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 homepage once seniors see random selections from Amazon's inventory dumped onto the website. Seniors don't even like to shop online, especially for DVDs aimed at 20-somethings.

The Grades
A for strategy
B for implementation of Apartment Bank
C- for implementation of Senior Bank

--JB

On the front page of today's American Banker and on the cover of its Retail Delivery pullout section (see inset), there is an eye-catching EBANK logo presented in eBay's distinctive font. It's an intriguing lead-in to an otherwise predictable story on eBay's PayPal unit and the extent to which it competes with banks. (Note: For American Banker, the cover graphic gave it more "street appeal" so that the paper was more likely to be picked up by the thousands of attendees at BAI's big technology conference in Orlando.)

This is an old story. PayPal has offered a suite of consumer banking services for more than four years (click on table below) including debit cards, bill payment, credit card (issuer), consumer finance loans, credit card processing, ACH processing, money market mutual funds, international payments, interbank transfers, fraud protection, and insurance for funds on deposit. The only new service this year is the credit card payments gateway business it purchased from VeriSign earlier this year; though that is more of a line extension than a new business.

Analysis
Yes, PayPal competes with bank, primarily in merchant processing, an area most banks got out of more than a decade ago. And we'll see more ecommerce players, such as domain registration services company GoDaddy, offering integrated PayPal payment options (see inset). However, none of PayPal's other financial service offerings have a measurable market share, and are unlikely to be causing any lost sleep by execs at Bank of America, Citi, or any other financial institution.

The American Banker article speculated on eBay's interest in moving further into banking by buying a charter and opening a full-service Internet bank. But no evidence was presented for either side of that argument, nor did the author find any industry analysts to comment.

It reminds me of the "controversy" in the mid-90s about Microsoft competing against banks. Although it was mostly fodder for the trade press, we debunked the notion In the very first issue of Online Banking Report (April 1995). There was no way that a successful software company, accustomed to 50%+ margins, would invite the regulatory scrutiny and compliance hassles of the relatively low-margin banking business.

Although eBay has done some strange things, such as jumping into the telecom business via its recent Skype acquisition, we seriously doubt that the auction giant has any plans to open or even lend its name to a full-service Internet bank. It doesn't need those regulatory and compliance headaches.

However, the company will continue to exploit areas of ecommerce, like auction payments and auction purchase financing, that are not well-served by existing players. But if you've put together a franchise that can hold its own against BofA/MBNA, ING Direct, and Schwab, you have little to fear from eBay or Microsoft. In fact, there are opportunities to leverage these trusted brand names to INCREASE your revenues. For example, PayPal provides developer tools that would allow a bank to integrate with the online payments provider to facilitate financing for bank customers.

Previous articles:

• Online Banking Report #113, PayPal Offers Preapproved Credit Lines to Users, Dec. 16, 2004
• Glenbrook Partners, Beware the Doves: Reflections on the PayPal/GE Consumer Finance Alliance, by Scott Loftesness, June 2004

--JB

David Spade's "no guy" has helped make Capital One's No Hassle credit card customer service parody one of the most-recognized consumer advertising campaigns of the year. According to the company, the commercials have helped lift the Capital One's name recognition to 98% (see note 1).

Along the same lines,
American Express is test marketing a no-fee automatic-rewards card called Clear. The card, which is available through its website (click on inset for closeup), features no fees (late, overlimit, annual) and an automatic rewards fulfillment, a $25 cash card every time you spend $2500 on the card. Cardmembers also receive a free credit report and credit score each year.

Finally, Citibank is about to jump on the back-to-basics movement with its no-late-fee Simplicity card expected to debut this week at an event in New York City (note 2). The card will come in three flavors: plain, cash-back, and rewards. The bank's website does not contain information on the card yet, but there is a separate customer service number listed that features a "press 0" option to be immediately connected to a live service rep.

Analysis
Although many consumers put up with penalty fees, there is always a point where they just won't take it anymore, especially if lower-cost options are readily available. That's why Blockbuster, faced with increasing competition from NetFlix, eBay, and WalMart, took a significant revenue hit when it eliminated late fees in its core movie rental business.

Citibank and the others are looking to win back consumers that have migrated to debit cards and/or credit unions to avoid penalty fees and interest charges. The cards also appeal to those with a strong aversion to fees either because they've had problems in the past or because they simply cannot stomach bank fees of any type.

--JB

Notes:
1. USA Today, 13 March 2005
2. Citi Simplicty was launched 14 October 2005
    - read the press release
    - see the website, www.citisimplicity.com

Blame it on my Seattle location, but I continue to believe there are good synergies between banking and the so-called coffee culture, both on- and off-line (full disclosure, I'm writing this in a coffee shop). I'm not talking about converting bank branches to coffee shops like Exchange Bank Coffeehouse (left); but using espresso and other coffee and tea tie-ins as a perk for banking online and/or other product usage.

Here's why banking and espresso go well together:

• Brand image: Thanks to Starbucks, coffeehouses have developed into a pop culture phenomena that is unlikely to fade in our lifetime (evidence: nearly 10,000 Starbucks locations worldwide, growing 1300+ per year). The community-building, relaxed, and relatively wholesome image of the modern coffee shop fits well with the brand images many financial institutions are attempting to convey.
• Traffic patterns: Banking is usually a daytime activity, correlating well with coffee consumption.
• Real estate: Whether located in a city center, suburb, or small town, bank branches are usually located in high-traffic locations. They often have enough extra space to squeeze in an espresso station and a few small tables.
• Promotional opportunities: For years Horizon Air, a regional provider owned by Alaska Airlines, used its Starbucks beverage service to attract customers to its routes. Banks could do the same thing.

Examples

This is not a new concept. Umpqua Bank has had great success with its retail model that included coffee service and no teller line. The bank's website carries a subtle coffee theme throughout with terms such as, find your own blend and savor. It's Experience Umpqua Flash presentation starts with a close-up of a coffee mug on a table in the branch.

ING Direct operates four urban cafés in the United States that serve coffee and pastry along with financial advice. No transactions are processed on-sight, but customers have access to Internet terminals and ATMs.

But the bank closest to what we have in mind is Charter One Bank. Prior to its being bought by Royal Bank, the Cleveland-based bank embarked on a co-location program with Starbucks (see inset, Post & Washington, Indianapolis).

Financial institution opportunities
Partner with Starbucks or a local chain to create a joint banking and beverage program

• Develop a usage program with free coffee as the perk, for example, paying two bills online each month and/or estatements instead of paper
• Offer a prepaid coffee option that allows coffeehouse purchases to be charged directly to credit or debit card, or deducted directly from checking
• Consider expanding the concept beyond transactional banking, with coffeehouse tie-ins for investments (see, The Coffeehouse Investor, OBR 49)
• Use the book, The Coffeehouse Investor, as an incentive/premium
• Use it as an incentive for going totally online, for example, "Go to XYZ Coffee Shop instead of the branch"

--JB

Before we head out for the long holiday weekend, we took a quick tour of the top 50 U.S. consumer banks and found only a handful taking advantage of Independence Day to give their website a patriotic theme.

Washington Mutual was the only mega-bank using the 4th of July in a homepage promotion, a clever "Home of the Free" pitch for its free checking account (click on the inset to view screenshot).

Other banks with patriotic window dressing included: Hudson City Bank, MBNA, USAA, and Zions Bank (click on thumbnails below to see full screenshot).

Analysis
For U.S. banks, there couldn't be a better holiday to associate with, "banking, apple pie, and the Fourth of July." As we mentioned in our original holiday marketing post, we think it shows savvy on your part to tweak your design around the holidays. However, it doesn't have to be a huge undertaking. Just flying the flag, like ING Direct, shows you are actively managing your online presence.

Want more ideas for your holiday marketing? Check out the Interactive Financial Marketing Database from our sister publication, the Online Banking Report.

Now that financial institutions are interacting with a substantial portion of their customer base online, it becomes feasible to cross-sell niche products that don't necessarily have broad appeal.

One relatively untapped area is insurance, especially products outside the highly competitive term life and auto market. For example, in today's Wall Street Journal Family Finance column, Jennifer Saranow discussed new all-in-one insurance policies combining auto and homeowner coverage.

Other possible insurance offerings that might interest your online customers:

• Small business coverage
• Umbrella liability
• Combination credit insurance that covers multiple loans and revolving balances under one policy
• Bill insurance that would pay all previously scheduled bills for a defined period

Analysis
As any insurance sales rep can tell you, it takes time to build an insurance clientele, but once built it can be quite lucrative.

For example, if you could sell a new policy to just 1% of your online banking customers each year, by the end of 10 years you'd have 10% penetration (ignoring attrition for the sake of simplicity).

If you had 25,000 online banking subscribers and you earned $100 per year per customer on insurance, by the end of the decade you would be earning $250,000 per year from your online insurance business.

While that may not be a huge number, if you put together a half-dozen niche-product cross sales programs, you could soon be earning $1 million or more per year; money you wouldn't have had without the online channel.

We'll get back to this issue in future articles.

--JB

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

1.       Statement data: viewing and organizing balance

2.       Customer service: customer care delivered over the Internet

3.       Accounting services: financial management tools

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

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

6.       Lending: business tools, news, information

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

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

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

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

In theory, small- and micro-businesses represent one of the most lucrative, and relatively untapped, sources of incremental business. The reality is that businesses are difficult to reach unless you are competing for their loan business. As we outlined in previous posts, a product offering optimized for business will differ somewhat from one built for consumers. The following excerpt from our Microbusiness 2001 Special Report (available to subscribers for an additional fee at  www.onlinebankingreport.com/resources/microbiz.html  is a checklist to assist you in planning your service offering. The features are divided into 10 categories:

1.       Statement data: viewing and organizing balance

2.       Reporting: building financial reports from statement data

3.       Customer service: customer care delivered over the Internet

4.       Products: bank and non-bank financial products

5.       Accounting: financial management tools

6.       Payments: billing, e-checks, bill pay, email payments, ACH, wires, invoicing, card processing, credit cards

7.       Security/access: privacy, security, permissions, guarantees

8.       Other Web-based services: business tools, news, information

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

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

Online Services for Microbusinesses

check = must have feature; R = recommended feature; O = optional feature

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

One

Supports: branding, cross sales

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

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

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

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

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

Two

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

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

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

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

•  Easier to update and keep current.

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

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

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

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

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

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

Three

Personal Finance Book Reviews

Supports: investments, savings plans

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

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

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

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

Liberty Licenses Content in Six Areas

•  charts and graphs

•  online newsletters

•  articles

•  short takes

•  book reviews

•  financial glossaries

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

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

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

A link to Amazon.com from AltaVista.

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

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

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

Four

Personal Reminder Services (aka Personal Secretary or Personal Banker)

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

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

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

Definition: Default Start Page

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

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

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

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

Integrated with Bill Payment

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

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

Integrated with Web Content

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

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

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

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

Using AllNotes Reminder Service

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

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

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

Five

Electronic Postcards & Greeting Cards

Supports: branding, new business generation, home banking

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

Integrate with Bill Payment

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

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

Six

Common Email Templates

Supports: home banking, retention, small business

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

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

How it Works

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

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

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

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

3. Preview results (#3 above)

4. Send

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

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

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

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

Seven

Home Inventory

Supports: home banking, insurance, retention

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

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

Eight

Credit Report Access & Monitoring

supports: CRA, loans, PR

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

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

QSpace has the online credit report market to itself.

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

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

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

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

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

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

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

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

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

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

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

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

Credit Report Monitoring

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

•  Free credit bureau reports.

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

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

Nine

Community Calendar (Database)

supports : branding, community service (CRA), PR

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

•  generate goodwill in the community

•  build positive brand/image

•  satisfy existing Web users

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

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

•  local government meetings and hearings

•  school events and meetings

•  school lunch menus

•  school closing reports

•  garage/rummage sales

•  entertainment events

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

•  charity fund-raisers

•  reunions

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

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

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

Leveraging Volunteers to Create Your Content

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

Minimizing Oversight

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

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

Advanced Functions

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

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

•  Email delivery of new events matching user interests.

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

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

Final Analysis

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

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

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

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

Ten

Guided Web Links

Supports : branding, retention

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

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

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

Tenets of Guided Links

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

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

•  Identify the sponsor/owner of the linked site.

•  Keep links up-to-date.

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

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

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

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

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

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

4. Run the numbers.

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

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

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

Source: Online Banking Report, 8/97

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

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

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

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

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

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

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

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

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

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

Five Steps to the Big Idea

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

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

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

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

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

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

Immersion

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

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

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

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

Conference Calendar

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

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

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

Companies Doing Online Banking Research

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

Stimulus

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

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

1998 Thinking Exercise:  Trading Stocks Online

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

1. Clear an entire morning on your calendar.

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

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

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

5. Complete the online application.

6. Check out the prices of your favorite stocks.

7. Set up a portfolio of stocks to track.

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

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

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

Idea Generation

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

Incremental revenue from existing customers:

1. Indirect lending

2. Credit cards

3. Personal lines of credit

4. Home equity loans

5. Mortgages

6. Car loans

7. Computer loans

8. Privacy/credit bureau services

9. Companion checking accounts

10. FDIC insured savings/CDs

11. Investments/investment information

12. Financial information services

13. Business accounts/lending

Market Share

1. Small business

2. New geographic areas

3. Underserved niches

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

5. Joint marketing opportunities

Cost Savings

1. Online direct marketing

2. Online data delivery

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

4. Self-service customer information

5. Fax-on-demand

6. Automated voice messaging

Relationship Building

1. Web-based services and community-building

2. E-mail communications

3. Instant online customer service

4. Online financial tools

5. Customized Web sites

6. Personalized information services

Developing the Plan

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

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

Questions to Stimulate Ideas/Thinking

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

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

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

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

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

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

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

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

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

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

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

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

Digital Bill Payments

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

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

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

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

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

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

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

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

Privacy and Fraud Prevention

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

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

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

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

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

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

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

ConsumerInfo.Com
www.consumerinfo.com

ConsumerInfo.com is part of a new business category: the online purveyor of public records information.

ConsumerInfo.com (Orange, CA) is a reseller of information from consumer databases: credit reports, credit monitoring services, home value reports, and home value monitoring services. According to its Web site, the company will soon offer fraud monitoring services as well. The company is the vendor behind the credit report services offered in Intuit’s Quicken Deluxe v6.0. Merged credit reports are supplied by CREDCO, a division of Canada’s First American www.firstam.ca/credco/. If you are looking to branch into consumer information services, especially credit bureau information, here is a company to watch.