You can really see how the global financial crisis has stunted banking innovation by looking at how little Facebook has been used as a delivery channel (note 1).

The first financial institution in the world to offer Facebook account access, KeyPoint Federal Credit Union (powered by MShift)  launched in Nov 2007 (post here), when the social network had "just" 50 million users.

In the ensuing 4+ years, despite an increase of 800 million more users, not a single major financial institution has followed in KeyPoint's footsteps (see note 1).

Sure, there's been some impressive Facebook marketing campaigns. Chase, American Express, and Capital One have all passed the 2-million "like" mark. But no one allows customers to check their balance/transactions right from within the social network (via a Facebook app).

But the drought ended this week, when India's second largest bank, ICICI Bank, launched comprehensive Facebook services including account info (screenshot #1), offers (see #2), and a general jump-page to the bank's main website (#3).

The new Facebook initiative is currently featured in the first promotion served by the bank's homepage (#4, note 2).  
--------------------------------------

1. ICICI Bank's Your Bank Account page in Facebook (link, 17 Jan 2012)

2. Exclusive offers Facebook page (link)

3. Bank-on-the-go Facebook page: Serves as a launching pad to the specific areas on the bank's main website

4. ICICI Bank displays a Facebook promo when landing on its homepage

----------------------------------------------

Notes:
1. Having been a product manger for several large banks, I get why the "Facebook project" hasn't moved to the top of the queue; basically, lack of demand. Facebook may have nearly a billion users, but only a few percent are ready to bank there because it's not seen as secure/private and it's a place to connect with friends (see note 2). But despite the current lack of demand, we are confident that Web services, including banking & payments, have a promising future on the platform. 
2. ICICI Bank tackles security via a prominent mouseover on the main page:

The 'Bank Account' app is hosted on secured ICICI Bank servers and is made available on Facebook through a secure SSL connection. ICICI Bank has not transferred any data to Facebook. Your bank account information can only be accessed by you through your 'Bank Account' app on Facebook after successful registration which incorporates strong 2-factor authentication and setting up a personalized password. As long as you don't share this information with others, no one can access your account through Facebook.

Currently through your 'Bank Account' app on Facebook you can view account details, mini statement and few service requests like applying for debit card.

This app lets you access your information only after authenticating your Debit Card Number and Password. As long as you don't share this information with others, no one can access your account.

3. Viewing the page from a U.S.-based IP address.
4. We cover all the channels in our subscription newsletter, Online Banking Report.

I just spent the better part of two days attending BancVue's monthly client/prospect meeting called BTAN (note 1). I knew they would have high-energy presentations, great ideas, and outrageous antics; after all, I've seen them take home three Finovate Best of Show trophies. They know how to drive a point home.

But what I didn't expect was to come home believing its Kasasa strategy might really work. Kasasa launched at FinovateFall 2009 (video here) and is the first major attempt to create a nationwide brand around the checking account. They are trying to do for checking what Visa/MasterCard did for the credit card or what Intel did for PC manufacturers with "Intel inside."

One very different element here is that BancVue is creating a national brand exclusively for use by community banks and credit unions. Large banks are viewed as the enemy (see inset from BancVue's "about us" page) and are not allowed to "stock" the Kasasa brand.

On the surface it seems impossible. How could hundreds, if not thousands, of proud, local financial institutions -- many who've been building a local brand for many decades -- unite under a nutty brand called "Kasasa" of all things?

But is it crazy like the iPod was crazy? Smaller banks and credit unions are being taken to the cleaners by the big banks, losing more than half their market share in the past two decades. They have the local ties, the human connection, but it is usually hard to maintain the product set, marketing power, and online/mobile UI, of Bank of America or Chase.

But what if someone was able to level the playing field with best-of-class products and combine the marketing power of 1,000 financial institutions into a national brand? (note 3) Then the community banks/CUs could go ahead and compete on service, price, value and local connections.

It sounds too good to be true, really. And I was skeptical when I heard the pitch two years ago. But after seeing how BancVue has signed up more than 600 FIs for rewards checking, hit #23 in the Inc 500, and witnessing their passion in person, I think they have a real shot.

Bottom line: It takes a long time to build a national financial brand, especially one centered on lowly checking accounts. Other than PayPal, what's the last one you can think of? Capital One, founded 1988, maybe. Discover Card, launched in 1985, perhaps (note 4). And I can think of a hundred reasons why it won't work.

But Kasasa is definitely out of the gates and gaining traction. Having just finished my review of the most important trends of 2011, I have a feeling Kasasa could make this list in 2012 or 2013. 

-------

Kasasa product set (11 Jan 2012)

Kasasa products dominate the homepage of Farmers Citizens Bank (link)
Question: Do Kasasa ads clutter the Farmer's homepage? No more than any other promotion. And they are at least attention getting. 

 

Landing page at Farmers Citizens (link)

---------------------------

Notes:
1. I attended the event at the invitation of BancVue. But I am not consulting for them or their customers. BancVue is a customer of The Finovate Group for our event and our published reports just like hundreds of other companies. However, they did feed me really well, which, as my family will attest, is a powerful motivator in my life. So I can't say I'm totally unbiased.
2. After hearing the detailed reasoning behind the branding decision, I actually think the Kasasa choice makes sense. But you'll need to see the presentation to get it. The Financial Brand breaks it down here.
3. BancVue says that with 1,000 financial institutions offering Kasasa it would be bigger than the largest U.S. bank in branch network and marketing budget.
4. I can't think of any major national banking brands that have appeared in the Internet age other than PayPal, and perhaps NetBank (RIP). ING Direct made it, but they were a spinoff of a powerful international brand, and even then they spent more than a BILLION in the United States alone during the past 12 years making ING Direct a household name. E*Trade, Ally also come to mind, but the former is more associated with brokerage and the latter is a name change from GMAC. Bank of Internet is doing well, but is hardly a household name.

In Demise of the Branch, a report we published in April 2006, we opined that the branch's influence in retail banking had peaked. But it was perhaps a bit premature. It turned out that strong retail banking revenues (for example, interchange and overdrafts from the massive uptick in debit card usage) would fund the overbuilt branch network for a few more years.

But the good times are over, at least from a brick-and-mortar perspective (see note 1). And as much as I feel for the tens of thousands who will lose jobs, based on my personal experience, I am OK saying good riddance to the branch. While the people I've encountered have been super friendly when I hand over deposits, when there has been even the slightest complication, the experience has ranged from poor to abysmal.  

And it wasn't that the people were uncaring or unintelligent. In fact, usually they seemed to be trying hard to solve things, but just did not have the support they needed (training, systems, empowerment, whatever). Overall, my branch banking experience has been a net negative for my feelings about the banks I've used (note 2).

Online and mobile have already replaced much of the the transactional and informational activity. And we are fairly far along on the path towards replacing customer service and sales with digital alternatives. But how do you replace the important brand-building benefits from a high-profile physical presence?  In other words, what's the digital equivalent of the corner branch?

The answer is right in front of you. If your best customers interact with their phone and computer much of the day, you need to be where they see you. That starts with an awesome website, brilliant mobile app, and tight landing pages. But it's much more than that. It's being in search results. It's serving ads where prospects read the news. It's being in the news feed itself because you do interesting things. It's getting permission to market to the customer's inbox or message them on their mobile.

You already know all this. But now it's time to really focus on the digital channels. And when there's not enough money to go around, I hope there is serious consideration to downsizing the branch network. Because the last thing you want to do in 2012/2013 is put forth a half-hearted online/mobile offering.  

Have a great holiday. And thanks for reading. You have no idea how much I appreciate it! -- Jim Bruene

--------------------

Notes: 
1. I still can't prove that U.S. branch banking has peaked, but if you look at the overall P&L of retail banking going into 2012, something has to give. And I think the branch system is a prime candidate for "right sizing." And I'm not saying the branch disappears entirely, at least not in my lifetime. It's going to be a gradual decline in numbers, employments, square feet, sales, and so on.
2. Mostly, I'm talking about personal experiences at various large banks. However, the first 10 years of my adult life a credit union was my primary financial institution. It's where I got my first credit rejection. (Because I had no credit history, the CU at my office wouldn't give me a credit card despite my new job as an engineer in a Fortune 50 company. But a big bank in a neighboring state did.)

In the digital era where teenagers might keep their bank accounts for the next 80 years, it's important to offer services that encourage kids to sign up for a bank account. There are some cool ideas around financial education, money management, and gamification which we explored in our Online Banking Report earlier this year (note 3).  

But what's the one issue that really drives parents' behavior towards their kids? Fear. Fear for their physical safety on the way to school, fear of bad influences at school, and fear of the idiots kids will encounter online. The list goes on and on. 

You may not be able to protect kids from Facebook bullies, but you can help on the money side. Financial institutions can offer services that help protect children from online scams, ID thieves, and so on. You can offer prepaid cards with controlled access. You can keep parents apprised of their child's spending so they can recognize early-warning signs of dangerous behavior.

It's win-win product development. Parents will pay for it through fees and/or loyalty. You'll lock in more youth accounts, and everyone will get a bit more peace of mind.

Bottom line: While family financial security is a promising area, it's no small project. Most banks will need partners to provide at least some of the services (credit-reporting specialists, account-aggregation providers, data analytics, and so on). But once the data feeds are available, they can be bundled together into different packages for various segments. 

And mobile delivery will be crucial. For inspiration, look at Life360, a fast-growing mobile service whose core offering is GPS tracking for family members (see screenshot below, note 2). Life360 is free, but offers an optional identity-theft protection family-plan at $14.95/$19.95 per month. Since going free, the company has mushroomed to 6 million families.

------------------------------

Life360 is a fast-growing startup offering "mobile family safety" (13 Dec 2011)

-------

Notes:
1. Graphic: From the FTC-sponsored one-day seminar on childhood identity theft this summer (link).
2. For more info on Life360, read the series of Techcrunch posts on the company.
3. For more on family/youth banking, see our recent Online Banking Report (subscription).

I still remember the day in early 1999 when I met with Elon Musk and his 3-person team in a borrowed conference room in Palo Alto. They were plotting the complete and total disruption of the banking industry and fully expected to be one of the largest five U.S. banks by now.    

The startup was named X.com and its original business plan was to acquire one or more existing banks to provide the credibility, and deposit insurance, of a traditional bank. While I was in awe of their ambition, I thought the plan had a flaw. I told them they'd be better off staying virtual, with no bank ownership slowing down their decision making and ability to take risks.

I'll never know if they would have listened to me, because soon thereafter X.com began experimenting with P2P payments via email, and they saw that it was going to be huge. So they jettisoned banking, merged with PayPal, and the rest is history.

Why the reminiscing? That was the last attempt by a major tech startup to take on the U.S. retail banking industry via virtual channels (note 1).

Fast-forward to 2011: At this year's FinovateFall, we saw the launch of not one, but two well-funded attempts at disrupting the incumbents. One through debit/checking/savings and the other through wealth management:

• BankSimple: DNA from Twitter, analytics, and consulting
• Personal Capital : DNA from Intuit, PayPal, Everbank and Fidelity Investments

Both companies are what I call True Virtual Financial Institutions, meaning they are complete front-ends to your money, including transaction capabilities and customer service, but they outsource the actual holding of customer funds to fully-regulated partners which pass FDIC/SIPA protections. This allows the newcomers to focus on user experience and service while moving much faster without the regulatory friction experienced by traditional financial institutions.

Others well-known companies using virtual models: Betterment (also profiled in the report), iBankUp.com (Plastyc) and Perkstreet.

Note to bankers: True virtual banking needn't be limited to tech startups. These techniques can be employed by traditional companies to expand beyond regional or industry boundaries. The report outlines seven models for doing just that.

__________________________________________________________________

About the report
__________________________________________________________________

True Virtual Banking Has Arrived (link)
BankSimple, Personal Capital, Betterment and others go branchless,
paperless and "bank-less"

Author: Jim Bruene, Editor & Founder

Published: 1 Nov 2011

Length: 48 pages

Cost: No extra charge to OBR subscribers, $395 for others here

____________________________________________________________________

Notes:
1. I should add that Lending Club, Prosper, Zopa qualify as major entrants bound on disrupting banking from the lending side.   
2. BankSimple, Betterment, Personal Capital and Plastyc FinovateFall 2011 demo videos are available here.

The debit card fee debacle was an interesting drama to watch. I'm sure there are lots of lessons here for a future biz school case study. But really, was $5/mo for a service that many consumers use daily, such a big deal that even Obama had to call BofA out? We spend two or three times that each month on extra pizza toppings alone, but I don't see anyone bad mouthing the pepperoni industry.

While it's clear in retrospect that BofA should have played this differently, rolling out the price increase gradually for instance, or upgrading its debit card product at the same time (note 1), the bank was at least being up-front with its pricing and reasons.

And the whole episode is not just a loss for BofA, but for the whole industry, as one its most popular products is turned into a regulated utility with Durbin controlling prices on the merchant side and public opinion squashing fees on the consumer side.    

Here's the winners and losers from BofA's capitulation on debit card fees:

Losers

• Big banks/shareholders: Obviously, the big banks who were all (except Citi) testing various fee options, miss out on added revenues in 2011 and for however long it takes before they implement other less-transparent price increases. And of course, BofA loses the most as it took the brunt of PR damage and now every pricing move it makes will be put under a microscope. 
• Small banks and credit unions: The $5 fee was a windfall for small FIs in their marketing war against the big banks. Now what's the rallying cry for Bank Transfer Day? (And many small FIs would eventually have hopped on the fee bandwagon once the consumer backlash faded.)
• Government/taxpayers: The big banks employ millions directly, and millions of other jobs are indirectly supported by banking revenues. If this leads to an industry-wide layoff (note 2), it could add hundreds of thousands to the unemployment roles just in time for the 2012 elections. And the whole anti-bank rhetoric from Congress and the Administration, along with the implied threat of more price controls, makes it harder for banks to raise capital, weakening an already fragile ecosystem. Does anyone really want to risk a repeat of 2008?

Winners

• Merchants: Widespread debit card fees would likely have caused a reduction in their use and a corresponding increase in the use of cash, checks and credit cards which would have driven merchant costs up.

Mixed

• Consumers: Short-term it's a win. The grass-roots victory feels good and avoiding the $3 to $5 monthly fee is nice (it just about covers that Netflix price increase...so you can keep getting the DVDs in the mail). But longer-term, it's probably a wash. Banks need to improve revenues, or they will either have to cut services, lay off employees, and/or find sneakier ways to raise prices ($40 overdrafts anyone?).

----------------------

Notes:
1. We recently looked at optional fee-based services banks could build using remote banking value-adds. See our May 2011 Online Banking Report (subscription). 
2. I'm not predicting layoffs. Honestly, I have no idea. There are way too many factors at play to make a direct connection. But certainly, the one-two punch of interchange price controls combined with the fee backlash, make cost cutting seem the more palatable course of action to improve profits. And to the extent that smaller players pick up incremental business, they could hire a good chunk of those laid off.

This is my favorite time of year. The kids are back in school, we finally get summer in Seattle (yep, the weather again), and there are 150+ tech product/company launches in the next 12 days.

First up are the general tech events next week in the Bay Area: TechCrunch Disrupt and Demo. Then the following week, it's fintech's turn with our Finovate in NYC Sept. 20/21 and the SIBOS Innotribe competition in Toronto. And don't forget, BAI Retail Delivery is just around the corner, Oct. 11-13 in Chicago.

It will be interesting to see if there will be an innovation du jour this year. Unlike a few years ago, when mobile, online PFM, and social media all hit the scene at the same time, it's harder to put labels on the class of 2011.

But in many ways, this month's launches are more important than what we saw several years ago. Instead of general "blue sky" advances, we are seeing specific, actionable and profit-generating applications. 

Mobile is the best example. Just three years ago, it was novel to show a bank balance on a cell phone. That was helpful for users, but didn't do anything (positive) for the bank's bottom line. Now, smartphones are used to deposit checks, geo-locate cardholders, and acquire customers, all potential profit drivers. 

For all you tech observers, butter up the popcorn and enjoy the show.

It's 479 days, 2 hours and 54 minutes until the end of the Mayan calendar* and you know what that means? Yep, it's time to start putting together your 2012 business and marketing plans. And don't think that the end of the world is any excuse to hold back. 

As usual, we've got your back. Announcing OBR's 2012 Online/Mobile Banking Planning Guide. Its goal: to provide a resource for financial institution managers (product and/or marketing) to help prioritize potential remote-banking projects for the coming year.

The latest version was released just this afternoon.

______________________________________________

About the report
______________________________________________

2012 Product, Pricing & Strategy Guide for Remote Banking (link)
Preparing for the mobile-first future

Author: Jim Bruene, Editor & Founder

Published: 29 Aug 2011

Length: 76 pages

Cost: No extra charge to OBR subscribers, $695 for others here

_______________________________________________

The report contains a list of every idea that has appeared in Online Banking Report or this blog. There are more than 1,000 possible tactics listed in the current report, divided into the following categories:

--------------------------------------------------------

*We don't want to feed into the Mayan calendar hysteria, but you might want to pick up these super cool keychains here.

I've been thinking about mobile delivery a lot in the last few years. Two years ago, I opened presentations with "mobile is the new online." But lately I've changed that line to: 

Mobile is the new a better online

Equating mobile banking to online is selling it short. Really, it's much better than online. I believe that in the not-too-distant future (i.e., 10 years out), we'll come to look at online as an extension of mobile, not the other way around.

Here's why mobile is not only better than online, but also changes everything about remote delivery: 

• Mobile knows where you are
• Mobile is with you all the time
• Mobile has a voice option (duh)
• Mobile can be more secure
• Mobile can interrupt you (text message, on-screen alerts)
• Mobile can use the accelerometer (shake to log in)
• Mobile has a camera and an input device
• Mobile will be able to communicate directly with other devices (NFC)
• Mobile will allow you to pay at the POS and be your primary wallet and ID too

No doubt, your product folks have their work cut out for them integrating mobile into all that you do. Yet, despite all the hype, mobile changes nothing about your underlying banking business:

• Everyone will offer it, so you won't gain market share
• Everyone will price it the same, so you won't gain incremental profits
• Customers will expect it, so you won't improve customer satisfaction

Bottom line: Ultimately, banks will win or lose based on how well they execute on gathering deposits, making loans, facilitating transactions/payments, servicing customers effectively, and pricing it all correctly (note 1). 

------------------------------------------

Notes:
1. Graphic image from Chase (click on it to go to the site)
2. And I thought of adding, "keeping regulators happy." But that probably goes without saying these days.

I try not to ride the coattails of someone else's blog post, but here I go doing it anyway, because it's a great mid-year question.

Shari Storm, published author, Filene i3'er, and grand master financial marketer, asked the Internet to help her round out the list of ten most interesting (financial) products of 2011.

Here's what she's found so far (note these aren't necessarily new in 2011, just interesting this year; parenthetical comments are mine): 

1. Mobile banking (note 1)
2. Mobile remote deposit capture
3. Personal financial management tools
4. Personal bookkeeping (e.g., Balance Financial)
5. Rewards checking (including in-statement merchant-funded rewards)
6. Mobile apps that encourage you to build your savings account
7. Short-term fixed-rate second mortgages

For what it's worth, in the comments I suggested (alpha order):

• Anti-virus for your card charges (e.g., BillGuard)
• Bill statement storage online (e.g., doxo, Manilla)
• Buy online/pay offline services (e.g., PayNearMe at 7-11)
• Mobile barcode scanning for shopping comparison
• Tablet banking
• Tween/teen banking/prepaid services

Give Shari some ideas here, so she won't be mad that I'm stealing her post.

Notes:
1. Verity launched May 2 and already 1,500 of 25,000 members are using it (about 6%).

We were still in the Web 1.0 world when my kids (teenagers now) started their first savings accounts. So there were few youth banking services available to facilitate online savings and spending.

Fast forward 10 years. We have Facebook, we have Twitter, we have mobile weather info. But we still have virtually no youth banking tools at the major U.S. banks (Wells Fargo is furthest along, see screenshot below).

And that makes no sense.

There are 100 million people under age 25 in the U.S., and obviously, 15 to 25 years from now, a good portion of your profits will come from this group. However, in the next five years, this cohort will generate exactly zero percent of profits.

In the branch-based past, it made business sense to wait another five years to start selling to this group. After all, high-school graduates closed their bank accounts when they moved to college. College graduates closed theirs when they moved to their first job. And first-time job holders switched accounts when they landed a better job, and so on.

But that was a different time. In today's remote-banking world, THERE IS NO REASON TO EVER CLOSE YOUR ACCOUNT. You just send in a change of address and keep logging in to the same place.

A 12 year-old girl today is expected to live another 70 years (boys, only 65 more). So if those kids won't ever need to close their accounts, it stands to reason that getting them hooked to their parents' online banking becomes pretty important.

That's why we are seeing interesting startup activity in this area including (from recent Finovates): 

• Bobber Interactive
• Kiboo
• MatchFund
• MoneyIsland (from BancVue)
• Thwakk
• Tile Financial 

And there is a rush to social media, such as the brilliant Young & Free campaigns invented by Canada's Currency Marketing.

Finally, the report includes articles from two industry experts:

• Justin Hosie of Chambliss, Bahner, & Stophel PC on the importance of bank compliance with the Children's Online Privacy Protection Act (COPPA)
• Matt Cullina, CEO of Identity Theft 911, writes about the importance of protecting your kids against identity theft

______________________________________________________________

About the report
______________________________________________________________

Family Banking: Online/Mobile Services for Tweens, Teens & their Parents (link)
In a remote banking world, your most-promising prospects aren't even driving yet!

Published: July 15, 2011

Author: Jim Bruene, Editor & Founder, Online Banking Report

Length: 52 pages (10,000 words), 52 Figures, 7 Tables

Cost: No extra charge for OBR subscribers, $495 for everyone else (here)

Abstract here

---------------------------------

Wells Fargo offers up solutions for four age groups (18 July 2011; link)

Prepaid cards have been a bit of an afterthought for most banks and card issuers. Sure, they make the occasional appearance on banking sites in December as holiday gifts. But mainstream they are not.

But that was before traditional debit cards suddenly became unprofitable (note 1) thanks to the upcoming U.S. debit interchange price controls (see Durbin rant, note 2) combined with with last year's reining in of overdraft fees.

It's pretty easy to predict what happens next. Banks will do what any business would do when offering a popular, yet unprofitable product. Raise prices with new monthly/annual/transaction fees. And for customers that are fee adverse, banks will offer two alternatives:

• Credit cards for the credit worthy
• Prepaid cards for everyone else

Bottom line: Prepaid bankcards are about to become much more popular. Here's why:

• More interchange revenue to the issuer
• Easier to sell online with fewer risk management and compliance issues
• Great entry product for teens and pre-teens
• Porting the prepaid "card" into mobile phones and other contactless form factors
• Valuable service for underbanked segments
• More utility: can be gifted, used for traveling, used to deliver allowance, and so on

-----------------------------------------------

Notes: 

1. The price controls apply only to banks of $10 billion or more.
2. I am really disappointed in the Durbin interchange price controls. I was sure Congress would delay the matter, but unfortunately I was wrong. My feeling is that price controls are an absolute last resort when there is not enough competition to create a free market price. I don't think that was the case with debit interchange.

Long-term, the whole exercise is a zero-sum game for the businesses, merchants and banks, who will adjust their prices to cover costs and ensure a normal profit. The only likely loser is the consumer who will be deprived of innovations killed off by the dramatic shift in interchange.

Here's my scorecard of the post-Durbin winners and losers: 

Short-term winners:

• Merchants, obviously
• Prepaid card issuers (which are not covered by Durbin price controls)
• Consultants, lawyers, marketers and professional services firms involved in drafting and communicating new bank prices and policies 
• Financial institutions exempted from Durbin (under $10 billion) could pick up share and/or be able to gain fee revenue by matching the large bank price increases

Short-term losers:

• Large banks will see revenue declines until they can get new fees introduced and move transactions to credit/prepaid
• Consumers who will see fee increases from banks faster than they'll see price decreases from merchants
• Payment startups and business consortiums whose business model was predicated on disrupting debit

Long-term unchanged:

• Merchants who will eventually pass on the interchange savings due to price competition
• Banks who will make up the revenue loss with new fees and/or by channeling transactions to higher-margin products
• Consumers who will pay more in bank fees but less for goods and services, an overall wash

An executive on the front lines of product development at a major financial institution recently asked me this question:

How can I prove that innovation really matters to the bottom line?

I've been a "product guy" my whole career so I take it for granted that "building a better mousetrap" eventually trickles down to a boost to the bottom line. That worked at Microsoft, Apple and Caterpillar (my first job).

But they are manufacturing companies. That better mousetrap, be it Win95, the iPod, or a D10 tractor, brought in direct, usually profitable, revenues.

It's harder if you are a retailer. If the Gap spends a million dollars to improve search and discovery on its website, will it really sell enough extra jeans and sweaters to make the investment back, let alone earn an acceptable return?

Banks are both retailers (branch and online) and manufacturers (checking accounts, loans). But today, the P&L from their digital efforts is more like the Gap than Apple. You have to sell a lot of extra checking accounts and car loans to justify even a modest website investment. This has held back digital investments for 15 years (see note 1).

But what if banks started acting more like a manufacturer when it comes to digital products, by creating new services to package and sell on their own merits.

For example, instead of spending a couple hundred thousand every year to give everyone remote check-deposit capabilities free of charge, create a new digital product called, The Magic Check Deposit Service, and sell it for $2.99/mo. This product not only reduces costs, since it will have far fewer lapsed and/or clueless users, but also pegs a monetary figure to the service, thereby increasing its perceived value even if you end up giving it away to your best customers.
______________________________________________________________________________

The Numbers
_____________________________________________________________________________

Let's crunch a few numbers. Assume it costs $0.50/mo to support each user + $0.25 per check deposited + $20 per tech support call (I made these up so don't quote me).

Free service:
Cost = 50,000 users x 0.67 checks/mo + 1,000 support calls per year = $420,000
Fee revenue = $0
Customer retention value = ??? (some positive number)
---------------------
Net = ($420,000)

Subscription service:
Cost = 5,000 x 4 checks/mo x 100 support calls per year = $92,000
Revenue = 5,000 x $2.95/mo = $177,000
Retention value = ??? (same as above)
--------------------
Net = +$85,000

Change in net (delta) = $500,000
______________________________________________________________________________

Bottom line
__________________________________________________________________

With either approach you get to tout the benefits of the new innovation to capture the branding value. But under the subscription model, only those who really stand to benefit from the service use it, and you end up with a small profit or at least less of a loss. In the above example there is $500,000 gain compared to the free model.

Yes, this is over simplistic. Yes, you'll take some grief for charging when others are giving it away. It's possible you might even lose a few customers, but not $500,000 worth. And the biggest benefit of all, you can actually afford to create the new service now, instead of tabling it for five years until it becomes a competitive necessity. 

Back to the original question. Honestly, I have no idea how to prove that innovation has a good ROI. What I do know is that for the past 100+ years, clever manufacturers have created billions in value by beating the competition with new products and services. I'm pretty sure financial companies will do the same with their online and mobile offerings.

-----------------------------------------------

Note:
1. See our current Online Banking Report, Creating Fee-Based Online & Mobile Banking Services.

Over the years I've published more than a million words and this is the first time I can remember using the term "vision statement," and in a headline no less. I've spent enough time in large companies to know that when you hear "vision statement" it's time to run for the exits. Usually, even the employees don't buy it, let alone the customers it's supposed to impress.

However, BankSimple's vision statement is not only believable, but also sets a great tone for the startup's upcoming launch. It's also cleverly positioned on the homepage to "jump up" above the fold as you scroll down.

Why does it work? Everyone knows that BankSimple, with its Twitter DNA and $3 million in venture funding, will have good tech. So the startup focuses on people and service in its vision statement to make it clear that it's not some aloof, high-tech company where it takes a search warrant to find the customer support number, but an actual human-powered organization (see details below). Nice touch (note 1). 

____________________________________________________________________________

Breaking "the vision" down point by point
____________________________________________________________________________

It's no surprise that the non-bank bank is tackling the fee issue. It's in the news and it's always high on the list of customer dissatisfaction. But notice they are not using the word "free" or saying "no fees." They are just saying they will be transparent with pricing and will not surprise with penalty fees when you can least afford them.

Everyone talks about service, so this isn't particularly novel. But the use of "prioritize" and "real" will resonate with the segment they are targeting. 

 Grabbing the mobile positioning is brilliant. That's absolutely where the market is headed, so you might as well make it a key differentiator. And while no one knows what "true mobile banking" means, it sounds good.

I'm not sure this adds a whole lot to the vision. In the text by this point, the bank talks about "plain, simple language." Sounds OK, but not as compelling as the other points. I'd have nixed it and kept it to a tidy four-point vision instead. 

The tagline for this point is, "You're a real person, not an account number."

Bingo. Here's a pure-play online bank run by uber-techies, but they are saying they are really all about the people. High tech. High touch. Love it!

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Note: Yes, I'm aware that BankSimple abbreviates to BS. And no, I'm not its biggest fanboy. See this self-proclaimed "love letter to Bank Simple."

I'm just finishing an enjoyable novel by Cory Doctorow, Makers. It chronicles two inventors operating in the United States 15 to 20 years from now (the actual time period is not revealed) after another economic/tech downturn, similar to the 1999/2000 dotcom crash.

Readers will recognize most of the technology and information services used, e.g., email, IM, blogs and Twitter. But Doctorow's vision for these services a decade or two into the future is quite enlightening.

One area that's much improved over today's practices is the use of technology to prioritize the avalanche of information bombarding users. Here's a passage from the book:

He'd been tuning his feed watchers...for nearly a decade, and this little PR item rang all the cherries on his filters, flagging the item red and rocketing it to the top of his news playlist, making all the icons on the sides of his screen bounce with delight.

All you news junkies out there, isn't that how you want your email/RSS/Twitter/ Facebook streams to work? The most-important info pops to the top and alerts you at the same time. Google is doing great work along these lines with its Priority Mailbox introduced in August (previous post), which now works on mobile phones as well (see inset).

Opportunity for Netbankers: I'm looking forward to the time when my bank, card issuer and/or third-party aggregator does the same for my finances and alerts me to odd transactions, excessive charges, and potential savings. And more importantly, helps me take action to resolve the issue.

But it can't be delivered in a pile of email alerts sent every day. I tune those out. Just tell me about the IMPORTANT transactions triggering the "financial alarms" and keep mum about everything else. Thanks.

Last year, one of my personal new year's resolutions was published in the New York Times Bucks blog. That provided extra motivation to make it happen, though ultimately I still fell short in my goal to cancel one unused recurring service each month.

But I like the motivational benefits of making goals public, so in that vein I'm publishing my first annual list of new year's resolutions for the online/mobile banking industry (roughly in priority order):

1. Make online/mobile banking a profit center: Cross subsidies work in many industries, e.g., giving away the razor to sell the blade. But with Congress determined to regulate the price of blades, it's time to start pricing the razor for the value it delivers. Online/mobile banking provides enormous benefits for consumers and even more for businesses. It's time to charge for it, at least for premium services.

2. Mobilize: Retail banks did a great job going mobile in 2010. And online-balance queries and transaction lookup are the all-important table stakes going forward. But that's not the end of the project. Mobile is more important to your future than online, so work hard on your version 2.0 mobile service launching this year or next. 

3. Make it family friendly: Kids these days have grown up online and will do all their financial work via online/mobile services. Financial services companies should take a page from the telecom industry and start providing youth banking services via family bundles controlled by the parents.

4. Socialize: I'm in the camp that there is no such thing as a bad financial institution blog, Facebook page, or tweet. Boring? Yes. Lame? Sure. But, any reasonable effort is better than none. In 1996, there were a lot of bad Web pages. But was it better to get a page posted and learn from it or spend years developing a great "Web strategy" before doing anything? Early adopters are usually willing to cut you some slack on your first "beta version." Just the fact that you are willing to get your feet wet automatically puts you above the competition.

5. Make it into a game: Over the holidays, I read a great article in Fast Company about how everything we do can, and probably will, be made into a game. And banking has a head start on other businesses looking to make a game out of everyday commerce. Frequent flyer points for credit card purchases started this movement more than 20 years ago. Now, everything a customer does financially can be rewarded with loyalty points all tracked through pervasive online/mobile connectivity.

I could go on, but then it would be harder to achieve my new year's resolution of publishing an Online Banking Report on each of these topics.

In case you hadn't looked at your calendar, it's Q4 everyone.  Time to sharpen your pencil, fire up your spreadsheet and create that glorious semi-fictional piece of work, the business plan.

And we at Online Banking Report are on your side. That's why every year we put every online/mobile idea we can think of into our Annual Planning Guide for Online & Mobile Banking.

This year, it's 84 pages long with a thousand or so possible tactics, tips, and strategic endeavors for your online and mobile services. But we don't make you wade through all 1,000 to find the six you need. The ideas are separated into three buckets:

• Best practices (5% of total): Must-have features to maintain parity with the competition
• Best tactics for competitive advantage (25% of total): Ideas that will help you stand out from the pack and/or drive incremental revenue/profit
• The rest (70% of total): Every company has different strengths and weaknesses; these tactics could be perfect for you

And we've also taken our favorite 20 and isolated them in their own section. Here is their alpha order:

• Activity dashboard/ticker
• Archives, long-term  
• Automatic alert enrollment
• Blog/Twitter and other social media
• Credit score/report zone
• Email channel
• Home equity center
• In-statement merchant ads
• Lending center
• Micro/small-business services
• Native mobile app (iPhone/Blackberry/Android)
• Personal finance functionality 
• Premium/VIP online services
• Prepaid/gift cards
• Retirement planning center
• Student banking/financial education center
• Text (SMS) banking
• Transaction streaming
• Ultra transparent (flat fee) mortgages
• Usage-based contests/rewards

About the report:

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2011 Product, Pricing & Strategy Guide for Online & Mobile Banking (link)
Will online banking fees make a comeback?

Author: Jim Bruene, editor & founder

Published: 30 Sep. 2010

Length: 84 pages

Cost: No extra charge to OBR subscribers, $695 for others here

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One of the best things to happen in 20 years of living in northeast Seattle was the opening of Barnes & Noble in our local shopping center, replacing the tired old department store, Lamonts. 

For this family of readers, the massive, two-store B&N has continued to be a cherished destination for more than a decade. When the boys were young, it was Tuesday night story time (with free fresh-baked chocolate-chip cookies). Later, it was a place to spend their birthday money on new books, music and DVDs. And I've personally bought at least a couple hundred items there over the years. 

But I'm also an Amazon.com fanatic and buy most everything I can there nowadays. My wife and I (though not the boys yet) are ebook addicts, reading on our iThings via the Kindle app (note 1).  So, I'm more than a little concerned about our neighborhood Barnes & Noble. Printed books and other media, along with CDs/DVDs, are on their way out, so is there any hope of keeping the neighborhood B&N in business?  

Musing 1: B&N Rescued by Amazon.com
Here's my dream: Amazon buys Barnes & Noble, perhaps partnering with a major financial services brand (note 2), and turns it into a fully online/mobile channel-integrated super store. Amazon's major online departments could be recreated within the massive B&N footprint: the book store, of course, electronics, music, movies/TV, toys, home and garden, shoes, and so on.

High-volume goods would be stocked and available for purchase. Consumers could also pick up goods ordered via online/mobile enabling same-day delivery for many items. But the main focus of the store would be self-service online shopping. Shoppers in the shoe department, for example, could see and hold various styles, but would place an order through a mobile app or online kiosk, to get their specific size delivered to the store or their home. The concept would be to showcase a wide variety of items without incurring the costs of holding massive inventory within the store.

Musing 2: Amazon Financial Centers Installed within the Super Stores
Though I'm not a huge fan of branches, they still have their place. Amazon could turn a corner of the store into a financial services center. The center would feature deposit-taking ATMs to handle those pesky checks and would have a financial specialist or two on hand to help customers with mortgages and other high-touch financial needs (no transaction activity, however).

Financial center staffers could also be incented to help drive users to co-branded Amazon loyalty programs with online and in-store sales diverted from credit cards to ACH/debit, saving the company tens of millions in annual interchange. Financing big-ticket items could also create a massive new revenue stream for the retailer.   

While the financial operations could be private-branded under the Amazon name (e.g., Sears), it would probably make more sense to partner with a major direct financial services company such as ING Direct, Citibank, or Schwab, or an international giant such as Standard Chartered, Barclays, or OCBC which would gain a major footprint in the United States with 700+ strategically located mini-branches (notes 3, 4).

It's not going to happen, Amazon is a Wall St. darling as a pure-play ecommerce company, but for the sake of the neighborhood, I wish it would.

-------------------------------------------------

Notes on the the business case (see huge caveat, note 5): 
In this simplistic proposal, I'm ignoring a zillion issues which are beyond the scope of this blog. For example, would existing B&N leases even support Amazon's product mix? But to an outsider, it looks enticing for the following reasons.

• B&N is currently valued at less than $900 million and change after a recent run-up after it announced that it was for sale (note 6). In comparison, Amazon's is worth $62 billion today. As a matter of fact, its market cap has grown $7 bil since I started this post a couple weeks ago, enough to buy seven Barnes & Nobles. Clearly, Amazon could afford it, though whether shareholders would support it is another matter.
• Merging with B&N would take out one of Amazon's major competitors, theoretically allowing the company to boost prices. With $25 billion in revenues, a quarter-percent (25-basis point) price increase at Amazon would add $60 million to the bottom line.
• In-store pickups could help reduce Amazon's massive shipping expense. 
• And while B&N isn't currently generating a profit, it was operating cash-flow positive during the past 12 months (+$120 million).
• Amazon could partner with other direct commerce companies to spread the risk. The financial services mini-stores alone could bring in $100 million annually assuming a $10,000 per month rent/rev share per location (note 3). And other retailers might also be interested in mini-stores within the big Amazon box: Microsoft, Dell, Sony, HP, Drugstore.com, and so on.   

Other notes:
1. While I consume almost all fiction digitally, I still like to buy printed business books to keep on the reference shelf. I find it easier to remember they exist that way. Even my semi-Luddite brother has jumped on the Kindle bandwagon at the new $139 price point.  
2. I mostly added this to justify posting it here. Ironically, this strategy is almost the polar opposite of our Online Banking Report: Creating the Amazon.com of Financial Services originally published in 1998 then updated in 2000 (more recent summary here). 
3. I'm not including another 600+ B&N locations on college campuses, because many of those would not be a good fit for financial services and/or the schools would not allow a competing financial provider on campus.
4. Adding financial stores to Barnes & Noble retail locations could be problematic if the leases prohibit banking operations due to exclusive deals with other banks in the shopping center.
5. Caveat: Although I do have an MBA, my balance-sheet reading skills are quite rusty. And I don't have an ounce of retailing experience (outside banking), so please realize this is primarily conjecture on my part. 
6. There's also another billion in long-term debt and other obligations.

What could be more fun on a gorgeous summer day than boiling down online banking to its core functions?

From the consumer's perspective, banking is pretty simple. You stash away some money in the bank and then you spend it. Rinse. Repeat.

The online/mobile banking experience should echo that simplicity. Here are eight key things users should be able to do: 

• See: View balances, checks written, purchases made, images, and so on
• Sort: Interact with the data by rearranging, categorizing, tagging and so on
• Save: Store all data, images, and reports for future reference 
• Share: Allow other authorized users to view/receive selected info
• Send: Move money to pay bills, transfer funds, pay down loans and so on
• Select: Choose account options, change service plans, modify settings, and so on
• Service: Investigate and fix issues
• Secure: Batten down the hatches for all financial matters

I believe the industry is only about 10% to 15% of the way towards delivering on these eight items. Most online banking services are pretty good with See. And there's been a lot of work done with Secure and Send, but they are not nearly perfected yet (I spent 40 minutes in the branch Tuesday sending a $3,000 wire, and I still don't know if the recipient got it). But the other areas are wide open.

Did I miss anything?

Note: Photo credit -- Adonis Hunter (Flickr)

In the history of online banking, has there ever been so many words written about a company before it's even opened for business? I can't think of any.

It's a two-edged sword. Free publicity is great for building a brand. But it can also ratchet expectations up so high that delivering the goods becomes harder.

The BankSimple team is keeping things low-key on its website. You even have to search a bit to figure out how to get on its mail list (see note 1). But some of the press accounts are downright giddy over the yet-to-be-launched-nonbank bank (note 2).

Case in point: Friday's Mashable post which generated 1,000 Tweets, 365 likes, 33 comments, and eight Diggs. The author, Jennifer Van Grove gushes about BankSimple, using terms usually reserved for a new Apple i-something launch:

The Banksimple formula is one that puts customers first and focuses on automatic, "worry-free" money management with a digital twist and penchant for social integration.

...the startup's bleeding-edge approach to banking that we predict will be both controversial and groundbreaking.

And these were the subheads in the article:

• A New Way to Bank
• Predictive Money Management
• Social Media Meets Banking
• Fee-Free for Real
• The Zappos of Banks

But after all that setup, the reader comments were predominantly skeptical/negative. I think it all sounded a little too good to be true. 

Relevance to Netbankers: Despite the skeptical Mashable comment thread, there is a real appetite in the country (world?) for fresh ideas in the banking sector. But there's also huge trust hurdles for financial startups. BankSimple is planning a hybrid model. A Web-based, social-media-loving startup running on the banking rails (note 3). It worked for PayPal. It will work again (note 4). 

------------------------------

Notes:
1. Prospective customers must first click on the Join tab on the far right of homepage. Users are asked for their email address (obviously) and something I've not seen before, their bank balance. Maybe it's just me, but that seems a little too forward for a beta invite page and may dissuade some from leaving their name. Also, it seems just a bit out of step with the bank's populist message. Not a big deal.    
2. And given that this is our third post on BankSimple, I guess we are in that category as well.
3. We've written about this theme many times over the years; the last time we published a full report was almost ten years ago: Online Banking Report: Building the Amazon.com of Financial Services.  
4. This is a general statement. Until I understand what it's doing, I'm not predicting anything about BankSimple, other than it will get a lot more press.

When I see large numbers, say a billion or more, I mentally divide it by the number of people impacted to make it more meaningful. In Seattle, we are about to embark on our very own Big Dig, replacing the 1953 waterfront viaduct with an underground tunnel. The $2 billion cost estimate comes out to about $1,000 per person in the Seattle metro area, and that's before the "expected" cost overruns (see note 1).

Bank of America announced yesterday that due to the just-passed financial reform, its revenues will drop by $4.3 billion annually (WSJ article), more than two waterfront tunnels every year. But across 55 million customers, that's only $78 per person. Coincidently, that's exactly two $39 debit-card overdrafts.

To make up for the lost revenue, the bank needs about $6 per month in fees across the entire customer base (note 2). I can envision a package of new and existing benefits pitched to customers to convince them to pony up the $5.95/mo in new fees. For example:

• Real-time mobile/desktop alerts
• Lifetime data backup in the cloud
• Linked OD protection
• Instant bill pay with guaranteed delivery  
• Remote deposit capture
• No-hold customer service with guaranteed same-hour call back
• Custom fraud tools with fraud-loss guarantee
• Online financial management tools
• Desktop/mobile apps fine-tuned for specific customer segments
• Rewards program for self-service/estatements
• Two-way alerts
• Monthly credit score

It will take years to make the transition. But in the end, consumers will get used to paying modest monthly fees instead of facing $39 overdraft-fee shocks several times per year (note 3). And banks/credit unions can spend less time soothing exasperated customers. It could be a win-win.   

Notes:
1. Luckily, we have municipal debt, so we can pay this off at $75+ per person, or coincidentally again, about $5.95/mo for 30 years. And the state is helping out too, so the Washington population will be pitching in to help lower the actual cost to Seattleites.
2. This is an extremely simplistic example to make a point and does not factor in cost cutting, commercial banking revenues, etc. 
3. Since banking is highly competitive, any new fees will work only to the extent the overall price/value of the services remains competitive.
4. For more ideas, see our annual planning report, which includes a section on potential fee-based online/mobile services.

So far, I'm underwhelmed with the industry's online marketing response to the new opt-in debit card OD protection regulations. I expected to see new pricing models transforming small overdrafts into a value-add for debit card users, rather than the onerous penalty they had become over the past few years.

On the positive side, the elimination of OD charges for small transactions is a good first step. Three of the five FIs in our mini-survey have dropped fees on ODs of less than $5 (PNC and GTE Federal) or $10 (U.S. Bank). And Wells even makes a bit of a game out of it: Customers who cover the OD during the same day incur no fee.

And Bank of America has just thrown in the towel on the whole notion, running full-page ads (p. A11 in today's WSJ; Overdraft Control landing page) saying they'll just deny any attempt to overdraw via debit card. The retail giant joins Citibank and ING Direct, which already followed the same approach.

But financial institutions are missing an opportunity here. Take Wells Fargo, for example. When I ran across the bank's new homepage ad for debit card OD protection (see first screenshot), I expected to click through and find a novel take on the new federally mandated opt-in requirement (see second screenshot).

Wells does a good job explaining how the new rules benefit customers (the two steps forward): 

• The bank's website copy is understandable and nicely outlines the lower-cost credit line, and savings account transfer options are offered
• The toll-free number to sign up is prominent, although where's the online signup option? 
• Great to see online and mobile balance-tracking tools offered up to help avoid overdrafts in the first place
• My favorite: Customers are allowed to cover the overdraft during the same day and avoid the charge

But much of that uptick in consumer goodwill is negated when you get to the pricing:

• Debit card overdrafts are $35 each, with a maximum of 4 per day, or a $140 daily penalty if you opt in and make a mistake coffee-shop (or more likely bar-) hopping some weekend.

In a spot check of other financial institutions, it's clear that Wells Fargo is far from alone in the $30 per item price range:

• US Bank will charge $10 per overdraft of $20 or less and $33 for all others; it will charge for up to 3 ODs and 3 returned items for up to 6 per day; there's a $25 fee if you don't pay back within a week, but no charge for any item that results in less than $10 in total negative balance.
• Fifth Third Bank will charge $25 for the first overdraft each year, $33 for the next three, then $37 each after that; maximum of 10 per day; $8 per day after the third day it's not paid back; no OD charge if negative balance is $5 or less.
• PNC Bank charges $36 per item up to 4 per day, plus $7/day the account is overdrawn for a maximum of 14 days.
• GTE Federal Credit Union is charging $29 each, with no charge on under-$5 items (blog post, Facebook post)

I just don't see customers being too pleased with the price/value here. Wouldn't customers, and shareholders, be better served with a value-based pricing strategy? How about $5 each for an under-$100 mistake? Or follow the telecom model and sell debit card overdraft protection as a $4.95/mo subscription.

By my simple math, a million customers paying $5/mo is a whole lot more revenue than a few thousand paying $35 a pop. Then there are all the side benefits: customer goodwill, reduced customer service headaches, positive word-of-mouth, and the PR/marketing value of making debit overdrafts into a real service.

Debit card OD link on Wells Fargo homepage (13 July 2010)

Landing page (link)
Click to enlarge

Note: Upper-right graphic from Horizons North Credit Union, which is charging $25 per item, with no limit on the number. The opt-in ad is a huge part of its current homepage (inset, click to enlarge).

In 1988, as a new product manager at a long-since-merged-away bank, one of the first things I did was send a memo to my superiors pointing out that our overdraft fee of $8 was significantly less than our peers. And that we might want to consider raising ours to the industry standard $10. That little change added a million dollars to our bottom line and wasn't a half-bad start to my career there. 

So I've always understood how difficult it is to resist the temptation to raise OD fees. That said, there was no excuse for the debit-card excesses that led to the opt-in regulations taking effect this summer. No one should have to pay $39 extra for their morning coffee/donut fix.  

So as much as I detest price controls, I'll have to admit I've been looking forward to the industry efforts to turn debit overdrafts into a value-added service instead of the huge negative penalty they had become.

Ultimately, I see small overdrafts being priced more like mini-loans with a combination of withdrawal fees in the same range as foreign-ATM fees ($2 to $4 each) plus an interest rate or nominal daily fee based on the outstanding balance. Then, if I'm at the store and need $40 more for dinner groceries, I can decide to take the loan, pay the extra $5, and go about with my evening plans.

It's a win-win. I'm happy the bank/credit union gave extended me a little credit in a tight situation, and the bank makes some much-needed fee income, albeit in $3 increments, instead of $39. While the lower prices won't replace lost fee income dollar for dollar, and underwriting/credit issues must be addressed, customers will be happier and more loyal, employees will feel better about the value delivered, and in the long-term, things can get back to a more normal price/value relationship.

I'll be chronicling some of the most interesting implementations of value-added OD protection during the rest of the summer. I looked at Truliant Federal Credit Union a few weeks ago (here). Next up, Wells Fargo.

Despite the best intentions of governments worldwide, does anyone really believe that consumer financial services will become simpler anytime soon?

Yet, I've been intrigued by Bank Simple and apparently, so have many others. Evidently, Twitter/Square founder Jack Dorsey and TechCrunch founder Michael Arrington talked about Bank Simple on stage at the TechCrunch Disrupt conference this week.

While most articles are hopeful, first-mover skeptics have already posted counterpoints to the startup's "motherhood and apple pie" messaging (make sure you read the comments on Ron Shevlin's post).  

I can't remember any financial entity, other than those with celebrity founders (Square, Revolution Money, Virgin Money) receiving this much attention before it even launched (note 1).

I still don't know exactly what Bank Simple will offer. Certainly, they have a great name and a positioning that's right for the times. But can they live up to it? Basic banking really is pretty simple. You deposit some cash, earn some interest, then take it out and give it someone else. Rinse. Repeat.

Innovation often creates complexity
Banking got complicated only when new features were introduced. People got tired of going to the bank, pulling cash out of the vault, and hauling it around to pay people. So checks were invented. Payment became much easier, and personal security greatly enhanced. And as a nice by-product, the returned check was the first PFM tool, serving as a handy authenticated record of who was paid for what, when.

That worked great for a couple generations, but then too many people wrote too many bad checks and it started to become a slow and cumbersome process to identify yourself at the point of sale. So debit cards came along to speed the purchasing process, fight fraud, and return some fee income to the issuing banks (note 2). And the electronic records of merchant name and SIC code made record keeping even easier, originally on paper statements and now online.

Those two innovations, checks and debit cards, really helped consumers save time and hassle. But did they make finances simpler? Not really. Those payment services led to NSF/overdraft fees, PIN vs. signature decisions, card authorizations, check-hold times, float, authorization holds, chargebacks, annual fees, check-printing fees, positive pay, reverse positive pay, remote deposit capture, mobile remote deposit capture, Quicken, My Spending Report, Mint, interchange regulation. The list goes on and on.

It may not be simple, but no one (except visitors to this UAE hotel) is going back to carrying gold nuggets to the general store to buy crackers out of a barrel.

Technology MIGHT be the answer
Technology advances often bring wonderful, sometimes life-altering, benefits (think electricity or water purification), but often at a cost of increased complexity. As much as I love, love, love the Internet, it's not known for its overall ease of use. 

But there's a glimmer of hope on the horizon, and you are carrying it in your purse, pocket, or briefcase.

The smartphone.

I'm still amazed at my iPhone after more than 2.5 years of continual use (note 3). It's the one and only device I've owned that makes life better AND simpler, albeit at a hefty monthly fee.

And I believe mobile apps will ultimately make banking better AND simpler. Why?

• The phone knows who you are and where you are, vastly simplifying authentication at the point of sale and reducing fraud significantly.
• The phone (via real-time links to the bank and retailer) knows exactly how much money you have and what you are buying, virtually eliminating overdrafts and unknowingly overspending.
• The phone can provide an instant, secure way to pay any person or any business, with immediate settlement.
• The phone has built-in scanning capabilities for depositing checks, capturing receipts, documenting insurance claims, etc.
• The phone has access to every database on the planet to assist in shopping, evaluating, financing, insuring and closing any deal for any thing.
• And if you have a question about any of the above, just speak into the device and you'll get an answer in moments via voice recognition self-service.

So yes, there is hope for banking/financial simplification, and I think it will almost exclusively come through mobile apps with the occasional visit to an online mission control (note 4). So if you want to compete with Bank Simple, or Bank of America for that matter, get cracking on your mobile strategy (note 5).  

Notes:
1. Now that Twitter's Alex Payne has been added as a co-founder, Bank Simple could probably be classified as a celebrity-founded company.
2. I'm still using my first-gen phone bought in Oct. 2007. The battery is still very strong, the touch-screen virtually unmarked, system performance seems unchanged, and it only crashes a couple times every year despite being carried, set down, and tucked away day in and day out.
3. This is a vast oversimplification of the move to debit cards, but the point is they disrupted checks at the point of sale.
4. If you are still unconvinced that mobile will overtake online for banking tasks, here's a thought:  Consider how often you go online now to check the local weather. A waste of time -- right? -- when all you have to do is press a button on your smartphone. The same near-instant response will happen for basic banking info.
5. In our Online Banking Report, we've published several reports on mobile banking strategies.

As you've probably noticed, there are a TON of financial/banking technology innovations percolating up into the market right now. We are proud to be bringing 36 of the best to the Finovate stage May 11 in South San Francisco (presenting company list here).

It's going to be a packed house, with at least 20% more attendees than last year. But there are still a few tickets left if you'd like to register (see OBR subscriber discount below).

Here are some of the themes that will be explored by our demoing companies at FinovateSpring 2010:

• Alt-payments: Where will the next PayPal come from? We're not sure who it will be, but there is a pretty good chance they will be on the Finovate stage. While you may not believe that existing payment services are vulnerable, the startups taking on the card-based world are always thought-provoking.
• Bill payment 2.0: As automated billing and payments enters its third decade, there is still much to do in turning it from a cost center to a profitable service. We have several novel ideas on stage. You won't want to miss this chance to talk to the founders. 
• Credit/debt management: No surprise here. As consumers take a more conservative approach to spending and credit matters, there are services cropping up all over the Web to help. And with literally thousands of dollars per year at stake, consumers are willing to spend money to save money and get control of debt. 
• Customized financial products: Why can't you have a 22-month CD or a 12-year mortgage? It's not like banks have to retool the factory to introduce a new model. In the era of infinitely personalized products, financial services will follow suit. 
• Financial marketing: Mass media is dead. Or is it? 400 million Facebook users seems like a pretty sizable "mass." But no matter what you call it, new tools and techniques are required to build your brand in the uber-networked world.
• Investing for the risk-averse: There are dozens of sites for tracking individual stocks and sizing up opportunities in various market sectors. But what about the other 95% of the country that just wants a decent retirement, college education for their kids, or new kitchen by 2015? Helping consumers achieve their financial goals is a long tradition at financial institutions and an important subject at Finovate.
• Mobile everything: You'll see some of the newest ways to leverage mobile for payments, financial management and banking. And this is one area that will be profitable. And yes, we'll have iPad demos on stage. 
• New lending models: Everyone agrees there are major problems in consumer and small business lending. Peer-to-peer lending is one promising area, but it's had setbacks with regulatory changes and defaults. Is there a better way to deliver credit services while keeping losses in check? You'll hear from several companies that believe they have the answer.
• Real-time Web: Banks have had a nice 40-year run as batch processors. But the world has gone real-time and customers expect data more than once a day. See how new financial tools leverage the power of this data stream. Will you automatically share your purchases with your network? Yes, you will. Find out why.
• Snazzy management/back-office tools: The increased regulatory scrutiny over everything financial is the inevitable result from the 2008/2009 financial meltdown. Everyone knows you need to be on top of the nitty-gritty details, but who has time to read memos from the compliance department? With new interactive tools and Web-based services, even the most tedious compliance chore can be accomplished on schedule and without headaches or glitches. Come meet the startups who will make your life easier. 
• Social media/gaming: Of course, no 2010 conference would be complete without ideas on how to reach Gen Y and everyone else via social media. Facebook serves 400 million today and is still growing. Is there any doubt social medai will impact every brand on the planet?
• UX: When you get right down to it, mobile/online delivery is all about the user experience. You'll see dozens of the best on stage and you'll meet the people creating them.

You'll also learn about ways to improve security, serve the underbanked, segment your customers, develop cross-platform services, build widgets, and help your customers save money and control their finances.

Get that ticket now. It will be one memorable day, I promise. 

----------------------------

Note: Anyone who subscribes to our research service, Online Banking Report, is entitled to a substantial discount (email info@netbanker.com if you need the code). Or subscribe here if you are not already on board.

You don't often see banking and fun in the same sentence. According to Google site search, I've used the word fun 58 times in six years of blogging here. It usually appears in a negative sense, for example, when this or that task is "no fun" (see note 1).

A guest post in TechCrunch this weekend got me thinking about it. The author, Gabe Zichermann, who's literally written the book on the subject, led with the provocative statement:

What if everything we did was a little more fun?

He even cited Chase as a large brand trying to add more fun to their offerings. And though he provided no specifics on Chase's efforts, he did detail his thoughts on how FedEx could use game mechanics to make tracking shipments more enjoyable.

According to Merriam-Webster, fun is:

what provides amusement or enjoyment

By that definition, there is hope that the online and mobile channels are at least making banking tasks relatively more enjoyable than they were pre-Internet.

So how do we make banking more fun?

1. Reduce money worries: Financial stress hits every demographic segment. Is my money safe? Have I paid my bills on time? Do I have enough in my account to last until the next paycheck?

Ideas: Real-time alerts, mobile apps, dashboard controls, red/yellow/green indicators, location-based check-in to authorize a card transaction before you've even reached the counter

2. Create mobile magic: The best way to get someone excited about a new channel is to prove that it has new benefits, and it's mobile's time to shine.

Ideas: Deposit checks or capture receipts via mobile phone camera, 4-digit login, shake to logout, scan barcode to comparison shop, bump to pay

3. Make it a game: Make financial chores into a game you can win by making good choices (see last week's post on In and Out Cash).

Ideas: Allow users to keep score against themselves and peers; earn points, honors, badges and discounts for credit-score improvements, savings gains, debt reductions and other measures of financial fitness and goal achievement

4. Keep score: Utility companies provide valuable score-keeping metrics on their monthly statements where at minimum you can see how your energy/water consumption compares to the same period a year ago.

Ideas: It should be easy to see how spending patterns compare to the previous year (a basic PFM function), as well as where your savings stand, how many times you've been late with a bill, how your credit score has changed and so on.

Note: There really is a Funbank.com. It's a kid's banking/shopping portal that says "patent pending" and "copyright 2003," so it may not be operational. Many links, including About Us, were broken (29 March 2010)

Apple today introduced its latest invention, a gigantic $499 iPod Touch called the iPad (inset shows iPad, Kindle, vs. iPhone; note 1).

It's a gorgeous piece of technology that will soon be the movie-watching, ebook-reading device of choice for the rich and famous. But what does it mean for the average financial institution?

Tactically, it should have almost zero impact. Your iPhone/iTouch app should work pretty much the same on the iPad. There may be some design tweaks your programmers will need to understand, but the basic functionality is the same.

It would make a wonderful giveaway item, either as part of a high-end business/private banking package (note 2), or as a sweepstakes prize.     

So those of you who already have an iPhone app launched, or in the pipeline, can stop reading now. But read on if you haven't yet hopped on the app bandwagon.

___________________________________________________________________________

The movement to apps, and away from old-school "browsing," is unstoppable. The iPad joins a growing list of new devices (Android, Kindle, etc.) that are app-primary, browser-secondary (note 3).

It's a massive shift that's happened in less than two years, beginning in July 2008 when Apple opened the iPhone platform.

The popularity of apps is changing how users tap online info. Even power laptop/desktop users are making dramatic changes in their information consumption. For example, within a few months of the Apple app store launch, I had already moved 12 of my routine info-gathering tasks to the iPhone. The speed/convenience of pressing a single button vs. navigating to a website via the browser is a significant improvement in user experience. More than a year later, my habits have changed little. 

The change from serving customers who were "online browsers" and are now "mobile app users" has profound implications for banking. Instead of talking to your customers in batch- mode with built-in time delays, you are now real-time, feeding data to customer on the go, where they need up-to-the-minute status on their cash situation.   

In many ways, the ROI for real-time banking (and here) is more dramatic than online-batch banking. The ability to stamp out POS fraud, to nip budding customer service nightmares, and just plain get closer to the customer, all bring nice returns on the mobile investment (note 3).

Notes:
1. Photo credit: TechCrunch post today.
2. For more info on using a dedicated device for small business customers, see our October Online Banking Report.
3. Groundswell author and Forrester analyst Josh Bernoff calls this the "splinternet."
4. For more info on financial services opportunities on the iPhone, see our March Online Banking Report.
5. Initial response online was mixed, 2,700 readers of CrunchGear, voted "thumbs sideways" today (link, results at 4PM Pacific below)

Perusing the newsstand at the Minneapolis airport last night, I picked up the latest Harvard Business Review issue entitled Reinvent. One article in particular prompted me to shell out the $16.95 for the double issue: Wanted: A First National Bank of Innovation by Edmund Phelps, a 2006 Nobel winner in economics, and Leo Tilman, a Columbia prof and author of Financial Darwinism.

Their case was laid out at the beginning of the article:

Ever since Alexander Hamilton, the U.S. economy has been about ideas, experimentation, and exploration: businesspeople imagining new concepts and launching new ventures; entrepreneurs engineering new products or methods based on new ideas; marketers conceiving of niches for new products or new niches for old ones; managers and consumers assessing novel products; and financiers with strategic vision judging which innovations to back.

The authors argue that it's the funding of new ideas, not arbitrary pet stimulus projects, that really drives our economy in the long-term. And with credit and venture funding difficult to obtain, the government should step in with a new GSE (government-sponsored entity), their so-called First National Bank of Innovation, to help fill the funding gap.

My take: After the recent debacles with the major GSEs, Fannie and Freddie, I'm not so sure that we need more taxpayer guarantees on our nation's books. But the economy would probably be better off long-term if some of the money flowing to housing and roads was invested in entrepreneurial-driven activity.

But, I'm not about to get involved (again) in telling the government what to do. Instead, I'd rather see the private sector step up and implement the ideas presented by Phelps and Tilman. Why not create your own in-house Bank of Innovation, where local startups could go for support, banking services, and help in finding financing. Umpqua Bank has been trying some interesting things in this area (see Umpqua Lab screenshot below).

Pulling ourselves back up from The Great Recession is no easy task. And banks, rightly or wrongly, are currently seen as part of the problem. Wouldn't it be great if people started seeing the financial industry as part of the solution? That's a New Year's resolution I think we can all get behind.

Umpqua Bank labs microsite <umpqualab.com> (6 Jan. 2010)

Note: See our recent Online Banking Report for more ideas on how to serve small- and micro-businesses through the online and mobile channels.

Are you tired of hearing "there's an app for that" yet? Well, get used to it, we are still at the beginning of the great app rollout. 

Even as recently as our iPhone Banking Report published in March, I assumed most financial institutions would have a single iPhone app. One bank. One app. It's how the Web worked, for the most part.  

But when Starbucks unveiled a dedicated app just for its stored-value card (separate from the main Starbucks brand app), I realized that I wasn't thinking big enough.

For example, in August PNC Bank become the first U.S. financial institution to offer multiple apps when it released an app for its Gen-Y-focused Virtual Wallet. That was followed last week by Wells Fargo when it unveiled its cash-management app for larger businesses, CEO Mobile (screenshot below; press release).

Now, I believe that each major bank will roll out dozens of apps, perhaps hundreds, to support their business lines, major products and large segments. There will be an app for each major affinity credit/debit card, one for students, one for small businesses, one for large business, one for senior checking, one for home equity lines, and so on.

And, if that's not enough, there could be a dedicated app for each stock broker, loan officer and mortgage broker. There could be one app for every branch, neighborhood, or region. Right now the search-and-discovery tools at Apple would implode under the weight of all these apps. But they'll figure that out. It's worth billions to them. 

Today, more than 100,000 apps are available for the iPhone. But fewer than 20 are for U.S. financial institutions. It's conceivable that in the banking vertical itself, well over 10,000 apps could be developed, possibly many tens of thousands (see notes 1, 2). 

Wells Fargo is first U.S. bank with a cash management iPhone app (12 Nov 2009)

Notes:
1. They won't all be iPhone apps. The mobile market is too big to have it all consolidated at one player. 
2. It's also conceivable that we'll move away from the dedicated app framework, and users will be able to configure their phones with hundreds of info feeds without needing to install an app for each one. More like the iGoogle portal model.  It will be fascinating to see how it plays out.

The ink's barely dry on the news that ING Group will divest its U.S. bank, ING Direct, within the next 48 months (note 1), when someone else has already launched a direct bank with a distinctive orange theme (note 2):

The new brand: Incredible Bank from River Valley Bank, an 18-branch, $900 million (assets) bank headquartered in Wausau, Wisconsin.

The strategy: Like the original orange bank's Electric Orange account, Incredible Bank offers a high-yield checking account, currently paying 2%, that's 100% electronic. No paper checks (note 3), no paper statements. And unlike the hundreds of rewards-checking products, this one comes with no strings attached. The full rate is paid on all balances up to $250,000, then it drops to 1%.

Other account features:

• Debit card
• Free online bill pay
• Unlimited ATM reimbursement
• Overdrafts are $34 each with max 10 per day
• Incoming wires are $5 each, outgoing are $20
• Mobile banking (which is highlighted on the home page, see below and note 4)
• ACH in/out (coming soon)

Analysis
I've always wondered why, other than ING Direct and Kiwi Bank, only the U.K. direct banks seemed capable of a light-hearted brand positioning online (see update below). While we've seen many good social media and microsite efforts using humor, few financial institutions have dared use this approach on their core websites. Leave it to those spirited cheeseheads in Wisconsin to break the mold finally (note 5).

Initially, it's the 2% rate that will bring cash to Incredible Bank. But longer term, for any direct bank to add value to the parent's franchise, it must create loyal customers who won't bolt to the next newcomer offering a 15-basis-point rate advantage. This is a good start for River Valley, but they'll need a lot more than this bare-bones website to create long-lasting relationships.     

Hat tip: Bank Deals blog.

Update 9 Nov: The Financial Brand's Jeffry Pilcher reminded me of two good U.S. examples, GMAC's Ally Bank and (how could I forget?) Redneck Bank.

Incredible Bank homepage (9 Nov 2009)

Notes:
1. In his Retail Delivery presentation, always one of the highlights of the show for me, Second Curve principal Tom Brown said ING Direct would be an attractive acquisition for any number of deposit-seeking large financial institutions; however, he did not name any.
2. Full disclosure: I have a strange weakness for the color orange, perhaps the result of many trips to Florida as a child. So, take anything I say in this post with a huge grain of salt. 
3. Normally, I think paper checks should still be made available, even if they are discouraged with fees. However, in cases where the direct brand will cannibalize deposits at the parent, it can make strategic sense to cripple the direct brand's checking account in this way. That way, fewer River Valley customers will simply move their entire checking account over.
4. The bank has created a mobile site with shorter URL: ib4you.com. 
5. While Incredible Bank is quite different, the main River Valley Bank brand remains typically conservative, at least in its online presence. They don't even dare mention the Incredible brand anywhere on its website.
6. See our Online Banking Report: Growing Deposits in the Digital Age for a dozen more strategies.

Since we began publishing Online Banking Report in 1995, we've taken a deep dive into the small- and micro-business online banking market five times. The latest was published yesterday (here). Online Banking Report subscribers can access it now as part of your subscription  (note 1). Others may purchase it for US$495 (abstract here).

Small business banking is one of my favorite subjects. It's near-and-dear to our hearts because we've experienced first-hand the frustration of trying to manage our business with neither the resources, nor frankly the interest, to tap sophisticated business-management tools.

So, we've hobbled along over the years using Word, ACT, Excel, Microsoft Money, a hand-written ledger, and a moderately customized ecommerce back-end on our website. But we've clearly paid a price (note 2) for our lackadaisical approach to business finance.  

The reason I share our foibles is to point out the need for banks (note 3) and others to look at the opportunity more broadly. You can do so much more than simply help small businesses manage their checking accounts and credit lines. It's the day-to-day business drudgery, billing, account receivables, record-keeping, tax prep, payroll, compliance, and so on, where small and micro businesses really need help.

As I've said many times over the past decade, I'd gladly pay $500 per MONTH for an online, small-business financial management service that handled ALL our needs. Ultimately, it would save us thousands per year, while delivering much more timely info about the health of our business.

Our latest report is a true product-manager's guide to small-business product/service development with 76 pages of ideas plus examples from leading banks worldwide. We tie it all together with detailed descriptions of four levels of small-business package accounts (starting on p. 45 in the OBR Small Business Report; note 4):

• Virtual Checking Account: A transaction-oriented service priced at $25 or so per month
• Virtual Business Manager: Organizes most financial management duties for $50 to $100 per month
• Virtual CPA: Handles most business-management functions including customer relationship management and billings for a monthly fee of $100 to $250
• Virtual CFO: The works for $500+ per month

The report also includes data on the size of the U.S. market and a forecast for online banking usage for the next 10 years.

Notes:
1. Printed copies will be mailed late next week.
2. According to our accountant, we've spent well into five-figures more than necessary, mostly in extra taxes. Then again, we've avoided paying bookkeeping and software expenses that could have been just as high. 
3. Why do I think this is an opportunity for banks and credit unions, when it is outside of their core deposit and credit offerings? Very small businesses have neither the time nor resources to search for solutions, and then perform the due diligence necessary to determine whether the solution provider or professional services firm is trustworthy. On the other hand, while business owners may not always hold their bank in the highest regard, they at least trust them to safeguard their info. An army of regulators and class-action lawyers makes sure that the bank does not take its fiduciary responsibilities lightly. 

But few financial institutions will look to build sophisticated financial management features in house. Most will look to outsiders, both startups such Outright.com and established bank-tech firms such as Intuit, to build and maintain the business-management features.
4. See also, our recent post on small-business dashboards. 

There was an interesting piece by Jessica Vascellaro in the Technology supplement of today's Wall Street Journal. The title says it all, "Why Email No Longer Rules....and what that means for the way we communicate."

The primary thesis:

• Old-school email is a passive way to communicate, more like a letter, and has been overrun by more information than the technology can manage.
• It will be replaced by more active services (e.g., Twitter, Facebook) that are akin to a conversation with filtering technology to keep noise levels down.

But Techcrunch's MG Siegler's take on the matter is even more profound. He argues that the winning technology will be something that combines both active and passive communication, such as Google Wave (see inset; short video explanation here). Users will be able to choose between active or passive, or anything in between, depending on the situation.

Relevance for Netbankers
The passive vs. active communication metaphor is a good one for banking too. Passive banking is the old way of doing things. We waited for our monthly statement, balanced the account, and walked in to the branch or called customer service if there was a problem, usually many weeks after the fact.

Passive banking is not a bad thing. As long as there are no problems or financial shortfalls, it's the desired state for most customers. 

Telephone banking, then online banking, made it much easier to keep closer tabs on your account. Instead of reviewing transaction activity once per month, most users log in at least once per week to review activity. This helps ease anxiety during the intervals between looking at your data.  

But it's still passive in the sense that a user deals with banking only when the choice is made to log in. And that passive nature limits the usefulness of online banking in situations where a user needs to pay attention NOW! For example, security issues, low-balance alerts, over-budget warnings, and so on.

Enter mobile banking. With text messages or direct-to-the-phone alerts, users can have an always-on, or active, connection to their accounts. This is great for those infrequent, yet urgent, events such as authorizing an unusual card transaction.

But most users will want to be in active banking mode as little as possible. So the challenge for financial institutions will be to make it easy for mobile users to balance "active banking" (alerts, warnings) with "passive banking" (logging in, requesting more data, changing settings and preferences).

Ultimately, companies that well manage this communication challenge will have customers for life.

Notes: For more info on mobile banking, see our Online Banking Report: Mobile Banking via iPhone (March 2009) as well as our earlier reports on Mobile Banking (Feb 2007) and Mobile Payments (April 2007).

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 am rarely at a loss for material when looking for examples to illustrate a point about online finance. Across thousands of financial websites, there's an almost infinite supply of novel new services, marketing strategies, and promotional efforts. 

However, there's one area with almost zero innovation. Pricing.

In the United States anyway, nearly every bank and credit union offers online, and now mobile, banking free of charge (see note 1). It's an appealing price point for sure, but it also hampers the ability of financial institutions to develop novel service offerings. It's a game of minimizing channel costs rather than maximizing returns.

However, several interesting new services that are at least trying to charge fees have recently shot up in online personal finance. Two debuted their new services at FinovateStartup April 28 (see notes 2 & 3; videos of their demos will be available online shortly):

• LowerMyAssessment.com is charging $125 to help consumers lower property taxes on their homes
• Home-Account is charging a $8.75/mo to help users manage their home mortgage

We'll look at both companies this week starting with LowerMyAssessment.com.  

Notes:
1. We covered online banking pricing in a 2004 Online Banking Report (here). While the report is nearly five years old, sadly little has changed, so it remains relevant to today's situation in the United States. 
2. In addition, at FinovateStartup we saw several new services that could increase payments-related income for banks, including the alt-payment companies, especially Acculynk and Moneta, offering revenue sharing and interchange fees for banking partners, and MicroNotes, which showed a platform that provided fee income to delivery-targeted advertising within the bill-payment function.
3. Also, Wells Fargo should be given credit for rolling out a fee-based storage solution integrated within its online banking services. The vSafe program costs $4.95/mo and up based on storage capacity desired. 

If the developer's plans go forward on his aggressive timetable, the world's first all-solar city may break ground yet this year, with the city center up-and-running as soon as next year. We'll see.

I wonder what the financial institution(s) of Babcock Ranch will look like? While Morgan Stanley is heavily invested in the project, it's unlikely they would want to get involved in retail banking in what is designed to be a relatively small city of just 45,000.

But for consumer financial services companies, banking the future denizens of Babcock Ranch could be a great branding opportunity for alt-delivery and green banking concepts:

• Low impact mini-branch(es) and/or branches located
  within other retail establishments
• High-end check-scanning ATMs
• Contactless terminals deployed citywide
• Online banking for consumers and small businesses  
• Emphasis on paperless billing/banking
• Loan incentives for electric vehicles, scooters and
  low-impact transportation options

For more info:

• April 22, 2009 Naples News: Florida legislature may not come through with solar tax breaks this year
• April 9, 2009 New York Times: Developer Syd Kitson lays out the vision for Babcock Ranch
• Aired April 9, 2009: WBBH local NBC news interview with Syd Kitson

It has become obvious with recent events that banking and lending fuel much economic activity, both good and bad. And like it or not, banks and card issuers play an enormous role in consumers' lives. It's why online banking took off relatively quickly on the Web and will do so in the mobile channel as well.

As I reviewed the 57 applications to demo at our upcoming FinovateStartup conference (company list here), it became clear to me that these companies are the face of a new generation of online banking. One that will result in much richer and more valuable financial services than anything we've seen before.

Here are a few areas where financial institutions can help consumers help themselves: 

• Saving/(over)spending: Too many people fail to build a cushion for the inevitable rainy day.
• Display spending data, modeled against likely future needs, to help consumers resist the temptation to overspend
• Encourage long-term systematic saving with tools, rewards programs, and incentives
• Help consumers manage and minimize health care expenses
• Automate and systemize bill payments
• Talk about retirement planning, asset allocation, investment management, etc.
• Credit health: Like it or not, the credit score is becoming a de facto estimate of a person's responsibility and maturity. It impacts where you can work, whether you can buy a home, how much you'll pay for insurance and loans, and even who you can date and marry. Yet, too few people, especially younger ones, understand these profound ramifications to poor credit.
• Integrate credit scores into their online and mobile platforms, displaying the score at every login and alerting users to downward shifts in scores
• Educate customers, especially younger ones, on the importance of good credit and how their scores can be improved
• Provide tools to help parents introduce various financial concepts and products to their children
• Debt management: While the "latte factor" is widely understood (e.g., don't spend too much on fancy coffee drinks), a much bigger factor is the overuse of expensive credit options and overpaying for loans on homes, autos and other major expenditures.
• Help consumers find the most cost-effective debt financing, even if it's not at your financial institution
• Help consumers avoid late payments, interest penalties, with alerts and automatic payment/transfer systems
• Security/privacy/risk: This is a tricky area, but much needed. Consumers have a growing dread of loss of privacy and potential financial losses from identity theft and other financial frauds. And even though many are motivated to take measures to protect themselves, it's hard to know who to trust. Although, their brands have been tarnished for a generation by the recent crisis, most financial institutions still have relatively high esteem in matters of fiduciary duties.
• Help customers shield private data online through security add-ons, temporary card numbers and similar tools
• Help customers monitor their private information with tools such as credit bureau monitoring, public database monitoring, scanning the Internet for private info and so on
• Provide resources for helping customers through fraud situations and data breaches
• Provide safe ecommerce environments where users can navigate to vetted providers of goods and services online
• Guarantee the safety of financial transactions initiated in recommended environments
• Secure, offsite file storage and backup
• Reduce risk exposures through an efficient mix of various insurance products
• Purchase decisions: One of the things that Jason Knight and Marc Hedlund at Wesabe have taught me is the power of aggregated purchasing data. Retailers have long mined point-of-purchase data to drive marketing, pricing and sales-support decisions for retail goods. But all this data helps the seller while only indirectly assisting buyers (for example, to help keep inventory costs down). Financial institutions have the ability to turn this equation on its head by arming retail consumers with aggregated purchase data so they can see what goods and services consumers with similar tastes prefer.
• Rank local service providers by sales volume
• Allow users to rate purchases/providers, and provide popularity ratings
• Help users locate others who frequent the same places (social networking)
• Help users identify fraudulent transactions, overcharges, or overlooked subscriptions
• Assist comparison shopping at the point of sale
• Startup/small business management: Banks have many services for established businesses, small and large. However, startups and very small "micro" businesses are usually stuck with consumer tools that are not always as robust as needed.
• Package of free or low-cost startup business tools and advice
• A full-featured online accounting and CRM system that grows in complexity with the needs of business
• Human guidance on all things financial, including accounting, expense management, taxation, payroll, retirement plans, and so on
• Credit card processing and ecommerce services
• Climate change/waste reduction: Banks can help reduce fuel consumption and waste on several fronts.
• eStatements, remote deposit capture and online/mobile communications eliminate the paper used in billing, statements, marketing and routine correspondence
• Online/mobile services reduce the need to visit branches, eliminating fuel use and pollution.
• Leveraging payments data to guide consumers towards lower-impact products and services.
• Expanding personal finance tracking features to encompass gas, electricity, water and fuel consumption

I'm sure I haven't covered it all. Please add to the list in the comments below.

Note:
1. These themes are primarily what we write about each month in Online Banking Report. For specific topics, refer to the list of recent reports.

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.

One thing that's clear in today's banking crisis: many credit products were severely underpriced relative to the risk. That means the entire financial services industry must reprice their product lines to get back to a "normal" level of profitability.

For consumers and businesses, that means higher rates, more fees, and most likely fewer free services. One thing that will surely be scaled back is the extensive branch system, which in the United States amounts to one full-service, often elegantly equipped, bank branch for every 1,000 households (see note 1).

But what other free services will disappear? Here are the current freebies that banks will closely examine in coming years. In most cases, the free benefits aren't going away entirely, they'll just be available to fewer customers. They are listed in order of most vulnerable to least. 

• Free online bill payment: In our opinion, across-the-board free bill pay has never made economic sense for most financial institutions (note 2). We expect banks will begin charging the less-profitable portions of their customer base for it. 
• Free branches on every corner: Branches are a huge, vastly underused, capital expense. There will be significant reductions in this area during the next 20 years (note 1). Branches aren't going away entirely, but they'll be far fewer, they will be smaller, and they will charge fees for many services currently offered free of charge.
• Free credit card annual fees, interest-free grace periods, and rewards: Non-revolving credit card users get a great deal under the current system, 30-to-45 days interest free grace period, plus card rewards, and little or no annual fee. Card issuers, hit by lower borrowing by their prime customers and higher default rates from others, will restrict free services for convenience users.  
• Free mailed statements: As the cost to mail statements continues to rise along with the percent of customers with online access, this freebie is destined for extinction. As with most benefits transitioning from free to fee, less-profitable households will see the fees first.
• Free telephone customer service: Telephone customer support is relatively inexpensive compared to branches since most routine questions are answered automatically and human support can be outsourced to lower labor-cost areas. But we expect that free human customer service will eventually be limited to the more profitable households, with others paying per-use or annual fees.
• Free ATM usage: Most banks will continue to offer free ATM use across their own networks, but will probably add qualifying criteria, such as minimum balances, debit card usage, direct deposit, and/or estatement usage.
• Free checking: Because "free" checking isn't really free after factoring in penalty fees and cross sales, it's not likely to disappear from a bank's marketing toolkit. However, unprofitable customers will see even more fees tacked on to their accounts, such as per-use charges for branch services, telephone support, etc.
• Free online/mobile banking access: Online and mobile access is an inexpensive service to provide and is likely to remain free for most customers. However, we expect banks and credit unions to begin offering upscale "gold" versions that will carry annual/monthly fees for more benefits.

Notes:
1. For our take on the future of bricks and mortar, see Online Banking Report: The Decline of the Branch.
2. For more info on pricing bill pay and other online services, see Online Banking Report on Pricing.

Every banker talks about the importance of core deposits, but in most years it's hardly front-page news: 2008 changed that.

As demonstrated by the shocking downfall of WaMu, Wachovia, and others, a stable deposit base is crucial to your profitability, your brand, and even your viability as an organization.

As a result, deposit product marketing is on the forefront of many bank and credit union marketing plans for 2009 and beyond. With that in mind, we offer the latest issue from Online Banking Report:

Growing Deposits in the Digital Age:
Seventeen smart strategies for gathering core deposits while building your brand

The report includes 72 pages of ideas, tactics, and strategies to expand retail deposits in 2009 and beyond. It was written by guest author Jeffry Pilcher, a branding and marketing guru who recently launched his own brand consultancy, ICONiQ. Pilcher joins OBR Editor Jim Bruene in looking at seventeen promising deposit-building strategies. Many are tried-and-true techniques, such as sweepstakes and rewards, updated with a digital touch. While others, such as bidding on deposits at auction at MoneyAisle, are pure Internet-enabled inventions.

Online Banking Report subscribers may download the report (here) free of charge. Others may purchase (here).

The seventeen strategies explored in Growing Deposits in the Digital Age:

• Customizable accounts
• Debit savings rewards
• DIY online-only accounts
• Deposit auctions
• Gen-Y checking
• Green banking
• High-yield/big rate
• Instant online depositing
• Mobile savings apps & online widgets
• Online savings buzz
• Rewards checking
• Savings automation & incentives
• Social savings contests
• Socially conscious banking
• Sweepstakes & giveaways
• Social "friends & family" savings

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)

For someone whose job it is to stay on top of innovations in financial services, I hate to admit I'm late to the party on the so-called "reward checking" phenomena. Last year, I'd noticed a number of smaller financial institutions launching high-yield checking accounts, but I hadn't realized it was a national trend primarily powered by a single bank tech supplier, Austin, Texas-based BancVue (see note 1).

According to a November BankRate article, more than 350 U.S. banks and credit unions now offer so-called "reward checking accounts" powered by BancVue with 30 new ones coming on board each month. These checking accounts usually pay high rates of interest, typically 6%, if users meet high levels of electronic banking activity each month.

Typical requirements to earn the high yield:

• 10 to 12 debit card transactions each month
• Electronic statements (no paper)
• Online banking usage

Typically, the following benefits are paid ONLY when the above requirements are met:

• 5% to 6% interest on the first $25,000 to $40,000 in balances
• ATM refunds up to $10 to $15/mo

And most seem to include:

• No monthly fees regardless of activity or balance levels, so the account can be marketed as "free"

Marketing
Another distinguishing characteristic of these accounts is the innovative marketing and website design. With the help of BancVue, smaller banks and credit unions are able to offer a level of design and pizzazz that meets or exceeds the typical megabank high-budget program.

Here are some of the more interesting BancVue-powered programs we've looked at (screenshots follow):

• Velocity Checking <velocitychecking.com> from Seattle's Verity Credit Union
  Earn 6.01% on balances up to $40,000 and receive ATM refunds up to $25 when meeting the following monthly requirements:
  - 12 debit transactions
  - 1 online banking login
  - electronic statement in lieu of paper
  
• Turbo Checking <turbochecking.com> from New Mexico's Charter Bank
  Earn 6.01% on balances up to $25,000 and ATM refunds when meeting the following monthly requirements:
  - 10 debit transactions
  - receipt of 1 direct payroll deposit or other automated ACH deposit
  - 1 login to online banking
  - electronic statement in lieu of paper

And our favorite, which substitutes iTunes downloads for the high-yield benefit:

• FreeTunes Checking <freetuneschecking.com> from Oregon Community Credit Union (see note 2)
  Earns 4 free iTunes downloads each month provided the following are met:
  - 12 debit transactions
  - 1 login to online banking
  - electronic statement in lieu of paper

Screenshots

Velocity Checking from Verity Credit Union

Turbo Checking from Charter Bank

FreeTunes Checking from Oregon Community Credit Union

Notes:

1. I began researching this area after reading Verity Credit Union CMO Shari Storm's recent blog post (here) about how she'd changed her payments behavior to make the 12 monthly debits required for its Velocity Checking.

2. Oregon Community Credit Union also offers a high-yield version, Remarkable Checking, that substitutes a 5.05% APY on all checking account balances instead of the free music. Monthly account requirements are the same. 

Every year, we publish a year-end summary of the top innovations and trends. This year, we are publishing the list of finalists in NetBanker to gather feedback. The final top ten will be published in the next Online Banking Report.

Following are the leading candidates listed in the order they occurred to me, not necessarily their final rank. Let us know which ones you believe deserve top honors and/or nominate other innovators and trendsetters. Use the comment section to provide your feedback. Or if you prefer a more private method, email jim@netbanker.com.

A. Mobile is the new online banking

B. P2P lending gains traction ... and new competitors

C. Security fears fade for consumers, grow for bank IT departments

D. Online personal finance firms take aim at Quicken

E. Finance gains a foothold on Facebook

F. Blogging bankers ... not!

G. Mint launches like it's 1999

H. Mortgage Marvel launches user-friendly mortgage marketplace

I. iPhone banking shows the future promise of mobile

J. Wesabe widgetizes daily banking

K. Virgin Money crosses the Atlantic

L. Direct banking takes one giant step backwards (NetBank), and six steps forward (FNBO Direct, WT Direct, Huntington Direct, Element Financial, Provident Direct, and others, launch)

M. The alt-payment brands gain a following at online merchants (PayPal, Google Checkout, Bill Me Later)

N. ING launches paperless checking

O. Green banking means something other than U.S. currency

P. Video lands on financial institution websites as part of education and marketing efforts

Q. "Decoupled debit" makes meteoric rise to the top of the industry buzzword list

Ron Shevlin, the Forrester alum who blogs at Marketing ROI and occasionally at NetBanker (posts here), has been on a roll recently with a number of thought-provoking posts that take on the conventional wisdom we hear in meetings, press releases, and other soundbites picked up by the press.

Earlier this month, Ron challenged some of the statements made in the press implying that the downfall of NetBank was caused by its online delivery strategies (here). That initial post led to an interesting discussion culminating in this gem (here) where he takes on the whole notion that banks MUST have branches to acquire new accounts, concluding (words in parenthesis are my additions to show context):

"The inability of the Internet to supplant the branch as the acquisition channel of choice (so far) has very little to do with the inherent superiority of the branch, and everything to do with the (current) inferiority of the online channel." 

And my favorite, this zinger:

In effect, bank branches are just big, expensive security blankets.

Inspired by his post, I've come up with what I'll call the "5 Habits of Inefficient Delivery" (see note 1). 

Habit #1: Customers go to branches to solve service problems.

Expensive solution: Build more multi-million dollar branches to house expensive service reps to sooth frustrated customers. 

Better solutions: (A) Improve the product/service so there are fewer problems; (B) Solve customer problems online in near real-time, not "within 24 to 48 hours"; (C) Empower online support reps to solve problems without forcing the customer to make an hour-long trek to a branch.

Habit #2: Customers go to branches to apply for new accounts.

Expensive solution: Build more multi-million dollar branches and staff them with well-compensated sales agents to transcribe applications hand-delivered by customers.

Better solutions: (A) Develop a killer online sales process that helps customers choose the right option; (B) Provide a user-friendly application with 24/7 online support and solid guarantees. 

Habit #3: Customers feel more comfortable with a bank that has a large branch presence.

Expensive solution: Build more multi-million dollar branches or what Ron calls, "big, expensive security blankets."

Better solutions: (A) Trust your customers and treat them right at every opportunity, and they'll remain loyal no matter how many branches you operate; (B) Keep prices competitive, i.e., no more 10 basis points of interest for a savings account (see here). 

Habit #4: Customers like to use the branch to deposit paper checks.

Expensive solution: Build more multimillion-dollar branches that serve as human-powered ATMs.

Better solution: Until paper checks disappear, use remote-deposit capture, envelope-free (image) ATMs, and instant credit for mailed deposits such as Pennsylvania School Employees Credit Union's (PSECU) Upost@Home (previous coverage here) (see note 2).

Habit #5: Customers go to branches because they are there.

Expensive solution: Build more multimillion-dollar branches to stay within a few minutes' drive or walk for most of your customers

Better solution: Make the online and telephone customer experience so phenomenal and complete that no one misses the branches as they close and consolidate

Notes:

1. For more information, see Online Banking Report, "The Demise of the Branch"

2. On a related note, see PSECU's "Go Branchless" campaign (here)

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

Tomorrow, the most unusual conference in the banking industry, BarCamp Bank kicks off at 9 AM in Seattle's Pioneer Square historical district. It costs approximately 1/50th of a normal conference ($35) and has no set speakers, agenda, or sales pitches. It's just an excuse for a bunch of creative types to get together and talk about the future of money and banking. I'm very much looking forward to it.

Thanks again to Jessie Robbins for organizing the event. If you can make it to Seattle tomorrow or Sunday, you can still sign up here.  

The first thing we'll do tomorrow is brainstorm topics for group discussion. Here's my short(ish) list: 

• Outside the box: If you were to design a financial institution from scratch, disregarding all current regulatory constraints, what would it look like?  
• Alt delivery: Is online account access already old-fashioned? Do customers really want to log in to their bank multiple times each week or is there an easier and less intrusive way to keep consumers abreast of their financial lives?
• Social networks: Will social networks such as Facebook spawn their own virtual credit unions to serve the financial needs of members? Or will existing financial instructions step in to serve the need?
• Mobile finance: Mobile banking and payments are on their second trip up the hype curve. Is it real this time? If so, will mobile services be extensions of existing solutions, replacements for them, or an entirely new type of service?  
• Security: Financial security and privacy concerns remain top-of-mind with consumers. What role should financial institutions take in education, prevention, and resolution?
• Opensource marketing: With 15,000 financial institutions in the United States alone and most of them setting up shop online, it's absurd to think that your customers aren't looking around for the best prices. Why not follow the Progressive Auto Insurance model and actually enable price searches from your site?

I'll do my best to let you know what we come up with.  

I first met Chip Mahan in 1995 when he was at the helm of Cardinal Bancshares and about to launch the first Internet-only bank in the world, Security First Network Bank. That effort eventually spawned S1 Corporation, now a leading banking tech company, with a half-billion market cap. 

Unfortunately, the Internet bank was sold off and eventually shuttered by Royal Bank, in a move I've never quite understood. Why would you take the pioneering brand name in one of the hottest sectors of the last 25 years and just close it down? Royal didn't even bother spending the $9/yr to keep the domain name <sfnb.com>, now a generic link site. 

After his stint at the helm of S1 ended in October, Chip is back in the banking business taking the reins of startup Live Oak Banking Company. The Wilmington, NC-based company is still in formation. But it recently passed a regulatory milestone, raising $8 million in capital from fewer than 10 investors (see note 1, 2). David Lucht, who worked with Mahan as a credit officer for Cardinal Bancshares, is the Live Oak's President.

Live Oak was recently profiled in the local business press (here), and will apparently specialize in lending to veterinarian practices and kennels. 

While a number of banks target health care practices including veterinarians, none appear to be aggressive online marketers with the possible exception of Bank of America, which is the only mainstream financial institutions using Google to market vet practice loans (note 3).  Also, BB&T's Vine Street Financial lists vet practices on its menu of commercial health care lending services (see inset).

With Mahan at the helm, its almost certain their will be a web-based component to the bank's strategy. This is the long-tail of lending at work, targeting a highly specific area that needs a national focus in order to create enough volume to survive. Eventually, we expect to see national lenders targeting hundreds, if not thousands, of business niches online.

For more information on small business strategies, refer to Online Banking Report #107/108 (here).

--------

Notes:

1. It looks like the company may have registered the URL <liveoakbanking.com> as their URL, but its not currently live and the registration info is unlisted.

2. Here's what the North Carolina banking commission has listed for the company:

• Required capitalization: $8 million
• Prospective employees: 15
• Address: 2605 Iron Gate Dr., Wilmington
• Principals: James "Chip" Mahan, CEO; David Lucht, president
• Focus: Business lending to vets, kennels and children's day care operations

3. Source: Google search, 14 June 2007, from Seattle IP address, 2 PM PDT

Yesterday, I wrote about how new downloadable search apps were likely to spur mobile banking adoption as users grew more accustomed to using their phones for more than just voice calls (see post here).

Today, a potentially bigger driver was unveiled. The much-anticipated Apple iPhone which was such big news that the company's homepage was given over to a single image of the iPhone (see screenshot right).

Given Apple's recent track record, the combo iPod/phone/camera/browser may do even more to spur adoption of mobile services than the Google/Yahoo/Microsoft offerings (see note 1). 

Why? Because, the user interface appears to do an excellent job of exposing the non-phone functions. While the same can be said of Blackberry's and Treos, this phone, co-marketed by Apple and Cingular, is expected to be a mass-market hit along the lines of the iPod (see note 2). As one blogger put it, "Apple didn't unveil a phone today, they unveiled a $500 fashion accessory" (see note 3).

While the built-in Safari browser and magnification function will spur mobile browsing and banking via standard and WAP websites, there is no indication if and when the iPhone will support True Mobile Banking via downloadable third-party applications. The demo phone on the Apple website <apple.com/iphone> does includes a stock tracking widget (see inset).

However, given Cingular's involvement in mobile finance, with pilots underway with MasterCard, BancorpSouth/Firethorn/ CheckFree (see our coverage here), we expect that bank's will have the opportunity, most likely at a significant cost to add a widget to the phone (see our Wells Fargo iPhone mockup at right; see note 4).

Bonus prediction: Within two years one of those buttons on the iPhone will activate contactless card payments via MasterCard, Visa, or American Express.

Notes:

1. Apple's iPhone will ship with integrated Google and Yahoo search.
2. Apple is forecasting 10 million unit sales in 2008, but at least one analyst has already called that low according to today's Wall Street Journal. Worldwide iPod sales are expected to be 40 million units in 2006. However, no one expect the iPhone market share to get anywhere close to the iPod's 80%. Competition is far more advanced and intense in phones than it was in MP3 players.
3. I can't recall where I read this, still looking for the attribution.
4. We added the Wells Fargo logo to the iPhone image; the bank has no known relationship with Apple or Cingular.

As previously reported here, direct-banking giant ING Direct (U.S.) <ingdirect.com> will soon be in the checking account business with the Feb. 1 launch of Electric Orange.
(No word on whether the German band of the same name will be part of the launch event.)

In an interview published yesterday in Delaware's The News Journal, CEO Arkadi Kuhlmann revealed important details about the effort:

• It would be made available to about 10% of the bank's 4.4 million customers in December
• The nationwide launch is scheduled for Feb. 1
• ING Direct is planning to add 500 workers at Wilmington's headquarters to support the product, an expansion of more than 50% from its current headcount of 900
• The account will NOT have paper checks, but it will allow customers to print one from their home computer if necessary
• The interest rate will be 3%, about a third less than its savings rate of 4.4%
• Surcharge-free ATM access will be provided through the Allpoint network of 32,000 machines

Product postioning
While the account sounds relatively standard for an online-only checking account, the ability to print a check from home is an interesting feature we haven't seen before. It sounds like ING Direct will be marketing ease-of-use benefits, most likely centered on the bill payment function.

The catchy name combined with ING Direct's marketing flair (see picture right from its Chicago cash-cow promotion) should make for an interesting product launch. We'll be paying close attention here and testing the account as soon as possible.

Analysis
There is little reason for most consumers to choose a branchless bank for their main checking account when they can get free checking PLUS branch services at their local financial institution. ING Direct has long understood this and has not squandered resources on a limited-appeal product.

However, with more than 4 million customers, they have a large enough base to make a profit on a checking account, even a (relatively) lightly used one.

Due to the bank's ease of use and well regarded brand, it should be able to convince a portion of its base to use Electric Orange checking as an auxiliary account, perhaps as the household bill-pay account.

If the bank moves 5% of its $47 billion in savings deposits into the checking account, it would save $3.5 million annually in interest expense. Add another $3 billion in net new deposits at a 3% spread and Electric Orange pulls in $10 million per year, enough to cover expenses anyway.

"The biggest profit center at banks is customer ignorance, which banks have mistaken for customer loyalty."
-- Gary Hamel, speaking to 1,000+ bankers at BAI's Retail Delivery Conference, Nov. 15, 2006

I've always been a sucker for management-guru speakers. I can still remember Tom Peters speaking at a sold-out show in Peoria, Illinois, back when I was a wet-behind-the-ears management-trainee for Caterpillar. It was 20 years ago during the height of "In Search of Excellence" mania and it helped me realize a lot can be done to improve business performance.

So every year I make it a point to sit up front when BAI trots out the guru-du-jour to inspire the banking crowd. This year, it was Gary Hamel, a Harvard guy that, I'm sorry to say, I hadn't heard of prior to Wednesday (see the End Note for a summary of his recommendations presented to the BAI crowd).

But man did he grab my attention with his challenge to the assembled bankers and tech-company reps (see quote above). He believes banks are vulnerable as customers become better equipped to compare the price of various financial services, a natural role of the Internet.

The importance of switching tools
Hamel believes financial services loyalty will disappear once customers discover how easy it is to move their accounts to pick up a hundred basis points on their savings rate, or avoid $35 overdraft fees.

In his BAI presentation, Hamel pointed to U.K.-based uSwitch <uswitch.com> as an example of a new tool to help financial customers compare and switch banking accounts (we'll profile it in an upcoming article).

As Hamel was delivering his keynote, Intuit was busy in a nearby Mandalay Bay eatery briefing analysts on its new account switching service, scheduled to go live December 15. The clever service is built on the Teknowledge aggregation engine acquired last year (data sheet here). Intuit's service is similar to Yodlee's service announced in September (see our coverage here). We'll be covering it in more detail as it goes live. 

End Note:

Hamel's management philosophy
I have yet to read Hamel's books, but what he talked about Wednesday could be boiled down to the following:

• Employees shouldn't be "managed" they should be "led."
• In practice, he'd like to see nearly all management eliminated and replaced by small, self-managed teams working to achieve company goals.
• As much as possible, teams would make their own product, pricing, and staffing decisions.
• Compensation would be highly dependent on the team's results in achieving the ambitious profit goals set for them by the company.
• His examples: Whole Foods, W.L. Gore, and Google.      

During 11 years of publishing Online Banking Report, we've written about 500 words on so-called "mobile banking."

Even though it was a much-hyped topic in the late 1990s, our answer when asked about mobile banking was, "Fix your Web-based banking, add email alerts, and mobile will take care of itself."

But it looks like times may be a-changing. Cingular is throwing its considerable muscle into a phone-centered service using Firethorn's <firethornmobile.com> new platform (see homepage right), and the U.S. market for wireless services is enormous (per MasterCard & Cingular during their Nov. 16 presentation at BAI's Retail Delivery Conference):

• 2 billion mobile phone users worldwide, including 218 million in United States (per Cingular)
• Nearly 80% of U.S households own one (per Forrester)
• $660 billion of revenue for voice, messaging, and data services
• 75 million U.S. mobile phone users sent a text message in September (per M:Metrics, 20 Nov. 2006)

Even more interesting, ClairMail shared market research showing that nearly two-thirds of U.S. consumers aged 18 to 34 have used text messaging during the past three months, demonstrating that even in the laggard U.S. market, a core group of consumers is ready, willing, and able to use the phone for more than just voice calling.

Analysis
There are three main reasons why mobile banking's time has arrived:

1. It works on common phones: Previous generations only worked on a subset of high-end PDAs; now most mobile phones can handle mobile banking.

2. It has a business case: Mobile banking can both increase fee income by being a core component of a Premium Online Banking service (see Online Banking Report #109) AND lower costs by migrating voice calls away from the IVR and into self-service.

3. The youth movement: Younger consumers interact with each other in real time via text and instant messaging. There is little doubt that they will value the same type of interaction with their bank.

We'll be looking at this subject in much more detail when we publish our first exhaustive report on the subject in January (see Online Banking Report in late January or early February).

Royal Bank of Canada (RBC) launched a blog Tuesday, becoming the second largest North American bank in the so-called blogosphere. Wells Fargo was the first (see coverage  here). Thanks to Colin at BankWatch for the tip.

The RBC blog is part of a larger effort, The RBC Next Great Innovator Challenge, a marketing campaign aimed at rewarding innovation among Canadian college students (see main page below, note the Second Life-like avatar on the right).

The team of college students that develops the most innovative idea in the area of "teens and financial services," in 2,500 words or less, wins CDN$20,000. The top five teams will present their ideas to RDC management. Runnerups receive CDN$1,500 to $10,000 (total prize pool is CDN$40,000). Registration closed Oct. 31, with final presentations scheduled for early 2007.

Analysis
From a marketing perspective, there is much to like about this effort that:

• Positions the bank as innovative and striving to be even more innovative
• Generates a tremendous amount of positive press, both at the outset of the program and later as finalists are selected, then as winners are announced
• Drives traffic to its website
• Brings in new student accounts (it is no coincidence that the program launched during back-to-school time)
• Impresses the parents by rewarding creative teamwork by their kids
• Provides a large number of ideas that RBC can use in future bank products and student banking efforts
• Identifies potential future employees among the contestants
• Impresses Canadian businesses with the bank's support of young entrepreneurs

It's surprising that the bank didn't start a blog until the content closed, but better late than never. The blog will still serve as a great way to continue the momentum as the contest moves through the selection process. We'll take a closer look after it's been running for a few weeks.

Our sister publication, Online Banking Report, released its latest report, 2007 Online Banking Planning Guide. The 60-page report is packed with more than 1,000 ideas, tactics, and strategies for use by banks, credit unions, mortgage companies, credit card issuers, brokerages and insurance companies.

The report includes the following sections:

• Consumer product planner
• Small business product planner
• Fee-income planner
• Messaging planner

Online Banking Report subscribers may download the free report here. Others may purchase the report for US$495 here.

For more information, download the table of contents here.

We've come a long, long way since the dawn of the commercial Web, which in banking began in May 1995 when Wells Fargo posted the first customer statement on a website.

Back then, when we talked about virtual banking, we meant Internet banking. Now, there's the very distinct possibility that banks and credit unions will set up shop in virtual worlds such as Second Life from Linden Lab <secondlife.com>.

Let's call it truly virtual banking. Second Life, with more than 940,000 users, allows the exchange of virtual Linden dollars for real greenbacks, currently at a rate of L$273 to US$1. Due to the possibility of real profits from virtual activities, this metaverse has attracted more than 10,000 businesses including Starwood Hotels and others (see Analysis below). 

Apparently, the first real-world bank with a truly virtual presence is none other than Wells Fargo, whose Stagecoach Island debuted in Second Life late last year. However, after a few months the site was moved to a standalone site with no connection to Second Life <stagecoachisland.com> (see screenshot below).

In Second Life, the private island was accessible only to Wells Fargo customers who received an invite from the bank. Normal Second Lifers could not gain entry. Users were given a $30 stake in virtual cash. Although the island tempts them with various ways to spend it, the goal is to save, with interest paid at the rate of 10% per day. Users can earn additional cash by taking finance-oriented online quizzes.

The stated purpose of Stagecoach Island is financial education. It is part of a larger program aimed at younger adults. The We Take the Fun of Money Seriously program was piloted in Austin and San Diego last year. Here's an excerpt from the Sept. 14, 2005, press release:

Wells Fargo is hosting a series of live "We Take the Fun of Money Seriously" events throughout Austin and San Diego during September and October where young adults can participate in various activities — from karaoke and trivia games to athletic challenges and photo booths — and win prizes while learning about banking basics. Event participants will receive the Web address and a unique log-in code for the Stagecoach Island software and will have the opportunity to play the online game at home for 30 days.

Apparently, the pilot was successful. This year, the program was used at summer rock concerts, primarily a dozen venues of The Warped Tour, and at 19 college campuses this fall. The first stop was Aug. 20 at the University of Nebraska and the tour ends Nov. 1 at Central Washington.

The bank was assisted by Swivel Media, a San Francisco-based marketing firm which hosts a Web page and short video devoted to the game at <www.swivelmedia.com/fun_money.htm>. According to a July blog post at Clickable Culture, the company paid $17,000 to Second Life freelancers to build the game.

Analysis
Online gaming, or advergaming as it's sometimes called, is a good way to make an impression with younger users, even though it may be difficult to create a game not considered totally lame by the target audience. We recommend keeping it simple, and bribing the target audience with numerous prizes.

The bigger issue, whether to create a presence in Second Life and/or other metaverses, is more complicated. Several major brands have recently taken the plunge including American Apparel, Starwood Hotels, and others.

The Starwood's program is interesting. They are using the Second Life hotel project, aloft, to create a buzz for a real-world brand they intend to introduce in 2008 under the same name. The hotel's Second Life effort is chronicled in its own blog, <virtualloft.com>, which includes a virtual grand opening featuring Ben Folds scheduled Oct. 19.

Financial institutions, looking to create some buzz, should consider a presence in Second Life. With an expected population of one million by year-end, the marketing opportunities within the metaverse are intriguing. But more importantly, a Web-based blog and marketing campaign could yield millions of free impressions for online and offline media.

However, this is not as easy as it seems. There are numerous risks and obstacles that must be overcome. The largest banking operation in Second Life, Ginko Financial <ginkofinancial.com> which lends Linden dollars at 44% interest, has been plagued with accusations of fraud, specifically of being a Ponzi scheme (read Reuters article here). There have also been recent incidents of Second Life hacking that have caused problems.

But the biggest risk is to your reputation. Not only are you vulnerable to the whims of the game players, you also risk being associated with the more adult-themed activities in Second Life. Before taking the plunge, you should have a staffer join the metaverse and consult with seasoned players for advice on proper "game etiquette" (remember "netiquette" ten years ago?). You want to make sure you position yourself as "less lame" than the average financial institution.

But those risks are manageable; in fact, they are similar to the problems you deal with in the real world. And given the potential buzz from a successful Second Life brand, it's worth your while to investigate the potential.

P.S. If you think this is all a fad, consider the source of the Ginko Financial article cited above. It was written by a new full-time reporter from Reuters who works IN Second Life (see NY Times story here).

Resources:

• Sept. 2005, CNET article on Wells Fargo's Second Life promotion (15 Sep 05)
• Aug. 2006, BusinessWeek article on Starwood Hotel's virtual hotel in Second Life
• June 2006, BusinessWeek article on American Apparel's store in Second Life
• Oct. 2006, brief article on the overall economics from Silicon Vally Bank
• Today's Reuters story on Ginko Financial

Here's something we hadn't expected, payday loans from a major bank delivered through its online banking program. Minneapolis, MN-based U.S. Bank, not known for its pioneering work in online banking, quietly added payday lending to its platform recently.*

How it works
Users are alerted to the feature through a green link at the top of their checking-account transaction detail (see below).

Clicking on the link returns the well-designed "advance" pop-up screen where users can elect to take an advance from their next paycheck or from one of their pre-existing credit accounts (see below).

After selecting payday advance, users choose the amount and then follow the instructions to complete the loan. Funds are moved in real-time with no credit check. Since we don't have a direct-deposit paycheck, we didn't expect to qualify for an advance. However, we did receive a token "advance limit" of $80 (see "Available Credit" in lower-right box below).

Pricing & Disclosures
The advances are priced at 10% of the advanced amount, with a $20 minimum advance. Advances are automatically deducted from the checking account in one month if not already repaid. The APR if the amount is outstanding for the full month is 120%. Only one advance can be outstanding at a time.

In our example below, we chose a $20 advance and were required to repay $22.

The program is well-disclosed with a lengthy FAQ and Disclosure Statement (click on the continuation link at the bottom to see these documents).

Analysis
Putting an advance button at the top of checking-account transaction data is a great idea. However, at least in our case, the bank's implementation was questionable. Although we maintain as low a balance as possible in this checking account, we often run $10,000 or more through it. Also, we have an open credit limit of $20,000 on a U.S. Bank credit card linked to this account. Offering us an $80 advance limit is ridiculous.

Also, we're not sure that online payday lending is strategically very smart. Why charge 120% APR on small advances of one-month duration, risking customer and press backlash, when you could instead upsell an overdraft line of credit with a reasonable APR? 

The bank would stand to make much more on a reasonably priced overdraft line of credit, which could be delivered nearly as seamlessly. For example, a $2,000 outstanding balance on an 18% line of credit would provide $200 or more of annual profit vs. about $40 for a pair of $200 advances. And the customer will likely be more satisfied with the credit line. 

Although the bank demonstrates in its disclosures (see notes below) that its program is less expensive than an NSF fee or a typical payday loan, the 120% APR will likely create a bit of a furor with consumer advocates lambasting the bank in the press. It appears to have escaped notice so far.   

U.S. Bank deserves a pat on the back for its innovation, but without more consumer-friendly pricing, the payday-advance program may backfire on them.

*We have several accounts at U.S. Bank and noticed it this week for the first time.

End Notes (click on the following link for more information):

Program Disclosures

Program FAQs

Google hit the news today with a modest improvement to its online word processing and spreadsheet services, combining them in an umbrella offering called Google Docs (see TechCrunch analysis here).

Clearly, the Web giant hopes to convert millions of casual users from Microsoft Office to its ad-supported services. If they make headway in word processing, it's only a matter of time before they offer more specialized software applications. One area likely to be seriously considered is personal finance management, dominated today by Intuit's Quicken and Microsoft Money.

It would be relatively easy for Google to jump into the market. For a few million, it could acquire one of the personal finance startups such as BudgetSnap (see Sep 12) or Foonance (see Aug 10). Or it could build a service by licensing Yodlee's MoneyCenter (see July 5).

Analysis
What impact would this have on financial institutions? For banks with basic "plain vanilla" online banking, it could be a major threat if users began storing their banking transactions at Google, especially if the company offered automatic pre-scheduled downloading, which is likely. Users would log in to their banks far less often, diminishing the opportunities to cross-sell and service customers. And with the transaction archives stored elsewhere, it would be much easier for consumers to switch banks, reducing the relationship value of online banking and bill pay.

To avoid being marginalized by online personal-finance services, banks should boost their feature-set to include basic financial-management features, such as payment categorization, long-term storage, and reporting. Consumers have little desire to store confidential information with a Web-based company; however, if you don't provide obvious features, such as transaction storage, users will look elsewhere.

For more information
Our previous coverage is here. And for those wanting a detailed look at online personal finance, read our recent Online Banking Report #131/132, "Personal Finance Features for Online Banking" (subscription required).   

Bank of Internet <bofi.com>, has launched its second niche, direct-bank brand, MyRVBank. This one is targeted to the 8 million U.S. households with recreational vehicles. The site is virtually identical to its Senior Bank <seniorbofi.com>. The only differences, aside from the URL, are the homepage picture, different button designs, a few unique links in the Community Center and the blog. Click on the screenshots below for closeups (follow the continuation link at the bottom of the article to see a comparison of the product pages).

Analysis
Creating microsites for market niches is a good strategy. The RV market has been targeted by at least two banks in the past, Chase Bank in 1997 and Affinity Bank. Neither of those programs is still in operation.

Bank of Internet shows how to do niche marketing on a shoestring budget, basically re-purposing its existing Seniors' website. The bank said it spends less than $100,000 on the niche site. From the looks of it, I'd estimate it's quite a bit less than $100,000.

The only content differences are in the Community Center which contains several links to blogs and other resources of interest to RVers. The bank also sponsors a blog, MyRVBank Blog, hosted on Google's free Blogger site <myrvbank.blogspot.com>.

Blogging is a great idea, and we think every financial institution will eventually host a blog (see NB Aug. 29); however, the bank's RV blog is bad. It's designed to demonstrate the joys and pitfalls of life on the road, with a hired guest blogger, Tim McWhorter, chronicling his year-long trip with his wife and four kids across the country.

Here are a few of the problems with the blog:

1. No pictures: Travel blogs MUST have pictures at least every once in a while
2. Small type: The font is small and the text-only postings have almost 25 words per line, an uncomfortable read for most users, especially the seniors they are trying to attract.
3. Poor layout: The blog doesn't even use many of the free tools available to make it more visually interesting; for example, entries without dates, no author profiles, no explanations of purpose, no recommended links, no post categories, and no permalink so other blogs can link to specific entries.
4. No email address: Most blogs provide a means to communicate with the author(s).
5. No RSS feed: The blog does not allow users to sign up for an RSS feed.
6. Infrequent posts: There are seven posts since the supposedly grand RV adventure started June 24; only three about the trip and four generic posts about fuel economy, buying an RV, and so on.
7. Boring: It's just as well that there are few posts, because what's there is mind-numbing dull. Here's an excerpt about the trip:

When we came back outside, the sky had darkened and thunder was easily heard off in the distance. We had five miles to get back to our car with several large uphill climbs ahead of us! Yikes! We made it back to the car and loaded up the bikes. We did not even make it out of the parking lot before it started pouring down rain! We were very relieved to make it back before the storm which was also accompanied by high winds and lots of lightning.

Bank of Internet has the right idea here, but they need to invest a bit more in design and content to make its niche marketing effort more appealing. In addition to sprucing up the blog, the bank should work with marketing partners such as KOA to provide more RV-related value adds. The bank should also do a better job highlighting features of interest to frequent travelers, such as the $10 month in ATM surcharge rebates.

--JB

Appendix: Product page comparison, Senior Bank vs. MyRVBank (click for closeups)

 

Two data points:

1. A front-page story in today's Seattle Times reveals Washington Mutual's decision to change their brand name to WaMu.
2. Monday's American Banker told of Alhambra, CA-based InterBusiness Bank name change to Tomato Bank.   

Two name changes among 8,000 U.S. banks is hardly a trend. But as the Internet becomes more and more important to your new account acquisition (see Online Banking Report 128, "The Demise of the Branch"), you must consider how your name works online. First National Bank and Trust looks good on a main-street signpost, but when translated to cyberspace it loses much, if not all, of its appeal. The problems?

• Not memorable: Too many generic words strung together make a name difficult to recall when potential customers return to their computers.
• Not searchable: Again, too many generic words makes it hard to even find in a search engine.
• No domain name available: The domain names containing first, national, and bank have long been snatched up by early adopters in 1995 and 1996. Many banks have had to resort to hard-to-remember domains such as <ibankfnb.com> from First National Bank of Hudson. 
• Not a modern brand: While it's nice to have your name create a feeling of trust and security, generic names reinforce the impression that the bank is not modern and technologically savvy, not good positioning for attracting customers online.

A name change is one of the biggest decisions a company will make, so we won't presume to give you advice on that point. However, you must consider the effectiveness of your brand online, both in recall, search, and overall company image.

--JB

We are huge fans of Wired magazine <wired.com>, having read just about every one of its 190 monthly issues. In fact, eight or nine years ago I used to tell friends that the goal of Online Banking Report was to translate the technology magazine into "banking terms."   

I still recommend the magazine to anyone interested in the future of digital communications, marketing, or content (that ought to cover anyone reading this). So if you're not already on board, head to its website and plunk down US$10 for an annual subscription.

Wired 40
Every year Wired publishes its list of its top 40 companies, The Wired 40. Most are large companies selected for their strategic vision, global reach, killer technology, and hunger for new ideas. The latest ranking (July issue) has Google at #1, knocking Apple from the top. The biggest surprise, New Corp. hitting the chart at #9. The company, which wasn't even ranked last year, has become an Internet giant with its purchase of MySpace last year (see NB March 16).

Here's the top 10 with last year's rank in parenthesis:

1. Google (#2)
2. Apple (#1)
3. Samsung (#3)
4. Genentech (#7)
5. Yahoo (#5)
6. Amazon.com (#6)
7. Toyota (#8)
8. General Electric (#17)
9. News Corp. (NEW)
10. SAP (#11)

As you would expect, there's not much in the way of financial services in the list. However, Citibank holds on to the number 38, down two spots from last year. Not entirely coincidental, Citi is one of the few major financial services advertisers in Wired. This month, the bank has a huge buy, with a fold-out front-cover spread pitching its "Citi identity theft solutions."

GE (#8), Yahoo (#5), Microsoft (#36), and even Google (#1) have significant retail financial services, although they account for mere slivers of the giants' overall revenues.

Like Citibank, GE elected to make an ad buy this month, pitching its high-yield deposit products on the online version of the Wired 40 list (see inset).

Falling out of the top 40 this year was TD Ameritrade which the magazine said still "ruled etrading, but what once was a disruptive technology is now a commodity."

In today's Wall Street Journal, personal finance writer Jane Kim does a roundup of what she calls "the next wave of online banking." The impetus for the article was Yodlee's new MoneyCenter that will be available to consumers in early July. I was interviewed for the article and provided several of the examples along with the market size estimate.

In addition to Yodlee, the following developments were chronicled in the article:

• Citibank's <citibank.com> 50-fold increase in online interbank transfer limits from around $2,000 to $100,000 this summer. In what may simply be a self-serving comment made to a reporter, the bank cites the demand for its new e-Savings account as an impetus for the change.
• Commerce Bank's (NJ) Virtual Private Bank <virtualprivatebank.com> for customers with $1 million or more in investable assets.
• Wells Fargo's My Spending Report, a simple integrated spending report we discussed last year. (NB Feb. 17, 2005)
• Bank of America's <bankamerica.com> account aggregation and recently expanded account alerts.
• Chase's <chase.com> next-day bill payment.

Analysis
Although most of these examples are relatively minor improvements, it's good to see the mainstream press recognizing online banking innovations. The last few years have been dominated by security concerns, and we believe it's a great sign that reporters are looking for "what's next." It would be wise to have an answer to that question when your local paper calls.

We believe the Virtual Private Bank (VPB) from Commerce and the Yodlee system deserve closer examination. We'll cover Yodlee's new product when it goes live next month. And, although we won't be able to drop a million into Commerce Bank, we'll take the VPB for a test drive later this week.

--JB

If you'd like to learn more about the future of online banking, check out the Online Banking & Bill Pay Forecast: Current, future and historical usage: 1994 to 2016 from our sister publication, The Online Banking Report.

If you were to chart the top-10 events in bank-marketing history, one of them would be the March 1990 launch of AT&T's "no-annual-fee-for-life" Universal Card. Today, an annual fee waiver hardly rates a bullet-point in a three-page direct-mail piece. But 16 years ago, the offer was so successful it caused massive application backlogs that made the 6:00 PM national news. In its heyday, the card attracted one million new accounts per month. However, the marketing stalled once the fee-free strategy was widely copied, and the portfolio was sold to Citibank in late 1997.

I've often wondered if there was a similar opportunity online to recreate the success of AT&T's offer. Probably not, but I do think "free forever" online banking would attract attention and generate new enrollments. To make it profitable, you might make a bundled credit account a requirement (the requirement could be waived in the event of a credit decline).

At first glance, UK-based Halifax Bank <halifax.co.uk> has an unbelievable "free forever" business banking program. But you can see the pesky asterisk in the upper right. Reading the fine print, the account is only free if you keep at least 5,000 pounds on deposit and write fewer than 100 checks per month.

The problem is that U.S. consumers have seen so many free-checking offers, it's not such an attention grabber any more. One way to get past consumer skepticism is to provide a longer list of freebies than they've ever seen before. For example,

• No checking account monthly fees
• No check-writing fees
• No ATM fees
• No teller fees
• No telephone call fees
• No online banking fees
• No funds-transfer fees
• No NSF/OD fees*
• No late fees*
• No returned-check fees*
• No PIN debit fees
• No signature debit fees
• No credit card fees
• No ACH fees
• No archive-access fees
• No statement fees
• No direct-deposit fees

*If open credit available

Feel free to use this idea and let me know if it works.

If the statute of limitations on "I told you so" is seven years, then word that ING Direct is contemplating a "checkless" checking account called e-Orange comes in just under the wire. Our Virtual Checking Accounts report, which outlined just such an account, was published six years and eight months ago (OBR 50/51) (see note 1).

We've always enjoyed the ING Direct story because it defies conventional wisdom in so many ways. Here are the "rules" that the Dutch banking giant, thirteenth largest in the world, has broken:

1. Branchless, Internet-only banks can't build a large deposit base
2. Large entrenched financial institutions can't create a hip online brand
3. Mass-market banks must offer checking accounts

Worldwide, the ING Direct unit serves 15.7 million customers, and in 2005 it earned a profit of 617 million euros, about 9% of the parent's earnings. The U.S. version accounts for about 20% of the customer total, approximately three million accounts, and has been portrayed as profitable by company execs.

Why "checkless" checking?
No details are available on what an e-Orange checking account might look like. The company will only say that it's in "testing" in the United States. We've held an account at ING Direct since it opened (Q3 2000), and we haven't been approached. But it's pretty easy to guess what it would include:

1. Simple account-to-account transfers (already part of its savings product)
2. Online bill payment
3. Debit/credit cards
4. A high rate of interest, although checking is a point or so less than savings accounts

The lack of paper checks may be more a publicity stunt than a true cost savings, although if they succeed in keeping the paper out of customers' hands, it might help keep funds on deposit. Consumers facing a fat tuition bill may be more likely to pull out the checkbook connected to their Citibank account rather than arranging an electronic deduction from e-Orange.

The company, which portrays its savings account as a "companion" to the customer's existing branch-based checking account, is likely not looking to displace the typical 30-transactions-per-month checking account. More likely, they are positioning it more as a money market account with a competitive interest rate along with the convenience of paying a few major bills from it on an infrequent basis.

With ING Direct's core savings product under attack from all sides (see previous NB articles), it has to look to other avenues of growth. A unique checking account, one that bags free press and a few billion in deposits, makes a lot of sense for a company with a keen grasp of how to make bold, attention-grabbing launches (see note 2).

--JB

For more info:

• AP story on ING Direct: http://sg.biz.yahoo.com/060322/15/3zjzp.html
• Online Banking Report: Building the Amazon.com of Financial Services (#38/39, July 1998)
• Online Banking Report: Virtual Checking Accounts (#50/51, July 1999)

End Notes:
(1) The seeds of that report were published a year earlier in Creating the Amazon.com of Financial Services (OBR#38/39)
(2) The company has entered new markets with clever stunts, such as giving all transit riders a free ride (Washington DC, SF-Bay area); a free tank of gas (LA); coffee bars in prime locations (NYC, Philly); and so on.

There are 63,198,783 members in MySpace as of 9:45 am Pacific Time today. Even if you subtract 25 million or so phony entries, you still have a vast audience, making it the fifth-most popular place online (trailing only Yahoo, Microsoft, Google, and eBay).

And it's not all teenagers. According to the member search, there are 1,054 male and 634 female members aged 45 to 50 within five miles of my Seattle home. Of course, in the same vicinity there are 2,958 22-year-old males and more than 3,000 females of the same age (search results stop after 3,000 hits), so it definitely skews younger.

Financial institution opportunities
Forget about the over-30 crowd, you already understand what they need. But what about the younger group, the 21-and-over post-college crowd just starting jobs and beginning a 70+ year stretch of consuming financial services. What do they want in a bank?

Ultimately, they want what their parents want: safe storage of funds, convenient payment alternatives, access to substantial credit, and fair prices.

So far nothing new here. But how you attract these young consumers will be very different than how you acquired their parents. For example:

• Branches will have far less marketing impact: This is probably the biggest difference from past generations; that good-looking branch at the corner of First and Main will NOT automatically get you a 25% share of new hires in your neighborhood. Today's new college grad is much more likely to do a Google search on "yourtown banks," check out your website, and if they like what they see, sign up for an account. Your branch network will only be an afterthought; nice to have, but not a key part of the decision.
• Website must be clean and fresh: Since your bank's first impression will come from its online presence, you must keep investing to ensure a website, and features, that at least match the competition. You don't let your landscaping go to seed in front of the branch, so why would you not tend your website in the same careful manner?
• Electronic communications channels: How does a 22-year old want to communicate with his/her bank? Think instant messaging from the PC, text messaging from the cell phone, and the ability to post questions for peer response. Email is also important for less timely information exchange, such as daily statement summaries and other account updates.
• Intuitive online products: Anyone under 25, who's come of age in the Internet era, expects to handle routine matters online. From a bank, they expect simple and instant funds transfer and bill payment to anyone at any location, including account-to-account transfers. They want plastic for purchase (primarily debit) and a reasonable line of credit backing their checking account. They expect online archives measured in years, not months.

A note on pricing
Like their parents (and grandparents), they don't expect to pay much, if anything, for these services. Free non-interest checking will continue to be required, but add-on fees for premium services should be acceptable. They will also be less price-sensitive for revolving credit, so position that 15% overdraft line of credit as a major part of the business case. 

Advertising at MySpace
That brings us back to MySpace, a surprisingly non-commercial site at this time. But we expect that to change slowly over time as its owners, Rupert Murdoch's News Corporation, which paid $580 million for the site last year, work on ways to make a return on that investment.

The company is currently earning revenues from a single banner across most pages, a few smaller ads in certain areas such as Films, a large ad near the top of each member's home page, plus Overture-served keyword ads for its site search and Web search (click on screenshot for a closeup of the search results page for the band "Green Day"). The site also has a classified section that looks a lot like Craigslist, but is sparsely used, at least in the Seattle area.

For financial institutions, the main opportunity is traditional banner and display advertising. Today we saw banners from LendingTree, E*Trade and H&R Block (and AARP, was that a mistake?) But there is likely room for at least one or more financial institutions to strike deals with the company to become a preferred provider of banking services, with a premium position within the site, perhaps on the main navigation strip (think Amazon tabs), or in some yet-to-be-conceived commercial spot within the social networking site.

--JB

Bank of Internet <bofi.com> announced today the launch of its second specialized online bank, Senior BofI <seniorbofi.com>. While it may not be the sexiest name on the planet, it does help establish the link to the more established entity, Bank of Internet, a comfort to the market it's going after, seniors.

This marks the second specialized online bank operated by BofI, the five-year-old, online-only bank. The other is Apartment Bank <apartmentbank.com>, which caters to owners of multifamily-housing properties.

Analysis
We like BofI's strategy of going after national niche markets with specialized services. The ApartmentBank concept is especially unique given the small total universe it serves. Looking at the recent fundings, it appears to be gaining some traction, especially in Texas, Arizona and a few neighboring states. The website lists 12 deals worth $16.6 million, half the dollar volume from Texas (click for screenshot of Apartment Bank).

We are less enthusiastic about the initial Senior Bank implementation. Given the competition for this segment, the bank will need to mount a stronger effort. Other than the user-friendly SMALL/MEDIUM/LARGE/X-LARGE font selection tool in the lower-left of the homepage (click on screenshot above for closeup), there isn't much to differentiate the bank, or its products, from thousands of other banks, most of whom cater to seniors with special accounts and pricing.

For example, The Community Center is dominated by a list of DVDs for sale at Amazon, including Batman Begins, and TV shows, Lost, Firefly, and Friends (see inset). The bank loses whatever credibility it had gained on its homepag