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)

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).

Having 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 

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.

As 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:  

• Mercantile Bank of Michigan's Funds Manager, a $4.95/mo service that gives users a sneak peek at pending transactions, before they can cause an overdraft (previous post).
• LowerMyAssessment.com offers a $125 service to help consumers challenge their property tax assessment for their home (previous post).
• Home-Account charges $9.95/mo for its home-management service (based on a one-year commitment).

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)

Landing page (link, 1 June 2009)

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

Interactive video highlighting benefits

Signup explanation

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).

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
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)

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

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

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

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.

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

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

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

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for its retail customers, allowing them to peek at their pending checks and ACH items a half-day before they are withdrawn from their account (see note 1).

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

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

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

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

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

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

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

I 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. 

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.

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.

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.

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.

Piggy bank 2.0
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.

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.

According 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.

Gift 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)

• Integrate 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)

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

• Issue gift cards on behalf of merchants
• 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

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 

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.

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

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