NetBanker 2.0

Has mobile banking finally arrived?

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).

Online lending still an afterthought

BAI's Retail Delivery Conference continues to offer an excellent array of speakers on almost every delivery topic, from the "branch experience" to "optimizing multi-channel delivery." But one area that's barely covered is loan originations. 

Only one session, out of 36 total, dealt with lending issues this year. And it was a last-minute replacement, not even in the program guide, substituting for NetBank and UPS's Banking on Brown, scrubbed after the announcement last week that the effort was being shuttered (see our coverage here).

Cornerstone Advisor's Steve Williams presented Consumer Lending: It's Not Just a Transaction Anymore. Although lightly attended, due to its placement at the closing moments of the show, he discussed a number of great ideas for improving loan originations, both online and in other channels. We'll look at some of them in more detail in coming weeks.

The presentation is available via email from [email protected]. 

Two-for-one offer to BAI's Retail Delivery

Update: The 2-for-1 offer is no longer available through this link. However, you can still save $350 ($700 for two) before Sept. 5 — enough for a snazzy new monitor for your desktop anyway. But first, check your inbox for an Aug. 2 or 3 email from BAI with the 2-for-1 offer. You should still be able to claim it with your promo code.

If your team is headed to Las Vegas in November to take in BAI's <bai.org> bank-tech extravaganza, you better jump on this offer before Sept. 5: two admissions for the price of one (main conference only). That will save you nearly $1,700, enough to put that new plasma display in the conference room. If you are going by yourself, you'll still save $350 with this offer.

Here's the link:  http://www.bai.org/retaildelivery/

--JB

Online banking by businesses surpasses 50%

Break out the bubbly. Twenty years after online banking became widely available, and ten years after it migrated to the Internet, more than half of U.S. small businesses (sales between $500,000 and $10 million) bank online. And one-third of the laggards say they'll move online within the next year.

Online banking usage
Here's the breakdown of online banking usage by business size as reported by BAI Research at the company's recent TransPay Conference:

Small business
48% >>>$500k to $1 million
51% >>>$1 mil to $5 million
54% >>>$5 mil to $10 million

Mid-size
61% >>>$10 mil to $50 million
67% >>>$50 mil to $100 million
89% >>>$100 mil to $250 million

Satisfaction with online banking
These companies are relatively satisfied with the service. Only 2%, a remarkably low number, report dissatisfaction. However, there is room to move users into the very satisfied category occupied by 44% of the sample.

Here's the breakdown, again courtesy of BAI Research:

44% >>> Very satisfied
46% >>> Somewhat satisfied
8%   >>> Neither satisfied or nor dissatisfied
2%   >>> Somewhat dissatisfied
0%   >>> Very dissatisfied

Online banking features
And what are they doing online?

91% >>> Deposit tracking
86% >>> Balance reporting
48% >>> Wire transfers
45% >>> Stop payments
38% >>> Tax payments
36% >>> Initiate ACH transfers

Finally, if you need some market sizes for your spreadsheet, click on the link below to see a good breakdown in payments by business size.

Profiting from preauthorized ACH debits

We spent the past few days at BAI’s TransPay Conference <bai.org>. It featured much talk about the displacement of paper checks with electronic transactions. This is not a new story, but the implications for banks make good fodder for presentations. We'll cover a few of the key points in this and subsequent articles.

Retention Benefits of ACH
Common sense tells you that if bill pay is good for customer retention, then preauthorized debits would be even better. They are usually more difficult to setup and much harder to unravel. However, we'd never seen numbers to back this up until yesterday. In a presentation by Fiserv’s Mark Sievewright, he cited internal figures from a national retail bank first presented by Dove Consulting <doveconsulting.com> that quantified attrition rate by type of ACH payment used:

                               Annual           Annual Net
    ACH Usage      Attrition Rate  Income (pre-tax)
No ACH activity            37%                $190
ACH deposit only          7.9%               $360
ACH deposit and pay    3.4%               $470

Implications
It costs just a few pennies per month to process preauthorized direct debits, whereas pay-anyone bill payment can cost as much as $5/month. If you have 25,000 bill-pay customers, you could add $1 million to your bottom line by reintroducing a $3.95/mo fee for the privilege. However, it won't be easy putting the free-bill-pay genie back in the bottle. You'll have to go slow, introducing fees to certain segments, such as lower-balance checking customers, or checking customers who have not opted in to electronic statements.

For more on alternatives to free bill pay, see Online Banking Report #109, "Pricing."

--JB

Remote deposit capture creates buzz at TransPay conference

If there was one universal recommendation from BAI's TransPay Conference it was this:

Offer remote deposit capture NOW!

Remote deposit capture, the scanning and depositing of checks from the user's own location, rivals online banking in terms of utility for businesses of all sizes. In an interesting general session yesterday, three small business principals from companies in the $5 million to $10 million category were on stage with two bankers. When the subject of remote deposit capture came up, two business owners were ready to install the system immediately. The third only received a few checks each month and wasn’t interested, however he said his spouse who runs a retail operation is very interested.

The business owners were willing to pay a considerable fee since it would save many hours of labor each week. And maybe more important, they liked how it made remittance processing easier to manage. With small staffs, they often have to find replacements to make the "bank run." And sometimes checks sat idle for days at a time when someone was unexpectedly sick.

Main Street Bank <mstreetbank.com> features check scanning in its Main Street Connect package.

The predicted remote deposit capture adoption curve resembles online banking in the late 1990s. Celent estimates there will be 100,000 remote locations by the end of this year, about 5% penetration of the corporate market. In five years, the research company predicts more than 1 million business locations will use the service, along with a quarter million branch locations for 1.4 million total locations in 2012 (see below).

Source: Celent, 5/06

So far, only 50 or so banks are offering, but all top-20 banks either have it now or are in the final testing phase. By this time next year, as many as 500 banks may offer it, and it will soon be an expected part of a full-service, business-banking offering.

--JB

Notes from BAI's SmartTactics Conference

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.