NetBanker 2.0

Top 25 Web 2.0 financial sites

Since its September launch,  Your Credit Advisor <yourcreditadvisor.com> has posted several trendy lists to attract traffic to its credit card application portal. The latest entry, "Top 25 Web 2.0 Apps for Money, Finance, and Investment."

The article includes helpful summaries of each site's capabilities. It's a good jumping-off point to do a little outside-the-box thinking about Web-based finance (see also, Online Banking Report #135/136, "How to Web-2.0 your Online Banking").

This list includes:

• Two loan sites: Zopa and Prosper (see previous coverage here)
• Six personal finances sites: Three we've covered: Dimewise, foonance, ioweyou (see our previous coverage here) and three new entrants: NetworthIQ, MedBillManager and Wesabe, a fascinating social money site we'll cover later this week
• Five real estate sites: Homethinking, iiProperty, Rentometer (owned by iiProperty), Trulia, and Zillow (see our Zillow coverage here)
• Two miscellaneous sites: PayScale, cFares
• Ten investment sites: BullPoo, Motley Fool's CAPS, DigStock, FeelingBullish, GStock, MoneyTwins (foreign currency), SaneBull, StockTickr, WikiFinancial

Holiday gift ideas from my bank?

Who'd have guessed banks would become a popular source of holiday gifts, other than good old-fashioned greenbacks of course?

Now that niche audiences can be targeted with online promotions during the holidays, many financial institutions are marketing financial products packaged as gifts. Prepaid Visa/MasterCards are the hottest item, but there's also potential in other areas. 

Gift cards
The second most popular gift item this year, after apparel, is expected to be prepaid cash cards. While the majority of the $20+ billion purchased will be direct from retailers, hundreds of banks and credit unions, such as Boeing Employees Credit Union (BECU) have joined the fray (see email below). If marketed right, financial institutions could gain a significant share of total sales. See our previous post here about integrating gift cards into online banking for more information.

Credit reports
Equifax is taking advantage of the giving season to market credit reports and/or FICO score gift certificates. The cost is $20 for a three-bureau credit report, $15 for the FICO score and explanation, or $30 for both (see email below). An even better gift would be a year of credit monitoring.

Investment accounts
For years, ShareBuilder has marketed "the gift of stock" during the holidays. This year, many of its partners, such as National City Bank, are offering a $50 gift card as a bonus for new accounts (see screenshot below). That way grandma and grandpa can give junior something that's good for him, an investment account for the future AND something he'll actually like, $50 to spend at the mall.

Piggy bank 2.0
For the younger set, ING Direct has for a year been selling The Savings Machine, a toy bank/calculator/ATM machine. And judging from the note on its website,* it's proving to be a popular Deal of the Month with a lower $17.95 price tag which includes free shipping (see inset). Several years ago, ING Direct reported nearly a million dollars in sales from its online merchandise store <shop.ingdirect.com>, an inexpensive way to get its name on the street.

*Note by the "Savings Machine" product page today: All orders placed from 4 Dec to 11 Dec will be shipped out the week of 11 Dec due to the large amount of backorders.

Crowdsourcing

There's an interesting new buzzword in tech sources, crowdsourcing. You can probably guess the meaning: having users perform tasks that directly assist the business such as creating the core content (eBay, Flickr), editing the content (Wikipedia, Craigslist's "flag this entry"), or adding value to it (blog comments, trackbacks).

It's not a concept that lends itself to financial services, or does it? Marketocracy <marketocracy.com> is a website where 55,000 users run their own "mutual funds," beginning with one million in play money provided by the site (click on inset for screenshot). There is nothing particularly unusual about that as many brokerages and websites allow users to create model portfolios to track.

However, it's what Marketocracy does with these 65,000 user-generated portfolios that makes it innovative. It created a real mutual fund that tracks the portfolios of the 100 most accurate stock pickers in its user base. The Masters 100 Fund (MOFQX) <funds.marketocracy.com> has averaged an 11.65% annual gain since inception (Nov. 5, 2001) vs. 5.76% for the S&P 500.

Financial institution opportunities
While turning customers into investment advisers is a bit of a stretch for most traditional financial institutions, there are more mainstream functions that could be outsourced to end users. For example, a community calendar that users could update in real-time (wiki). Or a personal finance forum where customers post questions or describe their financial situation and solicit advice from other bank customers. To make it more credible, the bank could "vouch" for respondents with some type of "reputation" score. Prizes could be offered to the most interesting questions and/or answers to help spur adoption.

How about having customers design your ads? MasterCard tapped into the popularity of its "priceless" ad campaign with a "create your own priceless ad sweepstakes" earlier this year. The much-parodied ads are so widely followed that MasterCard has a dedicated website where the ads run <priceless.com> (see inset).

Really heading out of the box, how about creating a lending environment that combines the portfolio-management skills of Marketocracy with the person-to-person lending platform of Prosper? Masked loan applications could be posted online and users could choose which loans to fund and at what rates. Actual loan performance would be tracked over time, and the best virtual "loan officers" would receive recognition and prizes (and maybe a job offer). Taking this one step further, why not let the amateur loan officers put actual skin in the game, participating in the loans that were funded through the online loan market.

--JB

 

Brokers Push Margin Loans

Flipping through the latest issue of SmartMoney magazine, it came as no surprise to see a full-page advertisement from Fidelity. But what caught my eye was the subject matter. Margin loans.

And this was no soft-sell pitch with smiling 50-somethings sipping Chardonnay on their deck. It was all business, showing how Fidelity's margin-lending rates fared against those of its major competitors. The hard-hitting approach isn't carried through to its website though, which opts not to show any comparative data.

E*Trade, one of the best financial marketers, is said to be offering teaser rates as low as 3.99% to encourage investment clients to transfer higher-rate debt to their margin accounts (WSJ, 4/20/06). However, its published rates vary from 6.74% to 9.74%. The retail banking sweet spot, loans of $50,000 to $250,000, are priced at 8.74%.

Fidelity doesn't go quite that low. Rates vary considerably depending on the balance, but under $500,000, borrowers pay 8.5% to 10.5%. Only those borrowing more than $500,000 pay an ultra-low rate of 5.5% (see inset for current rates).

Analysis
What's going on here? Brokerage firms are finding that customers are willing to borrow against their securities to finance all types of non-investment purchases. UBS AG's wealth management unit says that 75% of its $10 billion in margin-loan outstanding has been used to purchase things other than securities.

Expect more competition from brokerage firms as empty nesters and younger retirees finance portions of their lifestyles with loans against their investments. Deferring tax liability on portfolio gains is a big part of the decision to borrow. But there's also the psychological aversion to seeing investment balances decline.

Financial institution loan officers should be well versed on the risks of margin loans, and instead offer home-equity loans and cash-out refinances with similar rates and no risk of a potentially disastrous margin call.

--JB

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

E*Trade's Intelligent Investment Analyzer

Today E*Trade added yet another new feature to its website, the Intelligent Investment Analyzer. It sounds a lot sexier than it is, an eight-question asset-allocation worksheet. But that's the point. E*Trade is using classic marketing techniques to identify customer needs and concerns and design the solutions to address them.

The company's core messages touch on security, maximizing investment returns, minimizing loan rates, and so on. And the messages are delivered with an understated flair. For example, look at the homepage graphic above. It delivers the message in a number of ways including good color, an effective image of an open laptop displaying a colorful pie chart, and copy that emphasizes key benefits:

• Fast: "recommendations in minutes" and "one-click investing"
• Smart: "diversified," "optimizer," and "intelligent"
• Personalized: "custom recommendations"

Who wouldn't be tempted to click through to see what's behind the optimizer? Unfortunately, the questionnaire, powered by Thomson Financial, isn't particularly appealing (click on inset left for a closer view). And once completed, users are required to log in to their E*Trade account to view the "All Star" mutual fund recommendation designed to fit your self-described investment needs. But all in all, it's an excellent lead into the company's mutual fund area.

For more on E*Trade's string of innovations, select "E*Trade" in the categories on the right-hand navigation bar, or click here.

--JB

E*Trade bags millions in free publicity

Wow. It's not often a press release rates an article in BOTH The Wall Street Journal and The New York Times. But that's exactly what happened today when E*Trade made the relatively innocuous announcement that it wouldn't hold its brokerage customers responsible when their accounts were defrauded.

Consistent with previous innovations, the online brokerage and banking powerhouse wrapped its new message with impressive graphics and copy (see inset above-left for graphic displayed on its homepage today). Clicking on Learn More leads to an impressive security area where E*Trade touts four main protective measures (click on inset above-right for a closeup)*:

1. Security tokens
2. Electronic statements with paper turnoff
3. Email alerts
4. Antiviral and firewall software, which can be purchased through a link to Norton (60-day free trial offer); users can also run a real-time scan to check for vulnerabilities

Analysis
It just goes to show you how skittish the public has become about online security. I'd wager that most brokerage customers are sophisticated enough to realize they will eventually get their money back if it's stolen from their account. So this is a non-event from a financial standpoint. E*Trade even admits that online fraud cost it only $2 million last year, less than the cost of one of their famous Super Bowl ads. The brokerage also said there were "fewer than 50 incidents," implying a fraud loss of approximately $40,000 per incident.

Evidently E*Trade's marketing department prevailed over its legal counsel and actually put the company's fraud-protection policies in writing. It's amazing that makes headlines in 2006 and may say more about the growing need to cover your behind to fend off the class-action bar even if it means scaring off customers.

We hope this prompts other financial institutions to take similar action. One of the main functions of financial institutions is safeguarding assets. Customers, online or otherwise, shouldn't have to guess whether certain types of fraud are covered. As any good lawyer would say, "Put it in writing."

--JB

*The screenshot displayed here is only the top portion of the security area, to download a screenshot of the entire page, click here.

Holiday stock picking contest

UMB Bank <umb.com> ran an eye-catching sweepstakes in mid-December (click on inset for closeup). Users were invited to register online to participate in a week-long stock-picking contest. The contest had its own URL <stockingstuffer.umb.com>.

The contest ran from Dec. 12 to Dec. 15. Top prize was a $1000 Target gift card with second receiving $750 and $500 going to the third-place finisher. Users were required to choose winning stocks from a list provided by the bank. Users could log in anytime during the week to see where they stood. The contest was open only to residents of Missouri, Kansas, Colorado, Oklahoma, Illinois, Nebraska or Arizona. An identical second contest ran simultaneously that was open only to UMB employees.

Analysis
Stock-picking contests are a tried-and-true way to gain Web traffic, email addresses, and add excitement to your website, and in UMB's case to reward employees in a separate sweeps. The bank ponied up for a decent prize pool of $2250 for customers and another $2250 for employees; the graphics were superb; the "stocking stuffer" theme played well around the holidays; and the contest was interactive with the ability to log in and check standing in near-real time.

However, the one-week duration caused a substantial decrease in its overall marketing value. Usually these stock-picking contests run for several months, with leaders posted at various intervals. The holiday theme used by UMB created a natural year-end deadline, so it should have started in early- to mid-November for maximum impact.

--JB

Schwab's homepage offer

Yesterday, I noted that TD Waterhouse was giving away iPod nano's for new accounts. Well, it turns out that is nothing in the high-stakes game of bagging higher-balanced brokerage accounts.

In the middle of its homepage, Charles Schwab <schwab.com> is offering a night on the town in NYC, including 2 or 4 Broadway show tickets, dinner, and even a night in a luxury hotel. What's the  catch you ask?

Just $100k, $250k, or $750k in new money depending on just what level of "free" you'd like (click on inset for details). The deposit does NOT have to made to a new account, but like TD, all retirement and institutional account are excluded. (Click to view the homepage screenshot, links do not work)

Start saving your pennies, you've got until March 15, 2006 to qualify. 

--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