It's extremely difficult to win the transaction accounts of small businesses. By the time you know of their existence, they already have their bank accounts in place. And most small businesses are too busy to bother switching accounts to save a few bucks a month, or even to get better products or services.  

One way to grab market share is to find businesses when they are in the pre-startup phase, before they've set up banking accounts. In pre-startup, the prospective business owner is in pure research mode, spending little or no cash. To find these businesses, you need to offer online information that startups value and can find at your site, such as new-business planning advice. Then entice the owner to establish bank accounts with a package of services that appeal to a new business owner.

Bank of America is on the right track with its sponsorship of Microsoft's new Startup Center <startupcenter.com>. It's more like a product placement than a "banner ad" sponsorship. The BofA logo is never even seen in the main content area.

However, the bank's content is tightly integrated throughout, especially in the Finances area. For instance, if a business owner wants to "set up a checking account," the links to detailed information such as "compare now," "get a recommendation," and "get a business check card" all link directly to content housed on Bank of America's website (see screenshot below).

MasterCard is also a primary sponsor, but its content is less integrated. The third core sponsor is Startup Nation.

Analysis
It makes sense for Bank of America to be involved in Microsoft's Startup Center, a  beautifully designed tool all decked out in "Web 2.0" colors and graphics. The content seems appropriate and useful for a startup. However, it will be a challenge for the area to gain traction with actual startups, who are unlikely to be looking to Microsoft for assistance, unless they are software developers.

But you don't have to be a mega-bank or mega-software company to provide valuable services to startups. Financial institutions can partner with local professional service firms such as accountants, consultants, and attorneys, to create content for startups such as Webinars, and in-person seminars. A well-priced package of banking services, positioned and priced for startups, will help you grab new business in the startup sector.

Examples of startup products and services at financial institutions:

• CIBC startup area
• Lloyds TSB Business Extra package for startups
• Bank of Montreal business startup package
• Simply Startup Business Checking from First Light Federal Credit Union

For more information, see our Online Banking Report on Small and Microbusiness Online Banking (here). Thanks to Payments News for the link.

Who's gone where this week at MasterCard, Optimal Group, and Asia Payment Systems.

Javier Perez was named president of MasterCard Europe, effective March 10. Perez reports to MasterCard’s chief operating officer, Alan Heuer. Perez joined MasterCard in 1996 and has been president of MasterCard's Latin America and Caribbean Region since 2004. (Contact: MasterCard Int’l, 914-249-5622)

Mitchell Garber resigned from Montreal, Canada-based Optimal Group Inc. on March 6 to pursue other opportunities. Garber was executive vice-president of Optimal Group, president and chief executive officer of Optimal Payments Inc. and executive chairman of FireOne Group PLC. Benjamin Dalfen, previously director and chief operating officer of FireOne Group PLC, was promoted to chief executive officer of FireOne Group, and Douglas Lewin became president of Optimal Payments. Lewin had been director and executive vice-president of Optimal Payments Inc. (Contact: Optimal Group Inc., 514-738-8885)

Rosaline Tam is joining the board of Hong Kong-based Asia Payment Systems Inc. Tam, a long-time payments veteran, replaces Matt Mecke, who resigned from the board. (Contact: Asia Payment Systems Inc., 760-918-5592)

We are beginning to hear intriguing whispers that, post-IPO, MasterCard will begin authorizing non-banks to be card issuers.

Continue reading "Will MasterCard Allow Non-bank Issuers?" »

People have grown wary of credit cards. They’re paying them off faster; generally, debit cards are edging them out as payment vehicles. And at least for now, home equity loans are increasingly more popular than credit cards among consumers (click on inset for more details and see tables below).

The result? Credit card portfolios are losing profitability, even though net losses and delinquencies are down, and serious questions about the industry’s future are surfacing. So are questions about how wise banks were when they snapped up most of the monoline credit card operations last year. The business model needs an overhaul, says observers, but so far, issuers are just changing the oil. And there may be no way out.

Continue reading "Credit Card Portfolios: More Pressure, Less Profitability." »

New product announcements from The Clearing House LLC, MasterCard, VISA, and more.

Continue reading "New Financial Products from Mastercard and others" »

The potential of cellphone-based mobile payments to eventually squeeze banks out of their central role in payments can already be seen in East Asia, says Andrei Hagiu, a principal at Market Platform Dynamics, and by ignoring it, American banks have nothing to lose but their business.

Hong Kong’s Octopus prepaid debit card (see inset) is one example: Issued by Hong Kong’s subway system and several other transportation companies—with no bank involved—Octopus cards drive about $2.2 billion in annual payments volume.

Continue reading "Mobile Payments: Japan Leads the Pack" »

Germany’s federal monopolies body, the Bundeskartellamt, received a legal complaint from the German Retail Association, alleging that interchange fee charged MasterCard and VISA, which average 150 basis points, prevents widespread credit card acceptance in Germany.

In a statement, the Association, a lobbying group, said that credit card payment account for only 5 per cent of all retail sales in Germany. The complaint calls on the Bundeskartellamt to cut interchange fees and to increase payment card transparency. It claims these steps will improve competition in the credit card sector. Spain, says the group, has ordered a step-by-step reduction of interchange to between 0.54 per cent and 1.10 per cent by 2008.

This should be a watershed year for payments cards. The approaching MasterCard IPO, and Visa's likely response, will likely reform the sector's fundamental business structure. Meanwhile, First Data Corp. is undergoing profound changes, and it's unlikely that either Discover or American Express will be twiddling their thumbs while the future of the card associations is decided.

The MasterCard IPO will likely have the greatest impact on the space, thinks David Evans, founder of Market Platform Dynamics. "It will force them to become a much more entrepreneurial and different organization than it's been in the past, partly because of changes in the marketplace, but also because of organizational changes that will change the dynamic of that entity," because of the need to satisfy its new investors, he says.

Continue reading "Payment Cards Watershed - MasterCard IPO" »

In the coming year, low-value payments and prepaid cards will be increasingly mentioned in the same breath, especially in conjunction with off-line, contactless methods, says Gwenn Bezard, partner in Aite Group.

Pilots, and even some deployments of contactless payment cards, will be making a significant appearance, if only because banks are pushing them. The main sticking point from the merchant perspective, Bezard says, will be the cost of interchange, but he expects some banks to offer breaks on fees, if only to give the venue a running start. He is optimistic that big merchants will follow Starbucks’ model and offer rechargeable, merchant-specific stored-value cards as a means of gaining market share and promoting customer loyalty.

Continue reading "Low Value Payments & Stored Value Cards" »

We've been tracking the developments in account-to-account transfers closely, in preparation for an upcoming Online Banking Report on the subject. It's tough to get a handle on the actual dollar volumes, so we were pleased to see American Banker's Daniel Wolfe quantify the market size.

In Friday's article (subscription required), MasterCard's TowerGroup payments analyst, Beth Robertson is quoted as saying that in 2004, $730 billion was transferred via account-to-account transfer (i.e., a funds transfer from an individual's account at one financial institution to the same customer's account at another). That amounts to more than $7000 for each of approximately 100 million U.S. households. All but a billion or so was initiated off-line.

But the online portion is growing. CashEdge the leading supplier of online account-to-account transfers, expects to process $6 billion in 2005, that's about $200 annually for each of the 30 million or so U.S. online banking households. However, fewer than 50% of those households have access to online account-to-account transfers.

--JB

MasterCard RPPS

Launched in 1987 as MasterCard Remittance Processing Service, the company serves as a payment and presentment hub that currently handles most electronic bill payments. In March 2000, the company added electronic bill presentment to its focus and changed its name to MasterCard Remote Payment and Presentment Service, commonly called RPPS. According to the company, it’s connected to 95% of the participants in the EBPP industry.

Most of the 3,000+ U.S. financial institutions offering pay-anyone bill payment use RPPS indirectly, first originating payments through CheckFree, Metavante, or Princeton eCom. The bill payment processors then route most electronic items through RPPS that deposits them in the biller’s account.

RPPS is expanding internationally as well. It has the capability to settle payments in 37 countries, including Australia, Canada, Hong Kong, Malaysia, New Zealand, Singapore, South Africa, the U.K., and the European Union.

Don’t hold your breath, but the Secured Electronic Transfer (SET) standard for Internet credit card purchases is almost here. MasterCard, Visa and their partners expect to issue the first SET mark — think of it as the SET seal of approval — by Aug. 31, according to industry execs speaking at a recent Internet payments conference in Berkeley, CA.

SET specs were published in June and in late July, MasterCard and Visa formed a body called SetCo to test, certify and police SET-compliant applications. “But it’s not (happening) nearly as fast as vendors would have you believe, and it’ll be up to you to make sure the pieces work together,” Nick DiGiacomo warned bankers attending a meeting sponsored by the National Automated Clearing House Association (NACHA) and Citation Internet Consulting Group.

DiGiacomo is CEO of Tenth Mountain Systems Inc., which will handle testing with SetCo. Companies that pass will sign a trademark licensing agreement to display the SET logo on their Web site.

Meanwhile, SET pilots continue. Beginning this month, Mellon Bank and MasterCard will issue SET credit cards to Mellon and federal employees to purchase U.S. Savings Bonds and federal surplus merchandise online. Bank of America is slated to conduct a live trial by September.

DiGiacomo urged retail banks to get in on the action by issuing SET-compliant wallets to customers — but don't be surprised when they call with questions, he said. “We recommend setting up informational Web sites to take the offensive,” he said. DiGiacomo’s 10-step SET plan for banks:

1. Learn about it. Give responsibility for setting up a SET program to a staffer, not consultant. “You have to have an internal advocate.”

2. Create plans for marketing, security, roll out, and customer service, and establish criteria for choosing platforms and vendors.

3. Choose a certification authority and get SET software certified through SetCo.

4. Choose a SET server that connects to the Internet, existing banking systems, payment networks.

5. Integrate SET with merchant account balances, statements, payment networks.

6. Select customer electronic-commerce software.

7. Have your SET service tested, preferably by an outside party “so you don’t run into blind spots.”

8. Establish support services such as operations, maintenance and customer service, and make sure systems are in place to meet regulatory, compliance and audit requirements.

9. Participate in a pilot with explicitly stated entrance and exit criteria. Pick “friendly” partners, not Net-heads, as testers. Use results to measure acceptance or resistance to e-commerce in and outside your organization.

10. Keep your SET service updated.

SET was among several Internet payments issues discussed at the first of a series of seminars to be held around the country through October by NACHA and Citation, a Texas-based consulting group.

Other Conference Highlights

Online Bill Pay: Do consumers want to pay their phone bill at the phone company Web site, their gas bill at the gas company site, and so on, or visit one place to pay everything? Checkfree, MECA, Microsoft and BillSite are betting on the latter and building mega-Web sites they’re marketing to telephone companies, utilities and others. But CyberCash VP Richard Crone believes consumers will want to hop from site to site, and utilities will want to stick bills on their own sites so they can sell ad banners. Meanwhile, Internet bill trials continue, and a few pioneers such as National Utility Investors  www.nui.com and Brooklyn Union Gas www.bug.com are already online. Predicted for the future: PointCast type systems that broadcast bills to consumer’s e-mail boxes.

Other Net-Based Debit Transactions: EFunds Corp., a Tustin, CA, online payments company, has outfitted 150 to 200 merchant clients to accept debit payments via the net. Of 100,000 to 150,000 payments processed so far, only 10 haven’t cleared, “so small it’s probably bank error,” said Neil Godfrey, EFunds CEO. According to Godfrey is EFunds is unique in providing merchants with a turnkey system — hardware, software and gateways to banks.

By the Numbers

• 90% of top 50 U.S. banks will offer full-service Internet banking by 1999.
• By 2000, 1,100 banks will offer full-service Internet banking.
• By 2000, 85% of Internet-capable banks will offer DDA accounts.
• Consumers made $1 billion in purchases on the Web in 1996.
• Women now constitute 42% of the Internet population.
• By 2000, consumer and biz-to-biz e-commerce transactions will hit $150 billion.
• Commercial “.com” Web sites jumped to 623,002 in May 1997 from 123,372 the previous year.
• 69% of all billers with five million or more customers will begin building BPM by the end of 1997.

Source: Various speakers at CICG/NACHA Internet Payments Conf.

Micropayments: Digital Equipment Corp.’s Millicent micropayment system should be available to consumers by year’s end, offering script in increments of a tenth of a cent to $5. Companies offering content during a trial phase: Reuters, Music411, Songline Studios and Investors Daily. Digital expects Millicent micropayments to grow to $4 billion in revenue by 2000. That’s counting on 25% of the net population spending 50 cents a day, said Stan Hayami, Digital’s Micro-Commerce Business Mgr.

Net-Based EDI: Lawrence Livermore National Laboratory, a $1 billion government research lab in Livermore, CA, spent 10 months and $60,000 moving its electronic data interchange (EDI) operations to the Internet, working with banking partner Bank of America. Two years later, the lab uses the system to make $15 million in monthly payments to vendors, and 96.3% of payables go out on time. So far, Lawrence Livermore is Bank of America’s only EDI customer using the Net, but the bank’s working to line up new customers, according to BofA EDI Specialist Rett Summerville.

Electronic Postal Service: Add the U.S. Postal Service to the list of players wanting into the e-commerce arena. The USPS is looking for partners for test of a time and date-stamped electronic postmark to begin this fall, with commercial availability in summer 1998. Proposed price: 22 cents per message of 50K or less. Law firms and financial services companies are two top prospects for the services, said Leo Campbell, USPS e-commerce manager. The USPS is also looking into offering electronic P.O. boxes, and hasn’t decided whether it will become a certification authority for digital certificates.

More on Digital Certificates: Market leader VeriSign will issue Class I, II and III digital certificates, to be used in SET transactions. Free Class I certificates verify an e-mail address; Class II cost $19.95 and include name, address, e-mail address authenticated against Equifax or other consumer credit database and verified via snail mail (see also QSpace p. 5). Class III aren’t being issued yet, but will involve some type of in-person identity check, said Bob Pratt, VeriSign Product Line Manager. VeriSign plans to roll out a digital certificate corporate outsourcing service this fall.

NACHA: To help speed up development of Internet payments, NACHA’s Internet Council is participating in a project with Mellon Bank, Bank of America, ABN AMRO, and others to test issuing and honoring digital certificates. A NACHA Internet Council working group is analyzing whether consumers could use the Internet to make direct ACH payments, with or without a signature. “If a consumer could transact with a bank to pay a merchant, it could be more practical and useful than making a payment directly to a merchant they don’t know,” said Leilani W. Doyle, a NACHA Internet Council member and Division Manager, Citation Internet Consulting Group.

Coming Attractions

NACHA and Citation Internet Consulting Group will hold Internet payments conferences in Denver, Chicago, Atlanta and Boston between August and October. Find more information on the NACHA Web site www.nacha.org  or call 703.742.9190.

Contacts: Rett Summerville is EDI Specialist at BofA, 415.436.5488. Leilani W. Doyle is Division Manager at Citation Internet Consulting Group, 713.461.1592, ldoyle@cicg.com . Richard Crone is VP at CyberCash, 415.413.0165 or rcrone@cybercash.com . Stan Hayami is Micro-Commerce Business Manager at Digital, millicent@digital.com . Neil Godfrey is CEO at Efunds, 714.259.5266, info@e-funds.com . Nick DiGiacomo is CEO at Tenth Mountain Systems, 619.458.2655, nick@yourservice.net . At the U.S. Postal Service, Leo Campbell is E-Commerce Manager; Kim Parks is New Business Sales Manager 703.526.2655. Bob Pratt is Product Line Manager at VeriSign, 415.429.3427.

Michelle V. Rafter

Michelle V. Rafter covers the Internet for Reuters, WebWeek, the Los Angeles Times and others. Reach her at mvrafter@deltanet.com .

Most online banking programs feature the same features and benefits. Add some pizzazz to your offerings and distance yourself from the encroaching herds.

Last month we looked at fee-based revenue opportunities for online banking, an important medium-to long-term aspect (3-5 years out). But in 1998, it’s not about fee income but differentiating your financial institution (below); serving your wired customers online; and getting noticed.

First, we’ll assume that you’ve already implemented or are working on the five basic Web banking functions. If not, these are first priority:

Where do you go from here? We think the best ways to make a name for yourself online in 1998 and 1999 are in three areas:

• Push services, also know as alerts, e-mail, Webcasting, Netcasting, or outbound messaging.
• Bill presentment and automated payment processing services.
• Privacy-protection and fraud-prevention services.

We’ve written about this so much during the past four months our word processor practically refuses to type these buzzwords any longer. But there is a reason we are harping on this subject. Not since the invention of the ATM has there been such a promising new way to differentiate banking services. Following are five push tactics designed to bring you fame, fortune and new customers next year:

1. Send “event” reminders by e-mail, fax, or voice message a few days in advance of any due-date such as CD renewal, IRA funding, loan payment due, etc.

2. Offer free rate watch services sending a message when loan or investment rates hit user-preset values. Can be used on mortgages, CDs, bonds, and other loans. Alternatively, users could signify a target loan amount/payment.

3. Send balance alerts when checking, savings, money market, or overdraft protection accounts reach prespecified high and low limits. Since not everyone checks e-mail every day, consider fax and/or voice message options.

4. Offer “deposit assurance” with confirmation messages whenever certain types of transactions occur such as checking account deposits, out-of-state POS purchases, telephone transfers, etc.

5. Provide activity-based messaging services that give account holders a heads-up whenever account activity surpasses the preset trigger points. Citibank highlighted this tactic in a recent credit card direct mail piece calling it Fraud Early Warning (Brochure copy reads: “If we notice any unusual spending on your account we may alert you to confirm that is was you who incurred those charges.”)

Digital Bill Payments

We have long advocated a go-slow approach to offering so-called electronic bill payment. The customer service headaches have made electronic bill payment less than optimal both for consumers and financial institutions.

It’s time to end that cautionary thinking. Web-based bill presentment is just around the corner and with it will come the critical mass of billers ready and able to receive payments and accounts receivable information completely electronically. You can start now to position your company as a player in this area. When the Microsoft/First Data venture gets off the ground in 1998, there will be a flurry of consumer interest. Take advantage of the hype by being the first bank on your block to put bill presentment on its Web. You could end up being the local expert source on the subject for years to come.

There are several ways to go about positioning yourself as a digital payments pioneer:

6. Develop your own in-house bill presentment program with just one or two local billers. You get a head start on the field, while differentiating yourself and the biller as highly innovative.

7. Enthusiastically embrace the Microsoft/First Data joint venture, MSFDC. Get in the press now as the first financial institution to publicly commit to offering the service. Work with MSFDC to put a customized version of the bill presentment demo onto your Web this fall.

8. Become the first bank to offer “100% Pure Electronic Bill Payment,” by limiting bill pay merchants to just those that offer end-to-end electronic payment.

9. Become the first bank to offer “100% Guaranteed Bill Payment.” Back up your marketing claims with a bullet-proof guarantee that takes full responsibility that all payments are made on time.

10. Help users put their payments on autopilot by automating repetitive payments, setting up preauthorized debits, having bills automatically charged to credit cards, establishing automatic average payments, and consolidating redundant accounts (e.g. roll those three $50 credit card payments into one home equity account/payment).

Privacy and Fraud Prevention

In August’s FutureBanker (published by American Banker), cyberpundit John Perry Barlow, founder of the Electronic Frontier Foundation, advocates an unusual role for banks. Become the “Swiss Banks” of the Internet, providing total confidentiality for buyers. Banks would issue Internet aliases that consumers would use to conduct transactions on the Internet. Merchants would know only that the bank guaranteed good funds. The consumer’s identity would be confidential, only divulged under court order. An infrastructure would be needed to handle delivery of physical goods. Shippers such as Federal Express could contract with the bank to divert shipments to the proper party.

This is probably more privacy protection than the average law-abiding citizen needs, but it’s worth pondering. There might be a happy medium that banks could fulfill. The whole area of financial privacy and fraud protection has been a source of discomfort for consumers for several years. And the Internet has only exacerbated the situation. Financial institutions, which rate high in consumer trust, could step in and take on the role of privacy fiduciary.

This month MasterCard and Visa have done their part to boost consumer confidence in card products. First, MasterCard formally extended the $50 maximum liability to debit cards. Visa one-upped them by declaring a new “zero liability” policy on all its card products (if the stolen card is reported within two days, $50 otherwise).

Here are some of the things you can do in 1998 to become a financial privacy advocate:

11. Offer branded e-wallets, such as that from CyberCash. The wallet allows consumers to pay by credit card without revealing their number to the merchant. This will boost consumer confidence in purchasing goods and services from unknown Web merchants. It will also prevent the kind of screw-ups experienced by ESPN SportsZone which had an unauthorized user access an order processing file that contained credit card numbers. (The security breach was not malicious…no accounts were compromised.)

12. Provide credit report information, either through a relationship with the major marketers of merged credit reports, Credco’s Confidential Credit, or CUC’s Privacy Guard. For an easy solution, simply provide a link to the online credit reports at QSpace or Experian when its service goes back online (see opposite page for details).

13. Develop a fraud protection icon such as “100% Fraud Free” or “protected by yourbank.” The intent of the label would be to ensure users that whenever they use your checking/ATM/credit card, they needn’t worry about being on the hook for fraudulent activity. You already absorb these costs anyway, why not get some credit for it.

First USA ($22.4 billion; 16 million cards) invited users to apply for its newest affinity cards, PGA TOUR and Senior PGA TOUR MasterCards, online at either <www.firstusa.com> or <www.pgatour.com>. We would have been more impressed had the January 24 dated press release not said the online applications would be available “later this spring.” Leo McCullagh is VP Mkt. PGA TOUR. William Nutting is SVP Affinity Marketing at First USA, 302.594.4000.

MasterCard (New York) made sure the world knew about the first Secure Electronic Transaction (SET) sent over the Internet on Dec. 30. Full-page ads in American Banker and The Wall Street Journal heralded the milestone. MasterCard, who has been on the sidelines of the online banking hype most of the year, needed the positive PR. In other news, MasterCard revamped its Web site <www.mastercard.com>. The site is somewhat less hip than its predecessor which debuted in 1995, but it’s much easier to use. A good trade-off. But it still desperately needs a site map and/or search function. Cathleen Conforti is VP Remote Banking, 914.249.4212.