For more on banks offering insurance, see our full report here (Dec 2011, subscription)
2. For more on card-linked offers, see our full report here (Feb. 2011, subscription).

Comments

Pageonce Removes Billpay Subscription Fee in Favor of Per-Transaction Pricing

By Jim Bruene on April 25, 2012 6:33 PM | Comments (1)

imagePageonce, the largest PFM from a company not named Intuit, is abandoning its $4.95/mo subscription for mobile billpay and moving to a yet-to-be-determined transaction fee for each bill paid (note 1). The change was revealed at Monday's Future of Money conference and I confirmed yesterday with COO Steve Schultz.

image The company has been testing various price strategies and found that per-transaction prices were more popular with customers. Its model predicts a five-fold increase in volume with the new fee structure, moving from $40 million annually to $200 million (note 2).

Schultz speculated that customers are used to paying this way for financial services. And it helps that an electronic billpay transaction displaces an out-of-pocket cost of $0.50 or so (stamp & paper check).

Pageonce is positioning itself as a mobile wallet, starting from a position of strength on the billpay side, rather than POS transactions. Schultz says eventually they'll be at the point of sale and P2P as well. Because those three activities are all part of the "wallet experience."

But the company is not abandoning its PFM roots. Mobile wallets also need tools to manage and track spending. Pageonce is chock full of those. 

The company's business model going forward largely focuses on offers and lead-gen, similar to Mint. But it's also not completely subscription-fee averse. Its mobile credit score/monitoring service, Credit Guard, is priced at a very competitive $6.99/mo.

My take: While I can't point to specific tests of my own, most banks that have experimented with transaction fees have found them to be quite unpopular (of course, so are subscription fees). My advice <cue broken record>, for banks anyway, is to bundle several value-adds popular with the target segment and sell the package for a monthly subscription fee (or a discounted annual fee for your fans) (note 3).

How they do it:

  • Billpay processing is powered by TIO Networks (note 4).
  • Account aggregation was built in-house
  • Credit Guard is powered by IdentityIQ

Pageonce showcases its apps for every major mobile platform (link, 25 April 2011)

image

----
Notes:
1. The company is testing fees from $0.25 to $1.00 per bill. I see no reason to undercut the price of postage, so I'd guess they end up closer to $1.
2. Assuming $1,000 in monthly billpay volume per active user, that implies the company currently has only 3,000 active billpay users.  
3. For more information on subscription pricing for financial institutions, see our Online Banking Report (May 2011).
4. See TIO Networks demo at FinovateSpring May 8/9.

Comments (1)

New Online Banking Report Published: Delivering that Secure Feeling

By Jim Bruene on April 5, 2012 6:07 PM | Comments

image OK, let's think this through. Consumers have been concerned about the security of online banking for more than a decade. Technology tools are available to ease their anxiety. So, why aren't these tools readily available?

The answer is that most security enhancements don't pay their own way in terms of reduced fraud. Therefore, these "nice to have" features languish in the priority queue with little hope of getting implemented.

So do we just let customers continue to needlessly fret about the security of their financial accounts?

No, that just irritates already fed-up customers and invites more independent competitors to the table to provide the missing benefits (e.g., BillGuard, Credit Karma, Mint).

Instead, why not move to the win-win solution: Charge an optional subscription fee for extra "peace of mind," but only to customers who want it. Or offer the value-adds free of charge for customers who help you lower costs by using self-service channels and foregoing printed statements.  

But wait. Aren't fees dead after the BofA debacle a few months ago?

While that was a very real customer backlash, optional fees are still possible. Just keep these rules in mind:

  • Fees for extra security should NEVER be mandatory; instead, offer a "security bundle" that goes above and beyond the normal state of the art
  • Do not charge a fee for any security feature you already offer free of charge (the big problem with the ill-fated debit card monthly fee)
  • Do not charge for a security feature that is typically delivered free of charge by others in the industry
  • It's better to bundle a group of extra security features into a relative low-priced subscription bundle

In our new 48-page report we cover:

  • 12 design elements to make your website feel more secure
  • 7 potential positive elements for your business case
  • 5 talking points for staff education before implementing a subscription fee
  • 37 potential security enhancements to bundle into an "extra security" subscription offering
  • 72 additional security features to consider
  • 5 customer segments to target with a fee-based package account
  • Overview of three promising security services:
    -- Anti-virus for transactions from BillGuard
    -- Self-service suspicious activity reporting from Bank of America
    -- Virtual safe deposit from Northwest FCU, powered by DigitalMailer

__________________________________________________________________

About the report
__________________________________________________________________

Delivering that Secure Feeling (link)
Help consumers reduce perceived risks (for a price)

Author: Jim Bruene, Editor & Founder

Published: 4 April 2012

Length: 48 pages, 8 tables, 12,000 words

Cost: No extra charge to OBR subscribers, US$395 for others here

__________________________________________________________________


Sample screenshot

: Barclays (UK) offers online banking customers free anti-virus software from Kaspersky

clip_image002

Comments

Wells Fargo Shutters its Fee-Based Document Storage Service vSafe

By Jim Bruene on March 26, 2012 3:31 PM | Comments (2)

Wells Fargo vSafe service closure message

Another innovation bites the dust.

I was a fan of Wells Fargo's virtual safe-deposit service vSafe. Or at least the idea of it. The service launched in late 2008, before "the cloud" became an everyday term and companies such as Dropbox, Evernote, and Box.net made file storage a competitive business.

The bank was gutsy enough not only to launch a unique service, but also charge for it. I applauded the $4.95 (1 GB) to $14.95 (6 GB) monthly fee at the time, although I personally didn't use it enough and let the service lapse after the free trial period.

But alas, the bank has apparently given up on vSafe. It's still listed on the main online banking toolbar (see below), but the tab now leads to a terse statement saying that the bank is no longer enrolling customers (see above). And the product has been purged from the public website.

Wells Fargo vSafe last days on the online banking toolbar?

According to storage startup AboutOne, which is marketing a replacement service for vSafe users, all stored files in vSafe will be deleted on March 28.  
____________________________________________________________________

Analysis
____________________________________________________________________

Although Wells Fargo stuck with it for more than three years, even marketing it from the homepage, vSafe must have had little traction. That's not a huge surprise. Even before Dropbox, fee-based secure file storage was a niche offering. And with the onslaught of better known, cheaper (note 1), and more comprehensive cloud-storage services, it was an uphill battle.

However, we still believe the virtual file cabinet is a good idea for financial institutions, especially as a way to speed estatement adoption.

Instead of charging a fee for basic online storage, make it a free place where bank customers can store their electronic bank statements (from you) for the life of their account. Then, consider upselling additional storage features for a monthly fee. Or bundle file storage with other value-adds into a premium online banking account.   

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

Notes:
1. Dropbox provides 2 GB free of charge, with 50 GB costing $9.99/mo.
2. In our Online Banking Report publication, we wrote about fee-based online services in May 2011; paperless banking and online storage in late 2010; and lifetime statement archives in 2005.

Comments (2)

Op Ed: Rise of the Feenix

By Jim Bruene on January 19, 2012 5:23 PM | Comments (2)

by Michael Nuciforo

Editor's note: This post was written by Michael Nuciforo, a Mobile Banking Consultant at Keatan. He previously worked at ANZ on a number of developments, including goMoney, and more recently was Head of Mobile Banking at RBS managing the UK Retail portfolio.

image Banks has perfected what I refer to as the ‘negative pricing model.’ In simple terms, fees are charged when customers make mistakes. We are all familiar with it. It is the annoying cost of returning a DVD late, or staying too long in your parking space.

At present, banks rely significantly on revenue generated from fees when customers fall afoul of their terms and conditions. Amongst all the doom and gloom of regulatory pressure, the euro debt crises, and record low margins, could mobile banking be the right service to implement a ‘positive pricing model’?

Tiered charges for access to additional features and content have become common due to the popularity of games such as FarmVille and Sims. This is great news for banks as the market has likely reached the right point of innovation, access and acceptance to allow for the monetization of mobile banking.

Now that most banks have launched first-generation mobile services, new features are perfect for tiered pricing. Areas such as NFC payments and remote deposit-capture are a great place to start. They are tangibly more convenient than existing processes, and are designed to leverage the specific capabilities of a mobile device.

But can banks pull this off? Or will it just be seen as yet another annoying banking fee?

When implementing a pricing model, banks need to be clear about their strategy and objectives. For the model to work, it is critical that unique, mobile-specific services are delivered to warrant the cost. And banks shouldn’t charge for services that they already offer for free today. This will only anger existing users. They should also avoid charging for services available in other channels for free, although some exceptions could apply. Banks need pricing that is fair, transparent and that rewards loyalty as well.

Any new fee will disappoint some customers. Banks should also expect negative media attention at first. This will happen any time bank and fee are included in the same sentence. Banks need to be proactive about engaging regulators during the process and communicating actively to customers. It is important that fees are integrated seamlessly into the customer journey. Regular enhancements should also be made to the service. Success will ultimately rely on the quality of new features.

With traditional revenue streams under attack, and investment in mobile growing, pressure will come on mobile leaders to justify the costs. The honeymoon period for mobile banking will be tested at some stage. Customer retention and transaction migration are fine, but are they enough for your senior executives? And can they be accurately proven?

With customers now familiar with this pricing model in other facets of their everyday life, it is important that banks also take the opportunity to do this now. Otherwise mobile banking, like online banking, will become a free channel for life.

Comments (2)

RIP Debit Fees: The Winners and Losers

By Jim Bruene on November 2, 2011 4:34 PM | Comments

image The debit card fee debacle was an interesting drama to watch. I'm sure there are lots of lessons here for a future biz school case study. But really, was $5/mo for a service that many consumers use daily, such a big deal that even Obama had to call BofA out? We spend two or three times that each month on extra pizza toppings alone, but I don't see anyone bad mouthing the pepperoni industry.

While it's clear in retrospect that BofA should have played this differently, rolling out the price increase gradually for instance, or upgrading its debit card product at the same time (note 1), the bank was at least being up-front with its pricing and reasons.

And the whole episode is not just a loss for BofA, but for the whole industry, as one its most popular products is turned into a regulated utility with Durbin controlling prices on the merchant side and public opinion squashing fees on the consumer side.    

Here's the winners and losers from BofA's capitulation on debit card fees:

Losers

  • Big banks/shareholders: Obviously, the big banks who were all (except Citi) testing various fee options, miss out on added revenues in 2011 and for however long it takes before they implement other less-transparent price increases. And of course, BofA loses the most as it took the brunt of PR damage and now every pricing move it makes will be put under a microscope. 
  • Small banks and credit unions: The $5 fee was a windfall for small FIs in their marketing war against the big banks. Now what's the rallying cry for Bank Transfer Day? (And many small FIs would eventually have hopped on the fee bandwagon once the consumer backlash faded.)
  • Government/taxpayers: The big banks employ millions directly, and millions of other jobs are indirectly supported by banking revenues. If this leads to an industry-wide layoff (note 2), it could add hundreds of thousands to the unemployment roles just in time for the 2012 elections. And the whole anti-bank rhetoric from Congress and the Administration, along with the implied threat of more price controls, makes it harder for banks to raise capital, weakening an already fragile ecosystem. Does anyone really want to risk a repeat of 2008?

Winners

  • Merchants: Widespread debit card fees would likely have caused a reduction in their use and a corresponding increase in the use of cash, checks and credit cards which would have driven merchant costs up.

Mixed

  • Consumers: Short-term it's a win. The grass-roots victory feels good and avoiding the $3 to $5 monthly fee is nice (it just about covers that Netflix price increase...so you can keep getting the DVDs in the mail). But longer-term, it's probably a wash. Banks need to improve revenues, or they will either have to cut services, lay off employees, and/or find sneakier ways to raise prices ($40 overdrafts anyone?).

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

Notes:
1. We recently looked at optional fee-based services banks could build using remote banking value-adds. See our May 2011 Online Banking Report (subscription). 
2. I'm not predicting layoffs. Honestly, I have no idea. There are way too many factors at play to make a direct connection. But certainly, the one-two punch of interchange price controls combined with the fee backlash, make cost cutting seem the more palatable course of action to improve profits. And to the extent that smaller players pick up incremental business, they could hire a good chunk of those laid off.

Comments

BillGuard's Monthly Credit/Debit Card Scan Report

By Jim Bruene on October 5, 2011 5:32 PM | Comments

image We've been impressed with BillGuard since we first learned about it earlier this year. And they wowed the crowd at Finovate two weeks ago with a great demo, dynamic presentation and more importantly, a product that resonates with consumers across many demographic segments.

One great thing about becoming a trusted consumer watchdog, like identity theft monitoring services, is that your monthly emails are actually read by customers. And unlike FICO scores which usually don't fluctuate that much month-over-month, there's usually something new to look at when BillGuard scans a month's worth of card transactions looking for oddities.

For example, my scan for September across two credit card accounts showed the following activity (see first screenshot below):

  • Green: 61 transactions that were identifiable as "normal" activity
  • Orange: 2 transactions that were "unknown"
  • Red: None were flagged red indicating suspected fraud

Clicking through to the website, I can mark legitimate transaction "OK" and that information is fed back to the network and disseminated to other via the Merchant Transaction Reliability score (see second screenshot). 

Bottom line: This is the kind of value-added service that FIs could bundle with other products, even a debit card for example, that could help justify a monthly fee. $5 perhaps? 
(Note: BillGuard is currently offering free of charge to expand the customer base.)

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1. BillGuard emails a monthly Scan Report to customers (4 Oct 2011)

BillGuard monthly transaction scan report

2. At the BillGuard website, each merchant's score across all users is tracked
Note: Apparently, 17 BillGuard customers are using Quickbooks Online and none have flagged the transaction (which makes sense)

BillGuard Merchant Transaction Reliability score

Comments

M&T Bank Adds FICO Credit Score View to Online Banking, Charges $2.99/mo

By Jim Bruene on June 6, 2011 9:27 PM | Comments (3)

image It figures. As soon as I write a report complaining about the dearth of online fee-based services, a major bank launches one, practically the same day.

Buffalo, NY-based M&T Bank just released an upgrade to its online banking system adding:

  • Intuit's FinanceWorks PFM
  • Equifax-provided FICO score

Both are good moves, but it's the credit score service that's especially novel. It's integrated directly into online banking, so customers needn't log in to another site to view their score. And the bank is charging for it, to the tune of $2.99 per month. 
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Potential
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It will be interesting to see how M&T promotes the new feature to its online banking base which numbers 700,000 to 800,000 (active monthly users) based on traffic estimates from Compete. I'm also curious to see whether the bank upsells pricier, full-featured credit monitoring and/or credit reports to the $2.99/mo base. (I'd be surprised if they don't.)

There's no mention of a free-trial period, but based on industry experience, that is likely to be one of the best marketing strategies available. Given all the misleading advertising in the market ("free" credit scores that cost $15/mo), I'm pleased to see that M&T is upfront about the cost, mentioning it within the first 50 words of the landing page.

With an aggressive promotional campaign, it seems possible the bank could eventually get 10% to 15% of its online base using it. Then M&T gets a dual benefit: a unique and powerful tool for its customers and $3.5 million in incremental gross revenues (if it hits 100,000 users). The bank can also upsell credit monitoring, credit scores for other family members, along with balance transfers and other credit products. 

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M&T Bank landing page for new integrated credit score (link; 6 Jun 2011)
Note: Pricing disclosed upfront (yellow highlighting is ours)

M&T Bank landing page for new integrated credit score (6 Jun 2011)

Note:
1. See our current Online Banking Report, Creating Fee-Based Online & Mobile Banking Services.

Comments (3)

What is the ROI of banking innovation?

By Jim Bruene on June 3, 2011 11:33 AM | Comments

image An executive on the front lines of product development at a major financial institution recently asked me this question:

How can I prove that innovation really matters to the bottom line?

I've been a "product guy" my whole career so I take it for granted that "building a better mousetrap" eventually trickles down to a boost to the bottom line. That worked at Microsoft, Apple and Caterpillar (my first job).

But they are manufacturing companies. That better mousetrap, be it Win95, the iPod, or a D10 tractor, brought in direct, usually profitable, revenues.

It's harder if you are a retailer. If the Gap spends a million dollars to improve search and discovery on its website, will it really sell enough extra jeans and sweaters to make the investment back, let alone earn an acceptable return?

Banks are both retailers (branch and online) and manufacturers (checking accounts, loans). But today, the P&L from their digital efforts is more like the Gap than Apple. You have to sell a lot of extra checking accounts and car loans to justify even a modest website investment. This has held back digital investments for 15 years (see note 1).

But what if banks started acting more like a manufacturer when it comes to digital products, by creating new services to package and sell on their own merits.

For example, instead of spending a couple hundred thousand every year to give everyone remote check-deposit capabilities free of charge, create a new digital product called, The Magic Check Deposit Service, and sell it for $2.99/mo. This product not only reduces costs, since it will have far fewer lapsed and/or clueless users, but also pegs a monetary figure to the service, thereby increasing its perceived value even if you end up giving it away to your best customers.
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The Numbers
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Let's crunch a few numbers. Assume it costs $0.50/mo to support each user + $0.25 per check deposited + $20 per tech support call (I made these up so don't quote me).

Free service:
Cost = 50,000 users x 0.67 checks/mo + 1,000 support calls per year = $420,000
Fee revenue = $0
Customer retention value = ??? (some positive number)
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Net = ($420,000)

Subscription service:
Cost = 5,000 x 4 checks/mo x 100 support calls per year = $92,000
Revenue = 5,000 x $2.95/mo = $177,000
Retention value = ??? (same as above)
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Net = +$85,000

Change in net (delta) = $500,000
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Bottom line
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With either approach you get to tout the benefits of the new innovation to capture the branding value. But under the subscription model, only those who really stand to benefit from the service use it, and you end up with a small profit or at least less of a loss. In the above example there is $500,000 gain compared to the free model.

Yes, this is over simplistic. Yes, you'll take some grief for charging when others are giving it away. It's possible you might even lose a few customers, but not $500,000 worth. And the biggest benefit of all, you can actually afford to create the new service now, instead of tabling it for five years until it becomes a competitive necessity. 

Back to the original question. Honestly, I have no idea how to prove that innovation has a good ROI. What I do know is that for the past 100+ years, clever manufacturers have created billions in value by beating the competition with new products and services. I'm pretty sure financial companies will do the same with their online and mobile offerings.

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Note:
1. See our current Online Banking Report, Creating Fee-Based Online & Mobile Banking Services.

Comments
Categories: Fee Income, Pricing, Strategies

Out of the Inbox: ING Direct Raises Price on Overdraft Credit Line by 55%, Still Undercuts Competition by 99%

By Jim Bruene on March 22, 2011 10:49 AM | Comments (1)

image This has to be the best notification of a price increase I've ever seen (see first screenshot).

ING Direct  (USA) famously does not charge OD/NSF fees on its checking account, Electric Orange. But that's a bit of a moot point since the bank doesn't offer paper checks, making it difficult to inadvertently go negative.

However, the bank does allow overdrawing by few hundred dollars if you so choose. And it charges interest on those "overdrafts" at a variable rate equal to 4% above prime, currently 7.25%. The bank reinforces the no-fee pricing in its standard low-balance alert (see second screenshot below).

But that low APR is heading upwards. Last night I received an email notification that effective May 15, the variable rate will be increasing to 8% above prime, or 11.25% today, a 55% increase. That's still relatively reasonable for unsecured credit.

But the bank's email doesn't focus on APR. After clearly disclosing the price increase, it lays out a comparison of what a $100 overdraft would cost the average U.S. consumer for one week, $31, vs. the $0.31 you'd owe ING Direct after 7 days. There are no other fees, transaction or annual, for the ING credit line (complete terms here).

Well played.

ING Direct email disclosing OD credit line APR increase (21 March 2011)

 

ING Direct email disclosing OD credit line APR increase (21 March 2011)

Overdraft notice (22 March 2011)
The bank reinforces its no-fee policy in its email OD alert.

ING Direct (USA) Overdraft notice (22 March 2011)

Comments (1)

New Online Banking Report Published: Merchant-Funded Rewards Programs

By Jim Bruene on March 1, 2011 12:25 PM | Comments

image While I like a deal as much as the next person (note 1), I've never been much of a coupon clipper. To me, coupons are a hassle to collect, impossible to organize, and mildly embarrassing to redeem. 

But I love frequent flyer miles. Once registered, they pile up automatically, are maintained at the airline or card site, and there is no stigma to redeeming them. However, miles are pretty worthless unless you spend a lot and have the flexibility to use them during the off season.

That's why financial rewards programs have moved away from a sole reliance on airline miles and towards broader programs with cash and merchandise rewards. However, with falling fee revenues, especially interchange, these programs are becoming harder to justify cost-wise.

But customers have grown to expect them, especially the big-spending households that drive banking and card profits (note 3). And this is not a time when you want to irritate a lucrative segment of your customer base.

What to do?

imageEnter a new breed of loyalty program called "merchant-funded rewards." Instead of financial institutions buying goods and services to give away, the system is turned around. Merchants pay direct cash rebates to your customers. And they may even pay you for the privilege of giving away money.

The catch? Because the cash-back offers are targeted to customers who shop at the competition, merchants need actual cardholder-level spending data to make the right offer, e.g., a $25 rebate offer to Home Depot customers who come to Lowes and spend at least $50 on your card (note 2). And to boost awareness, they need to plug directly into your online banking and statements. 

Making this work takes sophisticated integration between spending data and merchant offers. Enter an important new vendor in the banking world: the rewards service provider. In the report, we look at the five biggest, each with 100 or more financial institution clients:

  • Access Development
  • Affinity Solutions
  • Cardlytics
  • Cartera Commerce (recently merged with Vesdia)
  • RewardsNow

While these companies have the early lead, clever newcomers are creating their own hybrid programs connecting APIs with ad-serving and social networks. It's a wide-open field with dozens of players, including Finovate alums Billeo, BillShrink, Micronotes, and Segmint as well as others such as Clovr Media, DBG Loyalty, EDO Interactive, and OffermaticMasterCard and Visa also have rewards programs that issuers can plug in to.

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About the report
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Merchant-Funded Rewards Programs (link)
Rewards 2.0: Turning a money pit into a profit center

Author: Daniel Thomas, principal consultant, Mindful Insights

Editor: Jim Bruene, editor & founder, Online Banking Report

Published: 28 Feb. 2011

Length: 32 pages

Cost: No extra charge for OBR subscribers, $495 for everyone else (here)

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Notes:
1. Probably more, as the son of a frugal Iowan (thanks Dad!)
2. Of course, private cardholder data is not revealed to merchants or service providers. It's done through computer matching programs.
3. According to COLLOQUY, the average U.S. household is enrolled in 18 rewards programs, and nearly a quarter of those are financial.

Comments

U.S. Bank Set to Launch Fee-Based Remote Deposit Capture for Retail Customers March 14

By Jim Bruene on February 21, 2011 12:48 PM | Comments (4)

image Five months after we first spotted the link (see previous post, note 1), U.S. Bank is telling online banking users that they'll be able to use the new PC-based, remote-deposit function on March 14. Customers will use standard all-in-one scanner/printers to submit checks.

The bank has decided to launch with a $0.50 per-item fee for retail customers. While I'm all for fees for value-adds, my response is mixed on this one.

The fee makes sense in many ways:

  • Value: The customer receives a very real time savings here, and many would burn that much in gas, driving over to a branch. So $0.50 sounds pretty reasonable.
  • Changing perceptions: It's good to start weaning customers off the belief that every new feature is provided free of charge.
  • Fairness: Customers that use the service, pay for its costs. That's fair pricing for everyone.
  • Optional: No one has to use the service; there are acceptable free (branch, ATM) or lower-cost (mail) alternatives for most customers.

But here's what's bothering me about it: 

  • Sends the wrong message about self-service: If the bank starts charging a dollar or even fifty cents to deposit an item in the branch, then the online fee makes perfect sense. But if the same service is free in the branch, I think it sends the wrong message to online users.
  • Discourages trial: For nearly all potential customers, this is new and unproven technology. They at least need a free trial to get a feel for it.
  • Is it worth the trouble? If U.S. Bank gets 50,000 items remotely deposited per month, the bank nets $300,000 per year in fee income. Would a free service save more than that in labor, while introducing the timesaver to far more customers, perhaps even driving some new accounts?

Bottom line: While it will cut usage dramatically, a fee makes sense if you want to add a new feature without increasing bank costs. And evidently, U.S. Bank doesn't believe the higher number of deposits garnered by a free service would save enough labor to overcome the lost fee revenue. So the pros must outweigh the cons.

Nevertheless, I'd prefer to see remote deposit bundled together with several other value-added features for a small monthly fee, e.g., $2.95 for a "power user" electronic account.  

Kudos to U.S. Bank for making remote deposit available to retail customers. I look forward to trying it, but given how much trouble I've had with my all-in-one scanner over the years, I am much more likely to become an active user of a smartphone version. 

U.S. Bank's Make a Deposit page inside the secure online banking area (20 Feb. 2011)

U.S. Bank's Make a Deposit page inside the secure online banking area (20 Feb 2011)

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Note:
1. The service has been piloted in several states, so I'm assuming that's why it's been on the menu.

Comments (4)

Unitus Community Credit Union Charging $2 Monthly for Geezeo-Powered Online Financial Management (PFM)

By Jim Bruene on January 6, 2011 6:09 PM | Comments (1)

image In what I believe is a first in the United States, a financial institution has begun charging a small fee for online personal financial management (PFM) services.

image Portland, OR-based Unitus Community Credit Union, with 68,000 members and $800 million in assets, launched its new Geezeo-powered PFM Total Finance in late 2010. Members pay $2 per month for the service following a 30-day free trial.

According to Laurie Kresl, VP planning & biz development at Unitus, the CU has 661 members signed up for the service as of this week, or about 1% of its member base, which is a solid start considering the monthly fee is not mentioned on the public website, but is disclosed as members sign up for the service (note 1). 

Quick take: While online/mobile access will remain relatively fee-free, we'll begin to see more fees for optional value-added services such as advanced financial management. Congratulations to Unitus for taking the lead on this one.

Unitus CU homepage features its new PFM offering (6 Jan. 2011)

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PFM landing page (link)

Unitus Credit Union Geezeo PFM landing page

Note:
1. To sign up, customers first log in to online banking. The CU says it plans to add fine print to the landing page (above), disclosing the monthly fee.

Comments (1)

Wal-Mart Sells Paper-Check Fraud Protection for Just $1.95 per Box

By Jim Bruene on September 8, 2010 8:06 PM | Comments

imageNaturally, we use online payments as much as possible both at home and in our business. But even so, we still go through a box or two of old-school paper checks every year.

Running low on business checks, I today logged in to my bank to order a box. Unfortunately, it does not support online reordering of business checks, only personal ones. I was referred to a toll-free number. But rather than go through an unknown phone ordering process, I went back to WalmartChecks.com (note 1), a service from Wal-Mart that I had tested many years ago.

imageThe reordering process was drop-dead simple: Just click Quick Reorder on the homepage, type the bank's routing number, account number, and beginning check number, then make a few selections from the menus, and press reorder. It takes all of about 60 to 90 seconds. You don't even have to input payment info, because the total is simply deducted from your checking account.

But the reason for this post is to highlight the interesting cross-sale made during the reordering process. For $1.95 per box, Wal-Mart offers a check-fraud protection service called EZ Shield from a company of the same name, a recent spin-off from printed-check marketer, Custom Direct (CDI). I was pitched the product through a yellow-highlighted box in the middle of the order-confirmation screen (see first screenshot below).

I wasn't sure what it was, so I clicked on More Details to learn that EZ Shield reimburses users for fraudulent use of the checks in the box (see second screenshot). The service provides coverage of up to $25,000 total if one or more of the 200 checks is altered, stolen from the payee and deposited, or used with a forged signature. The EZ Shield logo is printed on the checks to remind users that they are protected.

Bottom line: While paper-check fraud is not a major concern to me, I still value the small improvement in peace of mind I get for just $1.95. And for Wal-Mart, the $1.95 was a 28% revenue lift to a $6.96 box of checks. More importantly, the value-add makes it more likely I'll be a repeat customer even when my bank eventually enables online check reordering.

WalmartChecks.com shopping card with EZ Shield cross sales (9 Sep 2010)

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Popup explanation of EZ Shield (link)

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Note:
1. According to Compete, the check-ordering site gets about 150,000 unique visitors per month and traffic has been relatively flat the past year.

Comments

Can Banking Income Woes Be Fixed with a $5.95 Fee?

By Jim Bruene on July 17, 2010 9:33 AM | Comments

imageWhen I see large numbers, say a billion or more, I mentally divide it by the number of people impacted to make it more meaningful. In Seattle, we are about to embark on our very own Big Dig, replacing the 1953 waterfront viaduct with an underground tunnel. The $2 billion cost estimate comes out to about $1,000 per person in the Seattle metro area, and that's before the "expected" cost overruns (see note 1).

Bank of America announced yesterday that due to the just-passed financial reform, its revenues will drop by $4.3 billion annually (WSJ article), more than two waterfront tunnels every year. But across 55 million customers, that's only $78 per person. Coincidently, that's exactly two $39 debit-card overdrafts.

To make up for the lost revenue, the bank needs about $6 per month in fees across the entire customer base (note 2). I can envision a package of new and existing benefits pitched to customers to convince them to pony up the $5.95/mo in new fees. For example:

  • Real-time mobile/desktop alerts
  • Lifetime data backup in the cloud
  • Linked OD protection
  • Instant bill pay with guaranteed delivery  
  • Remote deposit capture
  • No-hold customer service with guaranteed same-hour call back
  • Custom fraud tools with fraud-loss guarantee
  • Online financial management tools
  • Desktop/mobile apps fine-tuned for specific customer segments
  • Rewards program for self-service/estatements
  • Two-way alerts
  • Monthly credit score

It will take years to make the transition. But in the end, consumers will get used to paying modest monthly fees instead of facing $39 overdraft-fee shocks several times per year (note 3). And banks/credit unions can spend less time soothing exasperated customers. It could be a win-win.   

Notes:
1. Luckily, we have municipal debt, so we can pay this off at $75+ per person, or coincidentally again, about $5.95/mo for 30 years. And the state is helping out too, so the Washington population will be pitching in to help lower the actual cost to Seattleites.
2. This is an extremely simplistic example to make a point and does not factor in cost cutting, commercial banking revenues, etc. 
3. Since banking is highly competitive, any new fees will work only to the extent the overall price/value of the services remains competitive.
4. For more ideas, see our annual planning report, which includes a section on potential fee-based online/mobile services.

Comments

Debit Card Overdraft Protection: 2 Steps Forward, 1.9 Back

By Jim Bruene on July 13, 2010 5:55 PM | Comments

image So far, I'm underwhelmed with the industry's online marketing response to the new opt-in debit card OD protection regulations. I expected to see new pricing models transforming small overdrafts into a value-add for debit card users, rather than the onerous penalty they had become over the past few years.

On the positive side, the elimination of OD charges for small transactions is a good first step. Three of the five FIs in our mini-survey have dropped fees on ODs of less than $5 (PNC and GTE Federal) or $10 (U.S. Bank). And Wells even makes a bit of a game out of it: Customers who cover the OD during the same day incur no fee.

And Bank of America has just thrown in the towel on the whole notion, running full-page ads (p. A11 in today's WSJ; Overdraft Control landing page) saying they'll just deny any attempt to overdraw via debit card. The retail giant joins Citibank and ING Direct, which already followed the same approach.

But financial institutions are missing an opportunity here. Take Wells Fargo, for example. When I ran across the bank's new homepage ad for debit card OD protection (see first screenshot), I expected to click through and find a novel take on the new federally mandated opt-in requirement (see second screenshot).

Wells does a good job explaining how the new rules benefit customers (the two steps forward): 

  • The bank's website copy is understandable and nicely outlines the lower-cost credit line, and savings account transfer options are offered
  • The toll-free number to sign up is prominent, although where's the online signup option? 
  • Great to see online and mobile balance-tracking tools offered up to help avoid overdrafts in the first place
  • My favorite: Customers are allowed to cover the overdraft during the same day and avoid the charge

But much of that uptick in consumer goodwill is negated when you get to the pricing:

  • Debit card overdrafts are $35 each, with a maximum of 4 per day, or a $140 daily penalty if you opt in and make a mistake coffee-shop (or more likely bar-) hopping some weekend.

In a spot check of other financial institutions, it's clear that Wells Fargo is far from alone in the $30 per item price range:

  • US Bank will charge $10 per overdraft of $20 or less and $33 for all others; it will charge for up to 3 ODs and 3 returned items for up to 6 per day; there's a $25 fee if you don't pay back within a week, but no charge for any item that results in less than $10 in total negative balance.
  • Fifth Third Bank will charge $25 for the first overdraft each year, $33 for the next three, then $37 each after that; maximum of 10 per day; $8 per day after the third day it's not paid back; no OD charge if negative balance is $5 or less.
  • PNC Bank charges $36 per item up to 4 per day, plus $7/day the account is overdrawn for a maximum of 14 days.
  • GTE Federal Credit Union is charging $29 each, with no charge on under-$5 items (blog post, Facebook post)

I just don't see customers being too pleased with the price/value here. Wouldn't customers, and shareholders, be better served with a value-based pricing strategy? How about $5 each for an under-$100 mistake? Or follow the telecom model and sell debit card overdraft protection as a $4.95/mo subscription.

By my simple math, a million customers paying $5/mo is a whole lot more revenue than a few thousand paying $35 a pop. Then there are all the side benefits: customer goodwill, reduced customer service headaches, positive word-of-mouth, and the PR/marketing value of making debit overdrafts into a real service.

Debit card OD link on Wells Fargo homepage (13 July 2010)

Wells Fargo homepage showing debit card OD ad

Landing page (link)
Click to enlarge

Wells Fargo debit overdraft landing page

image Note: Upper-right graphic from Horizons North Credit Union, which is charging $25 per item, with no limit on the number. The opt-in ad is a huge part of its current homepage (inset, click to enlarge).

Comments

Making Debit Overdrafts into a Real Service Again

By Jim Bruene on July 7, 2010 4:36 PM | Comments (2)

imageIn 1988, as a new product manager at a long-since-merged-away bank, one of the first things I did was send a memo to my superiors pointing out that our overdraft fee of $8 was significantly less than our peers. And that we might want to consider raising ours to the industry standard $10. That little change added a million dollars to our bottom line and wasn't a half-bad start to my career there. 

So I've always understood how difficult it is to resist the temptation to raise OD fees. That said, there was no excuse for the debit-card excesses that led to the opt-in regulations taking effect this summer. No one should have to pay $39 extra for their morning coffee/donut fix.  

So as much as I detest price controls, I'll have to admit I've been looking forward to the industry efforts to turn debit overdrafts into a value-added service instead of the huge negative penalty they had become.

Ultimately, I see small overdrafts being priced more like mini-loans with a combination of withdrawal fees in the same range as foreign-ATM fees ($2 to $4 each) plus an interest rate or nominal daily fee based on the outstanding balance. Then, if I'm at the store and need $40 more for dinner groceries, I can decide to take the loan, pay the extra $5, and go about with my evening plans.

It's a win-win. I'm happy the bank/credit union gave extended me a little credit in a tight situation, and the bank makes some much-needed fee income, albeit in $3 increments, instead of $39. While the lower prices won't replace lost fee income dollar for dollar, and underwriting/credit issues must be addressed, customers will be happier and more loyal, employees will feel better about the value delivered, and in the long-term, things can get back to a more normal price/value relationship.

I'll be chronicling some of the most interesting implementations of value-added OD protection during the rest of the summer. I looked at Truliant Federal Credit Union a few weeks ago (here). Next up, Wells Fargo.

Comments (2)

How Measly Online Banking Archives Almost Cost Us $300

By Jim Bruene on September 8, 2009 5:31 PM | Comments (3)

image One of my least favorite tasks as a business owner is filling out forms, and tax forms are the worst of the lot. Thankfully, Washington state has a relatively simple online form that I can complete at literally the last minute of the quarterly filing period.

So last week, with the midnight deadline looming, I went to download the previous quarter's transactions into our accounting software. After doing so, I noticed a six-week gap in the data. Because of timing issues, it had been 130 days since I'd last downloaded. Guess what? My bank archives only 90 days of data for Microsoft Money users (note 1).

So, I went online and figured I'd retrieve the older transaction there. No luck. Again, only 90 days of past data are visible in online banking. Next, I tried the data-download function. Nope, same 90-day limit. Now realizing that I'd have to hand-key the data, I was getting frustrated, but I figured I could at least view my April and May statements online. Strike 4. My bank doesn't post any estatements online UNLESS you've previously given up your paper statement.

So I had to paw through my paper piles to find the missing statements, then spend a half-hour hand-entering business transactions. Boy, did I feel like a fool. Luckily, I'd started the process earlier than usual and made the midnight deadline; otherwise, the lack of data archives would have cost me more than $300 in city and state penalties.

Fee opportunity for banks
Had I been a perfect customer and remembered to download my data within the 90-day window, this wouldn't have happened. But really, now that you can buy a 1TB (1000MB) hard drive for $79, how can a bank justify a measly 3-month archive, especially for business clients? Even factoring in security costs, backup sites and other expenses, what is the marginal cost to store 18 months of transaction data? A buck per year? Probably more like a dime or less (note 2).

It no longer makes sense to arbitrarily limit online data archives. Put a price on it and let your customers decide how long they want to store their data. Many small business customers would pay $1 to $2 per month per year of back archives. Interested consumers might pay half that, e.g., $3 to $5 per month for a 7-year archive.

It can also be used a perk for going paperless. For example, Chase Bank offers seven years of online statements for its customers (see screenshot below); otherwise, users can access only the last 18 months online.

Finally, it's one of the most cost-effective retention tools imaginable (note 3).

Chase Bank promotes the benefits of going paperless to its online banking users (1 Sep 2009)

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Notes:
1. The lack of past data is especially annoying since I pay $5.95/mo for the data download service.
2. I do understand that increasing online archives is not a simple project. And even though storage costs are relatively minimal, the PROJECT costs, are certainly not. I'm sure it's a multi-million effort that's difficult to justify in an era where regulatory mandates eat up IT budgets like a power surge gobbling data. 
3. For more info on estatements, refer to our Online Banking Report on Lifetime Statement Archives (June 2005) and Electronic Messaging & Statements (Feb 2003).

Comments (3)

Things I Would Gladly Pay (my bank) For: Payment Services for Travelers

By Jim Bruene on July 15, 2009 5:17 PM | Comments (4)

imageHaving just gone through the exercise of calling four banks to tell them I may be using their card outside the country
(see note 1), I'm convinced it's high time for banks and card issuers to upgrade their online services for travelers. It would not only be convenient for customers, but also develop into a sizable profit center for banks. 

Newspapers have supported automated vacation stops/holds for many years primarily to reduce customer service costs. But credit and debit-card issuers have a much stronger business case. For example:

  • Fewer fraud losses
  • Lower customer service expenses
  • More interchange, exchange fees, and interest income from authorizing more transactions
  • Cross-sales of travel-related services
  • Advertising/sponsor revenues
  • Potential subscription or per-trip fees

Here's the features I'd like today:

  1. Web-based form to input travel itinerary
  2. Ability to update the itinerary when changes occur
  3. Ability to establish withdrawal limits while traveling
  4. Ability to order foreign currency
  5. Ability to switch my email alerts to text-message alerts while traveling (see Alaska Airlines screenshot below)
  6. Ability to purchase trip insurance
  7. Ability to order prepaid travel card(s)
  8. Ability to see exchange rates and have them automatically forwarded to me on a periodic basis while abroad
  9. Info on using my debit/credit card abroad, including fees, what to do if it's lost or stolen, calling customer service, cash advances from international banks, and so on
  10. ATM/bank maps at my destination
  11. A few disposable card numbers I could use if purchasing online while out of town
  12. And finally, something I wouldn't have thought of until this past trip, a guarantee that the bank won't cancel and reissue my card while I'm traveling (see Wells Fargo, note 1).

And a few more items for the future file:

  1. Automatically track my whereabouts via GPS
  2. Ability to forward travel confirmations (e.g., Tripit.com) so I wouldn't be bothered to input my itinerary
  3. ATM/bank location on my mobile
  4. Automatic coverage of any bills that come due during the travel period

Pricing
Depending on the package, a one-time travel fee of $5 to $20 would make sense. Or, using the telecom model where every value-added service is sold on a subscription basis, a $4.95/month "frequent traveler" upcharge would be palatable.

Alaska Airlines message service (14 July 2009)
Allows user to choose different messaging options depending on whether they are home or on the road 

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Notes:
1. And despite my advance call, Wells Fargo canceled my credit card mid-trip, without telling me (there was a letter waiting when I got home), despite the fact the fraud the bank was concerned about happened more than two months prior (see previous post). 
2. Image courtesy of http://etc.usf.edu/clipart.

Comments (4)

Value-added Online Financial Services: $4.95 per Month is the New Free

By Jim Bruene on July 7, 2009 1:15 AM | Comments (2)

imageAs we've mentioned before, there are surprisingly few fee-based online financial services in the United States (see note 1). But things may be changing. In the past month we've looked at three innovative services charging fees:  

Today, we highlight a fourth new fee-based service, also charging $4.95/month (or more), vSafe from Wells Fargo. vSafe is a secure online storage solution that sells for $15 to $15 per months as follows:

  • $4.95/mo for 1GB of storage
  • $9.95/mo for 3GB of storage
  • $14.95/mo for 6GB of storage

The service was introduced several months ago, and I've been using it for a couple months. The service automatically stores Wells Fargo statements, and allows users to upload any other file up to the storage limit. It would be even more useful if it offered automated retrieval and storage of other bank and biller statements.

Wells Fargo homepage (1 June 2009, 1:15 PM PDT)

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Landing page (link, 1 June 2009)

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Take a test drive in the Wells Fargo lab (link, 1 June 2009)

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Interactive video highlighting benefits

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Signup explanation

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Notes:
1. The golden rule of consumerism: "You get what you pay for." Because online banking services are typically offered free of charge, U.S. consumers have had to contend with clunkier, slower, less secure and less feature-rich online services than consumers in other countries that pay for online access. Fees for online services can be a win-win, allowing financial institutions to offer premium online services for those willing and able to pay for them, while at the same time offering basic services free of charge so that everyone can benefit from online banking. 
2. Article updated 9 July 2009 to remove incorrect reference to Expensify's $4.95/mo fee (see comments).

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LowerMyAssessment.com offers timely personal finance tool to save on property taxes

By Jim Bruene on June 2, 2009 5:48 PM | Comments (1)

image Usually, it's the big ideas that get all the press. Last week alone, Microsoft launched a new search engine (Bing), Google announced a new way to communicate (Google Wave), and Facebook began rolling out an alt-payment service to its 200 million users. 

Those have intriguing long-term ramifications, but can they save you money today? 

Here's something a little more pragmatic: A tool that promises to make it easy to challenge your tax assessment, potentially saving hundreds or thousands of dollars annually. Enter LowerMyAssessment.com (LMA).

I saw a few screenshots of the service during the company's application to debut at FinovateStartup 2009 last month (demo video here). But I couldn't use the service until a few weeks ago.

How it works
image Consumers visiting LMA can use the website's free tool to check their home's value against current market estimates. LMA taps public databases to determine tax-assessed values and calculates market value from various third-party sources such as Zillow.

The company then makes the simple math calculation and informs users if the value of their home is under the tax-assessed value. If it is, LMA provides forms and instructions to challenge tax assessments with the local assessor's office.

In our test case, using an address in Seattle, one of 10 states currently served by LMA, we were told that its assessed value was $300,000 more than the market value (note 2). LMA encouraged me to register and let them help me challenge that assessment.

Registered users complete an online form with info needed to challenge their assessment (see screenshot 3 below). After completing that form, users must pay $125 to complete the challenge process and receive their FairValue Report (shown above).  

Analysis
While the cost-saving potential is significant, the challenge for LMA is getting consumers to shell out $125 for something they can conceivably do themselves (note 3). It took us just a few minutes using Google to uncover the challenge forms and procedures at the King County website. And market value estimates can be pulled from Zillow and its competitors.   

To reduce sticker shock, the company recently removed the big $125 price tag from its homepage (see screenshot 1) and is now emphasizing the free lookup feature (screenshot 2). I can understand downplaying a three-figure fee, especially online. But now they've gone too far the other way. I cannot find the price of the service anywhere on the website. It wasn't disclosed until I completed my registration and filled out the challenge form (see screenshot 4 below).

There's also the small matter of getting the word out. The major market opportunity will largely be gone once home prices get back to their pre-recession levels, even though there will always be cases where consumers feel their assessment is unfair. But LMA needs to team with major financial or real estate firms as soon as possible to reach large groups of potential customers. 

Bank and credit union opportunities
As discussed in previous posts, direct fee income is scarce in online banking, at least in the United States. Aside from credit bureau monitoring, there are few up-front fees that consumers are willing to pay. Certainly, banks earn billions from the underlying checking, debit, and credit card accounts, but nothing from the value added online.

It's possible the service could be replicated by a bank or mortgage provider using available APIs from Zillow or others. But for most banks, it would be far simpler to outsource the service to LMA or other specialists.

If the service were sold for $100+, with revenue shared 50/50, a bank or credit union could earn a respectable profit while providing a unique and free service to customers; however, the folks at City Hall may not be so appreciative. If city government is a big customer, you might tread carefully here.

1. New LowerMyAssessment homepage emphasizes free (2 June 2009)

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2. Previous homepage disclosed the substantial fee up-front (12 May 2009)

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3. Online appeal form for King County Washington (2 June 2009)

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4. $125 (+tax) fee is not disclosed until checkout (2 June 2009)

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Notes:
1. States currently covered: Arizona, Florida, Hawaii, Illinois, Indiana, New Jersey, Ohio, Oregon, Washington
2. That was on May 11. Now, three weeks later, LMA shows the house having declined another 20%. Home prices are certainly fluctuating, but not that much. It appears that LMA has switched to using Zillow's low estimate instead of the mid-range one. That may help sell more services, but it's a bit misleading. It would be much better to show the range of potential market values pulling data from all three third-party valuation sites, in much the way RedFin does. 
3. They also have some work to do in clarifying the buying process. It's not really clear exactly what you are buying at checkout. Are you submitting a property-tax challenge at that point? What about the FairValue Report? When do you see that? But we'll cut them slack on that since they just launched a few weeks ago.

Comments (1)

Has Mercantile Bank cracked the code for generating online banking fees?

By Jim Bruene on May 26, 2009 6:17 PM | Comments (1)

imageWe 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.  

Comments (1)

Where Are the Online Banking Fees?

By Jim Bruene on May 11, 2009 5:24 PM | Comments (2)

imageI am rarely at a loss for material when looking for examples to illustrate a point about online finance. Across thousands of financial websites, there's an almost infinite supply of novel new services, marketing strategies, and promotional efforts. 

However, there's one area with almost zero innovation. Pricing.

In the United States anyway, nearly every bank and credit union offers online, and now mobile, banking free of charge (see note 1). It's an appealing price point for sure, but it also hampers the ability of financial institutions to develop novel service offerings. It's a game of minimizing channel costs rather than maximizing returns.

However, several interesting new services that are at least trying to charge fees have recently shot up in online personal finance. Two debuted their new services at FinovateStartup April 28 (see notes 2 & 3; videos of their demos will be available online shortly):

  • LowerMyAssessment.com is charging $125 to help consumers lower property taxes on their homes
  • Home-Account is charging a $8.75/mo to help users manage their home mortgage

We'll look at both companies this week starting with LowerMyAssessment.com.  

Notes:
1. We covered online banking pricing in a 2004 Online Banking Report (here). While the report is nearly five years old, sadly little has changed, so it remains relevant to today's situation in the United States. 
2. In addition, at FinovateStartup we saw several new services that could increase payments-related income for banks, including the alt-payment companies, especially Acculynk and Moneta, offering revenue sharing and interchange fees for banking partners, and MicroNotes, which showed a platform that provided fee income to delivery-targeted advertising within the bill-payment function.
3. Also, Wells Fargo should be given credit for rolling out a fee-based storage solution integrated within its online banking services. The vSafe program costs $4.95/mo and up based on storage capacity desired. 

Comments (2)

Banks Scarier than Criminals. Really?

By Jim Bruene on October 11, 2007 2:49 PM | Comments

You know you are losing the PR battle when headlines like this begin to appear:

The point of Tuesday's column from MSNBC's Bob Sullivan, is that consumers fear overdraft fees more than fraud. Hmmm....would that have anything to do with the fact that customers PAY for overdraft fees while the bank picks up the tab for most fraud?

But even overlooking that minor piece of common sense, how does annoyance at overdraft fees equate to being "scarier than criminals?" The headline does a disservice to Sullivan's well-researched and thoughtful column.  

What Banks Should Do
While the headlines will hopefully be a bit more objective, expect more of the same in the coming year. Overdraft fees are becoming a big story. And as the 2008 election cycle kicks in to full gear, expect more grandstanding from politicians on both sides of the aisle. No one wants to be on record as being "for" overdraft fees, or any bank fee for that matter.

Banks need to do two things to head off a PR disaster and avoid pricing caps and/or more regulation from Congress:

1. Look hard at overdraft fee policies including both size and timing of the charges. And if you do find a way to cap/lower or lower overdraft fees, wrap that news in a big bow and deliver it to your customers for the holidays. And if you have a lower fee than the big banks in your market, by all means, let your customers know.  

2. Proactively sell overdraft protection options and balance-awareness services such as online/mobile banking and low-balance alerts via email and text message.

And one more thing:

In press interviews and marketing messages, eliminate all references to "courtesy" and "a service for our customers" in describing overdraft fees. Stay on the message that the onus is on the customer to track their balances. Here's a great response, ABA congressional testimony quoted in the MSNBC article:

The bottom line is that customers are in the best position to know what their actual balance is -- only they know what checks they have written, automatic payments they have authorized and debit card transactions they have approved," Nessa Feddis, a spokeswoman for the American Bankers Association, said during congressional hearings earlier this year. "Simply put, consumers are in control of their finances and can avoid overdraft fees.

Comments

Holiday Gift Ideas From My Bank?

By Jim Bruene on December 4, 2006 10:49 PM | Comments

Link to ING Direct store Who'd have guessed banks would become a popular source of holiday gifts, other than good old-fashioned greenbacks of course?

Now that niche audiences can be targeted with online promotions during the holidays, many financial institutions are marketing financial products packaged as gifts. Prepaid Visa/MasterCards are the hottest item, but there's also potential in other areas. 

Gift cards
The second most popular gift item this year, after apparel, is expected to be prepaid cash cards. While the majority of the $20+ billion purchased will be direct from retailers, hundreds of banks and credit unions, such as Boeing Employees Credit Union (BECU) have joined the fray (see email below). If marketed right, financial institutions could gain a significant share of total sales. See our previous post here about integrating gift cards into online banking for more information.

Boeing Employees Credit Union gift card email BECU CLICK TO ENLARGE

Credit reports
Equifax
is taking advantage of the giving season to market credit reports and/or FICO score gift certificates. The cost is $20 for a three-bureau credit report, $15 for the FICO score and explanation, or $30 for both (see email below). An even better gift would be a year of credit monitoring.

Equifax email for credit report gifts CLICK TO ENLARGE

Investment accounts
For years, ShareBuilder has marketed "the gift of stock" during the holidays. This year, many of its partners, such as National City Bank, are offering a $50 gift card as a bonus for new accounts (see screenshot below). That way grandma and grandpa can give junior something that's good for him, an investment account for the future AND something he'll actually like, $50 to spend at the mall.

National City Sharebuilder landing page CLICK TO ENLARGE

Piggy bank 2.0
The Savings Machine from ING Direct For the younger set, ING Direct has for a year been selling The Savings Machine, a toy bank/calculator/ATM machine. And judging from the note on its website,* it's proving to be a popular Deal of the Month with a lower $17.95 price tag which includes free shipping (see inset). Several years ago, ING Direct reported nearly a million dollars in sales from its online merchandise store <shop.ingdirect.com>, an inexpensive way to get its name on the street.

*Note by the "Savings Machine" product page today: All orders placed from 4 Dec to 11 Dec will be shipped out the week of 11 Dec due to the large amount of backorders.

Comments

Automobile Title Insurance has Fee Income Potential

By Jim Bruene on September 18, 2006 11:12 AM | Comments

When it comes to generating incremental fee income, it's difficult to find new ideas. One you may not have considered is automobile title insurance.

Although we've purchased two used cars on eBay, we'd never heard of title insurance for autos until we read about it in the Wall Street Journal today. For a one-time fee of $50 to $60, consumers can buy insurance that protects them against fraudulent titles, including instances where a salvaged auto has had its title wiped clean by registering the vehicle in a state with more liberal salvage rules.

Firstam_titleguard_logoAccording to First American Corporation, which markets a $49.95 policy in a joint venture with Experian Automotive, 20% of salvaged autos end up with clean titles. The product is called TitleGuard Vehicle Title Insurance and is sold through a stand-alone website <autotitleguard.com> and through resellers such as Credit Union Direct Lending and Escrow.com.

Financial institution opportunities
There are two ways financial institutions could use title insurance:

  1. Education: In your auto-loans area, explain the ways that car titles can be manipulated with links to outside informational sources.
  2. Resell title insurance: Title insurance is most needed when purchasing vehicles from unknown private parties. Even if you don't finance such transactions, you could earn commissions on customers referred to third parties for title insurance.
  3. Bundle title insurance with loans: If you offer financing for private transactions, you could bundle title insurance with your loan to help differentiate your product and help justify premium pricing. The title insurance could be mandatory or optional and either way could be priced as a fee-based add-on or included in the regular loan-origination fee.
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Integrating Gift Cards into Online Banking

By Jim Bruene on July 24, 2006 9:42 AM | Comments

Gift_card_1Gift cards are hot, accounting for nearly 5% of holiday spending last year. How can banks leverage this interest?

There are two broad categories to consider:

  1. Prepaid MasterCard/Visa
  2. Single-merchant gift cards

Most discussions in the industry are centered around prepaid MasterCard/Visas, but we think there is a significant opportunity in the second category: merchant cards. Here are ways for financial institutions to jump onto the gift-card bandwagon:

Easy (requires little investment, primarily customer education):

  • Purchase education: Provide consumer education on the pros and cons of merchant gift-card purchases and urge customers to charge the cards to your credit or debit cards. Emphasize built-in protections such as fraud guarantees, tracking, and so on.
  • Purchase incentives: If your systems allow it, add an incentive such as a 1% rebate, sweepstakes entry, or purchase protection.
  • Directory: Publish a list of stores that are selling gift cards and/or create an online directory where cards can be purchased online.

Harder (requires programming, employee training, and more)

  • Starbucks_cardreloadIntegrate gift-card account-access into online banking: Using account-aggregation technology, such as that offered by Yodlee, CashEdge and others, link to the merchant's gift-card account-management area such as <starbucks.com/card>. The integrated view would provide a secure and easy way for customers to manage their gift card accounts.
  • Offer automated reloading via your debit/credit card: When gift-card account balances get low, offer to automatically reload from your credit/debit card. Reloading could be manual or automated, e.g., "Add $25 to my Starbucks card whenever it dips below $5."
  • Send low-balance alerts when gift-card accounts dip below a set amount.
  • Resell merchant cards via shopping cart such as The Card Cafe <cardcafe.com> (see screenshot below)

Giftcard_cardcafe

Hardest (requires customer training, sales, and website programming)

  • Issue gift cards on behalf of merchants
  • Giftcard_northampton_chamber Sponsor your own gift card network with a stored-value card that can be used at multiple sources. For example, the Northampton Chamber of Commerce <northamptonchamber.com> markets a gift card that can be used at 50 local merchants (see inset). The card, which can be purchased, reloaded, and tracked online is powered by Swipe It Technology <swipeit.com> which offers turnkey gift and loyalty packages beginning at $299, plus a $12 monthly fee and $0.23 transaction charge. Other vendors include eCardSystems <ecardsystems.com>, Valutec <valutecardsolutions.com> and Value Gift Card <valuegiftcard.com>.

The business case
There is a surprisingly good business case for integrating gift cards into your online banking service with not one but three potential revenue streams:

  1. Interchange from loading/reloading: Provided customers load the card via debit/credit, you can earn 1.5%+ on the load, for a $50 card, that's $0.75 per load
  2. NSF/OD income: Every debit card purchase increases the chance of an NSF/OD item; assuming one of every 300 cards loaded results in an NSF/OD fee, the profit per load is $0.10 ($30/300).
  3. Merchant commissions: Selling cards at your website could earn $5 or more per card sold.

The program also brings in the usual intangibles: new customer accounts, positive PR, branding benefits, retention and so on.

--JB

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Making Money the Old-Fashioned Way: Fees

By Jim Bruene on September 8, 2004 3:20 PM | Comments

In the U.S., online banking fees have all but disappeared. Online account access fees went by the wayside at the beginning of the Internet era (circa 1995) and bill pay fees have been disappearing in the wake of Bank of America’s highly advertised strategic decision to give away bill payment beginning in 2002. However, as we discussed last month, do not give up the notion of charging for online services. On the contrary, as more users go online, there is a much bigger market for premium services along the lines of American Express and Federal Express. Following is our list of potential fee-based services and the range of potential charges. The “Low” column lists the range of fees geared towards consumers, while the fees in the “High” column are more appropriate for small businesses, which are much less fee averse, and other high-end consumers.

Note: Commentary applies to the U.S. market only. Other international markets have much different appetites for or against various fees.

 












 

Source: Online Banking Report, 9/04
Notes:

*The fees in the Low column are more appropriate for average consumer users; the fees in the High column are more appropriate for micro and small businesses, and some consumers with complex finances; for simplicity, we have rounded most fees to the nearest whole dollar; however, common retail pricing practices are to set prices below natural price points such as $9.95 instead of $10 

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Categories: Fee Income

Making Money the Old-Fashioned Way: Fees

By Jim Bruene on September 8, 2003 11:25 AM | Comments

With the exception of bill payment, online banking fees have mostly disappeared. In the U.S. even bill pay fees are under pressure, especially in Bank of America’s markets, where it’s been advertising free bill pay for more than a year. However, you shouldn’t give up the notion of charging for online services. On the contrary, as more users go online, there is a much bigger market for premium services along the lines of American Express and Federal Express. Following is our list of potential fee-based services and the range of potential charges. The “Low” column lists the range of fees geared towards consumers, while the fees in the “High” column are more appropriate for small businesses.





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Categories: Fee Income

Making Money the Old-Fashioned Way: Fees

By Jim Bruene on November 3, 2002 7:12 PM | Comments

Online banking fees have fallen dramatically since the early ‘90s when $10 to $15 monthly fees were the norm. Now, BofA is telling everyone that it makes more money giving bill payment away due to increased account retention and customer acquisition. However, there is no need to throw in the towel and give up the notion of charging for your services. On the contrary, as more users go online, there is a much bigger market for premium services along the lines of American Express and Federal Express. Following is our updated list of potential fee-based services and what you might charge for each










Source: Online Banking Report, 10/02

*The fees in the Low column are more appropriate for average consumer users; the fees in the High column are more appropriate for micro and small businesses, and also for consumers with complicated finances. **User receives a call telling them to login to a secure voice mailbox or Web site to receive the details

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Categories: Fee Income

Making Money the Old-Fashioned Way: Charging Fees

By Jim Bruene on July 1, 2000 9:20 AM | Comments

When we first ran this table in 1997, there was a bit more hope that fees for premium services might take hold online. At that time, there were still banks charging $10/mo or more for a package of generic online services. Even though we’ve seen most fees fall by the wayside (except $3-6/mo for pay-anyone bill pay), we still think there is an opportunity for value-added providers to levy fees for premium services along the lines of American Express and Federal Express. Following is our latest thinking on the potential range of fee-based services that could be offered.








Source: Online Banking Report, 7/00        Note: Range of fees provides are for consumers unless otherwise noted; in general businesses are likely to pay far higher fees because timely information on changes in their financial position can have a significant impact on their bottom line


 

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Categories: Fee Income

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