Over at Online Banking Report, we just posted the latest report, our 13th annual Online Banking Planning Guide (2008 version). It includes 60 pages of ideas, tips and tools to help you generate new ideas, plans, and strategies for 2008 and beyond. Subscribers, you may download it now (here) as part of your subscription. Others may purchase (here).

While there are more than 500 online banking product and marketing ideas in the report, we hand-selected 15 to put on the hot list for next year:

• Alt-mortgage zone
• Balance transfers
• Fraud monitoring
• Green banking
• High-yield savings
• Home equity center
• Long-term archives
• Microbusiness services
• P2P loan servicing
• Personal finance
• Premium/VIP online banking option
• Prepaid cards
• Problem mortgage help
• Web 2.0
• Widgets

An unpublished study being completed by Market Platform Dynamics says there’s little data to support assertions that mobile payments will become the payment vehicle of choice for the people under the age of 40 called Gen X and Gen Y. According to the company’s multi-year research, 62 percent of respondents said they think using cell phones as payment vehicles is unnecessary, and 38 percent said they don’t use their cell phones enough to make it worthwhile. The good news: People born since 1977—Gen Y’ers—like the idea better than their Gen X elders. Last week, founder Market Platform founder David S. Evans spoke with NetBanker about his findings, and their implications.

NB: Tell us about the difference in attitude between the 16-to-19-year olds and older people.

Evans: The very young people indicated they’re more interested in using their mobile phones as a payment device, and the very old people—real geezers in their late-30s to early-40s—are less enthusiastic. Everyone else is about the same [as the geezers]. But still, even 50 percent of the real kids say ‘not really interested.’

NB: Most of the enthusiasm for mobile payments is based on the idea that these children are going to be flocking to use their cell phones like they do in Asia, and that therefore, mobile payments is not only the wave of the future, but also the demise of the credit card and the credit card brand as we know it.

Evans: Let’s be careful about a couple of things there. First of all, and despite the survey results, I’m still bullish on mobile phones eventually becoming payment devices. The thing you need to keep in mind is that people can’t really imagine what it is like to use one of these things until you actually present them with the goods. So, despite these numbers, I’m still bullish on mobile phones.

Number two, you say ‘Displace the credit card industry.’ There are two issues: One, whether the mobile phone is going to become the new form factor—just a physical thing that people use instead of a magnetic stripe card. The other question is whether the possibility of the mobile phone carriers being in the loop has an implication for the card system.

Those are two different questions. For the second question: What is currently happening in the U.S. is that the mobile carriers are not expressing, at the moment, great enthusiasm to be card systems. But having said that, it’s ultimately the mobile operator that has the relationship with the customer, so the mobile operators are being injected into the payment eco-system, and it’s possible that that could have some implications for the card associations. But it’s pretty complex.

NB: It seems to me that the real impetus here is going to be the first question—will the form factor impel the cell phone operators into the loop.

Evans: That’s correct: If consumers are interested in using their mobile phones as payment devices, then you can be sure that ultimately, the mobile phone operators are going to want to figure out some way to get a piece of that action.

NB: Based on your research so far, what are those indications?

Evans: Based on what’s happening in Asia, and looking at the U.S., our sense is that in the long run, and despite the lack of enthusiasm that we get in the survey, the mobile phone has many advantages as a form factor, because of the possibility of its being a contactless device with a graphical user interface—able to do lots of different stuff and being ubiquitous as well. So it’s a natural thing for them to become an important—if not the—form factor for paying for things.

NB: So I take it that your ultimate conclusion here is that this will happen, but it will take longer than some enthusiasts may be suggesting.

Evans: That’s correct, and I think the survey results indicate that people aren’t going to flock to this thing just because it’s new, and whoever is trying to push this form factor on consumers, or on merchants, is going to have to present a solid value proposition to the consumers. Consumers will have to be able to do something with this device that they can’t do with their current, easy-to-use magnetic stripe card. It underscores the fact that the introduction of a new technology in the payment card space is always an uphill battle.

NB: So first of all, the way to accelerate adoption will be to offer something the cards don’t do, aside from being able to use your cell phone as a gizmo; and number two, the people who want to push adoption will have to be willing to buy market share by accepting lower margins today.

Evans: I don’t necessarily agree with that. If you can come up with a clever, valuable thing on the mobile phone that is of interest to consumers, consumers will be interested in it. And that can happen without necessarily taking a hit on margins.

NB: Would that include rewards programs?

Evans: It may turn out that mobile phones make it easier for card issuers and merchant participants to have rewards programs, because you have a graphical interface on the phones. That implies that you can basically beam rewards to people. There are more clever things you can do with a computer than you can do on a mag stripe card, or even a contactless chip card. So that’s one of the value propositions that one can start thinking about with mobile phones: Are there ways to turn the mobile phone into something that’s valuable to both consumers and merchants?

NB: And what do you think?

Evans: Once you start moving towards a smart computing device with a screen, there is an enormous amount of things, including rewards, that people in this business can start thinking about—things we can’t even imagine. The mobile phone is most interesting because it truly is a computer. And in other parts of the information technology world, we’ve seen that once you start talking about software platforms for computers, developers come up with all sorts of ideas about how to use that computing power. That’s the true excitement of the mobile phone.

NB: So the payments mechanism will just be included in the phone, and over time, people will use it more.

Evans: We have to be careful about one thing, though: When you think about people using mobile phones, we’re talking about contactless, and therefore the adoption of mobile phones as a payment device is tied to the adoption of contactless at the point of sale by merchants.

NB: Which is the chicken-and-egg issue.

Evans: It’s a chicken-and-egg issue. There are all these contactless cards out there now, but there aren’t a lot of merchants that accept them. But if consumers wind up really liking the idea of contactless mobile phones as a payment device, and people start getting those sorts of phones, it could propel adoption of contactless. Having said that, if I gave you a mobile phone with a contactless chip today that was an incredibly powerful payment device, you could use it at your local McDonald’s to buy a Big Mac, but not much else.

NB: Everything you’ve said is contingent on a screen. What does your research tell you about what people say will be the generation after cell phones—a chip embedded in a wristwatch or token?

Evans: I don’t think that’s after mobile phones—I think it’s pre-mobile phones. One of the things that came out of our research is that our respondents exhibited utter lack of enthusiasm for fob-like devices.

NB: Yet most people have predicted that that is the next generation after this, and that’s what’s going to atomize the brand value.

Evans: The Gen Y people indicated slightly more interest in fobs than Gen X, but no one expresses a lot of interest in fobs.

NB: I infer from that that some of the anxieties that I’ve heard about the next generation of payment devices atomizing brand value is, at a minimum, overdone.

Evans: Yes. I don’t think there’s any reason to think that mobile phones are going to atomize the brand. I think that the major implication is that in the long run—five to ten years—mobile phone carriers are potentially important players in the eco-system, and whether they  become allies of the card systems, or whether they think about becoming alternatives, or allying with someone else, remains to be seen. But it’s certainly not going to atomize the industry—it’s just going to inject another set of interested parties into the business.

NB: What’s happened in Japan [where DoCoMo already operates a thriving mobile payments system] could be done in this country just as easily. Do you think that could be the disruptive element that could marginalize cards?

Evans: It’s possible, but there are very important differences between Japan and the U.S. Japan has a poorly developed card industry and not a lot of interest in the use of credit cards. It has enormous interest in the use of mobile phones. DoCoMo got established in Japan mainly because people don’t have personal computers, and there is an extensive broadband penetration, so Japanese consumers standardize all their Internet activities on mobile phones. And you have companies that are able to push the mobile phone manufacturers around and tell them what to do. When you come to the U.S., you have totally different sorts of operators and a very, very well-developed card industry, with plenty of muscle behind it. So I think the [U.S.] mobile operators are an interesting set of entities that, as the mobile phone becomes a more important payment device and gets injected into the [U.S.] payments eco-system, could alter that eco-system. It could possibly take on a more significant role. But I think that’s a long time coming, and certainly not imminent. It remains to be seen whether that is even a plausible outcome in the U.S.

(Contact: Market Platform Dynamics, David Evans, 617-266-6839)

Worldwide electronic payments are set to double over the next four years and will outpace the growth of the global economy, according to a Global Insight study sponsored by ACI Worldwide Inc.

Also in the study: The United States writes ten times the number of checks (35.25 billion) as France (3.7 billion), which writes the second-largest number of checks. And while the United State currently has the largest global share of electronic payments measured by percentage—31.5 percent, compared with the second-place United Kingdom’s 8.8 percent—the U.S. compound annual growth of electronic payments trails nine countries, including Poland, Mexico, and Russia, and is only about equal to worldwide transaction growth. 0Charts can be seen by following this link, courtesy of ACI Worldwide: http://www.aciworldwide.com/pdfs/2006_Payments_Market_Study.pdf

Much of that growth will take place in the world’s emerging economies, especially China, India, and Eastern Europe. This is partly because those economies are still largely cash-based, and any measured growth in electronic payments reflects expansion from a small statistical base. But it’s also because as emerging economies grow, increasing numbers of payments are made electronically, while much of the paper that needs to be wrung out of the global payments system originates in the United States.

While Europe, Canada, and the United States continue operating what are, at best, enhanced legacy systems, developing regions are installing the latest payments technologies. Trends taking shape today suggest that going forward, the world’s emerging economies will enjoy the benefits of advanced-payments technology, allowing stronger and very competitive financial institutions with greater liquidity to develop and grow, while the world’s established economies, constrained by slower payments processing, will experience some erosion of their current dominance.

This result will obtain because modern payments processing is more efficient and less expensive than payments processing on legacy systems. In turn, this creates larger operating margins and greater profits for institutions not wrestling with cobbled-together legacy systems.

Institutions free of the relative operational constraints of such legacy systems also have access to better and more timely portfolio information, which in turn creates more balance-sheet liquidity and more effective risk management.

As a result, such institutions will qualify for the lower-risk capital requirements permitted under the Basle II accords, giving these institutions—and their customers—more money to invest or lend. Resources like that will enable both the institutions and their customers to be more competitive on the global stage, probably at the expense of U.S., Canadian, and European institutions and businesses.

“There’s certainly a need for some reinvention and recapitalization on our part in order to bring things up to a more competitive level,” says Mark Lauritano, Global Insight’s managing director of the lending and payments practice. “The margins are shrinking, which makes it more difficult (for the legacy system-based institutions), and it’s a big challenge, I think, for players in that industry.”

Going forward, and even though the operational risks and costs implicit in meeting the challenge posed by more modern payments systems are large, Western institutions have little choice but to make these investments, because India and China will be able to be quite aggressive on the world stage.

An institution with the modern risk management systems made possible by advanced payments and reporting mechanisms can, for instance, bid more aggressively for large loans, because they can more finely granulate any portfolio risks. That allows them to accept tighter margins, and thereby edge out less well-supported competitors.

The danger to Western economies posed by such modern systems in the hands of our competitors—but not in ours—is even more fundamental than mere business lost, thinks Lauritano, if Western institutions continue to outsource their operations to the lowest-cost provider.

“It’s definitely a competitive threat down the road, but you also have to wonder about the (national) security questions about having all your processing done in China or India,” he says. ”There are certain factors that will prevent a wholesale movement of transactions away from this country, but that having been said, there’s a certain class of transaction that will just go to the lowest-cost provider. I think it’s definitely something people in the industry are paying close attention to, and need to, to position themselves down the road.”

One horrible example: If India and Pakistan go to war again, India could easily choose to punish us—if we tilted towards Pakistan because of the war on terror—by curtailing, or merely slowing down, our access to our own payments transactions. Similar calculations based on perceived national interest could affect other nations, should we begin diversifying our outsourced operations from India.

As a result, thinks Lauritano, Western institutions need to start making the large but necessary investments implicitly called for in the study.

“One of the takeways of the study is that despite the relative growth patterns that are emerging by region, it in no way suggests that the level of investment should follow the same relative patterns,” he says. “There is a need to continue to invest and upgrade, because many of the emerging markets are getting the latest technology, and that will put them good position on a global competitive basis.” (Contact: Global Insight, Mark Lauritano, 781-301-9123)

No U.S. bank and only one payments processor made a recent listing by Business Week of the world’s 100 most innovative companies.

This was embarrassing to say the least: In a business in which revenues are relatively fixed and operating margins thin, and the best way to make money is to refine operations, you’d expect that any top 100 innovator’s list would be littered with the MasterCards and CheckFrees of the world. But only Capital One Bank (# 37) represented payments processors on the list, and only three banks made it—Australia’s Macquarie Bank (#62), Holland’s ING Bank (#68), and Spain’s BankInter (# 86). No payments vendor appears anywhere, although Woolworth’s made the list at #75.

Adding to the disgrace was the fact that there seemed little reason for it. Boston Consulting, which conducted the research for Business Week, asked 1,700 top executives—including chief information, financial, and operating officers—which companies seemed to them to be most innovative. Since any changes in a supplier’s computer system would have been brought to their attention so they could adjust accordingly, people like that would have been aware of any such events, and that awareness should have affected their judgments.

The fact that no payments processors and only one U.S. bank made the list strongly suggests that the people responding to the list hadn’t heard much from their payments processors in at least a year, the inference being that at a minimum, companies like First Data Corp., Fiserv, or Bank of America aren’t engaged in the same level of continual improvement as the companies that made the list.

Even Boston Consulting was at a loss to explain the apparent lapse: “My guess is it’s a perception issue,” says Jim Andrews, the Boston Consulting senior vice president who was responsible for the research. The list was created by asking those 1,700 senior executives—worldwide—who came to mind when the issue was posed, he says, adding, “I’m not sure their payments processor, or even their credit card company, necessarily comes to mind relative to organizations” such as Google and eBay—list members which near-daily tell customers about upgrades and changes in how they’re doing things.

What’s causing this sorry state of affairs? Perception, agrees George Thomas, executive vice president of the Clearing House Payments Company LLC. “People don’t even know who we are— we’re the plumbing,” he says. “We’re in a dull business. It’s exciting to us—it’s held my interest for 25 years—but it’s not to anybody else. Most people take payments for granted.”

Thomas says the main reason for the lapse is money. Primary payments channels—the ACH or ATM networks, for instance—are so entrenched that replacing them would not only be a tremendous headache, but also hugely expensive.

A good example, he suggests, is the $10 billion bill the European Central Bank has sent to Europe’s banks as their contribution to the Single Euro Payments Area (SEPA). And in fact, creating an entirely new payments channel—especially since the current avenues work perfectly well—could hardly pass some cost-benefit analyses. The exception: Some sort of government mandate to spend the money in the name of a higher good. This was the case with the estimated $600 million spent by all parties to create the Continuous-Linked Settlements Bank, which clears and settles most of the world’s currency transactions.

“All the innovation is in the user interface. The core processing doesn’t change, because it’s too hard to make the changes,” says Thomas. “All the constituencies that would have to be involved to make that change have to participate and spend the money, so what companies like PayPal are doing is trying to innovate on top of the existing payments systems.”

Even his own company’s innovations, which he concedes build upon the existing payments infrastructure, take long times for adoption, he says, because the constituencies resist change. Corporations, he notes, still rely on checks for most payments, despite some inroads made for the ACH network by companies like his.

True enough, says Dan Schatt, a senior analyst at Celent Communications. He agrees that many of the issues arise from perception, but says there’s also a fair amount of inconvenient truth to the list. “Most of what payments companies do is a matter of saying ‘me too,’” he says.

Another problem: Protecting the status quo, says Schatt. “Look at how Visa is rolling out its mobile platform,” he says. “They’re so concentrated in ensuring that there’s complete control over the payments stream, from the issuer’s perspective, that they kill it.”

The real problem for payment companies, though, is that however inconvenient or expensive it may be to innovate in the payments space, it’s still necessary; otherwise, over time, the alternative is to go out of business.

“What this (list) tells me is that companies like First Data are really dinosaurs,” he says. “They are being disrupted. They are not fast enough to go into this new space, nor do they have an innovative culture.”

The full Business Week list can be found at www.businessweek.com/magazine/content/06_17/b3981413.htm (Contact: Boston Consulting, Jim Andrews, 617-973-1382; The Clearing House Payments Company, George Thomas, 212-612-9200; Celent Communications, Dan Schatt, 650-627-8897)

Right around the corner is a world with neither cash nor payment cards. Contactless payments mechanisms—built into cell phones or even jewelry—are helping create this world, and the result will help change banking, thinks Theodore Iacobuzio, managing director of Tower Group’s executive research office.

The reality is that companies that once fed the banks’  payment networks—merchants, for instance—will be future competitors. But banks shouldn’t panic about this, any more than when, not so long ago, the Internet was supposed to be extinguishing banks. And banks won’t be disappearing now, either, thinks Iacobuzio: the anxiety over banking’s future, so prevalent in boardrooms around the country, is overdone.

Continue reading "Cash and Cards Are Both Endangered Species" »

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." »

Last week’s news that First Data Corp. will spin off its Western Union operations to First Data shareholders and create a company worth an estimated $20 billion is probably good news for Western Union. Noting that the parent company will be keeping its card processing, card services, and international business lines, observers were asking what had otherwise changed.

The answer: Nothing. “The bottom line for me is that this doesn’t change the realities, which are that even though they’re going to reconstitute what First Data will be, it doesn’t change the facts that Western Union, while it’s a good business, is facing increasing competition around the world, that the card business is struggling mightily, and that merchant processing is a commoditized business,” says Scott Kessler, who follows First Data for Standard & Poor’s.

Continue reading "Western Union Spin Off May Do Little for First Data" »

The following matrix is designed to assist your business planning process. Consumer strategies are divided into three broad categories: product, general marketing (on- and off-line), and customer satisfaction/service. Each broad category is further divided into groups of tactics aimed at a common goal. Finally, every tactic is categorized as either:

·         Best Practices (column 1): Required features that every competitive financial institution should support

·         Competitive Advantage (column 2): Top-rated features that differentiate you from the competition

·         Others (column 3): Other optional features to help set you apart and/or support other company objectives

Source: Online Banking Report, 9/04
Notes: (1) Features to put you at parity with the best online banks; (2) Differentiating strategies that provide either a competitive advantage, incremental profits, or both; (3) Other optional tactics to create competitive advantage and/or support other company goals.

In theory, small and micro businesses represent one of the most lucrative, and relatively untapped, sources of incremental business. The reality is that businesses are difficult to reach unless you are competing for their loan business. A product offering optimized for business will differ somewhat from one built for consumers. The following excerpt from our Microbusiness 2001 Special Report* is a checklist to assist you in planning your service offering. The features are divided into nine categories:

1.       Statement data: viewing and organizing balance

2.       Customer service: customer care delivered over the Internet

3.       Accounting services: financial management tools

4.       Payments and billing: e-checks, bill pay, email payments, ACH, wires, invoicing, card processing

5.       Security/privacy: privacy, security, permissions, guarantees

6.       Lending: business tools, news, information

7.       Website content/features: non-financial tools and information

8.       Alerts: email, fax, telephone, and mail activity- and balance-level alerts

9.       Marketing: getting the word out to the difficult-to-find segment

Source: Online Banking Report, 8/03       checkmark = must have feature; R = recommended feature; O = optional feature

The following matrix is designed to help the strategic planning process. Consumer strategies are divided into three categories: products, general marketing, and customer satisfaction/service strategies. Each tactic is categorized as either: Column 1: State-of-the-art, features needed to be among the best online providers: the best out there; Column 2: Competitive Advantage, features that differentiate you from the competition; Column 3: Other tactics.

Source: Online Banking Report, 8/03
Notes: (1) Features to put you at parity with the best online competition.
(2) Differentiating strategies that provide either a competitive advantage or incremental profit opportunity or both 8

Generally, the biggest rewards come to those taking the boldest risks. In the current environment, it may seem risky to
embark on new online banking initiatives. But this is exactly the time your efforts can produce the highest rewards. For example, advertising impressions are more affordable, programming talent is available, and there is less competition online.

To help you plan your strategic initiatives and product priorities, we have developed an Online Strategy Matrix. It is divided into three parts: product strategies, institutional/brand strategies, and customer satisfaction/service strategies. In the first column you’ll find the features and tactics that are currently state-of-the-art. Offer all these and you’ll be the best out there. But if you’d like to go a step further and differentiate your services from hundreds or thousands of others, column 2 contains our “best bets” for creating meaningful differentiation, and column 3 list features that are not widely available.

Source: Online Banking Report, 10/02
*Features to put you at parity with the best online competition.
** Differentiating strategies place you (temporarily) ahead of your online competition.

A crucial part of the planning process is reaching deep to find the best ideas. Many companies already have a process in place, but if you are looking for inspiration, consider the following 6-step approach.

Six Steps to the Big Idea

1.       Do Your Homework (Immersion): Study the situation, visit competitors, read new research, talk to customers, interview employees, attend a conference, poll your customer base, and so on.

2.       Optimize the Environment: Clear away any constraints to thinking, go off site, stockpile the food and coffee, play music; do whatever it takes to let your thoughts flow freely.

3.       Rattle the Brain: Perform “thinking exercises” to limber up the brain before tackling your specific problem.

4.       Generate Idea Nuggets (free form): Think of every possible solution to the problem, regardless of how crazy they may seem, and write them down without judgments or justifications.

5.       Assemble Idea Nuggets Into Strategies and Tactics: Put each nugget on a 3x5 card and arrange the cards into bigger concepts and ideas.

6.       Be Bold: Don’t immediately dismiss strategies that seem too big for your budget; winners could be shopped to strategic investors for additional funding.

Source: Adapted from Jump Start Your Brain by Doug Hall, Warner Books, 1995. A new version, Jump Start Your Business Brain was published in Sept. 2001. Both are available in paperback from Amazon for about $12 each.

Doing Your Homework

To see potential opportunities in a new light, look beyond your normal circle of peers, subordinates, and other industry sources.

1. Launch a Personal Fact-Finding Mission: Find out how consumers currently use online financial services and observe how the services could be improved. For example:

•              have a broad-based conversation with a key vendor
•              arrange for a classroom of MBA students to debate the pros and cons of your online services
•              attend a focus group on online financial services
•              hire a consultant for a brainstorm session
•              sponsor focus groups for branch and call center staff to discuss serving/selling customers online
•              post a quick questionnaire on your Web and have each answer forwarded to your email address
•              issue an RFP (request for proposal) for development of a “next-generation” offering

2. Attend an industry Conference: Away from the daily grind, surrounded by the latest technology and bombarded by new ideas: a perfect prescription for breakthrough thinking. ð

3. Read a Research Report Cover-to-Cover: We know this is going to hurt, but plunk down a couple grand for the latest online banking research, clear a half-day on your calendar, and really read the whole report, not just the executive summary. Even if you don’t believe the conclusions, think about the implications for your company were they to come true. It might help you see things in a new light.

4. Conduct your Own Research: Research culled from your own customers and in-market prospects is infinitely more believable than national studies. If research budgets are nil, you can still post a short survey on your Web for next to nothing and have results tomorrow. The data won’t be projectable to your entire customer base, but it might provide a number of good ideas and insights.

Or if you’d prefer to take a quick reading of consumer sentiment without tipping your hand to the competition, consider tapping into the preassembled panels of Web research companies. At InsightExpress  www.insightexpress.com  developed by NFO Worldwide, you can ask 200 consumers what they think of your idea for an out-of-pocket expense of about $1,000. Questionnaires are easily composed using online templates and you’ll have results back within hours. All results are stored online where you can run your own reports and crosstabs.

Sources for Online Banking Research

Source: Online Banking Report, 10/02

For 2003, we know the purse strings will be tight. Even so, aggressive bets could have a big payoff. Look at 2003 as a setup for 2004. Demonstrate that Web innovations have a quantifiable, positive contribution. Next year at this time you’ll be in a much better position to push through significant investments for 2004.

For example, if you believe as we do that email will be the key method for communicating account information, make sure to at least test email alerts in 2003. For example, take 1,000 credit-qualified customers and monitor their deposit balances. When balances are unusually low, hit them with an email for a preapproved loan. You could run this test manually just to get a feel for response rates. You could use the results to help justify the business case for a bank-wide program of balance-triggered, preapproved credit.

If you are looking to make the biggest bang for your buck (who isn’t?), look to online lending and small- and micro-business initiatives. According to Celent’s groundbreaking study across 1.5 million Digital Insight users, online lending generates four times the combined value of banking/bill pay. Business services were even more valuable resulting in returns of nearly six times that of banking/bill pay (see below).

Source: Celent, 10/01

*NPV over 5 years at a 50,000-customer bank; includes direct revenues, cost savings, and retention. For a better understanding, read Celent’s Customer Retention and Cost Savings Drive Online Banking ROI, published Oct. 17, 2001.

Generally, the biggest rewards come to those who take the boldest risks. In the current environment, it may seem risky to embark on new online banking initiatives. But this is exactly the time your efforts can produce the highest rewards. For example, advertising impressions are more affordable, programming talent is available in most markets, and there is far, far less noise online to compete with. In fact, with so many dot-coms biting the dust, users are more likely to spend some of their online time at their bank.
 

To help you plan the activities that are best for your financial institution we have developed the following Online Strategy Matrix. It is divided into three parts: product strategies, brand strategies, and customer service strategies. In the first column you’ll find the features and tactics that are currently state-of-the-art. Offer all these and you’ll be the best out there. But if you’d like to go a step further and differentiate your services from hundreds or thousands of others, column 2 and 3 provide ideas for features that are not widely available today. Column 2 contains our “best bets” for creating meaningful differentiation.

A crucial part of the planning process is reaching deep to find the best ideas. Many companies already have a process in place, but if you are looking for inspiration, consider the following 6-step approach.

Six Steps to the Big Idea

1.       Do Your Homework (Immersion): Study the situation, visit competitors, read new research, talk to customers, interview employees, attend a conference, and/or poll your customer base.

2.       Optimize the Environment: Clear away any constraints to thinking, go off site, stockpile the food and coffee, play music; do whatever it takes to let your thoughts flow freely.

3.       Rattle the Brain: Perform “thinking exercises” to limber up the brain before tackling your specific problem (see Jump Start Your Brain by Doug Hall for 37 exercises).

4.       Generate Idea Nuggets (free form): Think of every possible solution to the problem, regardless of how crazy they may seem, and write them down without judgments or justifications.

5.       Assemble Idea Nuggets Into Strategies and Tactics: Put each nugget on a 3x5 card and arrange the cards into bigger concepts and ideas.

6.       Be Bold: Don’t immediately dismiss strategies that seem too big for your budget; winners could be shopped to strategic investors for additional funding.

Source: Adapted from Jump Start Your Brain by Doug Hall, Warner Books, 1995; a new book, Jump Start Your Business Brain is due out Sept. 24.

To see potential opportunities in a new light, look beyond your normal circle of peers, subordinates, and other industry sources.

1. Launch a Personal Fact-Finding Mission: Find out how consumers currently use online financial services and observe how the services could be improved. For example:

• have a broad-based conversation with a key vendor
• arrange for a classroom of MBA students to debate the pros and cons of online financial services
• attend an in-person customer focus group on Internet financial services
• hire a consultant for a brainstorm session
  (OBR principals are available for a limited number of engagements, call (206) 517-5021 or email consulting@onlinebankingreport.com )
• sponsor focus groups of branch and call center staff to discuss serving/selling customers online
• arrange online focus groups (users meet online in a moderated chat environment)
• post a quick questionnaire on your Web and have each answer forwarded to your email address
• issue RFPs (request for proposals) from Web development companies or consultants to design a “next-generation” Net offering (Microbanker.com has an automated request tool at  www.microbanker.com/searches

2. Attend an industry Conference: Away from the daily grind, surrounded by the latest technology, and bombarded by new ideas: a perfect prescription for breakthrough thinking. (see below thinking exercise)

3. Read a Research Report Cover-to-Cover: We know this is going to hurt, but plunk down a couple grand for the latest online banking research, clear a half-day on your calendar, and really read the whole report, not just the executive summary. Even if you don’t believe the conclusions, think about the implications for your company were they to come true. It might help you see things in a new light.

4. Conduct your Own Research: Research culled from your own customers and in-market prospects is infinitely more believable than national studies. If research budgets are nil, you can still post a short survey on your Web for next to nothing and have results tomorrow. The data won’t be projectable to your entire customer base, but it might provide a number of good ideas and insights.

Or if you’d prefer to take a quick reading of consumer sentiment without tipping your hand to the competition, consider tapping into the preassembled panels of Web research companies. At InsightExpress  www.insightexpress.com  developed by NFO Worldwide, you can ask 150 consumers what they think of your idea for an out-of-pocket expense of $850.¹  The questionnaire can be completely composed online using templates from the research companies. Another source of similar research is Greenfield Online  www.greenfield.com                             

2001 Thinking Exercise:
New Account Setup for Existing Customers

Account setup is a limiting factor at many banks. Even existing customers must run through a blizzard of paperwork to set up the simplest of new accounts. It doesn’t have to be that way. ING Direct, for one, lets existing customers establish additional savings accounts in real-time with just a few clicks; no application, no paperwork, and no hassle. It takes less than a minute, including funding the new account either from an outside account or from another ING Direct account. It was so easy, we decided to move our kids’ savings accounts into the bank; with no fees and an interest rate four times higher than their current accounts, it’s a great way to save.

To best appreciate ING Direct’s easy account setup, you need to see it in action. So here’s the assignment:

Material needed: paper, pen, your checkbook or checking account numbers, optional stopwatch if you want to learn exactly how long it takes

Instructions:

1.       Log in to your account at your bank.

2.       Start the stopwatch (optional)

3.       Pretend you know little about your bank’s Web site/products and figure out what type of savings account you want and how much it costs; note any improvements that could be made in the selling process.

4.       Sign up for a new savings account at your bank; note the steps you must go through including any offline activities and identify roadblocks in the sign-up process.

5.       Go to ING Direct  www.ingdirect.com  and set up an initial savings account, noting how the process works.

6.       Add a second ING savings account noting how the process works.

7.       Compare ING’s process against yours, noting where improvements can be made.  

¹The company is currently offering first-time users a 50% discount on a
3-pack of surveys; you can also target users of WellsFargo.com, BankofAmerica.com, and/or Schwab.com.