NetBanker 2.0

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):

Free wi-fi in branches? Wi not?

Providing free wi-fi is like offering a toll-free number 30 years ago—a consumer-friendly way to make you stand out from the crowd. But unlike call centers, which have grown into multi-million dollar cost centers, free wi-fi only  runs about $50 per month per location, a price that is sure to fall over the coming years.

There are two ways to jump on the wi-fi bandwagon:

1. Offering access to users in branch lobbies
2. Sponsoring free access at local gathering spots such as coffee shops, community centers, or libraries

Analysis
If you are of the branch-as-a-retail-store mindset such as Washington Mutual's Occasio concept or Umpqua Bank's plasma-TV zones (see right), then free wi-fi is a great way to bring customers into the branch and keep them there (until presumably they buy something). Even more important than the opportunity to sell checking accounts to laptop-toting visitors, is the publicity you'll receive as the first bank in your area to offer such a trendy service. Only 15 U.S. bank branches currently offer wi-fi access according to JiWire (see Appendix below).

If you are concerned that high-schoolers looking for MySpace friends will inundate your lobby, you can let the coffee shop across the street provide the seating while you sponsor free Internet access (through a service provider).

With either approach you can require users to enter a bank-branded screen first, register, and create a wi-fi access username and password for subsequent access. You can then use this information to market your online banking and other services.

-JB

Appendix: Wi-fi in U.S. bank branches
JiWire lists 110,512 wireless Internet "hot spots" worldwide in its online database <jiwire.com>. Fewer than 1,000 are at bank locations, mostly in South Korea. In the United States, only 16 bank branches—out of about 80,000—currently offer wireless Internet access to customers, at least according to JiWire (see list below), and six of those are in the San Francisco area:

US Bank - 2 branches in the SF Bay area
Citibank - 1 branch in the SF Bay area
Integra - 1 branch in Indianapolis, IN
Bank of America - 2 branches in the SF Bay area, 1 in Miami, 1 in Norwalk, CT (Fleet)
Union Bank of California - 1 branch in the SF Bay area
First National Bank - 1 branch in San Diego
First National Bank - 1 branch in Hutchinson, KS
Cass County Bank - 1 branch in Queen City, TX
Charter One Bank - 1 branch in Cleveland, OH and 1 branch in Albany, NY
Umpqua Bank - at least 1 branch in Portland (reported in the press, NOT in JiWire listing)