The latest Online Banking Report: The Case for Mobile Banking is now available. It will mail next week to OBR subscribers. It's also available online here. There's no charge for current subscribers; others may download it immediately for US$395.

There is little doubt that mobile is the next online, not just in banking, but with many information-rich, time-sensitive services. Even in the online-centric United States, we expect mobile banking to eclipse online by the end of the decade. 

Another way to look at it: Starting from essentially zero just three years ago, more than half of the U.S. online banking population will be using mobile banking, by 2015. That's zero-to-40 million households in just eight years.

Most financial institutions should be making their mobile bets during 2010/2011. The report outlines ten ways that mobile banking supports overall strategic goals at financial institutions. It also includes our ten-year forecast for U.S. mobile adoption (note 1).

This report is number four in a series we've published on the mobile area during the past three years:

Note:
1. The mobile forecast was originally published last month in our year-end recap.

Believe it or not, there are just 23 business days left before Q4 2009. That means planning season is just around the corner. To help ease the pain, we offer you the ultimate idea-generation tool; our 15th annual Planning Guide for Online & Mobile Banking.  

The 80-page report is packed with more than 500 product and marketing tactics designed to help you generate new ideas, plans, and strategies for 2010 and beyond.

Online Banking Report subscribers, may download it (here) free of charge. Others may purchase it (here).

Note: Yes, that's USAA's awesome native iPhone app on the cover. Mobile banking, specifically via the iPhone and text messaging, are top opportunities for next year.  See below.

  Twenty projects from the report were selected for our 2010 hot list (in alpha order):

• Activity dashboard/ticker
• Archives, long term  
• Automatic alert enrollment
• Blog/Twitter and other social media
• Credit score/report zone
• Friends-and-family loan facilitation
• High-yield online savings/checking
• Home equity center
• Micro/small-business services
• Native mobile app (iPhone/Blackberry/Android)
• Personal finance functionality 
• Premium/VIP online services
• Prepaid/gift cards
• Problem mortgage resource center
• Retirement planning center
• Service standards/guarantees for online/mobile interactions
• Student banking/financial education center
• Text (SMS) banking
• Ultra transparent (flat fee) mortgages
• Usage-based contests/rewards

I was reading Currency Marketing (note 1) founder Tim McAlpine's ten-part blog opus (here) on so-called Challenge Marketing, a mix of social media, sweepstakes and viral marketing. It's great reading, especially if you are thinking of embarking on a new-media marketing campaign.

In part 4, Tim created a list of media available for marketing messages. I started with his list, added to it, and rearranged the topics. Use this as a cheat sheet in your planning meetings to make sure you've covered all the bases. I know I've missed things, please add to the comments and I'll update the list.

• ATMs
  • Screens
  • Enclosures
  • Receipts
• Blogs
  • Posting/commenting on your own blog
  • Guest posts on others
  • Commenting on other blogs
  • Asking for reciprocal blogroll listings
  • Sponsored blog post (tread carefully)
• Branch
  • Posters
  • Brochures
  • Plasma screens
  • Floor decals
  • Window decals
• Call center
  • On-hold messages
  • Press 1 for more info on ____
• Charitable activities
• Cinema advertising
• Door-to-door
  • Flyers
  • Conversations
• Ecommerce
  • Powered by your brand
  • Advertisements on confirmation screens/email receipts
• Direct mail
  • Postcard
  • Letter
  • Welcome packages
• Direct-to-desktop computer applications
• Widgets
• Toolbars
• Buttons/alerts
• E-mail
  • Direct messages to house or rented list
  • Advertisements/sponsorships within third-party email letters
  • Advertisements within triggered account alerts
• Joint marketing (with other companies)
• Mobile
  • Text messages
  • Downloadable app (iphone, Blackberry, Android)
  • Advertising in other apps
  • Sponsoring other apps
  • Featured at carrier/manufacturer site
• Newsletters
  • Your email/printed/RSS  
  • Third-party properties
• Online advertising on outside properties
  • Banners and other on-screen ads 
  • Advertorial
  • Sponsorships
  • RSS feed ads
  • Social networks (Facebook, MySpace, MSN, others)
  • Search engines (Google Adwords, Yahoo, Microsoft, others)
• Online advertising on your properties
  • Main website
  • Online banking site
  • Logon/logoff splash screens
  • Microsites/landing pages
• Outdoor
  • Billboards
  • Transit
  • Wall projection & other non-traditional outlets
  • Building site signage (construction loan clients)
  • Vehicle signage
• Print/newspaper/magazine
  • Display ad
  • Classified ad
  • Column/op-ed articles
  • Inserts
  • College and other niche publications
  • Yellow pages/programs/directories/etc.
• Promotional item giveaways
• Public relations
  • Appearances and interviews
  • Press releases
  • Spokester (see Currency Marketing's Young & Free)
• Radio
  • 15/30 second spot
  • Advertorial
  • Sponsorship
• Social media activity (note 2)
  • Facebook
  • MySpace
  • LinkedIn
  • Microsoft Live
  • Twitter
  • YouTube
  • Forums
  • Wikis
• Sponsorships
  • Sports
  • Events
  • Charitable efforts
  • Schools
  • Green efforts
  • Anti-fraud education
• Statements
  • Stuffers
  • Messages
  • Envelopes
  • Estatement advertising
• Street-team marketing
• Sweepstakes (on- and off-line)
• Telemarketing
• Third-party locations/publications
  • Advertising/messages
  • Signage
  • WiFi sponsorship
  • Billing statements
  • Websites
  • ATMs/kiosks
• Television
  • 15/30 second spot
  • Product placement
  • Sponsorship
  • Infomercial
  • Online streams
• Word of mouth

Notes:
1. Tim McAlpine has achieved near-rock-star status in credit union social media circles as the mastermind of the hugely successful Young & Free campaign.
Update: 18 March 2009, Tim posted a comparison of the latest Y&F campaign at South Carolina Federal Credit Union compared to the original Alberta one. The latest version is up in every category, a partnership with a local radio station is credited with part of the gain.
2. If you need examples from outside banking, here's a 2-part wiki (here and here) created by social media guru Peter Kim with almost 1000 examples of social media efforts by various brands.

Yesterday, while visiting Boston, we had the opportunity to tour the Bank of America-sponsored Center for Future Banking, a part of the famed MIT Media Lab.

We talked to researchers looking at:

• consumer behavior in budgeting and managing their finances
• mobile ecommerce tagging
• artificial intelligence at the point of purchase

It's always energizing to be on campus and see what the bright minds are up to. It's a great reminder that creative thinking, new ideas, and new technology always propel us forward.

The BofA folks were doing a great job maintaining a positive attitude, but it was also obvious that the events of the past six months have taken a toll. Hopefully, that's temporary. 

A couple interesting conversation points:

• The Center is absolutely open source, dedicated to helping move the industry forward, not just BofA; they hope more banks and industry players will at some point join their research efforts.
• There may be more startups and more innovations due to the economic downturn as otherwise unemployed individuals start new companies. 
• There's more need than ever to rethink traditional models.
• This could be the absolute best time to start a financial services company.  

Thanks to Abhishek Mehta, who splits his time between Bank of America in Charlotte and the MIT Media Laboratory, for spearheading the visit. Thanks also to Jeff Carter, Srini Nallasivan, and David Price from Bank of America for the inspiring conversation. And a special thanks to the grad students and staff at the lab for allowing us to interrupt their work and learn about their projects: Kwan Hong Lee, Katherine Krumme, Nathan Greenslit, and Sajid Sadi.

With the financial crisis still in full swing, it's not easy to concentrate on the 2009 plan. But focus you must.

You can bet that companies emerging from this mess as winners are working overtime right now, plotting how they will grab your market share next year. Yes, budgets will be down, but thanks to the Web and social media, there are more cost-effective opportunities than ever to get your message out.

With that in mind, we offer the latest issue from Online Banking Report, our 14th annual Planning Guide for Online & Mobile Banking (see note 1).  

It includes 72 pages of ideas, tips and tools to help you generate new ideas, plans, and strategies for 2009 and beyond. Subscribers, Online Banking Report subscribers, may download it (here) free of charge. Others may purchase (here).

While more than 500 online banking product and marketing ideas are published in the report, we hand-selected 20 projects for the 2009 hot list (in alpha order):

• Activity ticker
• Balance conversions
• Credit score/report zone
• Flat-fee mortgage
• Green banking
• High-yield deposit accounts
• Home equity center
• iPhone/Android native app
• Long-term archives
• Micro/small-business services
• Peer-to-peer loan facilitation
• Personal finance functionality 
• Premium/VIP online services
• Prepaid/gift cards
• Problem mortgage resource center
• Retirement center
• Service standards/guarantees
• Social media/blogging
• Usage-based contests/rewards
• Widgets

Note:
1. The Netbanker blog (established 2004) and Online Banking Report (established 1994), are written and published by the same company.

With all the bad financial news circling the globe, you may not have been thinking about innovations in financial technology. While that's understandable, this is not the time to ignore the fundamental changes occurring in the consumer marketplace (see below).

Yes, we are biased towards new technology, but with registrations to our upcoming Finovate Conference running 75% ahead of last year, there seems to be plenty of people who agree. By the way, this is the last day to save $100 on your ticket (register here) and ensure your ring-side seat on Oct. 14 to see these 24 inventive financial companies showcase their latest improvements.

But let's address the elephant in the room. Is this the time to be concerned about new bank tech products, or is it time to just hold on and ride out the storm? While good arguments can be made on either side of that issue, here are two interesting examples that made bold bets on online technology in the middle of Internet gloom and doom: 

ING Direct, launched during the depths of the dot-com bust (Sep 2000), is on track to become a top-10 U.S. bank by the end of the decade (note 1)

PayPal, also launched right before the low point (Nov. 1999), now has more customers that any other financial-services provider in the world other than the payments gateways themselves (Visa, MasterCard)

Who will be the ING Directs and PayPals coming out of the current crisis? Your guess is as good as mine, but my vote goes to the companies that do the best marrying online services with mobile delivery.

Why financial technology remains important
There's no doubt that budgets will contract in 2009 and beyond. But new technology usually holds the promise of cutting costs or at least making it easier to serve more customers without adding resources. Here are the trends you cannot afford to ignore in your 2009/2010 plans:   

1. Always-connected mobile consumer: Consumer services continue to move online as ubiquitous broadband and cellphone connectivity keeps most banking households connected 24/7 at home, work, and now with mobile, everywhere. Apple's iPhone, and the next generation of competitive devices, are changing the game in mobile. There are already more than twice as many mobile phones in the world as there are credit cards (note 2). And location-based technology allows users to interact with merchants and payment providers in new and potentially more secure ways.

Implication: Mobile services today are about where the Internet was in 1996. And globally, mobile banking and payments will be even more important than online banking and payments. 

2. Over-extended consumers seek guidance: Just as millions of amateur stock traders learned a harsh lesson about risk vs. return in 1999/2000, tens of millions of consumers will are learning the downside of extensive debt and leverage in 2008+.

Implication: This is a great time to get consumers hooked on tools that help them manage their spending, savings, and debt. And virtually all the activity will take place online with mobile support.

3. Branch exodus intensifies: The U.S. over-investment in branches will come to a screeching halt in 2009. With several of the big branch builders, especially WaMu, being acquired, there will be less of a competitive imperative, not to mention less capital, to build fancy new branches on every street corner. Some of the savings will be funneled into alternative delivery. Even the fanciest website can be built today with the fraction of the cost of a single urban branch.

Implication: Increasingly, financial institutions large and small will compete online.

4. Online research is the norm: According to a 2007 study published in November by the National Association of Realtors, 84% of households used the Internet in their search for a house. And in a dramatic change compared to ten years ago, online sources were nearly as important as humans in locating the house that was ultimately purchased (29% found it online first vs. 34% who said their agent told them about it). Similar numbers are reported for autos and other big tickets items.

Implication: A good web presence is crucial to landing new customers.

Note:
1. Industry consolidation is helping them move up the ranks, they jumped two spots in the past week alone.

2. Source, Communities Dominate Brands blog, 8 Jan 2007 (with updates)

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.

The strategy matrix follows the same format as last year. This year we’ve updated the matrix with more tactics that incorporate screen scraping and person-to-person payment technology now that they are widely available. This long matrix has been organized into five overall bank goals:

*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 six-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, 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 brains run free.

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

4.       Generate Idea Nuggets (free form): Think of every possible crazy solution to the problem, write them down as you go, but make no judgments or justifications at this time.

5.       Assemble Into Strategies and Tactics: Put each nugget on a 3 x 5 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 the venture capital community and/or strategic investors for additional funding.

Source: Adapted from Jump Start Your Brain by consultant Dave Hall, Warner Books, 1995.

Do Your Homework

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

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
• arange 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’s Margaret Quinn, formerly a senior product manager at U.S. Bancorp, is available for a limited number of engagements, contact 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

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. Following is the latest conference schedule.

If you can only get to one conference this year, BAI’s Retail Delivery is by far the biggest. Nearly 10,0000 attendees and exhibitors from around the world will converge on New Orleans the first week of December.

2000 Thinking Exercise:
Person-to-Person Payments

If you’ve subscribed to OBR for long, you’ve read a lot about P2P payments However, if you haven’t already used one of the services, the light bulb still may not have gone off. Your assignment is to sign-up for a P2P account and then use it to buy something on eBay. We recommend using PayPal  www.paypal.com because it’s the most widely accepted alternative on eBay.

After enabling your PayPal account, head over to eBay and search on something you can use or is dirt cheap (or preferably both). Buy two items from two different sellers. Make sure one accepts PayPal for payment.

After winning the bids, pay for one item the old-fashioned way with pen, paper, and stamps. Pay the other with PayPal. Get out a sheet of paper, draw a line down the center, and compare and contrast the two approaches.  Think about the implications for consumer usage of bill payment once it’s as easy to pay your electric bill with PayPal as it is to buy a Beanie Baby at eBay.

eBay’s in-house payment system, BillPoint, added an important new feature called Instant Purchase. It provides buyers with the option of settling winning bids by simply clicking on a Pay Now link in the email sent to all winning bidders. Users can also pay immediately by clicking on a Pay Now button displayed with the lot description. It’s similar to Amazon’s One-Click payment system.

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.

Companies with Online Banking Research

Source: Online Banking Report, 6/00

Notes: (1) eBilling only, refer to enclosed prospectus

(2) Gartner Group acquired Mentis

(3) Jupiter is being acquired by Media Metrix

(4) good coverage of European and other international markets

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 quick reading of consumer sentiment without tipping your hand to the competition, consider tapping into the pre-assembled 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. The questionnaire can be completely composed online using templates from the research companies. Another source of similar research is Greenfield Online  www.greenfieldonline.com  

Last year we led the annual planning issues with the title, “The Honeymoon is Over” What we meant was that competition had yet to become intense in the online banking sector. In looking back over the past 12 months, we can see that competition has indeed intensified. But overall, there has still been little market share gained by Net pioneers. In mid-1999, we estimated that fewer than 400,000 households, less than 5% of those banking online had switched accounts to Net-oriented brands. As you can see in the following table, those numbers haven’t increased dramatically unless you include the P2P payments arena where Net-only companies have grabbed nearly 99% of the business so far.  And since email payments are free¹ and will probably stay that way for some time, even in this product there’s been little revenue impact except for a few hundred thousand fewer money orders, mostly purchased at post offices and other non-bank outlets.

Is Market Share Finally Beginning to Shift to Net-Only Banks?

households that have moved accounts to Net-only banks¹

Source: OBR estimates plus or minus 33%, 6/00         n.m.= not measurable

¹U.S. households that have moved business from a traditional bank to a Net-only bank; e.g., moving a balance from a Citibank credit card to Next Card; ²Number and percent of HHs with at least one account at a Net-only bank or financial information aggregator, primarily P2P payments business; ³Percent of total U.S. retail financial services revenue garnered by Net-only banks & aggregators (a rough estimate)

So you’ve made it through another year; your Web site is growing, no one is talking about how Wingspan² is going to take over the Web. In fact, with the crash in B2C Internet stocks, the pressure may seem to have eased. Don’t bet on it. You will need to work harder than ever next year just to maintain share in the face of the growing popularity of truly virtual banking services³ such as statement aggregation and email payments. We’ve updated the 2001 Strategy Matrix to help you make sure you’ve covered all the opportunities.

The following matrix has been organized into five overall bank goals:

An important part of the planning process is reaching deep to find the best ideas. Many companies have a brainstorming process that works, but if you are looking for inspiration, consider the following six-step process.

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, 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…whatever it takes to let your brains run free.

3. Rattle the Brain: Do “thinking exercises” to loosen the brain before tackling your specific problem (see Jump Start Your Brain by Dave Hall for 37 exercises).

4. Generate Idea Nuggets (free form): Think of every possible crazy solution to the problem, write them down as you go, but make no judgments or justifications at this time.

5. Assemble Into Strategies and Tactics: Put each nugget on a 3" x 5" card and arrange into bigger concepts and brilliant ideas.

6. Be Bold: Don’t immediately dismiss strategies that seem too big for your budget, winners could be shopped to the venture capital community for additional funding.

Source: Adapted from Jump Start Your Brain by consultant Dave Hall, Warner Books, 1995.

Do 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 use online financial services today and observe how the services could be improved:

•  interview vendors
•  hire a consultant for a brainstorm session
•  arrange for a classroom of MBA students to debate the pros and cons of online financial services
•  attend a traditional customer focus group on Internet financial services
•  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

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. Productivity boosters:

•  leave the cell phone in the hotel room at least for one day
•  after the closing bell and before everyone gets back to their clogged inboxes, gather your team together for a debriefing and brainstorm session

1999 Thinking Exercise:
Statement Aggregation Services

You can read all about statement aggregators such as VerticalOne or MaxMiles.com (OBR 8/98). You can even look through their online demos. But there is nothing like actually signing up for and personally using the services to get a feel for how they really work. You may be surprised at the opportunities and challenges this new business model has. Pay special attention to how the aggregator displays available accounts to register for online. Think about what happens when the aggregators begin displaying banner ads or otherwise steer business to your competitors.

Type Web Address

bills www.paymybills.com

www.statusfactory.com (CyberBills)

www.paytrust.com

www.moneycentral.com (Transpoint)

www.ebills.com (Checkfree)

financial www.verticalone.com
travel www.maxmiles.com

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.

Companies Doing Online Banking Research

Source: Online Banking Report, 8/99

Notes: (1) eBilling only, refer to enclosed prospectus
(2) international research
(3) Mentis was acquired by Gartner Group

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.

One company we are working with on our Web site is Informative www.informative.com whose clients include US Bank, NationsBank, and TheStreet.com. Look for results of the research in the near future.
Contact: Michele Labor is Senior Consultant (650) 745-2168, michele@informative.com

Net banking first burst on the scene in May 1995, when Wells Fargo added account access to its Web site. Since then, the Net has dramatically effected marketing plans and I/S budgets, but its impact on industry market share has been negligible. Depending on what definition you use
there are six to eight million more online banking users today compared to four years ago. But the vast majority of those, probably 95%+, are still banking where they would have anyway. Doing the math, that means less than 400,000 households have switched accounts due to online banking, just 0.3% of the 85 million or so U.S. households that use bank accounts online or offline.

Don’t be lulled into thinking that trend will continue. The big guns are just being loaded. The first shot came from WingspanBank which, over the next 18 months, is likely to set one milestone after another in a meteoric rise to one million accounts (see OBR 6/99). Furthermore, by the end of this year we expect a half-dozen or so WingspanBank-like entrants will be carpet bombing the Web with credit card offers and banner ads. NextCard, a smallish company by banking standards, puts out 70 million banner ads each day.

Market share will begin to shift away from Net laggards. Nevertheless, there is still time to hold on to your position and even grow revenues via the Net. To support your planning efforts, we’ve updated the annual Strategy Matrix. And for your seadsheets we’ve compiled market-size estimates from the leading research houses and used them to revise our three-year consensus estimates, which have been ratcheted down 20% due to slower-than-expected consumer adoption.

If you believe as we do, that the online channel will drive profitable loan growth during the next decade, you may already have put these tactics into your 1999 business plan. If not, here is a roadmap for what the competition will be implementing next year. For more ideas, refer to our “1999 Planning Guide” (OBR 8/98).

The following table has been organized by overall bank goal, so that you can find supporting online initiatives.

Note: Bold-faced type indicates possible “firsts” in your market area.

*Standard strategies put you at parity with your online competition.

** Differentiating strategies place you (temporarily) ahead of your online competition.

The most important part of the planning process is reaching deep to find the best ideas. You may already have a process that works, but if you are looking for inspiration, consider the following five-step process adapted from the book Jump Start Your Brain.

Last year we presented a five-step process (see sidebar below) for developing your online plan for the coming year (OBR 8/97). Following is an update of step one, immersion. For more information on steps two through five, please refer to the Oct. 97 issue (available on our Web).

Five Steps to the Big Idea

1. Immersion: Study the situation, visit competitors, read new research, talk to customers, interview employees, attend a conference, or poll your customer base.

2. Environment: Clear away any constraints to thinking, go off site, stockpile the food and coffee, play music…whatever it takes to let your brains run free.

3. Stimulus: Do “thinking exercises” to loosen the brain before tackling your specific problem (see Jump Start Your Brain for 37 exercises).

4. Idea Generation (free form): Think of every possible crazy solution to the problem, write them down as you go, but make no judgments or justifications at this time.

5. Plan Development: Put each idea on a 3x5 card and arrange into bigger concepts and brilliant ideas.

Source: Adapted from Jump Start Your Brain by consultant Dave Hall, Warner Books, 1995.
 

Immersion

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 to find out how consumers use online financial services and how they could be improved:

•  interview vendors
•  hire a consultant for a brainstorm session
•  arrange for a classroom of MBA students to debate the pros and cons of online financial services
•  attend a traditional customer focus group on Internet financial services
•  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

2. Go to a Conference: Away from the daily grind and surrounded by the latest technology and thinking; a perfect prescription for break through thinking. Try leaving the cell phone in the hotel room at least for one day.

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 any of the conclusions, think about the implications for your company were they to come true. It might help you see things in a new light.

Of 13 differentiating strategies presented last year (OBR 8/97), only six have been used by financial institutions in North America, most in a limited fashion. Refer to the “Aug. 98 Update” column below for implementation status. Another six are waiting for a pioneers to step up, while one, e-wallets, is in need of serious reengineering before it’s ready to roll out. Overall, we think financial institutions could still benefit from any of the year-old recommendations, except e-wallet.

Source: Online Banking Report, 8/97

*We do not know of it being used in North America, but it’s possible. As for the rest of the world, we do not track on a product-by-product basis.

First Community Bank of East Tennessee

Deep down, does your CEO still think the Internet is a fad? Cut this quote out and tape it to his/her door.
John L. Campbell, CEO of First Community Bank of East Tennessee (Rogersville, TN; $88 million), had this reaction when he discovered that 47% of the town’s 4,800 residents owned a PC (from American Banker):

I thought in rural Tennessee we would not be confronted with Internet banking in my lifetime. I was wrong.

The bank quickly spent $2,000 to create a Web site
and plans to invest another $150,000 to make the site interactive.
Contact: John Campbell is CEO, (423) 272-5800.

With 2,700 banking and credit union Webs in the United States alone, you may be wondering what you can do to stand out from the crowd. It’s really not that hard. You can make the top 10% if your Web is up-to-date, speedy, and easy-to-navigate. After you’ve done that, then consider adding new content elements every 6-12 months to keep things interesting and provide a boost to your online sales efforts. But don’t take on too much at once. It’s better to be small and focused than big and confusing.

One

Supports: branding, cross sales

Every community bank should consider an offering in this category, the virtual equivalent to the time/temperature sign hoisted in front of the branch. But on the Internet you can do it much cheaper and make it more useful. All of the items in this category can be put on autopilot. Once you make the proper links and/or licensing deals, the information is delivered by other servers, freeing you from any maintenance whatsoever. You don’t even have to change your virtual clock when daylight savings time arrives.

Evergreen Bank’s icon directing users to four pedestrian, but useful content areas www.evbank.com .

For a time, Evergreen Bank (Seattle, WA; $138 million) had an attractive “Time, Temp, Traffic, T-bills” function on its home page, but they’ve since buried it within their site. Here are some of the features to consider:

•  time of day (also include other time zones, especially international)
•  weather (for a list of service providers, see www.yahoo.com/Business_and_Economy/Companies/Weather
•  traffic (if available from department of transportation or other sources in your market); for an example see www.wsdot.wa.gov/regions/northwest/NWFLOW/

The (Seattle) four-day outlook from Intellicast, www.intellicast.com , perhaps one of the easiest and most compelling content additions for your Web.

Two

Supports: cross sales, fee income, card sales, retention

Credit card registration services became commonplace during the card “enhancement wars” of the late ‘80s. It’s a moderately valuable touchtone-based service often given away free to the entire card base, or sold ala carte for up to $15/year.

But the value could be significantly improved with Internet-based services. How?

•  Trusted financial institution holds the data rather a third party.

•  Easier to update and keep current.

•  Provides a ready reference when completing a loan application or evaluating credit options.

•  Card information stored in an encrypted format readable only by the authorized user holding the key.

•  The database could hold more than just card number and issuer name; users could input rates, fees, customer service contact info, teaser period, comments, etc.

•  Email alerts could be programmed by the user to send an email at the end of the teaser period, or when the annual fee is due, etc.

To assuage privacy concerns, a clear (e.g. in laymen’s terms) and absolute privacy policy must be prominently posted explaining precisely how the data will be kept confidential.

Web-based credit card registration would be a useful home banking enhancement (i.e. FREE) or it could be sold for an annual subscription fee, or both (basic listing is free, enhanced listing costs $10-15/year). A card registration service could also be combined with a credit bureau monitoring program and sold under one subscription (see #8).

Three

Personal Finance Book Reviews

Supports: investments, savings plans

Liberty Publishing licenses book reviews at www.libertyink.com/bookrev/index.shtml .

Search Amazon.com under the subject “personal finance” and you’ll find some 1,900 current titles (not including the out-of-print ones). This is an overwhelming amount of choice for most users. You could help by providing reviews of top-rated personal finance and/or small business management titles.

To write the actual reviews, contract with a free-lance writer specializing in personal finance or use a specialized content provider such as Liberty Publishing Company www.libertyink.com/online2 /content.htm>, which licenses book reviews and other articles for financial institution Webs. Liberty’s prices start at $250 per article, which typically provides the buyer with exclusive rights to use the content for one year on their Web site and in outbound email newsletters. A benefit of working with Liberty is that they know how to write material that will be fully compliant with banking and security regulations.

Liberty got their start writing articles for insurance companies and currently authors print newsletters for four of the top 10 U.S. insurance companies. They also provide online content for Northwestern Mutual Life Insurance, New England Financial, and The Institute of Financial Planners. The company will be delivering content for two of the largest 15 banks within the next few months; one a tax-information section, the other a small-business site.

Liberty Licenses Content in Six Areas

•  charts and graphs

•  online newsletters

•  articles

•  short takes

•  book reviews

•  financial glossaries

Contact: Len Conway is Online Marketing Consultant at Liberty, (800) 722-7270 x142, lconway@libertyink.com

Northwestern Mutual Life features articles written by Liberty on its first page www.northwesternmutual.com .

You could also become one of 30,000 Amazon.com associates and provide a direct link to the order-entry area of the online bookseller’s Web site to purchase the reviewed books. Your 5-15% share of the sales could be donated to local literacy programs. This would generate positive PR and temper any criticism leveled your way for competing with local bookstores www.amazon.com/exec/obidos/subst/partners/associates .

A link to Amazon.com from AltaVista.

There are two simpler approaches that allow you to help users find good personal finance books without actually posting book reviews:

• Create a simple link into Amazon.com’s Web site so users can find their own titles, read reviews, and make purchases. You can preload the link with the search criteria so visitors immediately see a listing of all titles on bond investing for example.

• Post a link of the best sellers in each category at Amazon.com. For an example, look at the bottom of the first page at <www.quicken.com>.

Four

Personal Reminder Services (aka Personal Secretary or Personal Banker)

Supports : home banking, branding, cross sales, retention, small business

What could be better than having your customers start their Web work on your site each day? Instead of talking to your customer 12 times each year with a statement stuffer, you now have 100, 200 or more opportunities to interact with them to improve service and increase cross-sales.

But why would anyone choose their bank’s Web as the default start page (see definition below)? The competition for user attention is fierce and a financial institution would have to spend a bundle to create compelling news or entertainment content to attract users to its Web.

Definition: Default Start Page

Default start page is the Web site your browser automatically connects to when launched. To change your default start page, go to the desired Web page, then (in Navigator 4) select Edit/ Preferences and click on “use this page,” the process is similar in IE 4.)

But there is a potentially low-cost way to improve your chances of becoming a Web starting point. Establish a Personal Reminder Service on your Web that users can log in to each time they use the Web. To get an idea of how this works, look at the free (advertiser supported) service provided by AllNotes www.allnotes.com .

AllNotes users create their own Virtual Appointment Book by inputting recurring (daily, weekly, monthly, yearly) or one-time messages that are then displayed on the Web after logging in. You can input your daily
to-do list, set-up meeting reminders, or program a heads-up 10 days before your spouse’s birthday. Though AllNotes doesn’t support the feature, users should have the option of receiving emailed reminders.

AllNotes makes it easy to set-up Web-based
reminders at www.allnotes.com .

Integrated with Bill Payment

The service could also be integrated with bill payment. The simplest integration would be for users to enter due dates of recurring bills into the program. From then on, an email would be sent when the bill was due.

Even more useful would be integrating notification options into your bill pay form (see mock-up above).
By simply checking a box, users could automatically establish recurring due-date reminders. Microsoft’s Money and Intuit’s Quicken have incorporated this feature for years.

Integrated with Web Content

Your reminder “engine” could also be integrated into other financial product areas as well. In your automobile/car loan area, add an auto maintenance service that spits out reminders to change the oil/filter, flush the coolant, etc. at the approximate correct time based on user input of annual mileage. In your homeowner area, build a service that reminds homeowners to service their furnace each year, clean the fireplace every three years, or empty the gutters every six months, etc.

We think reminder services could be a terrific enhancement to your Web offerings in 1998. Why? First, they increase the “logged in” traffic on your Web boosting cross-sales opportunities. Second, as potentially the first financial institution to launch such a service, you’re likely to get positive media coverage.

Eventually, a significant number of users will use a reminder utility, it may as well be on your Web. By integrating it with bill payment, it’s a logical ancillary service to offer. And once users go to the trouble of setting up their personal reminder database on your Web, it’s one more reason to remain a customer, even if relocating across the country. Potential service providers can be found at www.yahoo.com/Business_ and_Economy/Companies/Gifts/Reminder_Services/ .

American Greetings provides a free email reminder service to entice you to buy more personalized cards and gifts at its Web site www.greetingcard.com .

Using AllNotes Reminder Service

The free reminder service from Allnotes www.allnotes.com is simple to set-up and is relatively useful, though to it lacks two important features. The first missing element is an option to have reminders emailed. The second shortcoming is an option to have your password stored in a cookie on your harddrive so you don’t have enter a password each visit.

Allnotes allows you to choose daily, weekly, monthly, yearly or one-time reminders. The Web site walks you through the procedure to set Allnotes as your default start page. A useful programming trick that automatically passes you on to your usual start page if there are no new messages on the Allnotes server. This feature would be more useful if you didn’t have to enter a password before it checks for messages.

After logging in, users see a list of their new messages. Clicking on the second column brings up the full text of the message. Note the Link Exchange banners running on the top.

Five

Electronic Postcards & Greeting Cards

Supports: branding, new business generation, home banking

For something totally off the wall, allow users to send email “postcards” from you Web site. Post a few templates that users can personalize with their own words, colors, graphic inserts, etc. To email the greeting, users simply type in their email address and the recipient’s. Program it yourself or partner with one of the greeting
card providers on the Web www.yahoo.com/Business _and_Economy/Companies/Gifts/Greeting_Cards/ .
Your partner could also offer fax and postal mailing options for a fee.

Integrate with Bill Payment

A potentially more lucrative, and more complicated approach is to integrate electronic postcards with bill payment. A pop-up window in your bill pay module would allow users to send an e-card scheduled to arrive at the same time as the cash. The greetings could accompany money sent to individuals as gifts or to repay debts. For businesses, it could be used to send thank-you notes with payroll, bonuses, or commissions. See below for more ideas in Web-based messaging.

A free postcard from American Greetings www.egreet.com/postcards (as viewed in Netscape email).

Six

Common Email Templates

Supports: home banking, retention, small business

Across all industries, companies are increasingly using the Web for customer service. The most progressive have developed highly structured customer service inquiry templates that query the user for all pertinent details on their question.

A bank could expand this concept to cover both queries to the bank and to third parties outside the bank. For example, provide email templates pre-loaded with questions that should be asked of potential health

How it Works

American Greeting allows you to create and send online “postcards” from its Web www.egreet.com/postcards . Several free designs are offered including the thank-you card shown above and left; or select from premium holiday and special occasion styles priced at $5.95 per five, payable by credit card online.

After selecting a style, users customize their card in a four-step process:

1. Type the desired message (see #1 in above)

2. Select font type, size, and color (#2 above)

3. Preview results (#3 above)

4. Send

The postcard is sent as a GIF file attached to an email. The free cards include a relatively unobtrusive reference to American Greetings. To view the image in most email programs, you simply click on the attachment and the image pops up in the browser window. (America Online 3.0 users must work harder by opening another application such as Word, finding the file in the download directory of AOL, and opening the file.)

insurance providers, tax preparers, financial planners, remodeling contractors, etc. Users should be able to modify the canned questions and add their own.

The templates could be integrated with a database of email addresses that you have compiled or that are accessed via major Web-based directories. Users could then compose their email, look up the email address, and send it, all within your Web site. You could also offer an option to print the email in standard letter format to sign znd send in the regular postal mail.

For a bank, one of the most useful templates would support bill payment. Expand the bill pay form to include optional text messages that go directly to the payee via email (see mock-up on p. 6). This would be especially useful to businesses (in a survey of one business owner, I concluded that I would pay $10/month for that feature alone), but would also be desirable for individuals especially when sending money as a gift (see also #5).

Seven

Home Inventory

Supports: home banking, insurance, retention

Home inventory features has been available in Quicken (or Quicken Companion) for years. The software includes a template that makes it simple to input typical household items into a database and assign cost and replacement values to each item. The results can be stored on a diskette and/or printout and deposited in a safe deposit box for safekeeping.

On the Web you could build “home inventory” into a useful service that would enhance your home banking program and/or help sell insurance. Users would input their household inventory at your Web, storing the results on your server. This would eliminate the weak link of current programs: the need for off-site storage of the document. You could send an email reminder every six months encouraging users to update their inventory.

Eight

Credit Report Access & Monitoring

supports: CRA, loans, PR

Even before the Internet, concerns about financial privacy were widespread. The Internet has introduced an even more frightening scenario: your personal records are available not only to big brother and talented criminals, but also to your neighbor and their adolescent prankster offspring. As a financial institution, you should take a leadership role in providing tools for users to protect their privacy and monitor public databases to make sure what’s out there is accurate.

Credit report monitoring is one of the true win-win programs available on or off-line. Your customers win by catching credit bureau inaccuracies before they become an impediment to a home purchase or mortgage refi. You win by providing valuable information not readily available elsewhere, and by booking incremental fee income and loan outstandings.

QSpace has the online credit report market to itself.

Currently there is only one source for receiving credit report information online. QSpace www.qspace.com has been delivering Experian credit reports online since July. Its service has been relatively low profile, but several licensing deals in the works should boost their visibility considerably during the next few months (see page 11). The company is also using banner ads like the one below displayed on Wired’s HotBot (Feb. 21) when searching on credit.

QSpace’s www.qspace.com banner on HotBot.

MyCreditFile.com sells the forms used to order credit reports from the three major bureaus for $9.95 at www.mycreditfile.com .

There are a number of ways to deliver privacy and credit information services online, ranging from simple generic info, to online ordering with postal delivery, or even online delivery. Some ideas:

• Guided links (see #10) to sources of privacy/security information. For example, see the resources compiled by CreditComm Services www.creditcomm.com/reference/bprivacy.html

•  Credit bureau monitoring services (see chart of service providers right).

•  Digital certificates from VeriSign  www.verisign.com , GTE CyberTrust www.gte.com , or others.

•  Advice on how to monitor what is available about you online, and how to correct or delete information (for reference books, search on “online privacy” at amazon.com).

•  Zero-liability guarantees for online shopping and online banking; can be tied to a credit card such as that offered by First USA/Yahoo! (screenshot below).

•  Email alertservices that send a notice whenever an account has been accessed online, whenever a bill payment has been initiated online, whenever an address change has been received, account withdrawals made, etc.

First USA’s banner on Yahoo’s 411 Directory, www.four11.com touts a “Safe Shopping Guarantee” (see p. 16 for more on the card offering).

American Express is the latest to jump on the credit monitoring bandwagon with the upcoming launch of CreditAware, the first that monitors all three major credit bureaus. Service provider is CreditComm Services which also markets their own brand on the Web www.creditcomm.com/faqs/faq10.htm .

Credit Report Monitoring

Credit monitoring is a subscription-based service costing $30 to $70/year. Total enrollment in the U.S. is about 4.5 million (see chart below). The services generally include:

•  Free credit bureau reports.

•  Notification by mail whenever a new credit bureau inquiry is posted.

•  Periodic (monthly/quarterly) monitoring for any new negative info on the file.

Nine

Community Calendar (Database)

supports : branding, community service (CRA), PR

Does your community lack an up-to-date and easy-to-use Web-based source of events, meetings, and activities? With a minimum of programming and oversight, you could fill the void with a community calendar and database on your Web. This would help a financial institution:

•  generate goodwill in the community

•  build positive brand/image

•  satisfy existing Web users

•  attract new bank customers (consumer, business, and non-profit)

• he calendar could be used to post a wide variety of events:

•  local government meetings and hearings

•  school events and meetings

•  school lunch menus

•  school closing reports

•  garage/rummage sales

•  entertainment events

•  sporting events (from college football to t-ball)

•  charity fund-raisers

•  reunions

The key to making it work is an update process that minimizes your involvement. Many (most?) community calendars we’ve seen on the Web suffer from a host of maladies including link rot (outdated links), out-of-date-itis (events have already occurred), or terminal lack-of-attention syndrome (not enough events listed to make it useful).

Speaking from experience, it’s easy to see why calendars fail. They take a lot of time to keep current and are generally lower in priority than revenue-generating activities, resolving customer service emergencies, and keeping product material current.

Predictably, Web-based calendars go through a cycle of initial enthusiasm, followed by a period of decreasing upkeep until it finally dies.

Leveraging Volunteers to Create Your Content

You can beat this cycle by enlisting the community to keep the calendar up-to-date themselves. Create an event-input form on your Web that can be used by anyone to add an item to the calendar. A flag on the database will give you editorial control over which entries are displayed. (The flag could be set through a special password-protected backdoor to your Web.)

Minimizing Oversight

After a user has entered all the information into the form, an authorization email is triggered to the designated bank employee or contractor. A confirmation email is also sent to the submitter and their organization to guard against fraud and error.

The email to the bank contains a link to a password-protected control area of your Web. The bank officer clicks on the hyperlink, enters a password, reviews the new entry, and if appropriate, sets the database flag to “display” and hits enter. The entry is now displayed on the Web, and an automatic email is sent to the person who submitted the entry and their organization. If the event is not appropriate or is incomplete, an email can be triggered asking for the submitter to post additional information.

Advanced Functions

• If you end up posting a large number of events, you may want to add advanced functions to make the calendar easier to navigate and even more useful:

•  Filtering entries by subject, keyword, date, organization, etc. and/or searching by keyword. This is relatively simple to accomplish with basic Web programming. Talk to your Web developer.

•  Email delivery of new events matching user interests.

•  Free Web space for community organizations to post additional info about themselves and/or the event. Again, create password-protected forms that allow the organizations to do their own data entry and maintenance.

•  To serve organizations and users lacking convenient Web access, consider fax-on-demand access.

Final Analysis

A community calendar may not be the easiest project to implement, but the benefits could be more far-reaching than other content additions you may be contemplating. Does the Web really need another place extolling the virtues of student loans?

Useful and free Web content can build quite a following over time, as other sites link to yours and the search engines assign your site higher rankings for relevance.

Plus, you’ve got the very real possibility of continual free publicity in other media. Conceivably, the newspaper would reference your site when announcing an event, “for more info go to <www.yourbank.com/ calendar/>”. You might get even better coverage, and more credibility, by housing the calendar in its own domain such as <www.yourtowncalendar.com>. You can still adorn the site with your bank logo and navigational icons.

Eventually, you may even be able to recoup your investment by licensing or selling the community calendar site to a private company who could sell ad space. A site getting 25,000 unique visitors each month might fetch $50,000 or more depending on the market. And you can negotiate a long-term exclusive financial institution sponsorship as part of the deal.

Ten

Guided Web Links

Supports : branding, retention

Remember your delight the first time you used the Web and “hyperlinked” to another site simply by clicking the mouse? That powerful concept is what gave the Web its name and helped ensure its commercial success. But today, simply providing a list of links in a resource section is as outdated as posting a picture of the bank president on your first page.

We call “plain vanilla,” or links with no accompanying descriptions, “lazy links.” Lazy linking shows a lack of concern for your users’ time. The concept you need to embrace for your Web is “guided links.” Guided links help users maximize their productivity by providing concise descriptions of what lays ahead should they click on the link.

Guided links include a short description of the Web site; how up-to-date it is; costs if any; brief navigational hints; even concise commentary on its content. After all, you are recommending that users spend the next five minutes of their life at the linked site, you better spend a few minutes yourself documenting the choice.

Tenets of Guided Links

•  Provide descriptions of the content, including which areas are best.

•  Explain why it’s a good place to go.

•  Identify the sponsor/owner of the linked site.

•  Keep links up-to-date.

•  Provide business, education, info, or shopping links; avoid entertainment, their value is too subjective.

•  Understand the ramifications of the link (will the user be hit with Java, competitive advertising, etc.).

 Don’t simply add material to your Web because it looks cool or the bank down the block is doing it. Post information that directly supports revenue-generating strategies. The following chart provides a roadmap to the non-financial content ideas presented in this post and coming up.

(1) For more ideas on potential online strategies

(2) Refers to issue and page number from prior Online Banking Reports which are all accessible on our Web, www.onlinebankingreport.com; 3/98 refers to “Non-Financial Content Part II” coming next.

We’ve never been enamored with the notion of adding random “content” to your Web site in an attempt to transform it into a cyberspace destination. Consumers aren’t hitting their banks’ Web looking for a good time; they want account information fast to make sure their financial house is in order, maybe pay a few bills, then get back to work, their families, or leisure pursuits.

That doesn’t mean there isn’t a place for tightly edited non-financial content to add interest, support product sales, and attract new customers. Salem Five, one of the pioneers of Web-based marketing, tries to add a new feature every quarter. You don’t need to be that prolific, but you should follow three guidelines when planning new non-financial content:

• Only build what you can realistically keep up-to-date.
• Make it relevant to your audience (think local, local, local!).
• Use only content that supports a business goal/strategy,
  otherwise it will get trashed during the next budget-setting cycle.

Achieving maximum account penetration for your online banking initiative begins with a four-step planning and evaluation process.

1. Perform a thorough unbiased evaluation of available technology-based access methods.

2. Evaluate your institution’s strategic goals relative to online delivery.

3. Evaluate the demographic and technology-adoption profile of your customers.

4. Run the numbers.

The field of online banking is not new, and it has been described with many terms and labels. Examples include: remote banking, interactive banking, electronic delivery, home banking, PC banking, self-service delivery, direct banking, and of course, online banking. Within this field there are many delivery options, also known as channels, device types, access methods, or even information appliances. The table on the right summarizes the major remote access methods.

Step two begins by taking a copy your company’s strategic goals and determining which ones could be enhanced with remote delivery. Because of the demographics of computer/online users, the following strategic goals have the most promise overall (though in your case, they may or may not be appropriate):

• increase loan outstandings
• increase loan originations
• decrease loan servicing costs
• increase POS debit usage
• increase credit card accounts/usage
• increase investment sales/brokerage trades
• increase electronic bill payment usage
• increase customer satisfaction
• decrease customer service cost
• decrease number of branches/branch staff
• improve account retention
• decrease call center costs
• improve brand awareness
• improve/change market positioning
• improve market share of newcomers

Source: Online Banking Report, 8/97

Before you make a final commitment to a new delivery channel/strategy, you better be sure the customers are there to support it. More than any other, this is the step that IT/IS managers often pay the least attention to. The marketing department or outside research firm must be enlisted to perform a thorough, statistically valid demographic survey of your customers. This is the only way to project which technology investments will have the highest payoff for you. But don’t fall into either of the following research traps that result in highly misleading results:

1. The marketing manager is tasked with conducting some basic demographic research such as customer access preferences and how many account-holders have PCs, PCs with modems, Internet access, and so on. To avoid annoying telephone calls (or to cut costs), a mail-in survey is chosen. Because lead times are so short (or to cut costs), there is no followup with non-responders and the percentage returned is very low. Therefore, the data represents the segment of the population that are technology-resistant and time-rich, and now you know everything you ever wanted to about those that will forever resist using any remote access products!

2. The IT manager, being the results-oriented person that he/she is, decides to conduct a mini-survey themselves. Conveniently, in the file cabinet there’s a list of about fifty people that have proactively expressed interest in online banking, so what better place to start? The survey is sent out to these individuals with a remarkably high response rate. And with project deadlines approaching, there isn’t enough time to contact other customers. These results are equally unreliable but in the opposite direction. You now know everything about the small early adopter segment that banks with you. But once again, this group bears little resemblance to your average customer, and you probably would have been better off using a photocopied set of survey results from Timbuktu Savings and Loan.

The right way to survey customers is to first make sure the survey respondents represent your total customer population. Second, don’t rely too heavily on questions that ask people if they want or would likely use online banking. History shows that survey participants are fairly unreliable in predicting their future adoption of new or emerging technology.

Once you’ve gathered the data called for in steps 1-3, you may see some clear delivery channel opportunities presenting themselves. Or it could look like a jumble of unrelated facts and figures. In either case, the final step in the evaluation process is to develop a decision matrix to rank the competing access methods.

A decision matrix is used to quantify the various attributes of each solution ending with a rank-order of all possibilities. Each attribute is assigned a weighting that corresponds to its relative importance compared to other attributes. In our example below, we’ve given the highest weight, 40%, to the attribute retain (the ability to retain current customers). The lowest weight, 10%, was given to revenue potential. You can have as many attributes (columns) in your decision matrix as needed. But the sum of all the weights will always be 100%.

While not a panacea, the resulting rank-ordered list of access methods should help you make more rational resource-allocation decisions during the 1998 planning process.

Note: The following example is provided for illustration purposes only. The values used are not intended to be guidelines or rules-of-thumb.

Guest columnist James Van Dyke was Product Manager for Ultradata’s remote banking products. He is now employed at Hewlett Packard in Sacramento.

In the previous 10 pages we’ve provided some of our ideas for 1998 planning. These may or may not be appropriate for your financial institution. To come up with the best ideas for your company, consider the five-step process outlined in the book Jump Start Your Brain:

Five Steps to the Big Idea

1. Immersion: Study the situation, visit competitors, read some new research reports, talk to customers and employees, go to a conference, or poll your customer base.

2. Environment: Clear away impediments to thinking, go off site, lose the suit, stockpile plenty of food and coffee, play music … whatever it takes to let your brain run free.

3. Stimulus: Do “thinking exercises” to loosen the brain before tackling your specific problem.

4. Idea Generation (free-form): Think of every possible crazy solution to the problem, write them down as you go, but make no judgments or justifications at this time.

5. Plan Development: Put each idea on its own 3x5 card and arrange into bigger concepts and brilliant ideas.

Source: Adapted from Jump Start Your Brain by consultant Dave Hall, Warner Books, 1995 (order www.amazon.com)

Immersion

To fully immerse yourself in online banking/online services, you need to go beyond your normal patterns of reading the trade and business press and conversing with peers and subordinates. Try some of these techniques.

1. Launch a Personal Fact-Finding Mission to find out how consumers use online financial information and how they would like it to be improved, simplified or enriched.

• traditional in-person customer focus groups (attend the sessions yourself)
• branch staff focus groups
• online focus groups (users meet online in a moderated chat environment)
• telephone focus groups (users meet in a moderated conference call)
• casual meetings/lunches around the company

2. Go to a Conference. Away from the daily grind, surrounded by the latest technology and thinking; a perfect prescription for break-through thinking. Consider one of the non-banking conferences for exposure to a wider range of people and ideas:

Conference Calendar

• Thinking Outside the Lines: 1-day seminar in various cities by National Seminars; $99; 800.258.7246, www.natsem.com.
• Bank Marketing Assoc. Marketing Forum: Sept. 7-10; Chicago; $875 member, $1,195 nonmember; 202.663.5274.
• Internet Commerce Expo: Sept. 8-11; Los Angeles, CA; by IDG; $995; 800.667.4423, www.idg.com/ice/.
• Financial Technology Expo: Sept. 10-12; New York; by Miller Freeman; 800.829.3976, www.financetech.com.
• The TeleCosm Conference: Sept. 14-16; Palm Springs, CA; by Forbes Magazine and George Gilder; $3,800; 212.206.5521, telecosm@forbes.com, www.forbes.com/conf/ .
• Online Developers IV, Building to the Bandwidth: Sept. 17-19; San Francisco, CA; by Jupiter Communications; $1,690; 212.780.6060, jupiter@jup.com , www.jup.com .
• ABA Bank Card Conference: Sept. 21-23; Long Beach, CA; $925 member, $1,125 nonmember; 800.338.0626.
• Payments System Strategy Symposium: Sept. 22-23; Washington D.C.; by BAI; $895 ($1,195 nonmember); 800.224.9889 or www.bai.org .
• IntelliQuest Brand Tech Forum Five: Sept. 29-30; San Francisco; $1,195; 800.543.6124, www.intelliquest.com .
• Building Risk Management Systems: Sept. 29-30; St. Louis, MO; by BAI; $795 ($1,075 nonmember); 800.224.9889, www.bai.org .
• Advanced ATM Conference: Sept. 29-30; Dallas, TX; by Faulkner & Gray; $795; 800.535.8403, order@faulknergray.com , www.faulknergray.com .
• Banking Call Center Conf: Oct. 8-10; New Orleans, LA; by Faulkner & Gray; $795; 800.535.8403, (see above for Web).
• Technology Summit ’97: Oct. 15-16; New York; by The Wall Street Journal; $1,650; 800.321.3443, summit@wsj.dowjones.com , info.wsj.com/techsummit/.
• Microbanker ’97: Oct. 19-22, Dallas, TX; by Microbanker; $995; 518.745.7071, www.microbanker.com .
• Online ’97: Banking & Financial Services in Cyberspace: Oct. 19-22; Phoenix, AZ; by American Banker; $795; 800.803.3424, absuccess@tfn.com .
• Performance Measurement for Customer Profitablity in Banking: Oct. 28-30; Chicago; by IQPC; $1,295; 800.882.8684, info@iqpc.com , www.iqpc.com .
• CU InfoTech ’97: Nov. 13-16; Scottsdale, AZ; by William Rogers & Associates; 314.843.3845.
• Credit Card Marketing: Nov. 16-19; Orlando, FL; by Faulkner & Gray; $835; 800.535.8403 (see above for Web).
• Retail Delivery ’97: Dec. 1-5; New Orleans, LA, by BAI; $1,050 ($1,425 nonmembers); 800.224.9889, www.bai.org .

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 any of the conclusions, think about the implications for your company were they to come true. It might help you see things in a new light.

A much lower cost alternative (FREE) for Piper Jaffray clients, is to call Bill Burnham, 612.342.5540, bburnham@pjc.com , and request a copy of his recently published Electronic Commerce Report (published 8/97, 272 pages). Non-clients can get the executive summary. There is much food for thought in his report, though not all of it is relevant to retail banking.

Companies Doing Online Banking Research

4. Conduct your Own Research. There is nothing like a fresh survey of your own customers to help put things in perspective. And it doesn’t have to be expensive. You can put a survey on your Web for next to nothing and have results tomorrow. Naturally, this data is highly unrepresentative of your customer base as a whole. It’s more like a focus group, providing a quick peak at the top-of-mind concerns of your Web users.

Stimulus

Thinking exercises are designed to get your brain moving in different directions. Last year the thinking exercise was buying a computer. With the free-fall in computer prices, most of you have probably already done that during the past year. So here’s the new exercise for 1998: open an online brokerage account and make a trade (even if you already trade online, it would be a worthwhile exercise to open an account somewhere else).

With upwards of 40 brokers competing for customers online, the discount brokerage industry is about 6-9 months ahead of banks in delivering value-added services online. The lead is temporary, but we recommend experiencing their service delivery first-hand.

1998 Thinking Exercise:  Trading Stocks Online

If you haven’t traded stocks online yet, you should. Experience first-hand what your best customers are exposed to when they venture online to invest. Keep paper and pen nearby to jot down ideas as you encounter today’s online financial services world through the eyes of the consumer.

1. Clear an entire morning on your calendar.

2. Go to Yahoo and search for online stock brokers.

3. Check out several of the sites especially the top online brokers, Schwab, E*Trade and PCFN. Notice how the transaction accounts (checking, debit cards) are integrated with the brokerage accounts. Any implications for your business?

4. Select a broker that allows immediate trading for new customers such as PCFN www.pcfn.com  or FarSight www.farsight.com .

5. Complete the online application.

6. Check out the prices of your favorite stocks.

7. Set up a portfolio of stocks to track.

8. Make a trade (it only costs $20-40 plus the price of the stock); use a market price so that it will execute in a few moments.

9. Check out the status of the trade and look at your online statement. No batch processing here. This is a real-time environment by necessity. Any implications here for banking?

10. Finally, send money to the broker to cover your trade. Do they offer Web-based funds transfer (from your bank) yet? If not, it’s coming very soon.

Idea Generation

Keep the brainstorming as free-form as possible. But when things begin to bog down (or your cohorts simply demand structure), put some of these categories on the table for discussion. Also see also the list of questions on the facing page.

Incremental revenue from existing customers:

1. Indirect lending

2. Credit cards

3. Personal lines of credit

4. Home equity loans

5. Mortgages

6. Car loans

7. Computer loans

8. Privacy/credit bureau services

9. Companion checking accounts

10. FDIC insured savings/CDs

11. Investments/investment information

12. Financial information services

13. Business accounts/lending

Market Share

1. Small business

2. New geographic areas

3. Underserved niches

4. Account consolidation (getting your customers to move all their accounts to your bank)

5. Joint marketing opportunities

Cost Savings

1. Online direct marketing

2. Online data delivery

3. Online loan applications (applicants do their own data entry)

4. Self-service customer information

5. Fax-on-demand

6. Automated voice messaging

Relationship Building

1. Web-based services and community-building

2. E-mail communications

3. Instant online customer service

4. Online financial tools

5. Customized Web sites

6. Personalized information services

Developing the Plan

How many brainstorm sessions have you been to where you spend hours sweating out the ideas, then as time is running out, the ideas are prioritized in a haphazard fashion, assigned to someone to write-up and distribute, then forgotten? Don’t let your hard work go to waste. Schedule a follow-up session to find the best ideas and arrange them into tactics and strategies that can make a difference in your company.

One way to go about arranging a jumble of ideas and concepts is to put each on a separate 3 x 5 card then arrange them into bigger concepts, strategies, and even new ideas. Another method is to write all the ideas on flip charts, then reorganize them into logical project groupings on a white board. 8

Questions to Stimulate Ideas/Thinking

• What is the most unique section of our Web? Can that thinking be applied to other areas?
• What can we or our customers do better on the Web than in the real world?
• What kind of online services can we provide customers who don’t have the time, inclination, or resources to go online frequently?
• What push services are we working on?
• If we were starting a bank from scratch today, how would the delivery system be built? Do we have competitors following this strategy today?
• Can this (communication, service, marketing program) be done electronically (Web, e-mail) easier, cheaper, more effectively?
• For our next direct mail program, can a response mechanism be posted on the Web?
• Which employees are most Net literate? Are their skills being used to generate new business?
• Could customers answer their own questions about this (product, promotion, problem) if we posted answers on the Web, produced a standard e-mail response, or loaded the answer on a fax server for remote retrieval?
• Do our customers know we exist on the Web? How did they first find out about our Web?
• Do we have e-mail addresses for each customer contact department? Do our customers know them?
• Are we taking advantage of all the free listings available online (search engines, bank directories, etc.)?
• Are we integrating our electronic presence with our mainstream marketing?
• Are we putting every customer form online, especially credit applications, check reorder forms, employment application forms, and a free-from suggestion “box?”
• Do we have service standards established for e-mail? Are we better than our competitors?
• Are we working on making Web information available to customers who don’t have convenient computer access (e.g., through kiosks)?
• Are our business bankers creating value-added information “niches” on our Web?
• Are we establishing a database of questions and answers we receive via e-mail?
• Are we sharing customer “success stories” about how to maximize the value of an online program?
• Are we talking to our business customers about joint marketing opportunities on the Internet?

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.

Sometime during the next 18 to 24 months, the Internet will cease to be a novelty and will instead be part and parcel of everything you do as a financial institution. A case in point, Rockland Bank, a start-up in Colorado, plans to open its virtual branch simultaneously with its two brick-and-mortar branches.

We don’t blame you if you are skeptical of these pie-in-the-sky claims. It’s widely believed that home PC penetration is plateauing at about 40% of U.S. households. That may be true, but the percentage of households using the Internet is still ramping up rapidly, and by year 2000 will be higher than the penetration level of PCs. How’s that?

• Web-Enabled TVs: Microsoft’s purchase of WebTV is further validation that the Internet is coming to a TV set near you. Today you can buy a set-top box for $300-400 to add Net connectivity to your TV through conventional phone lines. Within a few years, higher end televisions and VCRs will have this capability built in.
• E-mail Phones: Experts disagree whether consumers will take to scaled-down e-mail via phones. We think they will if the price is right. InteliData began selling e-mail phones for $99 (after $100 rebate) if users sign on for a year’s worth of interactive services for $99.95. The company is betting that the cell phone model of subsidizing hardware to sell services will pay off.
• Out-of-Home Users: You don’t have to own a PC to use the Internet. Starbucks is experimenting with Internet terminals. Several airports including Seattle’s now have public Internet access kiosks. And many companies are making limited Web access available to employees.

What should you do in the next 18 months to prepare yourself to compete in cyberspace for large numbers of online-savvy households?

1. Differentiate your online offerings

2. Provide top-notch online customer service

3. Get noticed

We have a spreadshee that is a simple spreadsheet we’ve used for literally thousands of project proposals, business plans, and random financial analyses. If you would like a copy in Excel format, download it from our Web site, www.netbanker.com or send an e-mail to bizcase@netbanker.com  and we’ll e-mail a copy. Finally, if you prefer a diskette, let us know and we’ll drop one in the mail to you. E-mail your request to diskette@netbanker.com or call 206.517.5021. Following is a line-by-line explanation of the spreadsheet.

• All revenues and costs variables are in US$ per month per subscriber household (each household could have more than one user).
• This analysis was designed for retail customers, but it could be adapted to business customers.
• Following finance conventions, all revenues and expenses (both fixed and variable) are assumed to have incurred at year-end of each period.
• No terminal, or end value is used in the NPV calculation.

1. Discount Rate: This is the rate used to discount future cash flows to calculate Net Present Value (NPV). Your finance department can supply this number. If your company does not use discounted cash flow analysis, input zero or simply ignore the discounted cash flows.

2. Percent New and Saved HHs: The combined percentage of total OLB subscribers that either are new to your bank because of your OLB offering; or have not left your bank (i.e. “saved) because of the OLB program. If you don’t care to make this distinction plug a zero.

3. Direct Revenue: These are fees assessed specifically for online services such as bill payment, account access, archive searches, etc.

4. OLB Monthly Fee: This is the average monthly flat subscription fee assessed for using online banking.

5. OLB Transaction Fee: This is the average amount charged to users for online transactional services in addition to, or in lieu of, monthly fees in #5 (e.g., fee for e-mail notifications).

6. Other Direct Fees: Any other per-subscriber fees, such as commissions from other service providers, referral fees, etc.

7. Indirect Revenues: Incremental revenues from other products sold online, or to online households, that would not have been sold without an online banking program. On our model they are presented “below the line” (lines 40-48) because their revenues will likely accrue to other products/departments. Nevertheless they are critical components of online banking profitability. In our model, the values are expressed in before tax dollar contributions.

8. Contribution per New HH: The total net contribution (variable revenues less variable costs) provided by households new to the bank because of OLB (#2 above).

9. Incremental Contribution per Existing HH: The impact of the online sales channel is recognized here. Estimate incremental product sales to OLB households, then calculate the annual profit contribution from the incremental sales.

10. Variable Expenses: Expenses incurred to service each subscriber. In this analysis they are assumed to vary directly with volume (e.g., the variable cost of subscriber #1 equals the variable cost of subscriber #1,000 or #10,000).

11. Processing Cost: Average variable cost, both internal and from vendors, to process OLB inquiries, statement generation, funds transfers, e-mails, bill payments etc. (everything except customer service below).

12. Customer Service Cost: Average cost to service customer questions through e-mail and telephone. Include salary, benefits, work stations, telcom, and occupancy. Also include the cost of mailings to educate users, communicate program changes, explain new features, etc. In our example, we assume average customer service costs fall over time as both the bank and OLB users get through the learning curve.

13. New Account Set-up: One-time cost to set-up new subscribers on the system including collateral material, software distribution, and any vendor charges. Initial customer education could be included here or averaged into #12.

14. Total New OLB Subscribers: Enter your yearly OLB sales forecast.

15. Closed Accounts: Enter your forecast for closed OLB accounts.

16. Total Year End # OLB Subscribers: Calculate from line14 less line15.

17. Existing HHs (year-end): Households you would have with or without OLB. Spreadsheet calculation = line16 x (1- line2).

18. New HHs (year-end): Incremental HHs because of OLB.
Calculation = line16 x line2.

19. Average Annual # OLB Subscribers: Assumes sales and closures occur at a constant rate over the year. Calculation = previous year line16 + current year line16 divided by 2.

20. OLB Monthly Fees: Calculation = line19 x line4 x 12 months

21. OLB Transaction Fees: Calculation = line19 x line5 x 12 months

22. Other Direct Fees: Calculation = line19 x line6 x 12 months

23. Total Revenue: Calculation = sum of line 20, 21 & 22

24. Fixed Costs: Summary of the costs that do NOT vary with volume.

25. Management: Enter your annual direct management expense for operating the program (product, operations, legal, customer service).

26. Systems Development/Integration: Fixed costs for development and annual systems/maintenance costs to run OLB (if any).

27. Marketing: Enter your annual OLB marketing, brochure, statement insert, online advertising expenses. Enter only the marketing costs associated with producing the subscriber volumes in the forecast.

28. Overhead: Enter annual overhead allocations (if required).

29. Vendor Licensing Fees: Enter any fixed annual vendor payments. Variable (per subscriber) fees should be included in lines 32-24.

31. Variable Costs: Expense items that vary with volume.

32. Transaction Processing: Calculation = line19 x line11 x 12 months

33. Customer Service: Calculation = line19 x line 12 x 12 months

34. New Account Set-up: Calculation = line14 x line13

37. Net Income (before tax): Calculation = line23 minus line36

38. Net Income (after tax): Calculation = line37 x 0.60

39. Discounted Net Income: Calculation = (line 37) ¸ (1 + line1)^year

40. Indirect Income: Income that doesn’t show on the OLB P&L such as online sales of other products or intangible benefits.

41. Incremental Contribution from Existing HHs: Assumes contribution begins in second year. Calculation = prior year’s line19 x line9

42. Contribution from New HHs: Assumes contribution begins in second year. Calculation = line19 x line8

43. Other Indirect Revenue: This is a catch-all to quantify any other indirect benefits of OLB, such as PR value, image value, implicit fees earned on other products, etc.

44. Cost of Additional Risks: An annual “reserve” for catastrophic losses.

45. Total Indirect Profit (before tax): Calculation = sum of line 41 to 44

46. Total Indirect Profit (after tax): Calculation = line45 x 0.60

47. Net Direct & Indirect Income (before tax): Calculation=line45+line37

48. Discounted Direct & Indirect Cash Flow:
Calculation = line 47 ¸ (1 + line1)^year

1. Forecast Usage Levels: If you haven’t already done so, you will need to forecast the number of new and closed online banking accounts for each year of your planning period. Plus you will need usage forecasts for any line items that you are tracking separately such as number of bill payments, number of funds transfers, number of e-mails, number of customer service requests, etc.

2. Calculate Variable Costs: Variable costs are those expenses that increase with each new online banking subscriber. Therefore, variable costs are totally volume related. The major variable costs were summarized on the previous page.

3. Calculate Fixed Costs: Fixed costs are the opposite of variable costs. They are not volume related. Fixed costs are relatively constant across a large range of volumes. Management salary and benefits, systems development, marketing, and software/hardware purchases are typical fixed costs.

4. Estimate risk factors (if necessary): If you are quantifying intangible benefits, you better do the same for the intangible costs, better known as risks. Some potential risk factors worth noting:

• increased staffing to evaluate and monitor new areas of potential online fraud (especially in the area of bill payment)
• potential procedural changes needed to beef-up internal fraud-prevention controls
• potential monetary losses from fraud in online banking customer accounts (although this risk may already be accounted for within the pricing of the individual products, credit cards, debit cards, checking accounts, etc.)
• potential public relations/consumer confidence cost from a publicly known computer fraud (even if there was no monetary loss)
• management time in evaluating and dealing with unforeseen customer service and performance problems (especially in the area of bill payment)
• costs to correct major errors in transaction processing (especially with bill payment and investment transaction processing)
• increased need for internal training and education in the area of online customer interactions

5. Allocate Overhead and Intercompany Chargebacks (if necessary): Business schools teach that overhead allocations and intercompany accounting treatments are generally irrelevant when evaluating individual projects (because corporate overhead won’t change whether the project is approved or not), but that may not be the way your company handles business cases. So follow company policy on this one. If you have any influence in the matter, simply the analysis by ignoring overhead allocations. You’ll have enough debate on the future of online banking to fill-up all available meeting time (and then some!).

Note on overhead: Allocations for corporate overhead (occupancy, executive management, investor services, etc.) can be either a fixed cost or variable cost depending on formulas used in various financial institutions. Our model spreadsheet does not contain a line item for overhead, but you can easily add one.

Guest columnist Jim Van Dyke, a recent alumnus of UltraData, now working at Hewlett Packard, delves into the cost issues of online banking. Mr. Van Dyke is well-suited for this role. As Remote Banking Product Manager at UltraData, he was responsible for evaluating vendor proposals for various online banking services such as bill payment.

Many financial institutions underestimate the total costs of an online banking program, in terms of dollars as well as other issues such as time and business disruption. If your initial budget estimate is too low you may get management approval to begin, but risk losing full financial support when you need it the most. After all, you will encounter unplanned expenses (of both the mission-critical and discretionary variety) when managing technology in this rapidly evolving field. The purpose of this article is to minimize the number of surprise expenditures you will face in the future, plus give you background information to do a better job estimating total project costs.

Once you embark on building a broad-based online banking program you will soon encounter a staggering number of detailed line items. Each new access method — Internet, PFM (personal finance managers, such as Quicken and Microsoft Money), kiosk, and others — brings its own unique category of cost items. Fixed and variable costs (monthly/annual, per transaction and per customer) will apply to the major categories of software, hardware, Web access, installation, training, service, facilities, staff, marketing, and telecommunication connections, to name the more significant types. (Disclaimer: No article, consultant, or employee can identify every possible expense. But by uncovering several common major costs categories now, you’ll be sure to miss far fewer line-items later.)

Let’s explore the area of fixed investments, beginning with hardware. Hardware costs are generally the easiest to obtain, assuming you’ve planned for enough system capacity to handle your long-term needs. In addition to the obvious client-server CPU, be sure to consider Internet firewalls, host system upgrades, and required physical changes to your facility. And modems are a requirement for every form of access except Internet and LAN/WAN connected devices.

Software costs can be more difficult to estimate for several reasons: capabilities can vary greatly from vendor to vendor, add-on third-party software may not be itemized in the vendor’s quote, security options vary greatly, and you may eventually require custom programming to modify the system to your unique needs.

To make the new system(s) communicate to your host, you’ll likely need system integration programming. This can be avoided if your host vendor offers a pre-integrated, off-the-shelf product. Such solutions will greatly reduce costs, help you avoid incompatibility problems with each successive upgrade, and guarantee that all of the online banking product features can actually get to the required data on your host. But the downside is that you will be limited to the online banking product of your host vendor’s choosing.

Another way to minimize integration costs and difficulty is to select a product that includes built-in middleware, a capability that can greatly simplify host system integration. A few major vendors now offer middleware as part of their online banking products, as a way to address the wide variety of host systems available in the financial services market. Another way to minimize the initial integration cost is to select a vendor that uses ATM-based communication to the host, but the twin downsides of this are:

• ATM switch fees.
• limited a set of functions recognized by the ATM transaction-code set.

One more way to save overall cost and difficulty is to select a vendor that offers an integrated suite of access options through one single client-server product. This is beneficial if Internet access is just one of many forms of account access that you believe will be widely used in your lifetime. On the other hand, many bankers feel that Internet access is the primary wave of the future. If you tend to agree with the latter statement, then select one of the many qualified vendors that specializes in Internet banking solutions. In any case, this vendor strategy will have a great bearing not only on your cost, but system performance capabilities as well, so make sure your strategies are in synch.

If online banking is a killer application, then bill payment is certainly the “killer app” of online banking. (After all, would you or your customer really go to all this trouble just to get a balance?) We’ll explore bill payment costs in some detail for two reasons:

1. Bill payment fees will likely be your highest variable expenditure (see also p. 7 item 7).

2. Throughout this industry, vendor quotes often show only half the picture by listing just your per-transaction charges. In addition to payment transaction fees, these bill payment costs may also apply:

• financial institution start-up fee, including software license, installation, and training
• initial end-user set-up fees
• base fee, or minimum fees, per active customer (regardless of how many bill payments are made)
• customer service fees (per customer per month or per inquiry)
• ATM switch fees (may also apply to basic account inquiry functions as well!)
• stop-payment and other per-incident fees
• integration to your host, online banking systems, and bill pay databases for other access methods (such as touch-tone bill payment)

To estimate bill pay cost per customer, financial institutions have been known to simply take the vendor’s transaction fee per bill payment and multiply it by the industry rule-of-thumb seven to ten payments per month. (However the average number of payments per month can vary dramatically depending on your pricing, ease-of use, customer demographics, etc.). This method could result in an estimate 50% lower than reality.

Some bill pay vendors process transactions only, and aim to provide the best pricing and quality for a narrow offering. Others provide a soup-to-nuts product offering. In any case, be sure to compare all relevant costs when building a financial projection. When you do so, you’re likely to find that your per-customer costs easily will add up to $6/mo or more.

One key aspect of online banking that has been continuously underestimated right from the start is end-user customer support. The more features and access methods you offer, the more your customers will inquire. And if you treat them well, they may “virtually” stay with you longer than your customers that walk in or call in. But if your customer service standards are below expectations, then they’ll head to one of three places: back to the branch, over to the call-center, or on to another financial institution that offers electronic account access and perhaps better service.

If specialized online banking customer service resources are out of the question right now, there are several companies offering outsourced end-user customer service. Your probably want a support vendor aligned with your online banking vendor so that the support provider’s staff isn’t being trained on a new system using your customers as guinea pigs.

Your actual variable costs will vary significantly based on several factors: your financial institution size, current host system, desired platform and features, the quality and stability of the product, and how hungry your vendor’s children are!

1. Develop Usage Forecasts: Any business case begins with a forecast of projected usage. Forecasting is more of an art than a science, but your forecasts should consider these four factors as a starting point:

• Computer usage among your target market. This is not the same as computer ownership. Ownership is a leading indicator, but many users will be able to use online banking (OLB) from work or other locales.
• Online connectivity among your target market. In the future, with Net TVs and e-mail telephones, users will be able to access OLB services without using a computer. This will be a significant number in the later years of a five-year planning horizon.
• General pricing philosophy. Are you planning to offer OLB services:

• free?
• below-market prices?
• at the going market rate?
• at premium prices?

• Competitive pressure. Even if you are planning to offer OLB as a premium-priced break-even service to retain customers, your competitors may have a different idea.

Depending on the sophistication of your business case, you may need to subdivide your forecast into three categories:

• existing (bank) households using OLB
• new households that came to the bank to use OLB
• households retained because of OLB

2. Estimate Financial Information Fee Income: Everyone’s first question is, “What can we charge?” The short answer, “it depends.” It depends on your strategy, your customers, and what value-added services you provide.

We are absolutely convinced that basic online account access will evolve as a free service just like call centers today. But unlike telephone banking, OLB has many other ways to become a significant profit center. Though you may never charge for simple account access, you will likely charge fees for ancillary and premium services. You should try to account for that inevitability in your business case.

3. Estimate the Value of New Customers: New customers attracted to your bank by the lure of online banking are an important source of revenue. Banks have reported 20-40% of online banking customers are new to the bank. But many of those new households would have become bank customers even without online banking.

So, determining the value of new households is a two-step process. First, estimate the percentage of new households that are incremental due to the online offering. Ideally, a survey of new households would be used to develop this estimate. If that’s not feasible, take an informal survey of new account reps to support your estimate.

Next, determine the average profitability of new households over time. Then multiply this value times the number of new households to determine the total value of online banking for generating new households. In our example, we assumed a three-year ramp-up to maximum HH profitability of $200/year

For more precise measures in the future, flag new online banking households in your CIF and track their total profitability over time.

4. Estimate the Value of Retained Customers: Even more important for most banks, is the number of households “saved” or retained due to online banking. But this number is even more difficult to measure (really impossible), so an educated guess must suffice. To support your estimate, you could ask OLB households if they would move accounts if you didn’t offer the services. (Note: We don’t take a lot of stock in telephone survey responses to hypothetical scenarios, but by comparing answers to other possibilities, e.g., “would you move accounts to save $3/mo,” you can get a sense of the relative value of OLB compared to other price/performance attributes.)

Multiply the number of saved households times average OLB household profitability to determine their value.

Another way to handle the estimates in steps three and four is to lump the two together and estimate what percent of your OLB base is incremental to your bank because of OLB. The number would be a combination of new and/or saved households. In our example, we have assumed that 15% of the OLB base is incremental.

5. Forecast Cross-Sales of Other Bank Products: Online account access will drive users to your Web. Since they must identify themselves to retrieve account data, you will have an ideal opportunity to pitch appropriate products in an extremely cost-effective way. For example, instead of sending preapproved direct mail costing $0.50 to $1 per piece, deliver the same offer to customers when they log onto your Web to check on their accounts. This could be accomplished for just pennies per customer. Further reducing costs, your customer will do their own account set-up data entry.

Again, you need a line item(s) in your business case to credit the “online channel” with its value as a generator of incremental sales to OLB households. We chose to estimate the value of cross-sales as a dollar contribution. Alternatively, you could show incremental deposits and assets as they grow with your OLB base.

6. Estimate Cost Savings: Just as ATMs promised an era of reduced bank costs that was largely unrealized, Internet banking suffers some of the same early problems. For every one customer who answers their own simple question on your Web site (eg., “What are the hours of the main branch?”), ten others e-mail with bizarre (for a bank) questions like, “In my AOL browser I can’t read the mortgage rates in the third column. What should I do?”

But there is a big difference between ATMs and Internet banking. ATMs are expensive, high-maintenance mechanical devices prone to breakdown, vandalism, crime, and often (but not always) require a dedicated telecom line to handle a few hundred transactions per day (at most), and armored car delivery of consumables (cash).

On the other hand, Internet banking uses highly efficient equipment whose only consumable (electrons) is available at practically no cost. Once users, and banks, move down the learning curve, the cost savings of self-service information retrieval will be significant. The high-tech companies that were first to service corporate clients on the Web (Sun, Cisco, Federal Express) are already experiencing multimillion dollar savings through Web-based customer service and order entry. Banks and other retailers will get to the same point in a year or two.

7. Deal with Bill Payment: Bill payment probably deserves special treatment in your business case. For one, it’s a customer service black hole, frustrating both user and service rep as the bank (either on its own or through its service provider) takes on a new role as go-between among the user and merchant.

Right now the economics of bill payment are disastrous. For every check turned into an electronic item, saving you maybe a dime, you incur customer service costs of $0.10 to $0.50 per item and vendor processing costs of $0.30 to $0.50 per item. No matter what you charge users, you’re probably operating with a negative contribution (variable costs are greater than variable revenues), so the more volume you project the more you lose.

But the economics of digital bill payment will be reversed within the next few years as electronic bill presentment schemes take hold (see Microsoft/First Data announcement p. 24-25). Not only will the cost of end-to-end electronic payments become less than the cost of paper items, the customer service costs will pretty much disappear, and if the Microsoft/First Data business model holds, the vendor processing costs may disappear as well. In fact, bill presentment could end up being a profit center if it follows the precedent of credit/debit cards with interchange flowing from the acquirer of transactions (Microsoft/First Data) to the bank servicing the end-user’s transaction account.

All this makes bill payment difficult to cost out in a five-year business plan. Our recommendation: zero out bill payment beginning in year 2000. In other words, assume the cost to provide bill payment is exactly equal to what you can charge for it. Whether this falls to zero or not doesn’t matter. The important thing is it doesn’t drag down your business case as subscriber volumes ramp up 2-3 years from now.

8. Estimate the Value of Other Intangible Benefits: The final area of revenue forecasting is a catch-all for estimating the value of the less-quantifiable benefits of online banking. Even if your bank steers clear of “warm and fuzzy” or “soft dollar” benefits in its financial analyses, you should at least summarize them in a chart, or better, quantify them and include as a footnote to the financial analysis. In our example, we show intangibles “below the line” and they are not included in the net present value (NPV) calculation. Below are some of the major intangibles to consider:

• implicit fee income (the ability to charge higher fees
  on other products due to the value of online access)
• the value of being perceived as an innovator
• ancillary revenues such as commissions, referral fees, sales of aggregated user preference data, etc.
• the value of Web as communications vehicle to community, investors, press, etc