While not the first bank to experiment with eBay auctions (see note 1), Zions Direct is the first to open a dedicated site within eBay and the first to sell "new-account vouchers" (see screenshots below).

Apparently the vouchers, listed in the gift certificate category, skirt eBay rules against auctioning financial services. The buyer of the certificate can redeem them for a cash deposit into their Zions Direct brokerage account. Zions Direct also auctions CDs every week directly on its website (see previous coverage here).

Bidding starts at $0.99 for the vouchers which range in value from $500 to $1,000. Bidders can pay via PayPal or check. The amount of the voucher is deposited directly into the buyer's Zions Direct account, which is required to redeem the voucher. So not only are buyers receiving cash at a discount, they also can earn frequent flyer miles and a free grace period if their PayPal account is connected to a rewards credit card. There is no requirement that buyers be new customers, nor are their limits on how many certificates can be purchased. In fact, bidder shecdoggy bought 5 of the vouchers totaling $4,000 at a total discount of $72.50.

So far the bank has sold 16 vouchers worth at total of $12,800 to 9 unique bidders for an average of $12.50 less than face, a discount of 1.6%. And there are currently 10 vouchers up for auction (see screenshot below). As more people have caught on, the spread has been reduced to less than 1% on recent auctions (see past and present listings here, Zions Direct eBay store here).   

Analysis
From a marketing perspective, this is brilliant, at least in the short run. For a cost of $15.95/mo for a basic store, and $30 to $40 per voucher (mostly in eBay/PayPal fees), the bank gets its name on eBay, numerous mentions in blog posts and press stories, a cool ad on its homepage (see screenshot below), positions itself as innovative and provides customers a nice little spiff.

Long-term, however, the terms will have to be adjusted or the bank will just be handing over easy money to the "gamers." The certificates will be purchased at face, or slightly over, by existing customers who rack up frequent flier miles and a do a little interest arbitrage during their credit-card grace period. The bank will need to lower the amount of the vouchers to $100 to $200 to reduce the potential for gaming, or if possible, restrict purchases to one per customer. Another cost reduction tactic would be to disallow PayPal payments, but that would reduce the effectiveness of the promotion. 

Zions Direct Auction Listing

Zions Direct eBay Store

Zions Direct Homepage (18 Jan 2008)

Note:

1.  In the late 1990s PNC Bank was the first to try CD auctions. In 2004, WaMu used eBay technology in a market test (see previous article here).

Several banks, including PNC in the bubble days and WaMu through eBay in early 2004, have tried auctioning certificates of deposit (see Online Banking #104). Those first attempts were aimed at retail depositors, an unlikely audience for a several reasons. First, the demographics of retail CD buyers is decidedly older and they tend to be fiscally conservative, not the right group for a new-fangled way to buy from the bank. On the other hand, CD auctions are a great way to introduce a bit of Web 2.0-style innovation into what is mostly a commodity.    

So Zions Bank, through its Zions Direct division, has chosen a different path. Instead of creating an eBay-like environment for retail investors, it is using its non-bank investment division to sell CDs like the Treasury Dept sell t-bills. The certificates are sold at a discount to par, resulting in an acceptable yield for the bidders. 

Analysis
While PNC and WaMu's efforts were clearly just market tests that were shuttered after a few months, the Zions auction platform is full-featured. It appears to have staying power provided the bank is comfortable with the prices its paying. 

Clearly, this is not a retail playground. There were 20 bidders making a total of 28 bids with a median bid dollar amount of just $10,000. However, there were three huge bidders, all playing with $2 million in cash, that set the final prices. Most likely it was someone in a large company treasury department looking to increase its yield on excess cash by a basis point or two.   

But even though the big money sets the rates, the small depositors can still win since everyone received the same "market-clearing" rate. For example, four of the 14 winning bidders in the March 27 auction were small CDs of less than $5,000:

Winning bidders by size of deposit:

• 4 had $1,000 to $4,000 
• 5 had $8,000 to $20,000
• 2 had $90,000 to $100,000
• 1 had $200,000
• 1 had $536,000 (partial fill of $2 million bid)
• 1 had $1 million (they also had non-winning $2 million bid)

It makes sense to set rates for large deposits this way. It mimics the way the capital markets already function. And it allows motivated smaller depositors to join the "action," receiving what they are likely to perceive as a fair price since it was set on the open market. Some day, the majority of CD dollars will be sold this way.

Finally, an added bonus for the first-mover, it positions Zions as innovative, fair, and looking out for its customers. The word of mouth and press attention should quickly pay back the investment Zions made in the platform.

More information:

• Press release here
• American Banker article here
• Online Banking Report #104 here

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Zions March 27 CD Auction Results
(see screenshot right or view archived page here) 

Product: $2,000,000 in 5-month CDs

Bidders: 28 bids from 21 bidders

Final Price: 5.506% rate

Start date: 20 Mar 2007

End date: 27 Mar 2007 (6 PM EDT)

Discussion: Two $2 million bidders tied at the market-clearing rate, one ended up with a partial funding of $537,000 and one ended with zero, so had Zions made more money available, it could received total deposits of $3.6 million at 5.506% rate.

Zions Bank <zionsbank.com> is one of the early entrants in the parade of banks and credit unions rolling out multi-factor authentication this year. The Utah-based bank is using the PassMark/RSA <passmarksecurity.com> system pioneered by Bank of America last year (NB May 26, 2005).

Although there are compliance and security reasons enhancing security, the biggest benefit is marketing and PR. Just today, highly influential Wall Street Journal columnist Walt Mossberg urged readers to ignore financial institution emails saying, "...never, ever consider any email from a financial institution as legitimate." Ouch.

SecurEntry positioning
While we like the SecurEntry name, its page-dominating position on the Zions homepage (see above) is a bit over the top. Granted, they are in education mode as they race to enroll every customer within the next two months. But there's a reason why bank branches in high-crime areas use Plexiglas enclosures instead of steel bars; you don't want to make your customers afraid. The best security measures are subtle and discourage criminals without overly impacting the 99.9% of your customers who would never try to make off with the contents of the cash drawer.

It would work better to place the SecurEntry logo near the log-in area in the upper-right. That way, customers concerned about security could click-through to learn more, and customers that weren't already paranoid could go about their banking business without feeling new insecurities.

How it works
SecurEntry is a multi-factor authentication scheme identical to that used by 20 million customers of Bank of America, Stanford Credit Union, and others (see NB April 12). The new system, launched July 11, is optional for the first two months and becomes mandatory on Sept. 8. The bank estimates it will take five minutes to enable. Zions posted a Flash and HTML demo explaining the system, a one-page Quick Reference Guide (PDF), seven-page illustrated tutorial (PDF), and 11-question FAQ. 

Off-topic: brief homepage critique
Zions' new homepage design is hard to judge. Taken individually, the modern graphics and succinct copy are excellent. However, the overall effect is way too busy, with too many elements screaming for the user's attention. The bank needs to better prioritize what they want to communicate on the homepage. The main points can be emphasized with strong graphical treatment while less-important areas are reachable through more subtle navigation, such as sub-menus.

--JB

To learn more about how to promote online security and peace of mind, check out Marketing Security: The sensitive issue of publicizing security and authorization enhancements from our sister publication, the Online Banking Report.

Several interesting tidbits surfaced from today's presentations at BAI's SmartTactics conference in Las Vegas:

Citibank online account acquisition
In 2002, 6% of Citibank's new checking accounts were generated online; in 2005, the number was 20%.

Our comments: Keep in mind that Citi's experience is unique. It has a huge brand and relatively small branch network, so many of its new accounts have no choice but to open online, or over the phone. And part of the growth can be attributed to non-checking products, such as its high-yield savings, that REQUIRE a companion checking account.

Bank of America's SiteKey rollout
The rollout of mandatory two-factor authentication is complete, except in Oregon and Washington where it is expected to go live in June. Prior to becoming mandatory, users had a period of time where it was an optional feature; however, only 8% opted in during this phase. When the PassMark-powered system became mandatory, users were served notice during their first two logins that they needed to sign up before it became required on the third login. Only 4% signed up during the first two warnings, and 96% put it off until the third try.

Note: PassMark was acquired by RSA Security today.

Our comments: Taken together, only 12% of users opted for stronger security before it was required, far below the 60% or so that say they want more security in consumer-research studies.

Zions remote deposit-capture results
Zions Bank has grown its remote-deposit client base from 364 in January 2005 to 3,697 in January 2006, and they are adding nearly 100 clients per week. The bank has bagged more than $200 million in incremental deposits and has increased loans and fee income. The Utah bank is now looking for new business worldwide with clients in 49 states and five countries outside the United States. It has clients of all sizes, from the Fortune 500 to small businesses that use it for just one check per month.

Our comments: If you needed ammunition to move this up the priority list, keep your eye on Zions: It said that its main problem now is just keeping up with the all the requests.

Research results from Yahoo Search Marketing
A Forrester study of all U.S. banking customers (not just online bankers), commissioned by Yahoo and OgilvyOne Worldwide, found that 61% of all banking-product research is being done online vs. 5% via phone and 30% in branch. Similarly, 64% of account monitoring is now down online vs. 16% via phone and 13% in-branch. But account opening at branches still dominates at 84% of new account openings, compared to 14% online and 2% via phone. 

Yahoo also said they expect 50 million online credit card applications in the United States this year.

Our comments: Wow, time to pull out all the stops in your online account-opening initiatives.