NetBanker 2.0

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

Two-thirds in survey would download a special desktop application from their bank

In a study released by market researcher Compete, Inc. <compete.com>, online users surveyed overwhelmingly said they wanted more information from their financial service providers, and they were willing to download a special application or plug-in to facilitate the information exchange (click on inset to see closeup of Southwest Airlines DING service).

Key findings:

• 73% would like to be made more aware of new offerings and services
• 69% would download a desktop application so that they could receive useful information from their financial services provider on a regular basis
• 78% would do so if the program protected them from fraud
• 5% would be unwilling to go online to receive information from financial services

Analysis
The success of Southwest Airline's DING service (FMW Dec 5), which puts Southwest right on the computer desktop, along with toolbars from eBay, Google, and most recently Bank of America (FMW Dec 12), have not gone unnoticed in the financial services community. Until email trust issues are solved, which may take three or four years, a direct connection to the user's desktop makes good business sense. As Compete's data shows, more than three-quarters of consumers said they would download a desktop application, as long as they felt it would be a security improvement to do so.

Financial institutions should try to add a "safe and secure" theme to all account management tools, from email alerts to electronic statements and more.

--JB

Top 20 banks worldwide

In case you need a stretch goal for your 2006 business plan, here are the 20 largest banks in the world, ranked by assets (in US dollars on 31 Dec 2004). By country there are 4 U.S. banks, 3 UK, 3 Paris, 3 Tokyo, 2 Germany, 2 Amsterdam, 2 Swiss, and 1 Spain. The biggest bank outside North America, Europe or Japan is #53 National Australia Bank in Melbourne ($282 billion).

1. UBS AG (Zurich): $1.53 trillion
2. Citigroup (New York): $1.48 trillion
3. Allianz AG (Munich): $1.36 trillion
4. ING Group NV (Amsterdam): $1.36 trillion
5. Mizuho Financial Group (Tokyo): $1.30 trillion
6. HSBC Holdings PLC (London): $1.28 trillion
7. Credit Agricole (Paris): $1.24 trillion
8. BNP Paribas (Paris): $1.23 trillion
9. JPMorgan Chase (New York): $1.16 trillion
10. Deutsche Bank AG (Frankfurt): $1.14 trillion
11. Royal Bank of Scotland Group PLC (Edinburgh): $1.12 trillion
12. Bank of America (Charlotte): $1.11 trillion
13. Barclays PLC (London): $992 billion
14. Mitsubishi Tokyo Financial Group (Tokyo): $980 billion
15. Credit Suisse Group (Zurich): $963 billion
16. Sumitomo Mitsui Financial Group (Tokyo): $897 billion
17. ABN Amro (Amsterdam): $829 billion
18. Societe Generale (Paris): $819 billion
19. Santander Central Hispano SA (Spain): $784 billion
20. Morgan Stanley (New York): $775 billion

Reference: American Banker, 29 Sept 2005 for the 100th largest banks in the world

For the top 150 largest U.S. financial institutions, refer to the resources section of our main website.

--JB

Keeping tabs on the blogosphere

Writing in The Wall Street Journal's MarketPlace section, William Bulkeley discusses a new technique for tracking consumer opinions of products, companies, and other topics. The article, Marketers Scan Blogs for Insights, explains how marketers, PR departments, and brand consultants are using free and not-so-free tools to scan the so-called "blogosphere."

We tested Intelliseek's BlogPulse on some security topics we've been researching and found it to be an effective tool. There were more blog citations than we found in a Google search, and they were better organized. Also, BlogPulse provides a trending tool to gauge the relative strength of a search term over the past 6 months.

Here we compared "phishing" to "online banking" and found similar activity levels for both terms (click on the inset for a better look).

While this tool won't replace traditional market research, it may be worth checking out from time to time.

--JB

2004 Online ad spending

JP Morgan Chase and Citibank led all banking and lending companies in online ad spending according to the most recent American Banker survey of financial services spending (May 2005).

Chase’s $50 million in online advertising was 21% of its entire advertising expense, the highest among major banks, and considerably above the 11% online share across all financial services companies. In comparison, Citi’s $49 million spent online was only 9% of its total advertising expense, slightly below the industry average.

NetBank, the 16th biggest online advertiser, was the percentage leader, funneling all but $100,000 of its $4.9 million in advertising into online initiatives. Two other major online advertisers spent more than half their money online last year: ING Direct spending 60% of its $40 million total online, and MBNA spending more than half its $14 million online.

Lending Tree, Quicken Loans, HSBC, Sovereign and East-West Mortgage all devoted about one-third of their advertising into the online channel.

Top-20 Financial Institutions Online Advertisers*
2004 Online Advertising (% of total advertising)*
1. JP Morgan Chase  $50 million (21%)
2. Citigroup              $49 million (9%)
3. American Express $28 million (9%)
4. Bank of America    $25 million (9%)
5. ING Direct            $24 million (60%)
6. Lending Tree        $22 million (31%)
7. Ameriquest           $16 million (13%)
8. Quicken Loans       $10 million (33%)
9. Wells Fargo           $9.2 million (14%)
10. HSBC                  $8.3 million (39%)
11. MBNA                  $7.0 million (51%)
12. Wachovia            $6.3 million (7%)
13. E-Loan                $6.1 million (21%)
14. NetBank              $4.8 million (98%)
15. Discover             $4.7 million (6%)
16. GM                     $3.8 million (4%)
17. Royal Bank          $3.2 million (12%)
18. Sovereign           $2.8 million (33%)
19. East-West Mtg.    $2.7 million (32%)
20. WAMU                $1.9 million (2%)

*Banking, Lending, Mortgage, or Credit Card segments only, does not include online brokerage, insurance, or investments.

If you look at the brokerage and mutual fund category, the spending accelerates. Four online brokers Ameritrade ($65 million), Scottrade ($63 million), Schwab ($58 million), and E*Trade $52 million) each outspent even the largest financial institution, and Netstock Direct ($32 million) outspent all but Citi and Chase.

Top-10 Brokerage & Mutual Funds

2004 Online Advertising (% of total advertising)

1. Ameritrade   $65 (64%)

2. Scottrade     $63 (87%)                              

3. Schwab        $58 (35%)                              

4. E*Trade        $52 (77%)                              

5. Netstock       $32 (99%)                              

6. Harrisdirect  $24 (78%)                              

7. Vanguard      $12 (31%)                              

8. TD Bank        $10 (17%)                              

9. Fidelity        $5.3 (4%)                               

10. T.Rowe Price $3.8 (5%)

Download the Excel file with more details.    

 

--JB                     

Direct mail futility

Synovate reported the results of their annual tracking study of U.S. credit card solicitations. Like the number of branches, the totals just keep growing, despite the inevitable decline in their effectiveness.

In 2004, the U.S. card issuers sent a record 5.25 billion solicitations, to about 75 million households (71% of all U.S. households). It averaged 5.7 offers per month, or 70 annually. And you don't need a degree in economics to predict the results: record low response rate of 0.4%, down 2/3 from as recently as 6 years ago (1.2% response in 1998, see chart above).

Analysis
It's almost surprising that the average household gets less than 6 card offers per month, we've gotten that many in a day. And no one here has responded to an offer since the last century. 

But I digress. The point is that financial services marketing departments all over the country are looking for cost-effective alternatives. If you figure traditional DM costs $1 per piece when you load in all costs, the acquisition cost has increased from $80/acct in 1998 to $250/acct in 2004. 

And thanks to the spam overload and phishing hype, it doesn't seem like email will be the answer anytime soon.

What's left? It's that captive audience called online bankers. Here is a group of customers you know extremely well, thanks to tracking their bill pay activity, and that come to you several times a week on average. Grab some of that DM budget this year and show what kind of sales you can deliver. 

--JB

More identity theft statistics

Building on last year's FTC study, Javelin Strategy & Research and the Better Business Bureau, released the latest study of financial fraud and identity theft in the United States. A similar level of fraud was found in the late-2004 polling compared to the FTC survey fielded in mid-2003.

Both studies found that just under 5% of U.S. adults, around 10 million, had been victimized in the prior 12 months, with total losses, primarily to financial institutions, of about $50 billion.

One of the major conclusions is that consumers are more likely to be victimized through offline methods compared to online methods, leading Javelin to conclude in their press release:

Internet-related fraud problems are actually less severe, less costly and not as widespread as previously thought.

However, this conclusion that is disputed in Bob Sullivan's MSNBC article by both Gartner's Avivah Litan and FTC attorney, Lois Greisman.

Here are the key findings:

How was your personal information obtained (i.e. stolen)?
     6%  via online methods
     36% via offline methods
     58% don't know

There are two ways to look at those numbers.

The Javelin take: Of those that know how it happened, offline identity theft outnumbers online identity theft 6-to-1, so let's not overstate the online threat.

The Gartner take: In consumer research, much of the online fraud will be self-reported in the "do not know" category, so the data is inconclusive. Avivah Litan says in the MSNBC article:

The general population doesn't really know how the information is stolen especially, with credit card fraud. If you do have a good guess, it usually is because you are in a fight with family member or neighbor. The study is biased towards people who know how it happened.

Our Take
Anytime you have a survey where the majority of participants select, "don't know," it is difficult to draw precise conclusions.

We think these results are promising for the fraud-fighting potential of the online channel, but they don't vindicate it either.

If you assume that the same 6-to-1 offline/online ratio applies to the "don't know" category, that means about 10% of last year's identity theft occurred via online methods, or 1 million cases costing $5 billion dollars.

Regardless of what the analysts say, that's a problem that needs fixing.

-- JB

Resources:

• Javelin's 2005 Identity Fraud Complimentary Report Summary
• Javelin's press release
• Better Business Bureau Press Release
• 2003 FTC study

• MSNBC - Study: 9.3 million ID theft victims last year

Baseline online usage stats

Here are the Yankee Group's baseline PC and online usage forecast, as cited by The Seattle Times today:

2003: 112 mil US HHs >>> 74 mil online >>> 30% broadband
2004: 113 mil US HHs >>> 78 mil online >>> 38% broadband
2005: 114 mil US HHs >>> 80 mil online >>> 45% broadband
2006: 115 mil US HHs >>> 81 mil online >>> 52% broadband
2007: 116 mil US HHs >>> 83 mil online >>> 58% broadband
2008: 117 mil US HHs >>> 84 mil online >>> 63% broadband

How to read: In 2003, 74 million of the total 112 million U.S. households went online through their home computers; 30% (22 million) of those going online use a broadband connection, the remainder (52 million) use a dial-up connection.

See Online Banking Report (#114) for the corresponding online banking forecast.

--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

TowerGroup posts realistic estimate of phishing losses

Link: TowerGroup

The financial services analyst continues to weigh-in on the estimated losses due to phishing and identity theft, with the latter becoming a catch-all for all financial fraud. Estimates from the FTC, Gartner, and Javelin have run into the billions.

Many media outlets have jumped on these estimates and made the incorrect leap that the losses were due solely to online fraud and phishing. Now, much more slowly the story is emerging that the actual online portion of these fraud losses is much smaller. Some even argue that online banking has reduced the total amount of fraud since consumers are able to pay closer attention to their accounts.

TowerGroup's latest report on phishing losses pegs the 2004 loss at $140 million worldwide; or about $1 per online banking household. That's still a big number, and one that seems a bit high in our view, but it's far less than the billion-plus implied by Gartner earlier this year. It's also much less than the $500 million figure (for US only) recently released by the Ponemon Institute in a study commissioned by NACHA and Truste.

So is the online channel a help or detriment to the age-old battle against crime? From a monetary perspective, we believe it's been a net loss so far. As Tower pointed out, it's not just the actual losses, financial institutions spend far more in prevention and detection than they lose to the crooks.

But long-term, we are absolutely convinced it will be a much safer environment for banking compared to the paper-intensive processes it replaces.

-- JB, [email protected]