NetBanker 2.0

Mobile banking & payments terminology

In 2007, we'll be spending more time researching mobile banking, payments, and finance applications. So that we all understand each other, here are some of the key terms that will be used:

General terms/acronyms:

SMS >>> Short message service (also known as text messages, texts, SMSes, txts): A service available on most newer mobile devices that permits the sending and receiving of text-only messages; also can be sent to and from personal computers or even landline phones

MMS >>> Multimedia messaging service: An evolution from SMS, allowing messages to contain multimedia objects such as images, audio, video, and rich text 

CSC >>> Common short codes: Special short telephone numbers of just four to six digits used typically by businesses to make it easier to send text messages their way (the Mobile Marketing Association has a helpful primer here)

WAP >>> Wireless Application Protocol: An open, international standard for applications that use wireless communication; primarily used to enable Web access from mobile devices

Mobile IM >> Mobile instant messaging: Similar to desktop instant messaging, but slimmed down to fit on a much smaller mobile device screen

Banking & finance terms:

SMS or text alerts: Simple one-way messages from the financial institution or payments provider to the mobile user with account-specific information

Mobile payments: Payments initiated through a mobile device, could be via SMS, WAP, or a device-specific application

Mobile banking: Online banking functions performed via a handheld mobile device (PDA, cellphone, etc.); the general term that encompasses WAP Banking, SMS Banking, or True Mobile Banking (see below)

WAP banking: Accessing secure online banking functions through a mobile device's browser

SMS or text banking: Two-way messaging; for example, using text messaging to query the server for account-specific information and have it returned to the mobile device, or responding to a bank-initiated text message to initiate a transaction

True mobile banking: Our term for banking functions delivered through a downloaded application run locally on the mobile device

Sources: Online Banking Report, Mobile Marketing Association, Wikipedia

Bank of America advertises "Your Own Bank" in NY Times

Today's New York Times (p. A8, national edition) has a half-page, red-and-blue ad for Bank of America dominated by the headline:

If you have a computer, you have a bank.

The visual is a generic laptop with a generic browser displaying Bank of America's homepage. Text copy and sub-heads emphasized that 20 million are now using BofA online banking.

The ad-copy emphasized three benefits:

• Instant and free funds-transfer to anyone with a BofA account
• My Portfolio, the bank's account aggregation service
• Security features

Call to action: visit www.bankofamerica.com/yourownbank (see screenshot below).

Screenshot: Bank of America's landing page
(click to enlarge)

Analysis
There are several interesting things about this ad.

1. No offer. The bank, which recently tested the richest new account bonus we'd ever seen costing it as much as $300 per new checking account, offers NOTHING. And this is an ad on black Friday, where stores typically offer monster loss-leaders to lure customers into their stores early on the biggest shopping day of the year.
2. Account aggregation featured: I can't recall the last time a major bank featured account aggregation as one of the three biggest benefits of banking online. Could this mean that BofA is going to begin emphasizing the feature more in its national advertising? If so, it could reinvigorate the service.
3. Customization deja vu : The "yourownbank" landing page is reminiscent of the bank's late-90s website-customization engine called Build Your Own Bank (see 1999 screenshot below). Given the landing page URL, we thought BofA might be pitching customization again, but it's really just a play off the ad's headline, that your computer is now your bank.

Taken together, it's an interesting effort, although it looks more like corporate branding rather than an effort that will generate enough accounts to justify the five-figure tab to the NY Times.

Screenshot: BofA's Build Your Own Bank from 1999
(click to enlarge)

Billeo scores distribution deal with Target REDcard

In a distribution deal similar to the Visa.com partnership launched earlier this year, Billeo is now powering biller-direct payments for Target's REDcard (see inset). See previous coverage here.

Billeo received an Online Banking Report Best of the Web award in 2005 for its innovative toolbar-based payment services (see 15 March 2005 post).

How it works
New users start by searching for credit-card-accepting billers via zipcode and company search (see screenshot below).

To schedule a payment and use the other tools, users must first register with Billeo. While the initial biller-search screen runs under Target branding, the sign-up page and subsequent user interfaces do not maintain any Target branding.

Previous Billeo users can skip the registration process and simply sign in to their previous Billeo account.

Bank of America adds 760,000 users in third quarter

Although growth has slowed, as it must when you have the penetration of Bank of America, the company still managed to add 760,000 active* online banking users and 430,000 active* bill pay users in the latest quarter. The bank's $15 enrollment bonus surely helped boost the total (see Aug. 11 post).

Excluding PayPal with 31 million active users (includes international accounts, see previous post), Bank of America continues to hold a large lead over the next largest U.S. online banking base, Wells Fargo's 8 million.

Although the bank posted an impressive 6.3 million gain year over year, about 4.5 to 5 million of that appears attributable to the MBNA acquisition (see chart below).

Bank of America Active* User Base
Qtr  Online Banking   Bill Pay
2006 (includes MBNA)
Q3....20.6 million   10.8 million 
Q2....19.8 million   10.4 million
Q1....19.6 million   10.1 million

2005 (excludes MBNA)
Q4....14.7 million    7.3 million
Q3....14.3 million    7.0 million

*BofA defines Active as having used the service in the past 90 days.

On the bill-pay front, the bank processed $49 billion in payments for its users during the quarter, up $2.1 billion over the previous quarter (+4.5%). The average payment amount was $4,500 per active bill pay user, or $1,500 per month with 84% of the payments delivered to the payee in electronic form (ACH).

The bank also reported e-bill delivery volume of 21 million in the quarter from 370 billers.

Thanks to Scott Loftesness at Payments News for digging through the bank's 47-page earnings supplement for these gems (see pp. 18-19).

Yodlee announces bill-pay switch kit

This week Yodlee announced its new Bill Pay Account Accelerator, a bill-pay-switching tool designed to help banks attract active users of competitive bill payment services. Not only does Yodlee's wizard move payee information, it also can cancel and move previously scheduled payments, including recurring ones.

The service will be piloted in fourth quarter and launched in early 2007.

Analysis
If it works, it could reduce the "retention benefits" of electronic bill pay by making it easier to switch banks. The American Banker article reporting the new service hit hard on that aspect. However, we think the concern is overblown. It's not that time-consuming for most people to move their payee information, requiring 10 or 15 minutes of "cutting and pasting" or "scribbling and retyping," then a few more minutes to reschedule upcoming payments.

What's MUCH harder for the user is making sure outstanding paper checks have cleared and, more importantly, unwinding preauthorized debits such as important insurance and loan payments. Those require contacting the payee directly and hoping that your instructions to change the debit are processed in a timely fashion.

But the biggest issue is motivating users to make a checking account switch in the first place. And that's where Yodlee solution could provide a big boost, offering the perception of radically simplifying the switchover. And if Yodlee expands the tool to also transfer the entire account history, not just the bill pay history, it could become an important industry tool.

Since it doesn't ship until next year, we'll refrain from superlatives until we've had a chance to test it. But Yodlee has a good track record in hooking accounts together, and we expect the new service to be functional. However, whether banks will adopt it is another matter. It will have to be drop-dead simple to use or banks will not want the ensuing customer-service nightmare.

Facebook launches MoochSpot, a "social loan" tracker

In mid-August, Facebook, the popular social networking site aimed at college students, alums, and now a few select corporations has released a simple personal finance application. The original name was FaceBank (see screenshot at bottom of article), but recently it was renamed MoochSpot (click on screenshot below for closeup).

MoochSpot allows Facebook users to loan (i.e., spot), borrow (mooch), and settle debts with other Facebook users. At this point there is no payment capabilities, so the money must change hands through other methods.

Here's how it works:

1. Create a "piggy bank" to track the funds
2. Select a Facebook friend from the list that automatically shows in the MoochSpot list (note, in our screenshot below, we don't have any predesignated friends, so the list is empty)
3. Enter the amount of the loan
4. (Optional) Enter a reason for the loan

Analysis
MoochSpot was developed, not because of huge user demand to track personal debts, but to showcase the type of application that can be built by outside developers using the recently released Facebook APIs. MoochSpot is highlighted on the Facebook developer's page <developers.facebook.com>.

BIllMonk, the self-proclaimed "social money" site which allows debts to be split and tracked via website or mobile phone (see FMW Apr 30), is the first financial services provider to jump on the bandwagon and create Facebook integration (in inset, see Facebook login in lower-right of BillMonk's homepage). We tried on several computers to get it to work and were unable to get past the Facebook login. We'll check back in a few days to see if they have the bugs worked out.

Financial institutions looking to create online banking sites that click with college students should pay close attention to BillMonk and MoochSpot. It would be relatively simple for a bank to use the Facebook API to develop even more powerful payment applications that combine the loan-tracking benefits of MoochSpot with actual epayment capabilities to move money back and forth among friends. While it wouldn't do anything that Paypal doesn't do today, the integration within online banking is important.

But the biggest reason to integrate with Facebook, MySpace, or any other 20-something social network is because it positions yourself as a bank or CU that understands the younger generation. And make sure you have genuine 20-somethings designing the marketing and writing the blog copy.

Online bill managers

Launched last month, Whatbills <whatbills.com> is a simple $1.95/mo Web-based service for tracking your bills and sending yourself email reminders to pay. Although the functionality is limited, it's the kind of service banks should be offering. We found out about the service through its Google advertisement on the phrase "quicken online" (see screenshot right).

The interface is similar to Billeo (FMW Feb. 14), but with far fewer functions. Users can do three things:

1. Enter bill name, category, due date and amount
2. Send themselves email reminders to pay
3. Mark bills as paid

The entire program today is shown on the screenshot below:

Business model
At a cost of $1.95/mo, which is about what you'd pay each year for Intuit's Quicken Basic, the company doesn't seem to have a compelling selling proposition. It would make more sense to offer a limited free version, perhaps earning a few pennies per month per user by displaying advertising on the user interface. Then upgrade users to a premium plan with more features.

But neither of those business models will yield much more than low-six figures per year. A more likely scenario for the San Diego-based company is a sale to Microsoft, Google, or a major financial institution for a few hundred thousand, a price that would be less expensive for a large company than developing the application internally.

Update: A similar Web-based service, BudgetTracker <budgettracker.com> founded in 2003, has a free version that uses Google AdSense revenue to keep it running. For $19.99/yr, users can upgrade to an ad-free version that also provides unlimited data storage and several additional features such as bank-data import. See the price plans here.

PayPal Mobile in print this fall

Conde Nast's Lucky magazine will use PayPal Mobile technology to allow users to buy products from 18 advertisers in its September issue (see inset). Using PayPal's Text2Buy technology, readers will be able to purchase products from magazine advertisers by simply sending a text message to the number in the ad, then confirming the purchase when PayPal automatically calls back a few seconds later (see FMW July 17 for more on how it works).

This is believed to be the first major offline promotion of PayPal's new service. According to The New York Times, the following advertisers have signed on: Avon, Bulova, Dooney & Bourke, Estee Lauder, Ford, Le Tigre, Liz Claiborne, L'Oréal, Perry Ellis, Sephora, Target, and Unilever.

Readers will also be able to order online via a special website <livebuyit.com> that was not operational at press time.

Banking applications
While spur-of-the-moment buying is not a major part of financial services, Text to Buy could be implemented in financial advertising as a simple way to order information such as a loan application, mutual fund prospectus, or a new account kit. Advertisers would list a code in their print ad, billboard, or other offline promotional device (see UNICEF example in the inset; buyers simply text "water" to the 5-digit number to make a $10 donation). This would allow users to request info by simply entering 10 characters into their cellphones or mobile device. The information packet would ship to the "buyer's" PayPal address.

An even bigger application, especially around the holidays, would be ordering prepaid MasterCard/Visa/American Express gift cards. Different codes could be set up for different amounts. For example, text "card25" for a $25 gift card, "card50" for a $50 card and so on. A handling charge could cover the 3% processing fees due to PayPal.

Finally, financial institutions could use Text to Buy for non-financial items such as:

• Donations to community causes
• Entry fees for a community event such as 5k run
• Signups for seminars
• Schwag, e.g., t-shirts, hats and so on

PayPal mobile sets high standard for ease of use

Most people interested in electronic payments have probably read reviews of PayPal's mobile payment system launched in March. If you haven't yet had a chance to use it, by all means head over to PayPal Mobile and activate your phone.

The service covers two mobile payment services:

1. Person-to-person payments: PayPal's email-payments service is extended to phones, mobile or land-line, allowing users to send money to anyone with a phone number using text messaging or by following the prompts on PayPal's toll-free number (800-4PayPal).
2. Text to buy: To buy things at participating merchants, users send via text message a code to the merchant's text-message number; for example, listed on the PayPal site today is a special offer to purchase a DVD Of X-Men 2 from by texting "X2FF" (full-frame) or "X2WS" (widescreen) to "63336," which is the Text to Buy code for FoxStore.com.

Sign-up process
The sign-up process is absolutely painless (click on screenshots below for a closer look). Assuming you already have a PayPal account, just enter your phone number and then a few seconds later answer the verification call on that number. After that, you can send money to any other phone by sending a text message from your phone, or by calling PayPal's toll-free access number and following the simple prompts to make a payment.

Step 1: Activate     Step 2: Confirm      Step 3: Use it
          

Launch sweeps
The company ran a sweepstakes during the first month to encourage activation with instant prizes valued up to $1,000 (see screenshot left). The sweepstakes has ended, but not before we bagged a fresh $5 credit to our account. All entrants are also in the running for a new BMW.

Security
Although it will take some convincing before PayPal Mobile hits the mainstream, it's far more secure than using a credit card. Whether you text money to someone, or to pay for goods and services, PayPal first confirms the purchase by calling your designated phone number for confirmation with a self-selected PIN number. At that time, you are also able to make changes, such as altering the default funding source, which is always bank transfer (see inset for PayPal's how-to-use instructions).

Analysis
In the United States, payment by phone is likely to be a small subset of the "online payments" market. It provides a good solution for situations where a computer is not available (purchasing a new DVD from a magazine ad or paying your friend for the concert ticket she just gave you).

However, in other parts of the world where mobile phone usage is far higher than computer usage, it could become an important payments vehicle.

Most people interested in electronic payments have probably read reviews of PayPal's mobile payment system launched in March. If you haven't yet had a chance to use it, by all means head over to PayPal Mobile and activate your phone.

The service covers two mobile payment services:

1. Person-to-person payments: PayPal's email-payments service is extended to phones, mobile or land-line, allowing users to send money to anyone with a phone number using text messaging or by following the prompts on PayPal's toll-free number (800-4PayPal).
2. Text to buy: To buy things at participating merchants, users send via text message a code to the merchant's text-message number; for example, listed on the PayPal site today is a special offer to purchase a DVD Of X-Men 2 from by texting "X2FF" (full-frame) or "X2WS" (widescreen) to "63336," which is the Text to Buy code for FoxStore.com.

Sign-up process
The sign-up process is absolutely painless (click on screenshots below for a closer look). Assuming you already have a PayPal account, just enter your phone number and then a few seconds later answer the verification call on that number. After that, you can send money to any other phone by sending a text message from your phone, or by calling PayPal's toll-free access number and following the simple prompts to make a payment.

Step 1: Activate     Step 2: Confirm      Step 3: Use it
          

Launch sweeps
The company ran a sweepstakes during the first month to encourage activation with instant prizes valued up to $1,000 (see screenshot left). The sweepstakes has ended, but not before we bagged a fresh $5 credit to our account. All entrants are also in the running for a new BMW.

Security
Although it will take some convincing before PayPal Mobile hits the mainstream, it's far more secure than using a credit card. Whether you text money to someone, or to pay for goods and services, PayPal first confirms the purchase by calling your designated phone number for confirmation with a self-selected PIN number. At that time, you are also able to make changes, such as altering the default funding source, which is always bank transfer (see inset for PayPal's how-to-use instructions).

Analysis
In the United States, payment by phone is likely to be a small subset of the "online payments" market. It provides a good solution for situations where a computer is not available (purchasing a new DVD from a magazine ad or paying your friend for the concert ticket she just gave you).

However, in other parts of the world where mobile phone usage is far higher than computer usage, it could become an important payments vehicle.

Bank opportunities with Google Checkout

Yesterday, we posted a lengthy discussion of Google's new universal checkout system, Google Checkout. We are extremely bullish on its future and will follow the developments closely. Just like Google's AdWords first gained traction with small businesses (including Online Banking Report, an AdWords user since early 2002), we expect small merchants to embrace Checkout quickly to realize two huge benefits:

• Lower card processing fees: A certain amount of card processing can be virtually FREE, as long as the merchant can use the AdWords credits; even after that, Google's fees are one-third lower than PayPal, which is considered a relatively cost-effective program for small merchants
• Less shopping cart abandonment: Consumers abandon their online carts for a variety of reasons, but one of the leading causes at smaller merchants is concern about entering personal info and credit card numbers

It will take much longer for larger merchants to come on board since they must cede an important part of the customer relationship to Google, such as the customer's email address.

Financial institution opportunities
All this begs the question: What does this have to do with my financial institution? I'm glad you asked. Here are five ways a bank could leverage Google Checkout (in order from easiest to most difficult):

1. Educate customers on Google Checkout with encouragement to enter your credit and/or debit numbers into the wallet: While Google allows multiple cards, most users won't realize that initially since it asks for only one during the sign-up process, so the first one entered has a huge advantage. This would make a great subject for your periodic email newsletter, a feature for your website, and so on.
2. Incent customers to enter your card number: As we mentioned yesterday, Citibank has made a significant investment by buying the pole position in the sign-up process. Assuming one million of its cardholders take advantage of the $5 credit, that's a $5 million expense, even without considering what they paid Google for the exposure. You might want to consider a similar program, although an iPod sweepstakes could be just as effective and less expensive.
3. Educate small merchants on the program: If you don't offer your own merchant processing, you should tell your business customers about this new way to save on card processing and potentially increase online sales.
4. Use it to fund new deposits during your online application: If you accept credit cards to fund new checking accounts, you could offer Google Checkout as a funding option. Provided you can use the AdWords credits, it could be a way to virtually eliminate the cost of interchange on these deposits. In fact, Google may have to erect some barriers here. Again, assuming you are a big AdWords spender, you could offer customers the option of making ongoing deposits via credit card, as long as the total deposited was no higher than your normal AdWords buy. For example, if you spend $10,000 per month in AdWords/AdSense, you could offset up to $100,000 in card-funded deposits.
5. Create a front-end to Google Checkout within your online banking area: Using account aggregation technology that saves the user's Google username and password on your server, you could make it easier for users to access their Google accounts. You could even go into full aggregation mode, by automatically downloading Checkout activity and displaying it within your online banking area.

Did I miss anything here? Email me (click on my initials below), if you have other brainstorms or comments.

--JB