NetBanker 2.0

Mobile access may be new anchor for fee-based premium online banking

What's the biggest obstacle to online banking innovation in the United States? No, it's not security, ease of use, or customer education. The biggest problem is lack of fee income.

Unfortunately, online banking came of age in a golden time for U.S. financial institutions, with rate spreads at historical highs, customer loyalty at a peak, and fee income on the rise.

Banks, flush with profits in most business lines, decided not to bother with the difficult task of wringing fee income out of the new channel. So we ended up with near-universal adoption of the FREE model despite little economic justification for the subsidy. Sure, online banking customers are more profitable, but so are safe deposit customers. And you don't offer those free across the board.

The results are predictable. With online banking being cash-flow negative, many management teams have underinvested in the online channel, while subsequently overinvesting in branches (see Online Banking Report #128, The Demise of the Branch). 

Fighting free
There is no way to eliminate free online banking altogether, but you can nip away at the edges, convincing some customers to voluntarily pay fees for value-added services. 

One promising avenue is converting users into a premium, fee-based online banking option, the same way American Express convinces its members to increase their annual membership fee two-fold by trading up to a Gold Card.

But in order to convince customers to voluntarily give up their free service, the fee-based version must have compelling benefits. The following three hot areas could be used to anchor a platinum online banking service. The first two we've looked at before (see previous coverage here), but mobile banking is the newcomer that offers much promise:

1. Unlimited storage: Taking a cue from Google's Gmail that offers virtually unlimited email storage, banks should allow their gold-account customers to permanently archive e-statements, transactions, and images for no additional charge. Everyone else sees their transactions disappear after a few months. And every month, right before erasing another month of data, provide customers with an opportunity to upgrade to premium banking (see Online Banking Report #118, Lifetime Statement Archives).
2. Unlimited credit report access: The second most powerful premium benefit is simple online access to credit reports directly from within the logged-in online banking area. Users could assess their previously downloaded report at any time, and order a new one several times per year. In addition, customers would be protected by daily credit bureau account monitoring (see Online Banking Report #83/84, Credit Report Monitoring & Identity Protection).
3. Full interactive mobile access: While the previous two items are relatively easy to do today, in the United States, the mobile market is just revving up with Cingular's recent announcement to add a banking application to its mobile "desktop." We've seen a live demo using a real bank account, and it's impressive. The partners on the service are Firethorn and Checkfree (see upcoming Online Banking Report #138, due out in late January 2007).

Any premium online banking program should include one or more of these three core, value-added services. Then, additional minor services, such as security alerts, can be layered on to further differentiate premium banking from plain-old banking (POB).

For more information about online banking pricing and premium service offerings, see Online Banking Report #109, Pricing. 

Platinum upgrade from American Express

Despite intense competition from MasterCard and Visa issuers, American Express has been able to maintain a substantial share of the high-end market for credit/charge cards. For the twenty years we've followed the company, its marketing has consistently conveyed an upscale image.

Case in point: The email we received today asking us to upgrade from our existing Gold Card to an American Express Platinum (click on inset for a closeup look).

The subject line said it all:

     Upgrade to a card with premium service

The benefits cited included:
* Complimentary airline ticket on any of the 18 participating airline partners
* Airport club access (Continental, Delta, Northwest Airlines)
* Hotels & resort special privileges
* Free Membership Rewards program
* By Invitation Only (privileged access and tickets to events that, in many cases, can't be purchased through any other source)

Analysis
The American Express solicitation is heavily oriented towards travel and entertainment benefits which plays to the company's strengths. A bank could do the same by concentrating more on the "premium service" aspect. For example:

• Front-of-the-line service: Your service request, whether by email or phone, always goes to the front of the queue
• Branch manager access: If you ever need to go direct to the top for any reason, just call (212) 555-1212 or email [email protected]
• Preferred access to product specialists: If you ever have an unusual problem, whether it be accessing your online banking account from your laptop, or how to fund your Roth IRA, we will connect you with a specialist with state-of-the-art knowledge in that area
• Ft. Knox security: You need not worry about the safety and security of your bank accounts with our upgraded security and authentication algorithms

For more ideas, see "E-Service 2.0" (OBR 105/106).

Provident Bank launches premium option

Baltimore-based Provident Bank <provbank.com> with $4 billion on deposit from 590,000 accounts, is the largest U.S. bank to segment its online banking access into two levels, My Account Online and Premium Internet Banking with Bill Payment.

As the name suggests, the primary difference is bill payment. But also the premium version provides a combined statement whereas the basic version still requires separate logins for
each product. Premium also allows downloading into Quicken/Money (click on inset for an account comparison).

Basic online banking is free; premium is priced at $5.95/month, a popular price point in the days before bill payment became free. The bank encourages trial of the premium service with a generous 6-month fee-free period.

Analysis
It’s a good start, but it would be more effective if the premium version had more benefits such as extra service, more security, longer archives, and so on. The bank also needs to support the product better with website graphics, copywriting, and imagery that reinforces the premium image.

Reference: See OBR 109, for a report on online banking segmentation.

--JB

Premium banking examples

For years, whenever we needed to show an example of product line segmentation, we've used 1st Source Bank's Premium Online Banking, a $6/mo upgrade for users if its free online banking service.

Our most recent research uncovered several more examples:

American Savings Bank
Free: Online Banking
Free: Online Banking Plus
$5.85/mo: Online Banking Premium

North Shore Bank
Free: Epay
$5.95/mo: All Pay

We'll be covering this subject in great detail as numerous premium online banking programs are launched during the next few years. For more information on multi-level pricing, refer to Online Banking Report #109, published in August 2004.

--JB

Gold Package from Equifax

If you are looking for ideas on how to create a steady stream of fee income from your online presence, look at how the credit report marketers have continued to command premium prices even as the government mandates annual free credit report access.

We like Equifax's approach. A laundry-list of features and benefits divided into a GOLD and SILVER offering. Gold, at $100 per year provides little more than Silver at $50 per year, but with a 30-day free trial, why not give it a try. Cleverly, the cheaper Silver plan does NOT have a free trial period. Many consumers will check out the Gold and never remember or bother to switch back to Silver.

By the way, we first heard about this offering through a banner ad on eBay in June.