Author: Jim Bruene

Netbank Wallflowers Concert Promotion

By Jim Bruene Posted on
Categories: Advertising & Promotion, Deposits, Checking, Savings, CDs, NetBank

Netbank_concert_logoMaybe I’m biased as a fan, but I think Netbank’s Concert Connection, sponsoring a free Wallflowers concert, is a great stunt. Especially if the bank can leverage it to gain exposure in more than just the Austin market.

Here’s the offer (click on inset below to see landing page): Customer’s who plunk down $500 into a new checking account, or $1500 into a CD or Money Market, get two free tickets to a private Wallflowers show in Austin, TX on Sept. 17. The money must be kept on deposit for at least 90 days or the bank will deduct $85 to cover the tickets.

The bank’s press release says it will be promoting the offer with a mobile vehicle along with billboards, print and radio ads. The concert venue holds 5,000, so Netbank can use the offer to attract a maximum of 2500 new accounts.

Netbank_concert_promoAnalysis
This is an expensive promotion for a single market, with the concert alone cost an estimated $100,000 or more, not to mention the cost of promoting it in the Austin market. It might make more sense to sponsor an entire Wallflowers tour, providing tickets to new Netbank customers around the country. That would be even more costly, but would guarantee broad exposure to the offer.

Yet, we still like the Austin promotion for several reasons:
1. Free publicity: There’s nothing like a free event to garner media exposure.
2. Lasting brand impression: Unlike other media campaigns, this event should provide a more lasting brand impression, especially with the 25-35 crowd attracted to this music.   
3. Dylan connection: The Wallflowers, led by lead singer Jakob Dylan, son of rock legend Bob Dylan, is an especially good choice for this promotion. Along with its younger fan base, the band will also attract attention from an older crowd that might drop $1500 into a CD to see if Jakob can carry on dad’s legacy.
4. Concert tie-ins: Even though the event is primarily oriented to Austin-area consumers, it will pull in business from Wallflowers fans all over Texas. But to reach beyond Texas, Netbank should consider negotiating rights to offer the concert as a free download for all its customers. Other tie-ins with merchandise, fan clubs, and so on are also possible.

The downsides:
1. Demographic mis-match: Alt-rock fans aren’t usually old enough or wealthy enough to be parking big cash piles in a bank. Many will deposit the bare minimum and pull it out after 90 days or when their CD matures.
2. High acquisition cost: As you can see by the mini-business case below, the acquisition costs are hefty. Assuming Netbank ends up with 500 new accounts that remain open after the 90-day minimum, the cost per new account is $2000 or more.
3. Extra customer service load: The first law of marketing applies here: for every customer delighted with your offer, another is mad because they missed out on it for some reason. We can already see brewing discontent on the Wallflowers bulletin board from rabid fans that don’t have the extra cash to plunk down into Netbank to earn the tickets (we have one word of advice for them: eBay). Also, there can always be headaches when third parties are involved. As we were researching this article, we noticed that the ticket fulfillment site, Tickets.com, was not functioning properly. We were able to download two Wallflower tickets without fulfilling the offer requirements. We notified Netbank right away who will likely have it fixed within hours. Now if we could only find a business reason to be in Austin on Sept. 17….

Back-of-the-envelope business case:
Cost = $150,000
$100,000 for the concert + $50,0000 out of pocket promotional expenses (assumes radio exposure is bartered for with free tickets)

Accounts generated initially: 1500 x $2000 average deposit = $3 million in deposits worth $30,000 to $60,000 per year assuming a 1% to 2% spread (will depend on deposit mix)

Long-term accounts generated: 750 assuming a 50% fallout after the first year

Acquisition cost: $150,000/750 = $2000 per long-term account

—JB

 

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Everbank’s MarketSafe CD

By Jim Bruene Posted on
Categories: Deposits, Checking, Savings, CDs, Everbank, Investment Products

Everbank_marketcd_2 When I was a deposit product manager in the late 1980s, I worked on a project to bring out an equity indexed certificate of deposit. That project died, one more merger casualty, but I've always been intrigued by the product.

Over the years, a number of banks have offered market-indexed CDs, but they've never been much more than a niche product. That's OK. More than half of Amazon's book sales are from titles not found at retail bookstores. The Internet is a great place to mine the niches. Everbank has already proved that by moving nearly $1 billion worth of foreign currency-denominated deposits.

Analysis
The problem with equity indexed CDs is that they are crummy investments. By the time you pay for the hedging, marketing, and bank overhead, there's not much left over to pay the investor.

Let's look at Everbank's latest incarnation. The MarketSafe CD provides a total return based on a relatively complicated formula that averages S&P 500 prices at six-month intervals during the five-year term. In an up market, the CDs typically return 40% to 60% of the S%P gain (click on inset below).

The main selling point: Investors are guaranteed a minimum 5% total return over the five years (APY = 0.98%). The CDs are FDIC insured up to $100,000 with a minimum investment of $1500.

Everbank_marketcd_returnsBy Everbank's own figures (click on inset), its CD would have only beaten the S&P 500 index eight times during the previous 31 five-year periods beginning with 1970-1975. And by our estimates, the return would have beaten a normal 5-year CD more than half the time, 17 out of 31 periods. But only twice did the MarketSafe CD beat both the S&P and a regular CD.

Expected returns would be higher if the investor simply bought a mix of regular CDs and S&P indexed funds. The most conservative would be an 82% CD, 18% S&P mix that would still return all principal even if the S&P went to zero (assuming 4% CD APY). For the less conservative, a 67% CD, 33% S&P split would still return the principal even if the S&P dropped 40%. You get the idea.

But the target market for MarketSafe CDs is probably someone that never invests in equities. For that person, the MarketSafe is a reasonable way to put a little money "in the market." From Everbank's perspective, it's a nice addition to their unique deposit product line.

Addendum: View full screenshot of MarketSafe CD page

—JB

 

 

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What Not To Do: Verity’s 10% APY Come-On

By Jim Bruene Posted on
Categories: Deposits, Checking, Savings, CDs, Verity CU

Verity_cu_10apyNormally, we don’t pay much attention to radio ads, usually pressing the Seek button as soon as one comes on. But today, a particular ad caught our attention. It was for a 10% APY CD offered by Seattle-based Verity Credit Union (see inset) which accepts any resident of Washington state as a member. The term was 10-months and the maximum deposit was $1000.

While we admit this rate did get our attention, we don’t like this tactic for several reasons:

1. Bait-and-switch: Sophisticated depositors know it’s a teaser rate; and they will only leave their money on deposit long-enough to grab the $83 interest check. However, it’s the less-sophisticated that actually think this might be a real rate, that get sucked in only to be deeply disappointed once rates ratchet back to the standard 3.25% rate.

2. Too expensive: Depositors receive $83 in interest instead of $27, a before-tax difference of $56. We think the credit union would be better off providing a straight $50 incentive for new deposits of $5000+ and/or $25 for $1000+. Not only is this a lower cost for the financial institution, it’s more straight-forward for the customer, and could bring in a higher average balance.

3. Too exclusive: Only applies to new members or existing members that convince a non-member to open one of the CDs. Blasting an offer across the airwaves and homepage that applies to new customers only is a sure way to disappoint existing members. Furthermore, the website has no explanation of how to refer a customer or how to take advantage of the referral bonus. As a matter of fact, the website has no more information about the special other than what’s shown in the homepage graphic (see inset above). The graphic image is NOT clickable.

4. Cannot apply online: Maybe we’re biased, but we strongly believe that red-hot products advertised on the radio and on the middle of the homepage, should have an online application. Verity’s promotion directs interested parties to its branches or call center.

—JB

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KeyCorp Enters High-Rate Deposit Game

By Jim Bruene Posted on
Categories: Deposits, Checking, Savings, CDs

Keydirect_logo_1As we gave a cursory glance to the BankRate.com deposit rate table in today’s Wall Street Journal, we were surprised to see KeyDirect listed at the top of the Money Market and Savings Account section with a 3.66% APY and a $50 minimum deposit.

We were even more surprised to find that KeyDirect is not a small bank in the middle of Idaho, but a little-known division of KeyCorp, the $91 billion bank headquartered in Cleveland, Ohio. Key may be the first mainstream player to try to compete with the online-oriented direct banks such as ING DIrect, E*Trade Bank, and others. (See previous article.)

The success of Emigrant Direct, which said Monday that it has attracted more than 100,000 accounts with offers pasted all over BankRate.com, may encourage other traditional banks to test direct banking tactics. The New York-based bank said that the 100,000 accounts have an average balance of more than $30,000, meaning the bank has bagged more than $3 billion in deposits.

The next Online Banking Report (#120/121) will look at deposit gathering with a special emphasis in the high-rate game.

— JB

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Online Banking Confidence Still at 60%

By Jim Bruene Posted on
Categories: Metrics & Market Research, Security & Privacy

The problem with most published information on consumer attitudes is that they don’t show the trend. It’s interesting to see that a certain portion of the population expresses concern about ecommerce security, but it’s not really actionable unless you see it in context. That way you know if the concern is growing, stable, or lessening. Or if consumers are more concerned about branch lobby security, telephone, or mail security.

Kudos to Informa Research for publishing a table showing consumer attitudes on online banking security dating back to 2000. As you might expect, consumers are significantly more confident than they were five years ago (59% vs. 49%), but there has also been a substantial drop-off since 2003 (59% vs. 70%).

Percent of consumers that Completely or Strongly Agree with the following statement:
Internet-based transactions handled by financial institutions are safe and secure

2000  49%
2001  56%
2003  70%
2005  59%
———–_
Source: Informa Research, Aug. 2005, n = 1690

Analysis
Taking a cup-is-half full approach, we are pleased to see that the majority of consumers still consider online banking to be safe. Although the drop-off from 2003 is a concern, we’ve probably hit bottom, barring any dramatic breeches in the near future. As banks institute security upgrades such as multi-factor authentication, broader security alerts, and secure messaging, consumer confidence will grow.

—JB

If you’d like to learn more about the future of online banking, check out the Online Banking & Bill Pay Forecast: Current, future and historical usage: 1994 to 2016 from our sister publication, The Online Banking Report.

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Is Zopa the Next Big Thing in Online Lending?

By Jim Bruene Posted on
Categories: Loans & Credit, Zopa

Zopa_logoThe Internet has changed a lot of things in the past 10 years, but banking isn’t one of them. Sure, it’s now much easier to check your balance or see who you wrote check #1127 to. But these are incremental improvements. Nothing like what online brokerages did for trading stocks, or eBay for selling junk.

Thanks to government guarantees, and consumer cautiousness with their money, it’s a bit hard to disintermediate the banking system. Or is it? 

Zopa_borrowingTake a look at UK’s Zopa, a recently-launched online loan exchange built by execs from Internet-only bank Egg. Zopa matches lenders and borrowers, cutting out the middlemen (actually inserting themselves in the middle instead of a bank), potentially creating a more transparent and less expensive system (Zopa takes a 1% loan fee).

Like the U.S. mortgage system, risk is spread around by splitting each loan into 50 or more pieces that are pooled and repackaged into loans that are placed with individual investors (i.e. lenders). The borrowers and lenders remain anonymous to each other.

Funding from Benchmark Capital and Wellington Partners is further insurance that the company will be taken seriously.

Analysis
Is this a disruptive banking technology? Maybe. Variations on this theme, such as Circle Lending, are in existence. But there hasn’t been an effort as well funded and stocked with talent as Zopa. If anyone can pull this off, it’s the Egg folks. The Zopa website is fresh and irreverent, taking on banks at every step of the way (click on inset above).

Banks are easy targets, but to make this work, it’s going to take an extremely user-friendly system, some fantastic marketing, and a little luck. One of the big problems any startup lender faces is adverse selection. In other words, too many borrowers will be on the verge of a sharp decline in their creditworthiness; a decline not yet reflected in the credit score used to screen borrowers and price their loan.

The only real cure for that is perfect underwriting and lots of volume, that’s why preapproved credit card direct mail has worked so well for several decades.

The company hopes to take the concept to the United States later this year. Given the speed of our regulatory approval process, that seems unlikely. Look for it in late 2006 or early 2007, if the UK version begins to gain traction.

We’ll take a look at the concept in much more detail in an upcoming Online Banking Report.

—JB

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Setting Flags in Electronic Bank Alerts

By Jim Bruene Posted on
Categories: Alerts & Messaging, Email Marketing

Inbox_flagNow that consumers are beginning to receive multiple alerts and other email messages from their financial providers, you risk the problem of "alert fatigue." It happens with any warning system. If you get too many warnings or status messages, you start to ignore them, rendering the system ineffective.

One way to make your message standout is to add a "high importance" flag to your outgoing message. In Outlook and Outlook Express, a small red exclamation point will show on the subject line in the message list (click on the inset for a larger image). In this example, the Washington State Department of Revenue added the flag when it sent password-changed alert. But it didn’t add the flag when sending a routine payment confirmation.

The key to making the flag effective is to not overuse it. Don’t ever put it on an advertising or marketing message. And use great restraint when attaching it to balance or confirmation messages. It’s best use, might be for security-related notices such as password resets and other sporadic and relatively unusual activity.

—JB

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Weird Offline Bank Promotions

By Jim Bruene Posted on
Categories: Advertising & Promotion

Hsbc_bankcabThe title of this article Weird Offline Promotions, is not meant to be a negative. Weird marketing can be effective if it helps people remember your product in a positive light.

For online banking, it can be difficult to create offline promotions that drive people to your website. ING Direct is one company that has pulled it off. Both with their offline cafes in four U.S. cities and their innovative promotions blitzes when they kick off a city-wide awareness campaign. For example, in Washington D.C. they showed up one day at the Metro subway and paid for everyone’s morning commute. It was expensive, but the publicity was enormous.

New Ideas

  1. Here’s one we’d never thought of, free parking for your clients. Apparently Lexus dealers in Georgia and southern Florida have pooled their money and arranged for the first 200 Lexus drivers to get preferred parking at Atlanta’s Turner Field and Sunrise, Florida’s Office Depot Center. Drivers still pay the going rate, but get the best spots. (Reference: BusinessWeek, July 18, 2005, p. 16). It may make more sense for a car dealer than an online bank, but you could tie it in to your auto lending program or some other VIP program.
  2. Another auto-related effort that’s been going on for several years is HSBC’s Bank Cab promotion in New York City (click on thumbnail below to see an archived copy of the HSBC Bank Cab website from May 2004). In 2003 and 2004 the bank sponsored several promotions that included two distinct red-and-white Checker cabs that roamed NYC providing free rides to HSBC customers who could present a current HSBC ATM card. Again, there isn’t a direct correlation to online banking, but your ad agency could probably think of some good ideas along the lines of convenience (easy banking, easy rides) or free rides (free rides, free online bill pay), and so on.

Hsbc_bankcab_may2004

We’ll continue this discussion in future articles.

—JB

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1.4 billion More Credit Card Mailers Hit the Recycle Bin

By Jim Bruene Posted on
Categories: Advertising & Promotion, Credit/Debit Cards, Metrics & Market Research

Junk_mailSome bad habits are harder to kick than others. In banking, the preapproved credit card mailing is apparently as addictive as nicotine. How else can you explain the record 1.4 billion solicitations mailed in Q1 2005 according to researcher Synovate? (">see previous article on 2004 mail volumes)

We can't speak for the economics of the recent mailings. On a macro level, things are going pretty well. Other than the sub-prime specialists, most credit card companies have weathered the economic slowdown of the past years admirably. However, we still think the online channel is vastly underused as a credit marketing vehicle.

Analysis
First, we'll crunch some numbers to compare traditional direct mail (DM) to online marketing (OM):

***DM***
1.5 billion pieces times $1 per piece = $1.5 billion in marketing
Fraud = 0.04% x 1.5 billion = 60,000 bad accounts x $2500 = $150 million
Teaser rate = 3% subsidy x $1.2 billion outstanding = $360,000 million
Total cost of program = $2 billion

===> Response = 0.4% times 1.5 billion = 600,000 good accounts

DM acquisition cost = $333 per good account

***OM***
30 million online banking households x $5 for 90-days of online credit offers = $150 million
Teaser rate = none
Fraud = 0.04% x 30 million =  12,000 bad accounts x $2500 = $30 million
Total cost of program = $180 million

===> Response = 30 million x 2% = 600,000 accounts

OM acquisition cost = $30 per good account

Implications
Depending on a multitude of factors, a credit card issuer can still make an account costing $333 profitable over its lifetime, but it's not going to be easy, especially with costly rewards programs demanded by most good customers these days.

Why not divert some of the direct mail budget to online marketing programs that eliminate the paper from the equation?

Every credit-worthy online banking customer should have preapproved credit available to them at all times. And it should be very visible when they are conducting activities that could indicate a potential need for extra cash, such as paying bills.

Alternatively, preapproved offers could be timed to appear at login when account balances dip below historical levels indicating potential cash flow difficulties for the consumer.

The beauty of this approach is that it's more about timing than price. Consumers needing $500 for the orthodontist today will be more concerned about a fast, convenient advance rather than playing the field to bag a 0% teaser rate and/or maximum rewards points.

The twin benefits of online credit marketing:

  • lower marketing expenses
  • less dependency on teaser rates and rewards programs

For an extended discussion of online credit card and loan originations, see:

Online Banking Report subscribers will receive updates to these reports this fall. 

— JB

 

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Phishing Awareness Less Than 30%

By Jim Bruene Posted on
Categories: Metrics & Market Research, Phishing, Security & Privacy

We’ve warned against using too many scare tactics on your website (see OBR 119, Marketing Security). Here’s data to support that argument.

The latest Pew Internet Project survey (PDF) found that more than 70% of Internet users had either never heard of the term Internet phishing (15%) or were unsure of its meaning (55%), leaving just 29% who said they had, "a pretty good idea of what the term meant." In comparison, 88% of Internet users had a pretty good idea of what Spam meant, 78% knew Firewall and also Spyware, while 68% understood Internet cookies, and even 52% knew Adware.

—JB

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Lockheed FCU’s Four Percent High Yield Savings Account

By Jim Bruene Posted on
Categories: Deposits, Checking, Savings, CDs

Just when you thought your new 3% APR money market account would wow your market, the word on the street, virtual street anyway, is that the 4% APR mark has been breached for the first time in several years.

Lockheed Federal Credit Union is culprit with a new account paying 4% on balances of $25,000 or more. It's so new, or so secret, you can't find it on their website. You must call to set up the account (800) 328-LFCU.

Lfcu_achieversAnd if think you're safe because your customers can't access this credit union special, think again. For $5, you can join Lockheed's Achievers Club, which qualifies you for credit union membership. You can join both in a single phone call.

— JB

 

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Making Saving a (Grocery) Game

By Jim Bruene Posted on
Categories: Advertising & Promotion, Deposits, Checking, Savings, CDs

Grocerygame_logoLast year the savings rate in the U.S. dropped to 1.3% of disposable income (personal income less taxes), slightly lower than 2003’s 1.4%, and the lowest since the depression (1934). This is far below the 10% or higher level that most personal finance experts recommend. The last time the U.S. as a whole saved 10% was 1984, and that was no anomaly. In the 15-year period from 1971 to 1985, the U.S. saving rate dipped below 9% on only one occasion (8.7% in 1977). Even without considering inflation, the total amount saved during 2003 and 2004, $113 billion/year, was the lowest total since 1974. (Source: U.S. Commerce Dept: Bureau of Economic Analysis)

Banks are in a great position to help improve this situation by making savings easier and more interesting. Online services can be used to automate saving and provide continual detailed feedback. In next month’s Online Banking Report (#120), we’ll outline a number of techniques.

One of the more novel approaches is to help coupon-clippers organize their assault on the grocery store by automating the process with online tools, tips, and links. Then as your customers chalk up savings at the grocery store, encourage them to deposit all or part of the windfall in a bank savings account. The growing balance will provide positive feedback for the disciplined approach to shopping.

Grocery_game_listFor inspiration, take a look at one of the more established coupon services called The Grocery Game. The Southern California-based online service provides a weekly list of advertised and unadvertised grocery specials married to a database of recently published coupons. The end result is an editable list of major grocery bargains priced at a 40% to 70% discount from retail (click on inset to see a sample).

The company’s stated goal is to save a family of four $1000 off their grocery bill during the first 12 weeks. Cost is $10 every eight weeks, after a $1 four-week trial.

The Grocery Game says it has 30,000 users in 43 states. Other sites with similar services include, Cairo, ShopLocal, Puget Sound Grocery Guide (Seattle), and Coupon Queen (Cleveland).

Financial Institution Opportunities
Banks could leverage The Grocery Game in several ways:

  • By simply linking directly to the service
  • By explaining the strategy with articles and advice, but not producing weekly shopping lists
  • By partnering with The Grocery Game or others to produce a co-branded or private-branded version at the bank’s website
  • By creating a simpler version in-house: After the initial programming, we estimate it would take only a few hours per week to enter the data from the grocery circulars and match it with items from the coupon database

But unlike The Grocery Game, which has no ongoing tracking mechanism, banks would want to program an area for user’s to document their grocery savings, and designate a portion of the grocery savings be deposited into a bank savings account. 

To encourage continued participation in "The Savings Game," customers could be rewarded with, what else, free groceries, when they hit savings milestones. Or rewards could be more interesting such as meals out or household items, something that would appeal to the coupon-clipping demographic.

For more info on The Grocery Game:

—JB

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