NetBanker 2.0

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.

Integrating gift cards into online banking

Gift cards are hot, accounting for nearly 5% of holiday spending last year. How can banks leverage this interest?

There are two broad categories to consider:

1. Prepaid MasterCard/Visa
2. Single-merchant gift cards

Most discussions in the industry are centered around prepaid MasterCard/Visas, but we think there is a significant opportunity in the second category: merchant cards. Here are ways for financial institutions to jump onto the gift-card bandwagon:

Easy (requires little investment, primarily customer education):

• Purchase education: Provide consumer education on the pros and cons of merchant gift-card purchases and urge customers to charge the cards to your credit or debit cards. Emphasize built-in protections such as fraud guarantees, tracking, and so on.
• Purchase incentives: If your systems allow it, add an incentive such as a 1% rebate, sweepstakes entry, or purchase protection.
• Directory: Publish a list of stores that are selling gift cards and/or create an online directory where cards can be purchased online.

Harder (requires programming, employee training, and more)

• Integrate gift-card account-access into online banking: Using account-aggregation technology, such as that offered by Yodlee, CashEdge and others, link to the merchant's gift-card account-management area such as <starbucks.com/card>. The integrated view would provide a secure and easy way for customers to manage their gift card accounts.
• Offer automated reloading via your debit/credit card: When gift-card account balances get low, offer to automatically reload from your credit/debit card. Reloading could be manual or automated, e.g., "Add $25 to my Starbucks card whenever it dips below $5."
• Send low-balance alerts when gift-card accounts dip below a set amount.
• Resell merchant cards via shopping cart such as The Card Cafe <cardcafe.com> (see screenshot below)

Hardest (requires customer training, sales, and website programming)

• Issue gift cards on behalf of merchants
• Sponsor your own gift card network with a stored-value card that can be used at multiple sources. For example, the Northampton Chamber of Commerce <northamptonchamber.com> markets a gift card that can be used at 50 local merchants (see inset). The card, which can be purchased, reloaded, and tracked online is powered by Swipe It Technology <swipeit.com> which offers turnkey gift and loyalty packages beginning at $299, plus a $12 monthly fee and $0.23 transaction charge. Other vendors include eCardSystems <ecardsystems.com>, Valutec <valutecardsolutions.com> and Value Gift Card <valuegiftcard.com>.

The business case
There is a surprisingly good business case for integrating gift cards into your online banking service with not one but three potential revenue streams:

1. Interchange from loading/reloading: Provided customers load the card via debit/credit, you can earn 1.5%+ on the load, for a $50 card, that's $0.75 per load
2. NSF/OD income: Every debit card purchase increases the chance of an NSF/OD item; assuming one of every 300 cards loaded results in an NSF/OD fee, the profit per load is $0.10 ($30/300).
3. Merchant commissions: Selling cards at your website could earn $5 or more per card sold.

The program also brings in the usual intangibles: new customer accounts, positive PR, branding benefits, retention and so on.

--JB

Starbucks gets creative with prepaid

When it comes to stored value cards, Starbucks is the one to watch. It's most recent innovation: a Mother's Day "card" with a place on the plastic where you can jot a quick note to mom (see close-up below).

Don't you wish you would have thought of that?

The Starbucks stored value card, first introduced in 2001, is just now being positioned as a collectible. Stores in the Northwestern United States and in Japan are selling a sealed $10 prepaid card carrying the likeness of popular Mariner baseball player Ichiro Suzuki. The cards are also sold online at Starbucks.com.

Analysis
We believe stored value gift and travel cards are a natural for online banking. They provide an interesting retail element unavailable with most banking products.

The Starbucks email (click on the thumbnail above) is a good example. What bank product would have worked so well in a Mother's Day promo?

In additio to their marketing benefits, prepaid cards command fees and can be profitable; no small matter in the United States, the land of free online banking and bill pay. 

Ironically, Bank of America recently dropped out of the retail prepaid card business, most likely due to increased state rules and regulations on dormant account fees, one of the primary profit drivers for banks.

Don't let BofA's move worry you. Just be thankful there are now 12 million more potential customers for the rest of the industry to share.

--JB