I've always been a bit perplexed by how the online application process ends with such a whimper at many financial institutions. Often new applicants receive little more than two or three lines of small text such as:

Thanks for applying! Please watch your mail. Within 7 to 10 days you should have your xyz account. 
If you have any questions, call 800-YOURBNK. Have a nice day.

Think about how anti-climactic this is. Customers have just gone through an intensive research process, decided to go with xyz bank, evaluated the various options at the bank, figured out how to apply, located the necessary documentation, read through the disclosures, entered their most private financial details and passed through an online identify verification. 

Then after all that work customers receive in exchange no more than a short thank-you message and perhaps a confirmation code. Generally, customers can't even log in to their new account.

Here's where a new customer stands after submitting an online app: 

• They cannot explore their new account to see how it works
• They cannot verify the opening balance or pending deposit to see if it was processed properly
• They cannot add additional funds to their new account
• They cannot access their money to make a purchase, even via online shopping
• They cannot set up bill payments, change passwords, set up alerts, adjust account preferences, add mobile banking or any of the dozens of activities that have to wait until account materials arrive in the mail
• Users cannot purchase other products, consolidate balances, transfer info from an old account, order checks, contact customer service, refer friends, or do anything account related

New users are basically abandoned on-screen with absolutely nothing to do. The dead end is not only a bad first impression, but also affects account activation and engagement, resulting in lost profits.

This standoffish behavior may be partially rationalized: Since many applications will ultimately be denied, why waste time with someone who may not even qualify? But we know it makes no financial sense to treat every applicant as a potential loser. Why not assume everyone is a winner, and go from there if they are not?

So it was refreshing to find a financial company that understands the importance of a good start. Mango Financial <mangomoney.com>, is another startup out of MPower Labs, the financial incubator from the the founders of NetSpend, brothers Bertrand and Roy Sosa. Two other MPower ventures debuted at FinovateSpring 2010, GoalMine from Gratio Capital and MPower Mobile (videos here).

The prepaid cards are issued by Austin, TX-based Horizon Bank, SSB.

How it works: The sales process for a Mango prepaid card is short and sweet, as it must be. It takes less than a minute to sign up. Users are automatically issued a reloadable plastic card which is shipped immediately, even before you load money on it. The company also issues a virtual card, which can be used immediately after money is loaded onto the card.

The card can be loaded via electronic bank transfer (ACH), direct paycheck deposit, or through retailers such as Walmart and CVS via Green Dot. Electronic loads are currently free of charge, while retailer-based loading costs $4.95 per transfer.

After the simple application process, users are presented with an action-oriented page (see first screenshot below). Users are congratulated for becoming Mango members (second screenshot) and given clear choices on what to do next (third screenshot) including a $20 incentive for directing their paycheck into their Mango account, making the prepaid account a clear checking-account substitute (note 1).

1. Final screen of successful application process at Mango Financial (18 June 2010)

2. Closeup view of the confirmation section above

3. Closeup of the "what to do next" options

4. Mango Financial homepage (17 June 2010)

Notes:
1. Mango offers an additional incentive to add direct deposit. Only direct deposit customers are eligible to open a 5.1% APR savings account (first $5,000 only).
2. Mango has a two-page prepaid card application (click to enlarge).

3. For more on online account opening, see our Online Banking Report: Online Account Opening (June 2009).

Sometimes, banks forget the importance of simplicity, especially when it comes to less-than-crucial, ancillary services such as a prepaid teen account. Sure, I'd love to have a reloadable card that my son could stow in his backpack for emergencies. But I'm not going to spend a half-hour looking for one, applying for a new account, and then trying remember where and how to access it (see note 1).

But if the process was painless and integrated with my online banking, I'd buy a half-dozen prepaid cards, one for each child, one to toss in the glove box of each car, and another for my briefcase (note 2). 

It looks like PayPal is the first to step up to this challenge with its new student account (company blog post) which has been in beta testing since last November (beta site; note 3). The account is free of charge (note 4), and signup takes just 51 seconds.

Signup & funding
Current PayPal customers can sign up their kids for an account in under a minute. That includes clicking on the <paypal.com/StudentAccounts> URL, completing the six-field app (see first screenshot), all the way to the approval screen confirmation (screenshot #2). And, half that time was simply logging in to my PayPal account. If I'd already been logged in, the total time to complete the application, process it, and receive approval would be just 23 seconds! That's the fastest financial services application I've ever completed by a factor of 10 (note 5).

The account, which shows up as a link at the top of the parent's PayPal account (screenshot #3) includes parental controls for all transaction types and comes with both an online account and a PayPal prepaid MasterCard debit card. Both will come in handy for today's teens, who cannot easily shop online without credit or debit cards of their own.

Transferring funds to the account takes mere seconds, and parents can choose from one-time loads or periodic transfers so the card can be used to accumulate an allowance (screenshot #4). Transfers show up in real time, with green color-coding, after hitting enter (screenshot #5).

Overall grade: I give it an A+ for ease of use and an A+ for value, a winning combination. Nice work. 

1. PayPal teen card application for current PayPal customers (12 Aug 2009)

2. Congratulations screen

3. Student account, and prepaid balance, shows up on the parent's main account overview page 

4. Funds transfer screen 

5. The funds transfer is immediately displayed within the student account area

Notes:
1. The final item is why the Visa Buxx card never worked for me. I bought one but could never remember how to access it or add more money.
2. Verient is doing some very cool things to help in this regard; we'll profile them here soon.
3. Hat tip to Payments News for the link.
4. ING Direct's system for creating a new savings sub-account is similar speedwise, but it's not technically a new account. 
5. The only major fees, besides PayPal merchant fees, are the $1 ATM withdrawal fee and a 2.5% foreign currency fee.
6. For more info on online account opening, refer to the latest issue of Online Banking Report: Improving Online Account Opening ROI.

With capitalism bruised and battered in the past year, it's more important than ever to teach our friends and family about the ultimate upside of business and commerce, the potential to lift families out of poverty permanently. And the need is high, as always.

Unless you have your own personal foundation, there is no better way to do that than by spreading a bit of your wealth around the globe through microfinance companies such as Kiva.org, eBay's MicroPlace, and a host of others.

This holiday season the major microfinance companies are making it easy to spread the word, and the money, with gifting options. And with Christmas just a week away, here's a last-minute option that doesn't require a trip to the mall. 

Kiva <kiva.org>
Kiva is using the same approach as last year, but with an updated paper gift certificate (see below) that can be printed and given to the recipient or sent directly through email. It's a simple solution that works fine for its rabid fan base. The homepage (below) features a prominent link to the gift page and a counter across the top tracks number of certificates purchased this week (more than 13,000!).

MicroPlace
MicroPlace has a snazzier gifting landing page (see below), not surprising given its eBay backing. The microfinance nonprofit is promoting gift options heavily across the Web, with a large banner last week on the search results page at BN.com (see below) and a costly top banner and right-side skyscraper ad on TechCrunch yesterday (see below).

Microplace is spurring giving with a small Chilean piggy bank that will be sent to the recipient along with an e-card (givers can choose not to send the bank). But the big difference with Microplace's gift program is that it's only a "gift in your honor program." That means the giver chooses the entrepreneur to invest in, rather than the recipient. That gets the money invested faster, but it's not as satisfying a learning experience, either.

Final comment: There's not much here that needs improvement. But I do think it would be better to let the giver decide whether they want the recipient (of the gift card) involved in choosing who gets the micro loan. 

And financial institutions: Here's a great cause to get behind. Not only does it make a difference, it shows you support the small business community.

Kiva homepage features gift option (17 Dec 2008) 

Preview your gift certificate before sending (17 Dec 2008)

 
Microplace ads at Barnes & Noble (early December 2008)

Banner on top of TechCrunch (16 Dec 2008)

 Microplace gifting landing page (17 Dec 2008)

Like Rate Surfer, which we wrote about yesterday, Expensify launched its new employee expense-management system from the TechCrunch50 DemoPit this week.

The San Francisco-based startup (note 1) combines a payment card with a Web-based expense manager and uses cellphone cameras to upload pictures of receipts to match against purchases. It's a banking triple play: card, online, and mobile.

The target market is smaller businesses that want to automate expense report preparation, approval, and reimbursement to their employees.  

How it works
The heart of Expensify is a prepaid, decoupled credit card. I know that doesn't make sense, but here's how it works: 

1. Sign up for an Expensify MasterCard prepaid debit card.
2. Load it with value from any credit or debit card, Visa, MasterCard, or American Express. 
3. Make purchases with the Expensify MasterCard.
4. As each purchase clears, the prepaid balance is lowered, triggering an automatic "top off" charge of an equal amount to the consumer's credit card, thereby returning the prepaid balance back to the original level.

Metabank is the issuer; here are terms and conditions.

Analysis
At first blush Expensify sounds pretty amazing. An expense management card that rides on top of your regular card, with mobile and Web-based integration. Brilliant, until you start thinking about costs. There's that pesky thing called interchange. What Expensify has done is create two card transactions instead of one, doubling the amount of interchange paid.

To cover the extra interchange and create some revenue for itself, Expensify levies a 3% transaction fee on the cardholder. Although the card is otherwise relatively fee-free, that's a significant surcharge.

Why would anyone pay 3% extra in order to use the Expensify card when they already have a credit card? The company believes that small businesses will pay the fee in order to get the expense-manager features and to help employees separate business expenses from personal ones. Businesses could have multiple Expensify cards tied to different categories of expenses (see screenshot below).

A business with just $1000/mo in expenditures would pay $360 per year. In addition, the business would tie up several hundred dollars in a prepaid account, because the only charges cardholders can make must not exceed the prepaid balance held in the Expensify account. 

I think the expense-management concept is good, especially with the mobile receipt integration, but it's just too expensive in its current format. The founders should try to move to an ACH-based "topping off" process and remove the transaction fees. 

But regardless of how this specific product performs, the integration of payments, online and mobile, is a huge trend. If Expensify is nimble enough, they may be able to ride the wave.

Expensify homepage (10 Sep 2008)

Note:
1. Since I didn't see contact info on their website, here's what the founders provided at TechCrunch50: Expensify, 548 Market St. #61434, San Francisco, CA 94104, Phone: 801.745.9064

In our annual Christmas/New Years survey of bank websites (note 1), we once again find little use of holiday themes, especially among the very largest. Scrooge would be pleased with the homepages of the top four: Citi, BofA, Wachovia, and Chase which have no holiday images or messages.

Wells Fargo is the only top-5 bank with a holiday message. The bank wishes its customers Happy Holidays (see below) in a top-of-the-page banner rotating with two other messages: a savings promotion that also uses holiday imagery (below) and an investments banner (not shown). 

However, this year there is one top-20 bank fully embracing the holiday spirit. ING Direct homepage (screenshot above, download flash in note 2, below) features a full-screen animation that first strings Happy Holidays across the page followed by the ING Direct orange ball rolling across the screen, bumping into the tree trunk, and dumping a load of snow on top. It's very well done.   

Also, honorable mentions to:

• Fifth Third and its $10,000 holiday sweeps
• Regions Bank, which is running a Toys for Tots banner across the top
• PNC with its annual tongue-in-cheek Christmas Price Index

Additionally, WaMu and Key Bank use winter imagery. And HSBC, US Bank, SunTrust, BB&T and Citizens are all running small banners for prepaid gift cards.

Wells Fargo

Fifth Third

Regions

PNC                                                              WaMu

Key Bank

HSBC                          SunTrust            US Bank

Citizens Bank

BB&T

Note:

1. Websites observed at 9 AM Pacific Time, Dec. 24, from a Seattle IP address.

2. View the ING Direct holiday animation (here)

One of the biggest changes in the payments landscape during the past decade is the use of prepaid gift cards, especially during the coming holiday period. According to the National Retail Federation, $28 billion changed hands via prepaid gift cards during the holidays last year, almost $300 per U.S. household.

Assuming a $50 average load per card, the $28 billion holiday spending translates into more than 500 million individual cards. At a conservative $2 per card in revenues, that's $1 billion at stake during the holiday period alone.

It seems that banks and credit unions would be ideally suited to cash in on this interest. Yet, a recent Marketing Workshop survey revealed that only 1% of gift card purchases during the past year were at banks. Granted, it's difficult to compete with card sales at the end-retailer, but nearly a third of buyers used other channels, a significant revenue opportunity.

Here's a card-purchase breakdown from the last holiday period, according to the National Federation of Retailers (research conducted by BIGresearch, 10 Jan 2007).

• 75%—bought at the store where cards will ultimately be used
• 17%—other brick-and-mortar locations
• 13%—purchased online, retailer-direct
• 4%—third-party website

The directories at Visa and MasterCard (see list below) list only 19 financial institutions offering prepaid cards online. An additional 30 financial institutions sell cards thorough Visa's online site here.

Why such low FI sales?
Back to the original question, why aren't banks more heavily invested in gift card sales (see list of sellers below)? Part of the explanation has to do with the general unwillingness to take on the added fraud exposure, especially from online sales. However, financial institutions can mitigate much of that by offering the cards to established customers only.

Another reason is the lack of merchandising expertise. Bank branches and websites are generally not set up to merchandise spur-of-the-moment products. That weakness can be overcome online with tight integration into the online banking area. If banks had a "gift card" tab available in online banking, I believe it would become the primary option for many customers in the market for a gift card.  

Financial institution opportunities
Even though brick-and-mortar sales dominate with an 85% share of transactions, physical  locations by no means have a lock on the business. I recently purchased several store cards at a third-party location (Safeway). While it was convenient and free, I wasn't at all sure that the Safeway clerk actually activated the cards, a significant drawback in the buying experience. 

It's tempting to think banks could recreate the success of other retailers by selling cards in branch. But without the retail POS systems needed by card wholesalers to plug the bank into their card-selling networks, it can be costly to equip bank branches with a card-selling system. Add to that the expense of training tellers, educating customers, and potentially backing up the teller queue on Christmas eve.  

So the better opportunity for most financial institutions is online sales. You already have the traffic; the technology expense can be centralized in one fulfillment location (or outsourced); and it's easier to educate customers online. Online Resources is one established bank-tech vendor with a turnkey, multi-card solution, CardHQ, introduced last year.

Banks and credit unions could become players in this market if they did some or all of the following:

1. Expand from Visa/MC/AmEx used by 12% of buyers, to store cards, used by 90% of the market (see list of card types below).  
2. Provide written activation guarantees with each card.
3. Allow users to check balances online or through text messaging.  
4. Keep prices competitive. Safeway charged ZERO for the Nordstrom card I purchased there, apparently content with the commissions received from the retailer. Because of the activation guarantee, banks could charge a few dollars per card, especially if the card is packaged in an attractive envelope or box that reinforces the guarantee and the bank's brand (see #5).
5. Use online banking to promote the cards. 
6. Offer a variety of packaging alternatives and/or personalization to improve the cards appeal as a gift. Starbucks, the granddaddy of prepaid cards, is offering a $25 package in its stores that includes a personalized $20 card and a gift box. The package is bought in-store, but the personalization is fulfilled online.  

Card types
Here's the list of most common card types purchased (offline and online):

• 38%—department store 
  
• 27%—restaurant
• 18%—book store 
  
• 16%—electronics store
• 15%—discount store
  
• 12%—Visa/MC/AmEx
  
• 11%—coffee shop
  
• 11%—home improvement 
  
• 9%—clothing  
  
• 7%—grocery store
  
• 6%—gas station
  
• 5%—salon/spa
  
• 5%—sporting goods
  
• 4%—home decor/housewares
  
• 3%—craft store
  
• 3%—online merchant
  
• 2%—office supply
  
• 2%—catalog
  
• 2%—shoe store
  
• 10%—other 

Companies Offering MasterCard or Visa Gift Cards Online

MasterCard

BankFirst
Western Union Prepaid Card

H&R Block Bank
H&R Block Emerald Prepaid MasterCard

HSBC
HSBC Prepaid MasterCard GiftCard

Keybank
Best Present Holiday Bonus & Incentive Card

MetaBank
AccountNow Vantage Debit MasterCard

NetSpend
All-Access MasterCard Prepaid Card

Washington Mutual
Washington Mutual Prepaid MasterCard Gift Card

Visa

BCU (customers only)
Available to BCU members only
Financial Institution

Comerica (customers only)
Phone: (800) 955-4212
Available to Comerica customers only
Financial Institution

DeluxeCard
Phone: (866) 874-9029
Retailer/Other

Desert Schools FCU (customers only)
Phone: (800) 456-9171
Available to Desert Schools FCU members only
Financial Institution

First National Bank of Omaha
Financial Institution

GiftCards.com
Phone: (877) 944-3822
Retailer/Other

iCARD
Phone: (636) 536-6897
Retailer/Other

IDT Gift2go
Phone: (800) 995-3065
Retailer/Other

M&I Bank
Financial Institution

National City
Phone: 877-990-GIFT (4438)
Financial Institution

Navy Federal Credit Union (customers only)
Available to Navy Federal Credit Union members only 
Financial Institution

PNC Bank (customers only)
Available to PNC Bank customers only
Financial Institution

SunTrust
Phone: (800) 318-0210
Financial Institution

U.S. Bank
Financial Institution

Wells Fargo (customers only)
Financial Institution

West Suburban Bank
Financial Institution

Source: Visa, 3 Nov 2007.

When it comes to stored value cards, Starbucks is the one to watch. It's most recent innovation: a Mother's Day "card" with a place on the plastic where you can jot a quick note to mom (see close-up below).

Don't you wish you would have thought of that?

The Starbucks stored value card, first introduced in 2001, is just now being positioned as a collectible. Stores in the Northwestern United States and in Japan are selling a sealed $10 prepaid card carrying the likeness of popular Mariner baseball player Ichiro Suzuki. The cards are also sold online at Starbucks.com.

Analysis
We believe stored value gift and travel cards are a natural for online banking. They provide an interesting retail element unavailable with most banking products.

The Starbucks email (click on the thumbnail above) is a good example. What bank product would have worked so well in a Mother's Day promo?

In additio to their marketing benefits, prepaid cards command fees and can be profitable; no small matter in the United States, the land of free online banking and bill pay. 

Ironically, Bank of America recently dropped out of the retail prepaid card business, most likely due to increased state rules and regulations on dormant account fees, one of the primary profit drivers for banks.

Don't let BofA's move worry you. Just be thankful there are now 12 million more potential customers for the rest of the industry to share.

--JB