Financial Marketing Weekly

Citi Direct bringing in $1 billion per month in new money

According to remarks made by Citibank CEO, Charles Prince at the Sanford Bernstein investor conference, the bank's new high-yield savings account, currently yielding 4.75% (see FMW May 19), is bringing in $1 billion per month in new money. He characterized the deposit total as, "the equivalent of having opened 23 new branches."

His exact quote, available via webcast (comments start at the 47:45 mark of the webcast) was, "In the first ten days after the launch, we had ten times the volume we predicted. Today, literally only a few weeks after the launch, we've raised 3 billion dollars in deposits." He also said that two-thirds of that was "new money to the institution."

These numbers are in line with the industry forecast outlined by Citibank.com director Catherine Palmieri a month ago (see FMW May 5) of $250 billion in 2006. If that forecast holds true, $20 billion per month into high-yield savings, Citibank is bagging 7% to 8% of the market. 

--JB

E*Trade on MySpace

E*Trade is running a clever teaser advertisement on MySpace today. The 200 x 175 pixel ad in the right-middle area of the user's homepage asks, "Are you willing to accept a $1.50 fee to see this ad?" (click on the inset right for a closer view).

Choosing "yes" results in another screen saying, "Are you sure?" while selecting "no" yields a "Good." Either way, a pitch for E*Trade's ATM rebate program is the final screen (click on inset left for a closeup). Users clicking through end up on the landing page shown below.

Analysis
Although it took me a moment to figure out the premise, that a $1.50 fee to view an ad is as absurd as paying that to use an ATM, it's a good campaign. The company is sure to get good click-throughs, at least on the teaser ad. Whether the company signs up enough good checking accounts is another matter. But if you are courting young online users, you must take a look at MySpace (see FMW March 16).   

--JB

Huntington's online game boosts Blue Jackets affinity marketing efforts

As part of its sponsorship of the Columbus Blue Jackets National Hockey League franchise, Hungtington Bank has created an online Flash game. The simple hockey-themed game is easy to play and apparently addictive, at least for "Chuck Norris" who had all five weekly high scores, ranging from 250 to 350 times my score of 1162 (see left).

At the conclusion of the 45-second game, users are invited to play again or "challenge a friend," a great way to spread the word virally. The bank's logo in the upper right clicks through to its regular homepage.

Access to the game is from a "Blue Jacket's Banking" page <huntington.com/ bluejacketsbanking> at Hungtington (click on inset for a closeup). The bank dresses up its checking accounts with Blue Jacket checks, ATM card, and mousepad. Any of the bank's checking accounts can ordered with Blue Jacket adornment.

Unfortunately, the online application process requires "blue jackets" to be manually typed in the promotion code field or the customer will receive regular old Huntington colors.

--JB

Ohio Savings marketing CDs through AmTrust Direct

Ohio Savings Bank <ohiosavings.com> is marketing CDs through a direct-banking subsidiary, AmTrust Direct. The company is currently topping the 1-yr CD chart at BankRate.com with a 5.35% APY. Users can click through to the direct-banking site (see screenshot right) through an enhanced listing at BankRate.com.

The direct banking offer is only 35 basis points higher than the 5.00% offered at the parent, Ohio Savings, or its AmTrust Bank <amtrust.com> division.

---JB

Citi keeps its high rate on center stage

On Tuesday (5/16), Citibank raised its e-Savings rate 25 basis points to 4.75%, making it the highest savings rate at a name-brand financial institution. Only Corus Bank in Chicago has a higher APY on BankRate.com today, 4.84% with a $10,000 minimum.

More importantly, Citi continues its massive ad buy touting the rate. It was back on the top of MSN's homepage today, and the bank has bought huge parcels of BankRate.com, with some pages running three Citibank promos, top, bottom and side (see BankRate "Checking & Savings" page right). It's similar to what Emigrant Direct did last year to kick off its direct banking efforts (click here to see past FMW articles on deposit marketing).

Analysis
Emigrant Direct, HSBC, ING Direct, and now Citibank are all spending $10+ million per year promoting high rates (see ad spending FMW 5/17). While high-rate offers are nothing new, the ease of finding rate deals online and transferring the funds means it will be harder to hold onto those high-balance 0.50% checking and savings account balances.

--JB

Sunmark FCU goes direct with RateEdge.com

We've seen a number of banks enter the direct banking business, primarily through high-rate savings products. Late last year, Sunmark Federal Credit Union <sunmarkfcu.org> joined the fray with a private-branded direct Web offering at RateEdge.com (click on screenshot below for a closeup).

The Internet-only savings account pays 5.25% interest on all balance levels with no fees and no minimum balance. Rates are five times higher than the credit union's regular share account, which pays 1% on balances of $5000 or more. The credit union's money market pays 2% on a $25,000 balance.

The only possible fee is for transferring money OUT of the account more than twice in a month. The third and subsequent withdrawals are charged a fee ranging from $2 to $5 per transfer depending on the amount. Refer to its fee schedule for more information.

This would be the best savings account in the country, except that it is limited to residents of six counties in upstate New York (Albany, Montgomery, Rensselaer, Saratoga, Schenectady and Schoharie). However, anyone in the country can open an account if they have a relative in any of those counties, or at least claim* they do.

*The application asks for the name of the relative living in the six-county area, but no other identifying information. According to an online posting, the credit union's customer service department requires the address and phone number of the relative prior to opening the account. We did not test it ourselves.

Hiding your offer from existing customers

Usually, when designing targeted offers, you focus on what you know about the prospect. Where do they live? What products do they use? What's their balance? What if you wanted to offer a product only to folks you know nothing about, such as new visitors to your website?

Suppose you had a hot APY offer you wanted to make only to new customers to avoid cannibalizing that cash cow, the passbook savings account. Using cookies, you could avoid showing the offer to online banking users, minimizing their awareness of the product.

Apparently, Citibank is using this approach. In a routine visit to Citibank's website in mid-April using our laptop, we were surprised to see advertisements for its 4.50% e-Savings account dominating the website (click on inset for a closeup). When the high-yield product was announced (FMW March 29), many observers believed it was a stealth offer made through a new "Citibank Direct" entity.

But when we returned to the office, the offer had disappeared from the homepage. We had to click on the small "special offers" link to find it listed along with several other offers. Apparently, the cookies on our office PC, which identify us as a Citibank online banking user, triggered the website to load a different homepage. We confirmed this through testing on other PCs.

But before you use this tactic, realize it has significant drawbacks. First, it doesn't work with users who delete or disable cookies, estimated to be as high as 40%. Also, an online banking user visiting from a different location, or with a different browser, will also see your offer.

There is also the risk of your clever marketing being outed to the press and public, which may find the practice deceptive (see SmartMoney, April 2006). Finally, you may be teaching users to game your system, deleting cookies more often, entering different zip codes, and so on. This could hinder your ability to deliver targeted promotions to the customers you DO know something about.

--JB

Note: Citibank isn't shy about putting the offer on Google, where it shows as the top paid result on searches for  "Citibank" (see screenshot right).

SunTrust introduces "really free" credit monitoring

SunTrust launched a new checking account acquisition strategy built around free credit-report monitoring (see personal homepage right). And this is not a low-budget identity-theft "insurance" policy (see PNC Bank, FMW Feb. 3 and Washington Mutual, FMW, Nov. 7, 2005), but full-blown Equifax Credit Watch Silver costing $6.95/mo or $50/year at the Equifax website.

Credit Watch Silver includes:

• Weekly credit-report inquiry and balance-change alerts
• One initial Equifax credit report.
• $2500 in identity fraud insurance with $250 deductible

How it works
SunTrust is offering the free monitoring on most of its checking accounts, including its standard $9/mo account that is fee-free with a $1500 minimum balance. The free offer is not available to "free checking" or "senior checking" customers. However, they can buy it for a discounted rate of $3.45/mo or $35/year, a substantial discount from the regular price of $6.95/mo.

Of course, customers will have to wade through relatively gentle up-sell pitches for Equifax Credit Watch Gold, which will cost customers $6.95/mo or $70/yr, about one-third less than the list price of $11.95/mo or $100/yr; or Gold with 3-in-1 Monitoring for another $30/yr. Also, customers that want to extend the Equifax Silver coverage to both members of a joint account will have to pony up an additional $35/yr.

Credit Watch Gold includes:

• Daily credit-report inquiry and balance-change alerts
• Unlimited Equifax credit reports
• $20,000 in identity-fraud coverage with zero deductible

Checking account customers must enroll for the free service at a co-branded Equifax website. It's a jury-rigged sign-up process that requires the use of an offer code that includes the customer's 13-digit SunTrust checking account number.

New customers must first open a checking account, then enroll at Equifax at least two days later. SunTrust offers online account opening, but there is no link to an online option from the credit monitoring landing page (click on inset for a closeup).

Analysis
This is an excellent value for SunTrust checking customers and could potentially have little out-of-pocket cost for the bank. The bank's costs depend on four factors:

1. 1. How many checking customers take time to enroll for the free service
2. How many of the enrollees elect to accept credit-monitoring upgrades
3. How many enrollees opt to buy additional credit-report viewing during the course of the year
4. How often a fraud situation involving a SunTrust account is thwarted due to the service

The only real problem with the program is that it is not integrated with online banking. The separate enrollment and sign-on make it a hassle to use (of course, this holds down the bank's costs). We expect other banks to offer similar programs during the next 12 to 18 months.

--JB

Citi markets e-Savings in Amazon packages

The new headphones for my son’s eleventh birthday arrived last week with the usual advertising fliers dropped into the Amazon.com box. One of the three products caught my eye, a 4x6 glossy sheet advertising Citibank’s 4.5% e-Savings account. It looked much like their online ads with a blue-and-white theme emphasizing the APY (see right).

9

On the back, four benefits were highlighted:

• Free Online Bill Pay
• Online Fraud Protection
• Free Wireless Alerts
• Online Statements and Check Images

Notice how the 13 words of benefits included “free” twice, “online” twice, along with the positive buzzwords “wireless,” “fraud protection,” and “check images.”
9
The bank used an easy-to-remember URL <offer.Citibank.com> with offer code CSA2 (click on inset to see the Citibank offer site prior to inputting the offer code). The fine print contained the usual requirement that it was not available in Citi branches. Interestingly, the bank elected to forego the usual toll-free number option.

--JB

Citibank's forecast for online savings

In an effort to boost awareness of its 4.5% e-savings account (see FMW March 29), Citibank made the unusual decision to reveal its 5-year forecast for industry-wide sales of online savings accounts. In today's New York Times, Citibank.com director Catherine Palmieri made the following market size estimates:

$250 billion in 2006
$600 billion in 2010

To put the numbers in perspective, the 2006 estimate is approximately four times the total deposits of the two biggest direct banks, ING Direct and E*Trade. And it's about 4% of the total U.S. deposit market of $6 trillion.

Assuming Citibank is right and the online savings market grows at a compounded rate of 25% per year, it will represent 10% of today's total deposits or 8.5% of the total $7 trillion in total deposits 2010, assuming a 3% annual growth rate.

The article also said that HSBC Direct is on track to have 250,000 accounts by the end of this year.

Googling "online savings accounts" from a Seattle IP address today found Citibank in the number seven position. Here were the top advertisers (see inset above for closeup):

1. HSBC Direct
2. Emigrant Direct
3. Capital One
4. American Express
5. E*Trade
6. Alaska USA Credit Union (Seattle local ad)
7. Citibank Direct

--JB

Wachovia's "free checking" marketing

Everyone wants free checking. So it's no surprise to see Wachovia the top bidder on the term at Google (click on screenshot right). The bank also managed to snag the top organic listing (directly below the paid ads), a coup for its search-engine-optimization consultant.

As much as Internet users love a good deal, they are skeptical when they see "free," especially when a company is spending money to advertise on the term. Wachovia wisely meets the skepticism head-on with a landing page entitled (click on inset for closeup):

Free checking. No catch.

The page also includes six bullet points, three of which relate to online banking. And there are two "Apply Now" buttons, at the bottom of the bank and the upper right.

Analysis
While this landing page won't win any Webbys, it's fundamentally sound. The first three bullet points meet the likely customer objections by affirming that there is no minimum balance, no monthly fee, and no direct deposit requirement.

Clicking on the Apply Now button leads to a page explaining the process and what's needed to apply. Unfortunately, the user is forced through three screens of disclosures, the last one a record-setting 69-screen monster before the application begins. With such a tedious first phase, the bank is losing most of its prospects before they've even entered so much as an email address.

To avoid massive application abandonment, you must get customers engaged in the application before the trip down disclosure lane. Wachovia also stumbles by offering too much product choice. The customer that started at Google looking for free checking is forced to choose from 12 checking account options on that same 69-screen testament to the power of a large bank's compliance department.

Grades:
A for search-engine marketing
B for landing page design
C- for application design

--JB

Citibank's 4.5% savings account

In more direct banking news,* Citibank landed all over the media with the launch of a 4.5% no-minimum-balance savings account. A Citi checking account is required to qualify. The reason for the media attention had nothing to do with the rate, and everything to do with the channel conflict inherent in the offer.

The first line of fine print under the offer was (click on screenshot below for closeup; click on "Continue reading..." below for the full text of the mousetype):

This offer is not available at Citibank financial centers

Many stories contained an inaccurate observation that Citibank was launching an entirely new Internet bank. This inaccuracy seems to have its roots in the Reuters wire piece that first discussed the savings account offer.

The truth: This is NOT a new bank. It's NOT a new website. It's NOT even a strategic shift for Citi, which has previously made high-rate deposit offers to online customers (see OBR 120/121). This is simply a new advertising campaign targeted to online users, especially those frequenting Yahoo's homepage (click on inset to see the ad positioning).

Any of Citi's existing 2.5 million online banking customers can open the account by logging in to online banking and selecting "open an account" and following the directions. A small link in the lower right of the landing page directs existing Citi customers to these instructions.

Initial funding can be made by mail, credit card, debit card, or ACH (electronic interbank funds transfer). After the account is open, additional deposits can be made at Citi ATMs or through IN-BRANCH deposits.

Analysis
You've seen high-rate savings account offers before. There is little new here. What can you really say about a savings account once you deal with the rate and the balance requirement?

What sets Citibank apart in this instance is its near-perfect sign-up form (click on inset right). The page is dominated by a banner promising that it will "take 10 minutes & 4 simple steps." The bank backs that up by showing the four steps immediately below the banner.

1. Tell us about yourself
2. Confirm your identity
3. Fund your account
4. Provide your E-Signature

Although these steps are the same as what thousands of banks have done for years, Citi's language is exceptional in its clarity and how it addresses consumer fears. The "confirm your identity" demonstrates the bank's commitment to stopping fraud. The "provide your e-signature" lets customers know they won't have to mail some old-fashioned signature card to the bank before they can start enjoying the new rate.

The bank also uses several other devices to ensure that customers feel confident about acting on this offer:

• "We care about your privacy and security" box with link for more info (upper left)
• VeriSign clickable logo (left)
• Ability to save and complete the application later (upper left)
• Ability to print a blank application to mail in (upper left)
• Link to account details and fees (upper right)
• Link to live chat or toll-free number (right)

But we called this "near-perfect" for a reason.

There are several concerns not addressed on this page:

• Timing: How long will it take before my initial deposit starts earning 4.5%?
• Guarantee: Even though they address the need to confirm your identity, the bank doesn't come right out and guarantee the safety of the process.
• No reinforcement of account benefits: Although it's been only a few moments since the customer navigated to this page, don't let them lose sight of why they should go through the uncomfortable process of typing their personal details into a browser that may or may not be transmitting their keystrokes to Uruguay. Keep that 4.5% number right in their face.

Another weakness: navigation overload. Citi has included its full My Citi personal navigation across the top along with all the site utilities in the upper right. While this is helpful for research purposes, it tends to be distracting and will pull customers away from the savings account application.

Final Grade
Despite a few minor weaknesses, it's impressive work. Definitely scores an A and is closing in on A+.

Web address for offer: http://direct.citibank.com/CBOL/06/esavings/default.htm?

*We've started a new Direct Banking category for Financial Marketing Week, so you can easily find all the articles on the topic with a single click.

Update on EmmigrantDirect

How does a small bank rate a WSJ-bylined story when it ups its credit card reward percentage by 15 basis points? Sure, it helps to be headquartered in NYC, home to much of the country's financial media. But you also need a compelling story line.

What could be better than a small player eating the big guys' lunch? Layer in the online-only factor, a strategy that had been declared dead by many analysts after botched attempts by Bank One (Wingspan Bank), Citibank (eciti), and Benchmark Capital (Juniper Bank). Finally, top it all off with a 150-year old company all of a sudden making like a Bay-area startup, and you have a story with real legs.

EmigrantDirect, the direct-banking unit of Emigrant Savings Bank, once again landed in the media (WSJ Mar. 28), with a relatively small change to its credit card launched earlier this year. It's the second time this month, and sixth this year, that the bank has been mentioned in personal finance articles in The Wall Street Journal.

This time the story highlighted EmigrantDirect's credit card, touted on its website as America's Highest Cash Back Card, that now pays a cash rebate of 1.4% on all retail purchases, up from 1.25% earlier (see note 1). The fine print on the claim says that other cards may pay a higher percentage, but they require minimum purchase levels before the higher rebate kicks in (see note 2).

Analysis
Since the launch of EmigrantDirect a little over a year ago, the bank has raked in $6 billion in deposits and 225,000 accounts for an average balance of about $27,000. The direct-banking unit's success essentially doubled the deposit base of the bank in a single year, halting a gradual decline in total deposits over the previous decade.

It will be interesting to see how Emigrant reacts as more banks enter the market such as Washington Mutual (FMW Nov. 18, 2005) and Puerto Rico-based Popular that is planning to go after U.S. deposits under its own name and that of its well-established E-Loan brand. For more information, refer to last fall's report, Lessons from the High-Rate Marketers (OBR 120/121).

--JB

Notes:
1. Interestingly, the higher rebate is retroactive to Jan. 2006, an unusual bit of financial services generosity.
2. Another bit of crucial fine print: The EmigrantDirect card requires a $10,000 average deposit balance FOR THE PAST SIX MONTHS in order to earn the rebate.

Paperless checking accounts

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 FMW 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.

E*Trade looks for funds at logout

The best time to grab the attention of your online banking customers is immediately after they log in. Many financial institutions post offers and important information on a "splash screen" shown to customers before they see their account info. PayPal has been especially active in this area, placing new info in front of users every month or so for the past four years.

Where's the second-best place to position an offer to online banking customers? In our view, it's the screen displayed after successfully logging out. At that point, customers have completed their tasks, but you still have their attention as they wait to see that they've successfully ended their session. Last month, we looked at Bank of America's preapproved credit card offer at logout (FMW Feb. 23).

E*Trade is another financial institution using the logoff-screen real estate effectively. Today, they displayed two offers designed to attract additional customer assets to the bank (click on inset for a closeup):

1. Free one-year subscription to MorningStar's stock-information service ($135 value) for transferring $20,000 or more into a new E*Trade Complete Investment Account (see the landing page below)
2. 4.4% teaser rate (good for three months) for deposits into the bank's Money Market Account. New customers earn the rate on any deposit amount, existing customers must deposit $25,000 or more to earn the special rate. After three months, rates revert to the normal, 3.6% for $50k or more or 2.75% for $5k to $25k (see the landing page below).

MorningStar offer landing page >>>

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--

4.4% APY offer landing page>>>

--JB

"Keep the Change" banner on MSN

Although we have concerns about the underlying program (see FMW Oct. 5, 2005), you have to tip your hat to the marketing execution of Bank of America's Keep the Change campaign. Today a small but distinctive postage-stamp ad on MSN's homepage, tied in with MSN Money headlines (see inset), invites readers to "Open a Checking Account and Keep the Change."

It's an intriguing headline and likely does well prompting clickthroughs. The landing page (click on inset right for a closeup) is also well done. A graphical explanation of the keep-the-change rebate is shown on the right, which helps alleviate the need for prospects to wade through the 479 words of fine print on the bottom of the landing page.

Another landing-page graphical element that you should immediately consider adopting: pictures of the three key banking products being pitched with simple checkboxes for selection (see below). However, in this case it's used in a backwards fashion. Users are supposed to tell the bank which accounts they already have, rather than the ones they want to buy. This is counter-intuitive and should be redesigned.

After selecting the BofA accounts already owned, users arrive on a secure Checking & Savings Account Application page that does a good job reinforcing benefits and referencing the original "Keep the Change" hook (click on inset left). A pop-up box offers live chat with a Deposit Specialist if desired.

Summary
The bank scores high for great online copywriting, superb graphics, and good ad positioning at MSN. We also like how Bank of America reinforces the benefits of automated savings. However, the offer is complicated and smacks of a gimmick that will do little to engender long-term loyalty or create a real savings ethic. Finally, the low 0.50 percent rate paid on the underlying savings account damages the program's credibility and makes it less likely the account will be used to amass meaningful deposit balances.

Grades:
A+ for online advertising and sales (banner, landing page, application)
B+ for encouraging savings
C- for the debit card rewards program

PNC Bank bundles ID theft insurance with checking

How do you make your checking account stand out from the one across the street, around the corner, or two clicks away in Internet Explorer? It's not easy if you want to maintain or increase profitability.

Several banks, including Washington Mutual (FMW Nov. 8, 2005) and PNC Bank, use a relatively new technique that is inexpensive and plays to the current hysteria surrounding online security: identity theft insurance.

In PNC's case, three of its core checking account options come bundled with $2500 to $5000 in insurance: Premium Plan, Choice Plan, and of course Digital Checking (click on inset right for more details). Free Checking does not include ID theft insurance.

Action Items
Before giving away identity theft insurance, look instead at creating a profit center around fraud protection services. As we discussed in a previous Online Banking Report (OBR 83/84), identity theft protection and related credit bureau-monitoring services are among the few relatively easy fee-income opportunities online.

In fact, PNC Bank sells a full suite of credit bureau services housed under Identity Theft Safeguards in the Personal Finance area. The options range from a $29.95, one-time, three-bureau report to relatively pricey $120/yr and $180/yr subscription plans powered by TransUnion's TrueCredit, an OBR Best of the Web winner in 2002 (click on inset for closeup).

--JB

ING Direct personalizes emails for security

ING Direct <ingdirect.com> is the latest bank to move to greater personalization in order to distinguish its messages from phony phishing attempts. The bank has added the customer's first name and masked all but the last three digits of the customer's number (click on inset for a closer look).

The message at left was sent to customers to market ING's latest deposit promotion: 4.75 percent APR for new money.

The same technique is also used for routine account alerts (see inset right).

Note: The high-impact sales pitch for its 4.75 percent deposit promotion.

Analysis
While it doesn't prevent phishers from attempting to recreate the same look (see footnote), it's an effective first line of defense. Besides, the personalized greeting is a friendler way to communicate with customers. Citibank has been using a similar approach for more than a year (FMW, May 30, 2005).

Footnote: Yesterday, we received a fake email that recreated the Citibank personalized area in the upper-right corner. The crooks just left blank the Email Security Zone in the upper-right corner, figuring many users won't look that closely at the box (click on inset for a closer look).

--JB

Everbank reinforces rate increase with email

There is nothing like a long run of rate increases to make your deposit customers happier. You might as well take some credit; it probably won't be long before they move in the other direction.

So every time you raise rates, make sure to let customers know with an email message. Of course, this assumes competitive rates. If you are increasing from 0.45 percent to 0.65 percent, you probably want to keep that to yourself.

EverBank raised checking account rates Jan. 1 from 3 percent to 3.5 percent depending on balance levels. On Jan. 3, it sent an email with the subject (click on inset for closeup view):

You're earning more with EverBank - interest rates rise again!

Analysis
EverBank's message is straightforward. Here's what they did right:

• Included security graphic/link in upper-right corner
• Kept copy concise and to the point
• Included a chart showing rate by balance level; subtle encouragement to add funds
• Reinforced free online banking and bill pay (underneath chart)
• Cross-sold its Yield Pledge Money Market and CD for those looking for better rates; Yield Pledge products are guaranteed to offer a rate in the top 5 percent at BankRate.com
• Included toll-free phone number
• Signed by real person with real signature; in this case, Frank Trotter, president

And a shorter list of improvements:

• Personalization helps make a message look genuine, but there's no personalization in the salutation: "Greetings EverBanker!"
• Clicking through the security graphic leads to a generic page full of links to terms and conditions; the bank should create a page that specifically addresses users' security concerns, especially regarding phishing emails
• The bank should improve its unsubscribe function; currently, it's an all-or-nothing choice triggered by sending a blank email with UNSUBSCRIBE in the subject line; that's easy for users, but the bank's just lost an opportunity to query the customer in more detail about what they do and don't want to receive via email
• Weak P.S.: "The FreeNet Checking Account gives you the yields and the service you deserve. Bank on it!"

Grade
Overall, we'll give it an A-

--JB

At least $28 billion in U.S. deposits up for grabs online

Forrester's Ron Shevlin weighs in Jan 10 with an estimate of the amount of deposit balances chasing higher rates online. Using recent (Q4 2005) survey data gathered from 4700 online households, he concludes that 30 percent of online consumers have $10,000 or more in liquid assets. Furthermore, three out of four of those households (24 percent of all online households) are interested in increasing the rate paid on their savings accounts. But one in four of those wouldn't move until they could get 3.5 percent or more in additional interest, an unlikely scenario for most consumers. That leaves 18 percent of online households (24 percent x 74 percent) ready, willing, and able to make sizable deposit moves online.

Analysis
To quantify the amount of deposits in play, a number of assumptions must be made: the amount of liquid assets held in checking accounts; the amount that would be available to move to another account; and the willingness to move balances for various rate differentials (see the Forrester report for complete details). Forrester's conservative analysis assumed that only those willing to move for 1 percent or less in rate differential (6 percent of all online households) would take action, potentially moving $28 billion from low-interest checking accounts to high-interest savings accounts.

Taking a less conservative approach, one could also argue that with many direct banks paying 3 percent more than typical interest-bearing checking accounts, the potential deposit switchers are much more prevalent, closer to the 18 percent we derived in the first paragraph. Under these less conservative assumptions, much more would be at stake, as much as $60 billion or more. Furthermore, the Forrester estimate considers money being held only in checking accounts and does not include other liquid assets in savings accounts, CDs, and money-market funds.

Whether $28 billion or $60 billion, the total deposits at play are a small percentage (0.5 percent to 1.0 percent) of the $6 trillion in insured deposits in the United States.

Action Item
We highly recommend the report for anyone looking to reprice deposits for online customers, or even if you just want to understand what's at stake. The report is available free-of-charge for Forrester clients, or $249 pay-per-view from its website.

--JB

ING Direct's savings account demo

ING Direct US <ingdirect.com> has added an online demo, perhaps the only pure savings account demo online: a good idea, if you are serious about the high-rate deposit business. Users need reassurances you are trustworthy and competent. A good online demo helps on both counts (click on inset for closeup). To view the demo yourself, click here.

--JB

Four banks use 4% for homepage special

Online competition continues to heat up as the major banks begin offering 4% APY specials just in time for the holidays, and those year-end bonuses. Today, four of the top 20 U.S. consumer banks are offering specials of 4% or higher on their homepages:

Citibank (2nd largest U.S. deposit base) is the biggest player to crack the 4% mark with a nine-month certificate aggressively promoted on its homepage with a page-dominating animated banner and hawked in one of the bank's four postage-stamp ads running along the bottom (click on inset for a screenshot).

Note also the large Red Cross donation banner (bottom) supporting fund-raising for South Asia earthquake relief.

An email advertising the 4% CD was sent to customers 21 Oct. 2005. It was identical to one sent 1 July 2005, except the rate was 3.45% at that time (click on screenshot right).

Other Top-20 Bank Specials
Three other top-20 banks also offer 4% or higher deposit specials on their homepages:

• HSBC (10th largest), which has marketed a high-rate savings account for much of the year (FMW, Aug. 26), increased the emphasis with a huge front-and-center ad on its homepage, a red piggy-bank with 4% in it (click on screenshot right).
  -
• National City (11th largest) has raised the bar even higher with a 4.75% Thanksgiving Special, a 14-month CD that requires a National City checking account ($1500 minimum opening deposit) and at least $10,000 (click on screenshot right). Here's the fine print:
  

  To qualify for this offer, depositor must have an existing National City personal checking account or open a Preferred Interest Checking account with $1500. Annual Percentage Yield is available from 11/21/05 through 11/30/05. Maximum deposit limit $250,000. Offer only available for consumer deposits.

• World Savings (#17) has a lower-key link to a 4.16% 4-month Internet Special CD (click on screenshot right). The rate is good for $10,000 to $250,000 and must be opened with "new money" (from outside the bank).

--JB

Washington Mutual to jump into the high-rate deposit biz

Washington Mutual, the sixth largest U.S. bank ($172 billion in deposits), becomes the most high-profile financial institution to officially throw their hat in the direct banking business, looking to stem the tide of high-balance deposits headed to ING Direct, Emigrant Direct, and others.

According to yesterday's report in American Banker, the bank will begin testing a high-rate deposit product available only from its direct banking unit, WAMU Direct, in four markets: Boston, Philly, Atlanta, and Phoenix.

Apparently the bank will be using the domain name <wamudirect.com> once the transfer of the name is made from the California man who had originally registered it. The bank won rights to the domain name in an arbitration case settled Oct. 14.

--JB

Washington Mutual's ID theft play

Washington Mutual <wamu.com>, which has been pitching free checking in Seattle for as long as we've lived here (mid 1980s), recently added ID Theft Services to its list of free checking account enhancements.

A mid-October direct mail we received at our home touted the following benefits, along with a $75 American Express Gift Cheque, for signing up for a new checking account (italics are theirs):

• No direct deposit required
• Free Telephone Banking
• Visa Check Card
• No per-check charge
• Free Personal Online Banking
• Free Personal Bill Pay service
• Free ID Theft Services

In addition, to the above bullet points, the Free ID Theft Services had its own paragraph, one of just four total in the short sales letter:

Exclusively for Washington Mutual customers: Free ID Theft Services. If you become a victim of identity theft, we provide insurance that helps you with your legal and other identity theft expenses up to $5,000 with no deductible. This valuable service also provides professional assistance, plus access to credit reports, management tools and more.

No other information was provided in the letter or the fine print. But looking at the bank's website we find that the free services lead to a pitch for full three-bureau credit report monitoring from Intersections <intersections.com> (click on inset for partial screenshot or download the entire screenshot, links will not work). It's all explained on Washington Mutual's proprietary identity theft site, ID Theft Inspect <idtheftinspect.com>.

Analysis
With all the concerns about online safety and fraud protection, it makes perfect sense to offer identity theft protection services to customers, especially when you will be helping defrauded customers whether you make it an account benefit or not.

We like how WAMU offers certain services to all account holders, then upsells them into full credit report monitoring. However, the bank's pitch for fee-based protection could be far more effective if it:

• Offered online signup -- Currently customers must signup in branch or call a toll-free number.
• Disclosed the price -- There is no mention of a monthly fee, either in the main body of the copy, or in the detailed disclosures. This is a sure way to lose customers.
• Provided a more detailed view -- The promotional copy does a good job of explaining the benefits; however, beyond a few blurry screenshots, there is no way to preview the level of detail to be provided with the service. The bank needs an online demo, tutorial, or FLASH presentation.

Overall, we give it a B+; disclose the price and it's an A-.

--JB

Everbank markets to SmartMoney list

Everbank <everbank.com> dropped an email solicitation (click on inset for closeup) to the registered users of SmartMoney.com. The message featured the bank's newest specialty CD, the Asian Advantage which rewards depositors with above-market returns IF the dollar falls against a bucket of Asian currencies.

Last week, the Internet-only bank dropped an 8.5 x 5.5 inch postcard mailer with a similar theme. Recipients could respond by calling toll-free 800.926.4922 or going online to www.everbank.com/asiancd.

Analysis
This is a great example of deposit product email marketing.

• Focuses on the unique selling benefits
• Good graphics and copy
• Landing page with a minimum of distracting navigation choices
• Visible call-to-action with Apply Now! button

We like the opening sentence in the postcard better than the email (see below). With an advanced investing strategy, the direct statement of how the user will earn a profit is more understandable. However, without the results of the bank's testing, it's difficult to know which pulls a better response.

   Email: "There's a great new way to invest in the active and healthy Pan-Asia currency market."
   Postcard: "Do you want to profit if Asian currencies gain on the U.S. dollar?"

Screenshots (links will not work):

1. Everbank's Asian CD full email
2. Everbank Asian CD landing page
3. Previous article on Everbank foreign-currency deposits (FMW 5 April 2005)

--JB

Bank of America's unusual automated savings plan

We're not sure whether this is incredibly brilliant or insanely stupid, but Bank of America gets high marks for creativity with its latest debit card enhancement. The bank's "Keep the Change" program allows debit card users to round up their purchase transactions to the nearest dollar, with the difference added to a savings account automatically.

To give it a bit more excitement, BofA will add a 5% bonus to each savings deposit. Since the average round-up amount is 50 cents, the bonus costs the bank just 2.5 cents per transaction, a very cost effective incentive program, if it works.

To kick things off, Bank of America will match the round-up amount 100% for the first 3 months. That will be like giving everyone a 50-cent discount on each transaction. That should spur signups for the program. 

Analysis
The overall concept of automatic or forced savings is excellent. The bank's press release tosses out stats on the recent negative savings rate and quotes David Bach, the relatively well-known author of "The Automatic Millionaire," a best-selling book that espouses automated investing.

The webpage touting the program is attractive and well written. There are few items in the fine print that users will find potentially disturbing:

1. You must visit a branch to enroll (ouch!)
2. The savings account pays just 0.50% and will likely have a service charge unless a minimum balance is maintained (e.g., $300 minimum for Regular Savings)
3. The savings account has a $100 minimum opening balance requirement
4. The bank's contribution will be made annually, and only if you keep your account open for a year

But despite the fine print landmines, we like how "Keep the Change" introduces consumers to the concept of automatic savings and helps them store away a few bucks a month. However, most people need more than nickels and dimes going into their savings account. To be more effective, this program needs an easy way for consumers to add to their savings amount beyond the monthly debit card cash.

For example, a month-end email detailing the total debit card change deposited could include a mechanism that allows users to designate an additional amount to be transferred into their savings account.

We don't expect anyone else to copy this program, so it gives BofA a unique selling point for their checking accounts and debit cards. It should make a little money for the bank from increased debit usage and savings account growth, and it will give users a few extra dollars at the end of the year, so what's the harm. But if you are truly interested in spurring automatic savings among your customers, there are more straightforward approaches that should be equally effective and far less complicated (see Online Banking Report, 120/121 for more on automatic savings).

Ref: Screenshot of Bank of America's Keep the Change page on 5 Oct 2005

--JB

HSBC joins the U.S. high-rate deposit race

HSBC's U.S. unit launched a 3.50% APY savings account that competes directly with ING Direct (currently 3.30%) and other high-rate financial institutions. The rate is featured in an eye-catching red box smack dab in the middle of HSBC's homepage (click on inset for a close-up). 

For more information on high-rate savings products, select Checking & Deposit Accounts from the navigation in the right-column of this newsletter. Also, read our latest Online Banking Report devoted to the subject, Lessons from the High-Rate Marketers (OBR 120/121).

Update 9/1/05:
The rate was raised to 3.75% today vs. 3.30% at ING Direct

--JB

Netbank hits a high note with concert promotion

Maybe I'm biased as a fan, but I think Netbank's Concert Connection, sponsoring a free Wallflowers concert, is a great stunt. Especially if the bank can leverage it to gain exposure in more than just the Austin market.

Here's the offer (click on inset below to see landing page): Customer's who plunk down $500 into a new checking account, or $1500 into a CD or Money Market, get two free tickets to a private Wallflowers show in Austin, TX on Sept. 17. The money must be kept on deposit for at least 90 days or the bank will deduct $85 to cover the tickets.

The bank's press release says it will be promoting the offer with a mobile vehicle along with billboards, print and radio ads. The concert venue holds 5,000, so Netbank can use the offer to attract a maximum of 2500 new accounts.

Analysis
This is an expensive promotion for a single market, with the concert alone cost an estimated $100,000 or more, not to mention the cost of promoting it in the Austin market. It might make more sense to sponsor an entire Wallflowers tour, providing tickets to new Netbank customers around the country. That would be even more costly, but would guarantee broad exposure to the offer.

Yet, we still like the Austin promotion for several reasons:
1. Free publicity: There's nothing like a free event to garner media exposure.
2. Lasting brand impression: Unlike other media campaigns, this event should provide a more lasting brand impression, especially with the 25-35 crowd attracted to this music.   
3. Dylan connection: The Wallflowers, led by lead singer Jakob Dylan, son of rock legend Bob Dylan, is an especially good choice for this promotion. Along with its younger fan base, the band will also attract attention from an older crowd that might drop $1500 into a CD to see if Jakob can carry on dad's legacy.
4. Concert tie-ins: Even though the event is primarily oriented to Austin-area consumers, it will pull in business from Wallflowers fans all over Texas. But to reach beyond Texas, Netbank should consider negotiating rights to offer the concert as a free download for all its customers. Other tie-ins with merchandise, fan clubs, and so on are also possible.

The downsides:
1. Demographic mis-match: Alt-rock fans aren't usually old enough or wealthy enough to be parking big cash piles in a bank. Many will deposit the bare minimum and pull it out after 90 days or when their CD matures.
2. High acquisition cost: As you can see by the mini-business case below, the acquisition costs are hefty. Assuming Netbank ends up with 500 new accounts that remain open after the 90-day minimum, the cost per new account is $2000 or more.
3. Extra customer service load: The first law of marketing applies here: for every customer delighted with your offer, another is mad because they missed out on it for some reason. We can already see brewing discontent on the Wallflowers bulletin board from rabid fans that don't have the extra cash to plunk down into Netbank to earn the tickets (we have one word of advice for them: eBay). Also, there can always be headaches when third parties are involved. As we were researching this article, we noticed that the ticket fulfillment site, Tickets.com, was not functioning properly. We were able to download two Wallflower tickets without fulfilling the offer requirements. We notified Netbank right away who will likely have it fixed within hours. Now if we could only find a business reason to be in Austin on Sept. 17....

Back-of-the-envelope business case:
Cost = $150,000
$100,000 for the concert + $50,0000 out of pocket promotional expenses (assumes radio exposure is bartered for with free tickets)

Accounts generated initially: 1500 x $2000 average deposit = $3 million in deposits worth $30,000 to $60,000 per year assuming a 1% to 2% spread (will depend on deposit mix)

Long-term accounts generated: 750 assuming a 50% fallout after the first year

Acquisition cost: $150,000/750 = $2000 per long-term account

--JB

 

Everbank's MarketSafe CD

When I was a deposit product manager in the late 1980s, I worked on a project to bring out an equity indexed certificate of deposit. That project died, one more merger casualty, but I've always been intrigued by the product.

Over the years, a number of banks have offered market-indexed CDs, but they've never been much more than a niche product. That's OK. More than half of Amazon's book sales are from titles not found at retail bookstores. The Internet is a great place to mine the niches. Everbank has already proved that by moving nearly $1 billion worth of foreign currency-denominated deposits.

Analysis
The problem with equity indexed CDs is that they are crummy investments. By the time you pay for the hedging, marketing, and bank overhead, there's not much left over to pay the investor.

Let's look at Everbank's latest incarnation. The MarketSafe CD provides a total return based on a relatively complicated formula that averages S&P 500 prices at six-month intervals during the five-year term. In an up market, the CDs typically return 40% to 60% of the S%P gain (click on inset below).

The main selling point: Investors are guaranteed a minimum 5% total return over the five years (APY = 0.98%). The CDs are FDIC insured up to $100,000 with a minimum investment of $1500.

By Everbank's own figures (click on inset), its CD would have only beaten the S&P 500 index eight times during the previous 31 five-year periods beginning with 1970-1975. And by our estimates, the return would have beaten a normal 5-year CD more than half the time, 17 out of 31 periods. But only twice did the MarketSafe CD beat both the S&P and a regular CD.

Expected returns would be higher if the investor simply bought a mix of regular CDs and S&P indexed funds. The most conservative would be an 82% CD, 18% S&P mix that would still return all principal even if the S&P went to zero (assuming 4% CD APY). For the less conservative, a 67% CD, 33% S&P split would still return the principal even if the S&P dropped 40%. You get the idea.

But the target market for MarketSafe CDs is probably someone that never invests in equities. For that person, the MarketSafe is a reasonable way to put a little money "in the market." From Everbank's perspective, it's a nice addition to their unique deposit product line.

Addendum: View full screenshot of MarketSafe CD page

--JB

What not to do: 10% APY come-on

Normally, we don't pay much attention to radio ads, usually pressing the Seek button as soon as one comes on. But today, a particular ad caught our attention. It was for a 10% APY CD offered by Seattle-based Verity Credit Union (see inset) which accepts any resident of Washington state as a member. The term was 10-months and the maximum deposit was $1000.

While we admit this rate did get our attention, we don't like this tactic for several reasons:

1. Bait-and-switch: Sophisticated depositors know it's a teaser rate; and they will only leave their money on deposit long-enough to grab the $83 interest check. However, it's the less-sophisticated that actually think this might be a real rate, that get sucked in only to be deeply disappointed once rates ratchet back to the standard 3.25% rate.

2. Too expensive: Depositors receive $83 in interest instead of $27, a before-tax difference of $56. We think the credit union would be better off providing a straight $50 incentive for new deposits of $5000+ and/or $25 for $1000+. Not only is this a lower cost for the financial institution, it's more straight-forward for the customer, and could bring in a higher average balance.

3. Too exclusive: Only applies to new members or existing members that convince a non-member to open one of the CDs. Blasting an offer across the airwaves and homepage that applies to new customers only is a sure way to disappoint existing members. Furthermore, the website has no explanation of how to refer a customer or how to take advantage of the referral bonus. As a matter of fact, the website has no more information about the special other than what's shown in the homepage graphic (see inset above). The graphic image is NOT clickable.

4. Cannot apply online: Maybe we're biased, but we strongly believe that red-hot products advertised on the radio and on the middle of the homepage, should have an online application. Verity's promotion directs interested parties to its branches or call center.

--JB

New player in the high-rate deposit game

As we gave a cursory glance to the BankRate.com deposit rate table in today's Wall Street Journal, we were surprised to see KeyDirect listed at the top of the Money Market and Savings Account section with a 3.66% APY and a $50 minimum deposit.

We were even more surprised to find that KeyDirect is not a small bank in the middle of Idaho, but a little-known division of KeyCorp, the $91 billion bank headquartered in Cleveland, Ohio. Key may be the first mainstream player to try to compete with the online-oriented direct banks such as ING DIrect, E*Trade Bank, and others. (See previous article.)

The success of Emigrant Direct, which said Monday that it has attracted more than 100,000 accounts with offers pasted all over BankRate.com, may encourage other traditional banks to test direct banking tactics. The New York-based bank said that the 100,000 accounts have an average balance of more than $30,000, meaning the bank has bagged more than $3 billion in deposits.

The next Online Banking Report (#120/121) will look at deposit gathering with a special emphasis in the high-rate game.

-- JB

Lockheed FCU breaches the 4% barrier

Just when you thought your new 3% APR money market account would wow your market, the word on the street, virtual street anyway, is that the 4% APR mark has been breached for the first time in several years.

Lockheed Federal Credit Union is culprit with a new account paying 4% on balances of $25,000 or more. It's so new, or so secret, you can't find it on their website. You must call to set up the account (800) 328-LFCU.

And if think you're safe because your customers can't access this credit union special, think again. For $5, you can join Lockheed's Achievers Club, which qualifies you for credit union membership. You can join both in a single phone call.

-- JB

Making savings a game

Last year the savings rate in the U.S. dropped to 1.3% of disposable income (personal income less taxes), slightly lower than 2003's 1.4%, and the lowest since the depression (1934). This is far below the 10% or higher level that most personal finance experts recommend. The last time the U.S. as a whole saved 10% was 1984, and that was no anomaly. In the 15-year period from 1971 to 1985, the U.S. saving rate dipped below 9% on only one occasion (8.7% in 1977). Even without considering inflation, the total amount saved during 2003 and 2004, $113 billion/year, was the lowest total since 1974. (Source: U.S. Commerce Dept: Bureau of Economic Analysis)

Banks are in a great position to help improve this situation by making savings easier and more interesting. Online services can be used to automate saving and provide continual detailed feedback. In next month's Online Banking Report (#120), we'll outline a number of techniques.

One of the more novel approaches is to help coupon-clippers organize their assault on the grocery store by automating the process with online tools, tips, and links. Then as your customers chalk up savings at the grocery store, encourage them to deposit all or part of the windfall in a bank savings account. The growing balance will provide positive feedback for the disciplined approach to shopping.

For inspiration, take a look at one of the more established coupon services called The Grocery Game. The Southern California-based online service provides a weekly list of advertised and unadvertised grocery specials married to a database of recently published coupons. The end result is an editable list of major grocery bargains priced at a 40% to 70% discount from retail (click on inset to see a sample).

The company's stated goal is to save a family of four $1000 off their grocery bill during the first 12 weeks. Cost is $10 every eight weeks, after a $1 four-week trial.

The Grocery Game says it has 30,000 users in 43 states. Other sites with similar services include, Cairo, ShopLocal, Puget Sound Grocery Guide (Seattle), and Coupon Queen (Cleveland).

Financial Institution Opportunities
Banks could leverage The Grocery Game in several ways:

• By simply linking directly to the service
• By explaining the strategy with articles and advice, but not producing weekly shopping lists
• By partnering with The Grocery Game or others to produce a co-branded or private-branded version at the bank's website
• By creating a simpler version in-house: After the initial programming, we estimate it would take only a few hours per week to enter the data from the grocery circulars and match it with items from the coupon database

But unlike The Grocery Game, which has no ongoing tracking mechanism, banks would want to program an area for user's to document their grocery savings, and designate a portion of the grocery savings be deposited into a bank savings account. 

To encourage continued participation in "The Savings Game," customers could be rewarded with, what else, free groceries, when they hit savings milestones. Or rewards could be more interesting such as meals out or household items, something that would appeal to the coupon-clipping demographic.

For more info on The Grocery Game:

• Seattle Times July 20, 2005
• NY Times Dec. 18, 2003
• Slate Nov. 12, 2003

--JB

3% solution

Today's hot savings rate online is 3% or more. Many of the higher rates are from direct banks operating primarily online such as ING Direct, Bank of Internet, or Virtual Bank.

But increasingly, traditional brick and mortar financial institutions are experimenting with higher rate offerings. One of the most visible is Emigrant Direct, which has spent a small fortune this year advertising its high-rate offerings (see previous article). We also noticed Zions joining the game with this 3.3% offer to customers searching for a $10,000 savings account in California via BankRate.com (click on inset for more details). Zions also makes the account available to any customer visiting its website.

What's a bank to do?
If you are feeling pressured to step up to the 3% rate level online, you can do it with a special product that doesn't require repricing your entire savings account base.

Here are a few ways to try to separate your high-rate online account from regular savings accounts:

• Give the account a separate name, such as Zions Bank's Internet Money Market Account
• Require that it be opened online
• Require that it be funded via ACH or wire transfer from another institution (aka new money)
• Offer to match any rate found online, users would submit the URL of the competing offer in the application
• Only promote it via special landing pages accessible through promotional advertisements, but not linked directly to your regular site
• Require a promo code on the signup form

More 3% offers
Download this file shown below to see an analysis of the 3% offers from MyBankingDirect (NY Community Bank), ING Direct, Emigrant Direct, MetLife Bank and Western Financial. The first three earned grades of A, while MetLife and Western scored only Cs.

Download tour_of_banks_with_3apy.pdf

Selling savings accounts

With the success of ING Direct and other direct banks, there has been a lot more attention given to selling savings accounts and certificates online.

One of the new players to watch is Capital One. They are beginning to apply their marketing skills, honed in the brutal credit card market, to deposit products.

Googling "online banking" today, we noticed Capital One in first position on the right-hand sponsored links area (see inset).

Clicking through you are delivered to a page that markets deposit products much more aggressively than most banks (see screenshot below). Capital One leads with a chart showing its rate compared to the national average (see inset above).   

The bank offers five different savings products on the main page, each with its own distinct Open Account button:

• 3.15% High Yield Savings Account (the lead product at the top)
• 4.03% No Regrets CDs (allows purchasers to bump-up their rate)
• 3.25% Money Market Accounts
• 4.50% Certificates of Deposit
• 4.29% IRA CDs

Analysis
The relatively high rates (APYs) are a big part of the appeal. But there is more to it than just price.

Capital One does a great job of laying out the options, including:

• product comparison chart
• detailed features and benefits at every step of the way
• animated demonstration of how easy it is to setup an account and move money back and forth from any checking account (at any financial institution)

Click on this thumbnail for a look at the main savings page at Capital One.

--JB

New Upost webinar date

The webinar on the innovative Upost remote deposit program has been rescheduled to May 26 at 2 PM Eastern time.

For more information, read our initial article.

-- JB

Intrust pays $6 per GB for online archives

If you are wondering how much it might cost to enable long-term or lifetime archives for your customers, here's a data point from an article in today's American Banker about the pros and cons of pooling image archives with other banks.

Intrust says that it's latest 5-terabyte upgrade cost just $30,000. Doing the math, that's $6 per gig for approximately 5000 gigabytes of storage. Here's the exact quotation attributed to Jim Simon, Intrust’s VP of operations:

Last summer (Intrust) put its entire (image) archive online as a result of a five-terabyte storage system upgrade that cost just $30,000.

Analysis
At $6 per GB, storage space for online archives is already so inexpensive that it won't be long (2 to 3 years) before real-time online access to 7+ years of image/statement history is the norm in banking; and by the end of the decade, we expect most financial institutions to offer lifetime archives.

So if you want to use lifetime archives as a point of differentiation, you better move fast. You only have a one- or two-year window before it's just another me-too upgrade.

For more information:

• Previous FMW article which includes lengthy research notes
• Upcoming Online Banking Report to be released in early June

--JB

Honor system for remote deposits

Few innovations of the past five years can top Pennsylvania State Employees Credit Union's (PSECU) Upost@Home service. Launched in late 2001, the service allows qualified members to enter deposit items online for instant credit to their account. Members then send the paper items to the CU through the mail for reconciliation.

The service was named an OBR Best of the Web winner in 2003 and earned the #23 spot on the OBR list of the Top 25 Innovations of All Time (see OBR 103).

Now the service is being marketed to other financial companies through PSECU's CUSO affiliate, eCU Technologies. The service is already in place at Southland Civic Credit Union and Deere and Company Credit Union.

As part of the marketing effort, eCU has released updated metrics on the usage at PSECU and the estimated cost savings:

Total deposit sessions: 700,000
Total deposit dollars: $300 million
Deposits per session: $430
Total losses: $13,000
Losses as a percent of deposits: 0.4 basis points (0.00004)
Losses per deposit session: $0.02
Savings per deposit session (vs. teller or ATM): $1.14
Total program savings: $800,000

Action Item
Specific results from three credit unions along with program details will be discussed at a free Webinar May 23. We urge you to attend.

--JB

Internet-only banking redux

During the height of the bubble, there were dozens, perhaps hundreds of banks secretly planning to launch Internet-oriented brands. But the strategy fell out of favor with the very public downfall of WingspanBank, which lost funding during a corporate restructuring at Bank One; followed by the collapse of NextCard, which went belly-up after a ill-advised bet on sub-prime credit.

But despite these public failures, there was never anything wrong with the underlying strategy. Quite the opposite. Direct banking has been a viable business model ever since deposit deregulation in the 1970s. The Internet only makes it easier to reach and serve customers.

Case-in-point: ING Direct, still not five years old in the United States, has amassed 2.5 million accounts holding $29 billion in deposits at year-end 2004, making it the 30th largest financial institution in the United States. If they continue to grow at the same pace, they should be close to cracking the top-20 by this time next year. Their laser sharp focus on savings accounts, trendy branding, and consistent high rates has put them on the map.

This success has not gone unnoticed around the country. They are frequently discussed at industry gatherings and internal planning meetings. However, you aren't likely to see many of its more traditional competitors jumping on the high-deposit bandwagon. It doesn't make sense for them to alienate their customers and branch employees by offering higher rates online. And they are not about to reprice their entire deposit base to compete with ING Direct and the other high-rate institutions.

However, I think you will see smaller banks look to the Internet for growth using new brands or brand extensions. In perhaps the most aggressive launch since ING Direct in 2000/2001, Emigrant Savings practically owns the deposit real estate at BankRate.com. In a recent visit, the bank's Emigrant Direct brand not only had the top banner, they also bought the skyscraper on the left-hand side, effectively "framing" the entire content screen (click in the inset for a better look).

Note to ING Direct, check your skyscraper ad at BankRate.com (see above). Emigrant Direct has hung a small ad on the bottom of your banner that looks like part of your ad. I hope you are at least getting a discount from BankRate.com. 

--JB

Financial data archives

Now that Google has doubled the free online storage for its Gmail users* to 2GB, you'd think banks would get with the program. There's value in storing them bits. However, you are still lucky to get a year's worth of data, and many places provide just 3 or 6 months (probably about 50k of data, if that).

In May, Online Banking Report will publish a report on the state-of-the art in online archives at financial institutions. You can get a sneak peek at the notes we've compiled so far by downloading this file (23-page Word doc):

Download statement_archive_study_for_obr_119.doc

Of the 100 or so banks and credit unions we've looked at, most hold data for less than one year. Here are the storage champs according to a quick look at the data:

• Transaction data: 2 years -- tie between Charter One Bank and Commerce Bancshares (Kansas City)
• Estatements: 3 years -- Bank of America
• Check images: 5 years (according to customer service, 7 years according to its website) -- E*Trade

We'll scrub the data, summarize it, and explain the implications and opportunities next month.

Also I am looking for commentary on the subject. If you've got a comment on the pros, cons, or business case for online archives, send me an email.

--JB

*Google Gmail is still in beta, if anyone needs an "invite" to open an account, just drop me a note.

Wells Fargo's Remote Deposit Capture

Last year, NetBank was one of the first banks to talk about allowing business customers to deposit checks directly via scanner, so called remote image capture or remote deposit capture.   

NetBank has yet to go live, but several others have including: First Tennessee (the first to go live in March 2004), Bank of New York (announced 08 Nov 2004, see inset), HSBC (announced 08 Nov 2004), Wachovia (announced 13 Dec 2004), BB&T (announced 10 March 2005, live 01 April 2005).

Also, know to be implementing or testing: PNC, E*Trade Bank, Bank of America, LaSalle Bank, JPMorgan, BB&T, Mellon, Citibank, Key Bank, Zions, and Glenview State Bank (IL).

Now you can add Wells Fargo to that list.

Last week, the online banking pioneer announced its extremely well named remote deposit capture service, Desktop Deposit. The service allows businesses to scan checks into their PCs using a USB device from the bank. No word yet on pricing and availability.

Analysis
Remote deposit capture, either at the customer's PC or at a scanner-equipped ATM, has the potential to negate one of the branches last roles, check cashing. It could be especially appealing to small businesses who benefit from the obvious time savings (no more trip to the bank) and better cash flow (no stashing checks away until the weekly bank run).

But the more important benefit to businesses are the improved record keeping and easier resolution of billing disputes. Images of deposited items are available immediately online and can be easily searched, retrieved, and forwarded, should a question arise later. Finally, the business retains the original paper item for a back-up paper trail.

And given the large value to the business, banks should be able to increase checking account and/or online banking fees for remote-capture clients, thus profiting from a process that wrings paper checks out of the system.   

Resources:

• NetBank Announces Remote Deposit Scanning Service, Financial Marketing Weekly, 24 May 2004
• The Tech Scene: Remote Image Capture - Small Banks React, American Banker, 6 April 2005

-- JB

Everbank's foreign currency deposits

Two-time Online Banking Report Best of Web winner, Everbank landed a flattering two-page spread in the April 2005 issue of Business 2.0.

The author, David Dent, is highly complementary of the bank's innovative strategy of allowing deposits to be held in a variety of foreign currencies. Not only has it been lucrative for currency investors, it's been a boon to the bank.

Everbank's foreign-denominated deposits are closing in on US$1 billion. Specifically, at year-end 2004, foreign currency deposits accounted for $850 million, or 25% of the bank's $3.5 billion in total deposits.

Analysis
This is a good example of how a small player can mine a niche using the national reach of the Internet. Look for other banks, both Internet-only, and traditional financial institutions to do the same in other areas, such as lending to small businesses, transaction accounts geared to traveling sales reps, impenetrable savings accounts for the security conscious, and so on. 

Resources: OBR Best of Web winners: 1995 to 2004

-- JB

Branchless banks now hold 2% of U.S. retail deposits

The Wall Street Journal published a story today that marks the growing importance of branchless online banks, Online Banks are Boosting Yields. Our sister publication, Online Banking Report, was the source for the article's market statistics on branchless banks, which have developed a small, but significant following around the world.

In the United States, there are several dozen branchless banks, but more than three-quarters of the total branchless bank deposits are held by two banks, ING Direct and E*Trade Bank. Total branchless bank* deposits in Q3 2004 were about $65 billion, or 1% of all U.S. deposits, or about 2% of all deposits under $100,000. See below for more specific details.    

Branchless Bank Deposits
As of Sept 30, 2004, the deposit totals of the major branchless banks are as follows:

ING Direct       $26 billion in 1.9 million accounts ($14,000/acct)
E*Trade Bank  $23 bil in 2.3 million accounts ($10,000/acct)
NetBank          $2.7 bil in 200,000 accounts ($14,000/acct)
Everbank         $2.3 bil in 370,000 accounts ($6,200/acct)
All the rest      $5 to $10 billion total
--------------------------------------
Total               $60 to $65 billion

Total US Deposits
The total amount of deposits held in U.S. commercial banks on 9/30/04 was $6.4 trillion including retail and commercial deposits.

If you look only at deposits of $100,000 or less (a proxy for retail deposits), total deposits were $3.7 trillion.

Branchless Bank Deposit Market Share
Branchless banks hold about 1% of all U.S. deposits ($65/$6400).

Looking at just deposits under $100k, branchless banks hold just under a 2% share ($65/$3700), actually 1.8% if you want to be more precise.

Source: FDIC

What it Means
It's not as big of a splash as Amazon made in books, but it's a solid start for an niche about 7 years old (Netbank started in 1997). I expect it will continue to grow 25% to 35% per year for the rest of the decade, eg, doubling the branchless banking deposit base every 2 to 3 years.   

*We define "branchless bank" as a separately branded insured depository institution that derives the majority of its business through direct methods (mail, phone, online) with minimal brick and mortar presence. We are excluding direct banking units operating under lending or insurance brands such as Principal Bank, State Farm Bank, IndyMac, MBNA, and so on.

--JB

AmSouth's online account switching tool

AmSouth Bank has posted a new "special offer" on its home page. The bank's "Click to Switch" program promises, "The fast online way to tell your bank it's over."

Clicking on the graphic leads to a page with some advice for switching checking accounts. It's the usual laundry list of advice, none of which is really helped by the online connection. There is one useful link for changing the direct deposit of social security benefits. Though, that is likely to be of little use to most online users contemplating a switch to AmSouth Bank.

We like what AmSouth is doing, we just wish there was more meat in the offer.

Online new account acquisition

Wondering whether to improve your online account opening process? In a recent American Banker article, Citibank said that 10% of its new checking accounts are opened online, and that's before they streamlined the process making it paper free. Previously, customers had to mail or fax a form with their handwritten signature.

Citibank offering $75 for new checking accounts

Citibank

Citibank is offering $75 for customers who open a checking account online.

Fine print:
$1,500 minimum deposit
must initiate 2 bill payments within 60 days of account opening