NetBanker 2.0

Apple's iPhone to provide even more reasons to bank on the go

Yesterday, I wrote about how new downloadable search apps were likely to spur mobile banking adoption as users grew more accustomed to using their phones for more than voice calls (see post here).

Today, a potentially bigger driver was unveiled. The much-anticipated Apple iPhone which was such big news that the company's homepage was given over to a single image of the iPhone (see screenshot right).

Given Apple's recent track record, the combo iPod/phone/camera/browser may do even more to spur adoption of mobile services than the Google/Yahoo/Microsoft offerings (see note 1). 

Why? Because its user interface appears to do an excellent job of exposing the non-phone functions. While the same can be said of Blackberrys and Treos, this phone, co-marketed by Apple and Cingular, is expected to be a mass-market hit along the lines of the iPod (see note 2). As one blogger put it, "Apple didn't unveil a phone today, they unveiled a $500 fashion accessory" (see note 3).

While the built-in Safari browser and magnification function will spur mobile browsing and banking via standard and WAP websites, there is no indication if and when the iPhone will support True Mobile Banking via downloadable third-party applications. The demo phone on the Apple website <apple.com/iphone> does include a stock tracking widget (see inset).

However, given Cingular's involvement in mobile finance, with pilots underway with MasterCard, BancorpSouth/Firethorn/ CheckFree (see our coverage here), we expect that banks will have the opportunity, likely at significant cost, to add a widget to the phone (see our Wells Fargo iPhone mockup at right; see note 4).

Bonus prediction: Within two years one of those buttons on the iPhone will activate contactless card payments via MasterCard, Visa, or American Express.

Notes:

1. Apple's iPhone will ship with integrated Google and Yahoo search.
2. Apple is forecasting 10 million unit sales in 2008, but at least one analyst has already called that low according to today's Wall Street Journal. Worldwide iPod sales are expected to be 40 million units in 2006. However, no one expect the iPhone market share to get anywhere close to the iPod's 80%. Competition is far more advanced and intense in phones than it was in MP3 players.
3. I can't recall where I read this, still looking for the attribution.
4. We added the Wells Fargo logo to the iPhone image; the bank has no known relationship with Apple or Cingular.

ING Direct to launch online checking account in February

As previously reported here, direct-banking giant ING Direct (U.S.) <ingdirect.com> will soon be in the checking account business with the Feb. 1 launch of Electric Orange.
(No word on whether the German band of the same name will be part of the launch event.)

In an interview published yesterday in Delaware's The News Journal, CEO Arkadi Kuhlmann revealed important details about the effort:

• It would be made available to about 10% of the bank's 4.4 million customers in December
• The nationwide launch is scheduled for Feb. 1
• ING Direct is planning to add 500 workers at Wilmington's headquarters to support the product, an expansion of more than 50% from its current headcount of 900
• The account will NOT have paper checks, but it will allow customers to print one from their home computer if necessary
• The interest rate will be 3%, about a third less than its savings rate of 4.4%
• Surcharge-free ATM access will be provided through the Allpoint network of 32,000 machines

Product postioning
While the account sounds relatively standard for an online-only checking account, the ability to print a check from home is an interesting feature we haven't seen before. It sounds like ING Direct will be marketing ease-of-use benefits, most likely centered on the bill payment function.

The catchy name combined with ING Direct's marketing flair (see picture right from its Chicago cash-cow promotion) should make for an interesting product launch. We'll be paying close attention here and testing the account as soon as possible.

Analysis
There is little reason for most consumers to choose a branchless bank for their main checking account when they can get free checking PLUS branch services at their local financial institution. ING Direct has long understood this and has not squandered resources on a limited-appeal product.

However, with more than 4 million customers, they have a large enough base to make a profit on a checking account, even a (relatively) lightly used one.

Due to the bank's ease of use and well regarded brand, it should be able to convince a portion of its base to use Electric Orange checking as an auxiliary account, perhaps as the household bill-pay account.

If the bank moves 5% of its $47 billion in savings deposits into the checking account, it would save $3.5 million annually in interest expense. Add another $3 billion in net new deposits at a 3% spread and Electric Orange pulls in $10 million per year, enough to cover expenses anyway.

Bank-account switching tools from Intuit and uSwitch take center stage

"The biggest profit center at banks is customer ignorance, which banks have mistaken for customer loyalty."
-- Gary Hamel, speaking to 1,000+ bankers at BAI's Retail Delivery Conference, Nov. 15, 2006

I've always been a sucker for management-guru speakers. I can still remember Tom Peters speaking at a sold-out show in Peoria, Illinois, back when I was a wet-behind-the-ears management-trainee for Caterpillar. It was 20 years ago during the height of "In Search of Excellence" mania and it helped me realize a lot can be done to improve business performance.

So every year I make it a point to sit up front when BAI trots out the guru-du-jour to inspire the banking crowd. This year, it was Gary Hamel, a Harvard guy that, I'm sorry to say, I hadn't heard of prior to Wednesday (see the End Note for a summary of his recommendations presented to the BAI crowd).

But man did he grab my attention with his challenge to the assembled bankers and tech-company reps (see quote above). He believes banks are vulnerable as customers become better equipped to compare the price of various financial services, a natural role of the Internet.

The importance of switching tools
Hamel believes financial services loyalty will disappear once customers discover how easy it is to move their accounts to pick up a hundred basis points on their savings rate, or avoid $35 overdraft fees.

In his BAI presentation, Hamel pointed to U.K.-based uSwitch <uswitch.com> as an example of a new tool to help financial customers compare and switch banking accounts (we'll profile it in an upcoming article).

As Hamel was delivering his keynote, Intuit was busy in a nearby Mandalay Bay eatery briefing analysts on its new account switching service, scheduled to go live December 15. The clever service is built on the Teknowledge aggregation engine acquired last year (data sheet here). Intuit's service is similar to Yodlee's service announced in September (see our coverage here). We'll be covering it in more detail as it goes live. 

End Note:

Hamel's management philosophy
I have yet to read Hamel's books, but what he talked about Wednesday could be boiled down to the following:

• Employees shouldn't be "managed" they should be "led."
• In practice, he'd like to see nearly all management eliminated and replaced by small, self-managed teams working to achieve company goals.
• As much as possible, teams would make their own product, pricing, and staffing decisions.
• Compensation would be highly dependent on the team's results in achieving the ambitious profit goals set for them by the company.
• His examples: Whole Foods, W.L. Gore, and Google.      

Has mobile banking finally arrived?

During 11 years of publishing Online Banking Report, we've written about 500 words on so-called "mobile banking."

Even though it was a much-hyped topic in the late 1990s, our answer when asked about mobile banking was, "Fix your Web-based banking, add email alerts, and mobile will take care of itself."

But it looks like times may be a-changing. Cingular is throwing its considerable muscle into a phone-centered service using Firethorn's <firethornmobile.com> new platform (see homepage right), and the U.S. market for wireless services is enormous (per MasterCard & Cingular during their Nov. 16 presentation at BAI's Retail Delivery Conference):

• 2 billion mobile phone users worldwide, including 218 million in United States (per Cingular)
• Nearly 80% of U.S households own one (per Forrester)
• $660 billion of revenue for voice, messaging, and data services
• 75 million U.S. mobile phone users sent a text message in September (per M:Metrics, 20 Nov. 2006)

Even more interesting, ClairMail shared market research showing that nearly two-thirds of U.S. consumers aged 18 to 34 have used text messaging during the past three months, demonstrating that even in the laggard U.S. market, a core group of consumers is ready, willing, and able to use the phone for more than just voice calling.

Analysis
There are three main reasons why mobile banking's time has arrived:

1. It works on common phones: Previous generations only worked on a subset of high-end PDAs; now most mobile phones can handle mobile banking.

2. It has a business case: Mobile banking can both increase fee income by being a core component of a Premium Online Banking service (see Online Banking Report #109) AND lower costs by migrating voice calls away from the IVR and into self-service.

3. The youth movement: Younger consumers interact with each other in real time via text and instant messaging. There is little doubt that they will value the same type of interaction with their bank.

We'll be looking at this subject in much more detail when we publish our first exhaustive report on the subject in January (see Online Banking Report in late January or early February).

Royal Bank of Canada launches new blog supporting its "Next Great Innovator Challenge"

Royal Bank of Canada (RBC) launched a blog Tuesday, becoming the second largest North American bank in the so-called blogosphere. Wells Fargo was the first (see coverage  here). Thanks to Colin at BankWatch for the tip.

The RBC blog is part of a larger effort, The RBC Next Great Innovator Challenge, a marketing campaign aimed at rewarding innovation among Canadian college students (see main page below, note the Second Life-like avatar on the right).

The team of college students that develops the most innovative idea in the area of "teens and financial services," in 2,500 words or less, wins CDN$20,000. The top five teams will present their ideas to RDC management. Runnerups receive CDN$1,500 to $10,000 (total prize pool is CDN$40,000). Registration closed Oct. 31, with final presentations scheduled for early 2007.

Analysis
From a marketing perspective, there is much to like about this effort that:

• Positions the bank as innovative and striving to be even more innovative
• Generates a tremendous amount of positive press, both at the outset of the program and later as finalists are selected, then as winners are announced
• Drives traffic to its website
• Brings in new student accounts (it is no coincidence that the program launched during back-to-school time)
• Impresses the parents by rewarding creative teamwork by their kids
• Provides a large number of ideas that RBC can use in future bank products and student banking efforts
• Identifies potential future employees among the contestants
• Impresses Canadian businesses with the bank's support of young entrepreneurs

It's surprising that the bank didn't start a blog until the content closed, but better late than never. The blog will still serve as a great way to continue the momentum as the contest moves through the selection process. We'll take a closer look after it's been running for a few weeks.

Online Banking Report releases its annual planning issue

Our sister publication, Online Banking Report, released its latest report, 2007 Online Banking Planning Guide. The 60-page report is packed with more than 1,000 ideas, tactics, and strategies for use by banks, credit unions, mortgage companies, credit card issuers, brokerages and insurance companies.

The report includes the following sections:

• Consumer product planner
• Small business product planner
• Fee-income planner
• Messaging planner

Online Banking Report subscribers may download the free report here. Others may purchase the report for US$495 here.

For more information, download the table of contents here.

Truly virtual banking in Second Life

We've come a long, long way since the dawn of the commercial Web, which in banking began in May 1995 when Wells Fargo posted the first customer statement on a website.

Back then, when we talked about virtual banking, we meant Internet banking. Now, there's the very distinct possibility that banks and credit unions will set up shop in virtual worlds such as Second Life from Linden Lab <secondlife.com>.

Let's call it truly virtual banking. Second Life, with more than 940,000 users, allows the exchange of virtual Linden dollars for real greenbacks, currently at a rate of L$273 to US$1. Due to the possibility of real profits from virtual activities, this metaverse has attracted more than 10,000 businesses including Starwood Hotels and others (see Analysis below). 

Apparently, the first real-world bank with a truly virtual presence is none other than Wells Fargo, whose Stagecoach Island debuted in Second Life late last year. However, after a few months the site was moved to a standalone site with no connection to Second Life <stagecoachisland.com> (see screenshot below).

In Second Life, the private island was accessible only to Wells Fargo customers who received an invite from the bank. Normal Second Lifers could not gain entry. Users were given a $30 stake in virtual cash. Although the island tempts them with various ways to spend it, the goal is to save, with interest paid at the rate of 10% per day. Users can earn additional cash by taking finance-oriented online quizzes.

The stated purpose of Stagecoach Island is financial education. It is part of a larger program aimed at younger adults. The We Take the Fun of Money Seriously program was piloted in Austin and San Diego last year. Here's an excerpt from the Sept. 14, 2005, press release:

Wells Fargo is hosting a series of live "We Take the Fun of Money Seriously" events throughout Austin and San Diego during September and October where young adults can participate in various activities — from karaoke and trivia games to athletic challenges and photo booths — and win prizes while learning about banking basics. Event participants will receive the Web address and a unique log-in code for the Stagecoach Island software and will have the opportunity to play the online game at home for 30 days.

Apparently, the pilot was successful. This year, the program was used at summer rock concerts, primarily a dozen venues of The Warped Tour, and at 19 college campuses this fall. The first stop was Aug. 20 at the University of Nebraska and the tour ends Nov. 1 at Central Washington.

The bank was assisted by Swivel Media, a San Francisco-based marketing firm which hosts a Web page and short video devoted to the game at <www.swivelmedia.com/fun_money.htm>. According to a July blog post at Clickable Culture, the company paid $17,000 to Second Life freelancers to build the game.

Analysis
Online gaming, or advergaming as it's sometimes called, is a good way to make an impression with younger users, even though it may be difficult to create a game not considered totally lame by the target audience. We recommend keeping it simple, and bribing the target audience with numerous prizes.

The bigger issue, whether to create a presence in Second Life and/or other metaverses, is more complicated. Several major brands have recently taken the plunge including American Apparel, Starwood Hotels, and others.

The Starwood's program is interesting. They are using the Second Life hotel project, aloft, to create a buzz for a real-world brand they intend to introduce in 2008 under the same name. The hotel's Second Life effort is chronicled in its own blog, <virtualloft.com>, which includes a virtual grand opening featuring Ben Folds scheduled Oct. 19.

Financial institutions, looking to create some buzz, should consider a presence in Second Life. With an expected population of one million by year-end, the marketing opportunities within the metaverse are intriguing. But more importantly, a Web-based blog and marketing campaign could yield millions of free impressions for online and offline media.

However, this is not as easy as it seems. There are numerous risks and obstacles that must be overcome. The largest banking operation in Second Life, Ginko Financial <ginkofinancial.com> which lends Linden dollars at 44% interest, has been plagued with accusations of fraud, specifically of being a Ponzi scheme (read Reuters article here). There have also been recent incidents of Second Life hacking that have caused problems.

But the biggest risk is to your reputation. Not only are you vulnerable to the whims of the game players, you also risk being associated with the more adult-themed activities in Second Life. Before taking the plunge, you should have a staffer join the metaverse and consult with seasoned players for advice on proper "game etiquette" (remember "netiquette" ten years ago?). You want to make sure you position yourself as "less lame" than the average financial institution.

But those risks are manageable; in fact, they are similar to the problems you deal with in the real world. And given the potential buzz from a successful Second Life brand, it's worth your while to investigate the potential.

P.S. If you think this is all a fad, consider the source of the Ginko Financial article cited above. It was written by a new full-time reporter from Reuters who works IN Second Life (see NY Times story here).

Resources:

• Sept. 2005, CNET article on Wells Fargo's Second Life promotion (15 Sep 05)
• Aug. 2006, BusinessWeek article on Starwood Hotel's virtual hotel in Second Life
• June 2006, BusinessWeek article on American Apparel's store in Second Life
• Oct. 2006, brief article on the overall economics from Silicon Vally Bank
• Today's Reuters story on Ginko Financial

U.S. Bank adds payday loans to online banking

Here's something we hadn't expected, payday loans from a major bank delivered through its online banking program. Minneapolis, MN-based U.S. Bank, not known for its pioneering work in online banking, quietly added payday lending to its platform recently.*

How it works
Users are alerted to the feature through a green link at the top of their checking-account transaction detail (see below).

Clicking on the link returns the well-designed "advance" pop-up screen where users can elect to take an advance from their next paycheck or from one of their pre-existing credit accounts (see below).

After selecting payday advance, users choose the amount and then follow the instructions to complete the loan. Funds are moved in real-time with no credit check. Since we don't have a direct-deposit paycheck, we didn't expect to qualify for an advance. However, we did receive a token "advance limit" of $80 (see "Available Credit" in lower-right box below).

Pricing & Disclosures
The advances are priced at 10% of the advanced amount, with a $20 minimum advance. Advances are automatically deducted from the checking account in one month if not already repaid. The APR if the amount is outstanding for the full month is 120%. Only one advance can be outstanding at a time.

In our example below, we chose a $20 advance and were required to repay $22.

The program is well-disclosed with a lengthy FAQ and Disclosure Statement (click on the continuation link at the bottom to see these documents).

Analysis
Putting an advance button at the top of checking-account transaction data is a great idea. However, at least in our case, the bank's implementation was questionable. Although we maintain as low a balance as possible in this checking account, we often run $10,000 or more through it. Also, we have an open credit limit of $20,000 on a U.S. Bank credit card linked to this account. Offering us an $80 advance limit is ridiculous.

Also, we're not sure that online payday lending is strategically very smart. Why charge 120% APR on small advances of one-month duration, risking customer and press backlash, when you could instead upsell an overdraft line of credit with a reasonable APR? 

The bank would stand to make much more on a reasonably priced overdraft line of credit, which could be delivered nearly as seamlessly. For example, a $2,000 outstanding balance on an 18% line of credit would provide $200 or more of annual profit vs. about $40 for a pair of $200 advances. And the customer will likely be more satisfied with the credit line. 

Although the bank demonstrates in its disclosures (see notes below) that its program is less expensive than an NSF fee or a typical payday loan, the 120% APR will likely create a bit of a furor with consumer advocates lambasting the bank in the press. It appears to have escaped notice so far.   

U.S. Bank deserves a pat on the back for its innovation, but without more consumer-friendly pricing, the payday-advance program may backfire on them.

*We have several accounts at U.S. Bank and noticed it this week for the first time.

End Notes (click on the following link for more information):

Will Google create an online Quicken clone?

Google hit the news today with a modest improvement to its online word processing and spreadsheet services, combining them in an umbrella offering called Google Docs (see TechCrunch analysis here).

Clearly, the Web giant hopes to convert millions of casual users from Microsoft Office to its ad-supported services. If they make headway in word processing, it's only a matter of time before they offer more specialized software applications. One area likely to be seriously considered is personal finance management, dominated today by Intuit's Quicken and Microsoft Money.

It would be relatively easy for Google to jump into the market. For a few million, it could acquire one of the personal finance startups such as BudgetSnap (see Sep 12) or Foonance (see Aug 10). Or it could build a service by licensing Yodlee's MoneyCenter (see July 5).

Analysis
What impact would this have on financial institutions? For banks with basic "plain vanilla" online banking, it could be a major threat if users began storing their banking transactions at Google, especially if the company offered automatic pre-scheduled downloading, which is likely. Users would log in to their banks far less often, diminishing the opportunities to cross-sell and service customers. And with the transaction archives stored elsewhere, it would be much easier for consumers to switch banks, reducing the relationship value of online banking and bill pay.

To avoid being marginalized by online personal-finance services, banks should boost their feature-set to include basic financial-management features, such as payment categorization, long-term storage, and reporting. Consumers have little desire to store confidential information with a Web-based company; however, if you don't provide obvious features, such as transaction storage, users will look elsewhere.

For more information
Our previous coverage is here. And for those wanting a detailed look at online personal finance, read our recent Online Banking Report #131/132, "Personal Finance Features for Online Banking" (subscription required).   

Bank of Internet launches MyRVBank

Bank of Internet <bofi.com>, has launched its second niche, direct-bank brand, MyRVBank. This one is targeted to the 8 million U.S. households with recreational vehicles. The site is virtually identical to its Senior Bank <seniorbofi.com>. The only differences, aside from the URL, are the homepage picture, different button designs, a few unique links in the Community Center and the blog. Click on the screenshots below for closeups (follow the continuation link at the bottom of the article to see a comparison of the product pages).

 

Analysis
Creating microsites for market niches is a good strategy. The RV market has been targeted by at least two banks in the past, Chase Bank in 1997 and Affinity Bank. Neither of those programs is still in operation.

Bank of Internet shows how to do niche marketing on a shoestring budget, basically repurposing its existing Seniors' website. The bank said it spends less than $100,000 on the niche site. From the looks of it, I'd estimate it's quite a bit less than $100,000.

The only content differences are in the Community Center which contains several links to blogs and other resources of interest to RVers. The bank also sponsors a blog, MyRVBank Blog, hosted on Google's free Blogger site <myrvbank.blogspot.com>.

Blogging is a great idea, and we think every financial institution will eventually host a blog (see FMW Aug. 29); however, the bank's RV blog is bad. It's designed to demonstrate the joys and pitfalls of life on the road, with a hired guest blogger, Tim McWhorter, chronicling his year-long trip with his wife and four kids across the country.

Here are a few of the problems with the blog:

1. No pictures: Travel blogs MUST have pictures at least every once in a while
2. Small type: The font is small and the text-only postings have almost 25 words per line, an uncomfortable read for most users, especially the seniors they are trying to attract.
3. Poor layout: The blog doesn't even use many of the free tools available to make it more visually interesting; for example, entries without dates, no author profiles, no explanations of purpose, no recommended links, no post categories, and no permalink so other blogs can link to specific entries.
4. No email address: Most blogs provide a means to communicate with the author(s).
5. No RSS feed: The blog does not allow users to sign up for an RSS feed.
6. Infrequent posts: There are seven posts since the supposedly grand RV adventure started June 24; only three about the trip and four generic posts about fuel economy, buying an RV, and so on.
7. Boring: It's just as well that there are few posts, because what's there is mind-numbing dull. Here's an excerpt about the trip:

When we came back outside, the sky had darkened and thunder was easily heard off in the distance. We had five miles to get back to our car with several large uphill climbs ahead of us! Yikes! We made it back to the car and loaded up the bikes. We did not even make it out of the parking lot before it started pouring down rain! We were very relieved to make it back before the storm which was also accompanied by high winds and lots of lightning.

Bank of Internet has the right idea here, but they need to invest a bit more in design and content to make its niche marketing effort more appealing. In addition to sprucing up the blog, the bank should work with marketing partners such as KOA to provide more RV-related value adds. The bank should also do a better job highlighting features of interest to frequent travelers, such as the $10 month in ATM surcharge rebates.

--JB