Author: Jim Bruene

BillMyParents.com Traffic Spikes to 600,000 Unique Visitors

By Jim Bruene Posted on
Categories: Debit Cards, Prepaid/gift cards, Student Banking, Youth market

image If you want to attract customers between the ages of 12 to 21+, you could not have a better name than BillMyParents. But living up to that promise, not to mention appealing to parents, is a little trickier.

San Diego-based BillMyParents is a public company (OTCBB: BMPI) currently valued at $40 million. When we first looked at the company (March 2009), it was building an alternative payment mark similar to PayPal or BillMeLater. But the company appears to have pivoted into a more achievable prepaid card product.

Today, its core offering is a $3.95/mo prepaid MasterCard debit card (see full fee schedule below) that offers mobile alerts and basic parental controls (lock, unlock, reload). 

Fresh off a $7 million infusion of new funding (Nov. 2010, note 1), the company has ramped up its advertising with its first national TV commercial (on ESPN; link) and a mention in MTV’s Rob Dyrdek’s Fantasy Factory (which apparently has something to do with skateboarding). It is also working with Street League Skateboarding.

Evidently, those efforts are bearing fruit as website traffic is up 20-fold since December, to 600,000 unique visitors in May according to Compete estimates (see below). More importantly, traffic to the secure site (e.g., account holders) is up to 17,000 visitors in May compared to 7,000 in December (note 2).

Relevance for Netbankers: Teens want to spend. Parents want transparency and control. And banks want to attract teens and tweens that could be customers for the next 80 years. And if that’s not enough, in the United States, prepaid looks to be favored in the post-Durbin world (previous post).

So expect prepaid cards to be a hotbed of activity from both banks and non-banks (note 3). 

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BillMyParents.com unique monthly visitors

image

Source: Compete, 28 June 2011


Parent section of BillMyParent’s website (28 June 2011)

Parent section of BillMyParent's website (27 June 2011)

Fee schedule

image

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Notes:
1. Source:http://www.marketwire.com/press-release/socialwise-changes-corporate-name-to-billmyparents-inc-otcqb-sclw-1525359.htm
2. Source: http://siteanalytics.compete.com/account.billmyparents.com/
3. For example, BankSimple http://www.netbanker.com/bank_simple/

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TDECU Posts 50% Growth in Mobile Banking Users in 2 Months

By Jim Bruene Posted on
Categories: Mobile Banking

This guest post was written by Daniel Thomas, a 25-year strategy and product development veteran of the financial services industry. He is a principal consultant with Mindful Insights LLC.

imageBack in April, we showed you the list of the 30 most popular iPad apps from U.S. banks and other financial services companies listed on iTunes. The list featured the usual big names, but one surprise was #14, Texas Dow Employees Credit Union (TDECU), a 132,000 member, 19-branch, $1.6B credit union headquartered in Lake Jackson, TX.

The app, UniFI, available on iPad, iPhone and Android platforms, was developed by startup FI-Mobile. The full-featured offering includes:

  • All the banking functions offered in online banking
  • Linkage to Facebook and Twitter
  • Branch locations
  • Rates
  • Advertising capabilities
  • Analytics

FI Mobile says it can launch the app in three weeks for FIs that already have a mobile banking application, and seven weeks if they have to develop a native app.

_____________________________________________________________

Features
_____________________________________________________________

TDECU mobile login screen Clicking on Mobile Banking from the home screen launches the WAP service developed by Q2ebanking (note 1).

TDECU mobile rate lookup Both the Locations screen and the Check Our Rates page fetch real-time content from tables that the bank or credit union maintain in FI Mobile’s advanced-content management system (admin tool). 

TDECU mobile intergration with Facebook and Twitter

TDECU has an active social network presence, so Facebook and Twitter integration facilitates more frequent views and comments.

The app also includes contact information, rates, and access to TDECU credit cards through gotomycard.com.

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Results
________________________________________________________________________

According to Brad Clutter, Online Banking Product Manager at TDECU, in the first two months after the app’s launch in March, mobile subscribers grew 50% (their target was 10%) and the number of mobile transactions (balance inquiries, transfers, etc.) grew 30% compared to their existing WAP-only, mobile-banking program. He said, “We have been blown away by the results we’ve seen, and they have more than justified the cost.”

Thanks to FI Mobile’s analytics, TDECU can now see that their app is being used by members in all 50 states and in 16 different countries. They know that 84% are returning users and use of Android devices outnumbers Apple iOS nearly 2-to-1.

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Note:
1. UniFI is vendor agnostic and will launch the mobile banking program developed by any vendor. And if you don’t have one, FI Mobile will develop one.

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BankSimple Reveals 2 New Banking Partners: The Bancorp Bank and CBW Bank

By Jim Bruene Posted on
Categories: Bancorp Bank, Simple

image Yet-to-be-launched BankSimple scored more great press this month with a tease on the cover of the July/August issue of Fast Company:

The Zappos of Finance

The one-page profile in the magazine’s Next column (p. 32) is titled:

A Bank that Doesn’t Suck

For Netbanker readers, the article mostly covered familiar ground. However, there were two huge reveals near the end that I almost missed; two banks the startup is working with to power its services:

  • Bancorp Inc, a public holding company (TBBK) that powers 300 affinity banking programs around the country (note 1) which will likely power BankSimple debit cards among other things. Bancorp Bank EVP Pete Chiccino was quoted in the FastCompany article.
  • CBW Bank, a small privately held bank based in Weir, Kansas with just $6 million in deposits (note 2), which will likely hold BankSimple-gathered deposits.

BankSimple has a wait-list of 50,000 for beta invites. According to the article, 12,000 of those will be allowed in by year-end before its general-public launch in 2012.

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Notes:
1. The Bancorp is a Finovate sponsor
2. It took 119 years for the bank to get to $6 million in deposits for a net growth of $50,000 per year. They’ll get that much in the first 10 minutes after BankSimple opens its doors.

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Is Prepaid the Durbin Antidote?

By Jim Bruene Posted on
Categories: Credit/Debit Cards, Debit Cards, Prepaid/gift cards, Strategies

image Prepaid cards have been a bit of an afterthought for most banks and card issuers. Sure, they make the occasional appearance on banking sites in December as holiday gifts. But mainstream they are not.

But that was before traditional debit cards suddenly became unprofitable (note 1) thanks to the upcoming U.S. debit interchange price controls (see Durbin rant, note 2) combined with with last year’s reining in of overdraft fees.

It’s pretty easy to predict what happens next. Banks will do what any business would do when offering a popular, yet unprofitable product. Raise prices with new monthly/annual/transaction fees. And for customers that are fee adverse, banks will offer two alternatives:

  • Credit cards for the credit worthy
  • Prepaid cards for everyone else

Bottom line: Prepaid bankcards are about to become much more popular. Here’s why:

  • More interchange revenue to the issuer
  • Easier to sell online with fewer risk management and compliance issues
  • Great entry product for teens and pre-teens
  • Porting the prepaid “card” into mobile phones and other contactless form factors
  • Valuable service for underbanked segments
  • More utility: can be gifted, used for traveling, used to deliver allowance, and so on

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Notes: 

1. The price controls apply only to banks of $10 billion or more.
2. I am really disappointed in the Durbin interchange price controls. I was sure Congress would delay the matter, but unfortunately I was wrong. My feeling is that price controls are an absolute last resort when there is not enough competition to create a free market price. I don’t think that was the case with debit interchange.

Long-term, the whole exercise is a zero-sum game for the businesses, merchants and banks, who will adjust their prices to cover costs and ensure a normal profit. The only likely loser is the consumer who will be deprived of innovations killed off by the dramatic shift in interchange.

Here’s my scorecard of the post-Durbin winners and losers: 

Short-term winners:

  • Merchants, obviously
  • Prepaid card issuers (which are not covered by Durbin price controls)
  • Consultants, lawyers, marketers and professional services firms involved in drafting and communicating new bank prices and policies 
  • Financial institutions exempted from Durbin (under $10 billion) could pick up share and/or be able to gain fee revenue by matching the large bank price increases

Short-term losers:

  • Large banks will see revenue declines until they can get new fees introduced and move transactions to credit/prepaid
  • Consumers who will see fee increases from banks faster than they’ll see price decreases from merchants
  • Payment startups and business consortiums whose business model was predicated on disrupting debit

Long-term unchanged:

  • Merchants who will eventually pass on the interchange savings due to price competition
  • Banks who will make up the revenue loss with new fees and/or by channeling transactions to higher-margin products
  • Consumers who will pay more in bank fees but less for goods and services, an overall wash

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Is ING Direct to Capital One what PayPal was to eBay?

By Jim Bruene Posted on
Categories: Capital One, ING Direct

image Given that ING Direct had to be divested (by agreement with the Dutch government), it couldn’t have gone to a more interesting buyer. Capital One was my favorite banking company in the pre-Internet days as it was an absolute direct marketing machine (and still is).

But Capital One has not leveraged the Internet to the extent I’d expected and as recently as last November, didn’t even have a mobile app for the iPhone.  

ING Direct is the opposite. Much of its 7.6  million customer base and $82 billion in deposits can be attributed to an innovative brand optimized for remote delivery.

Will ING Direct’s online chops boost growth at Capital One like PayPal did for eBay when it introduced epayments into the online marketplace? Wall Street gave it a modest thumbs up, sending Capital One shares up more than 2% on a day when financials were flat. That’s a $0.5 billion positive swing in market cap. Not a bad start to the relationship.

The combined entity will be the fifth largest U.S. bank by deposits (at more than $200 billion) trailing only BofA, Chase, Wells and Citi (table here). However, Capital One would need to acquire six more ING Directs to catch Chase, another one to reach the Wells level, and two more after that to best BofA. 

My take: I’m not going to pretend to be able to predict the future performance of a $22 billion company paying $9 billion for another. There are so many variables, it makes my head spin.

But from a remote delivery perspective, they look very complementary. ING offers primarily savings and mortgages acquired online. Capital One is huge in credit cards, auto loans and traditional branch-based banking services.

So there is one prediction I’ll make: The combined entity will be an online marketing powerhouse, and I look forward to seeing how that unfolds.

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Prosper is Back in the Game, Lands First Private Equity Lender

By Jim Bruene Posted on
Categories: E-Loan, Lending Club, Loans & Credit, P2P Lending, Prosper

imageA few weeks ago, I caught up with Chris Larsen, CEO & founder of Prosper. I’ve been a huge fan of his work for more than a decade. His ventures,
E-Loan and Prosper, have been pioneers in the lending space, both earning OBR Best of Web awards and Prosper also taking Best of Show in our first Finovate in Oct. 2007 (note 1).

But it’s been a rocky few years for Prosper (see Netbanker archives), as it’s been for most consumer lenders. The company even lost its lead in the U.S. P2P loan space to Lending Club, which is currently originating about three times as many loans.

But Prosper survived and appears to be back on a path to live up to its name. Some recent milestones:

  • Its first private equity lender (updated 16 June, 2011, per comment below) is coming on board, pledging $150 million to fund loans on the Prosper platform. This is an important development and fulfills a goal that the company sought since its 2006 launch. It will also help Prosper keep up with Lending Club which has had major institutional investors for a while. Prosper hopes to keep a healthy mix of retail and institutional investment (“50/50 would be fine”).
  • $17.2 million in new venture funding from Draper Fisher Jurvetson and Crosslink Capital (announced 7 June, link)
  • Achieving double-digit returns for investors, a far cry from the negative returns some lenders experienced in the “trial & error” era before (note 4) 
  • Achieving large year-over-year loan growth, although the company is still running less than half the pace of the pre-SEC days (note 3)

Prosper loan growth

image

Source: Eric’s Credit Community, 15 June 2011

Prosper’s homepage is a model of Web 2.0 simplicity
Note: New lenders are offered an iPad for investing $20,000 or more (15 June 2011)

Prosper's homepage is a model of Web 2.0 simplicity

Both Prosper and Lending Club are averaging about 200,000 monthly unique visitors

image

Source: Compete, 19 May 2011

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Notes:
1. E-Loan was named OBR Best of the Web in July 1997 for launching the first online mortgage brokerage.    
2. Prosper was named OBR Best of the Web in March 2006 for launching the first P2P loan service in the United States, and the first anywhere to use competitive bidding to set rates, a model they recently abandoned.  
3. Before the SEC forced the company to restructure its business as a securities issuer in Oct 2008.
4. The average total return for the 2006 to 2008 loans (most of which are now off the books) was a negative 5.4%

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Op Ed: Thoughts on Google Wallet

By Jim Bruene Posted on
Categories: Citibank, Google, Mobile Payments

This guest post was written by Daniel Thomas, a 25-year strategy and product development veteran of the financial services industry. He is a principal consultant with Mindful Insights LLC.

image Google’s announcement two weeks ago certainly raised a few eyebrows in the mobile payments arena and took a giant leap toward putting to rest the debate about the use of NFC.

However, there’s an interesting twist that hasn’t been explored in the many articles written in the aftermath of the announcement. How will Google’s effort impact revenues from the merchant-funded rewards programs (see note 1) banks hope will increase loyalty while softening the blow of the now-certain Durbin Amendment losses?

Citibank inside google wallet

But has Google just killed banks’ dreams of grabbing a share of the online advertising pie ?

Merchants today are offering higher discounts and rebates to bankcard users because the banks, via various rewards vendors, are letting merchants in on their customers’ spending history.  That data obviously has a lot of value and the merchants compensate the banks for it in the form of commissions on purchases made by the bank’s customers after targeted offers have been presented.  On the surface, one might think that regardless of the mobile wallet used, Google’s or otherwise, so long as the payment is made from a bank-issued product, the bank will still own the spending history data and be able to trade it for a commission.

However, Google, or whoever owns the mobile wallet (but especially Google), will be able to “see” the purchases as they take place and can begin recording its own spending history data.  That, coupled with other non-mobile spend-history gleaned from browsing on the web across multiple cards per individual or household, potentially gives Google a leg up on the richness of its data (assuming Google can tie the two together, is there any doubt?).  Combine that with general browsing history and Google has a pretty good profile of each person to offer up to merchants. 

Privacy issues aside, this seems to trump bank spending history data placing Google in a much better position to bargain with merchants and ad networks. But privacy issues may well loom large over all of this once consumers and Congress put 2 and 2 together and figure out what Big Broth… er, that is, Google is up to.

Meanwhile, not everyone will have an Android phone nor a Google Wallet. Plenty of other mobile wallets will soon hit the scene, but even so it will take a long time for mobile wallets to replace plastic (amusing thought– which will go away first: plastic or the perpetual paper check?) so merchants will still want to keep banks in the equation by compensating them for allowing them to use their spending history to develop targeted offers.

So, merchants are going to need to decide: should they allow Google to make the reward offer or the banks?  Surely, they won’t compensate both for bringing in the same purchase. That leaves the decision in the hands of the consumers. Do they want to receive points and cash back from Google or from their bank? 

Undoubtedly, consumers will decide based on which one offers the greatest value for the least amount of work. Online usability has been a trademark of Google, banks not so much.

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Citibank and MasterCard are key banking partners
On its website, Google asks prospective visitors if they have a Citibank MasterCard

Citibank and MasterCard are key banking partner

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Note: For more information, see Online Banking Report: Merchant-Funded Rewards (published  Feb. 2011)

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Chase Bank’s Jot App Shows the Future of Mobile Transaction Processing

By Jim Bruene Posted on
Categories: Chase Bank, Credit/Debit Cards, iPhone, JP Morgan Chase, Mobile Banking, Small Business

image image I’ve been waiting for something like Chase Bank’s Jot (see note 1). It’s part of the "second wave" of mobile apps that demonstrate why mobile banking will soon be better than online banking.
_________________________________________________________________________________

Mobile banking phase 1: 2008 through 2011
________________________________________________________________________________

Mobile’s first wave was all about porting the most-used online functions, balance inquiry and statement viewing, to a smaller screen. That was convenient for smartphone owners on the go, but it didn’t add much to the overall user experience. 

The test of whether you’ve nailed the mobile UX is if that even if you are within arm’s reach of your laptop, you still pick up the mobile to perform a function. Most mobile banking systems fail that test, i.e. you only use mobile banking when online access is inconvenient or insecure.
________________________________________________________________________________

Mobile banking phase 2: 2011+
________________________________________________________________________________

The second wave is much more interesting. Your mobile phone can do financial chores that simply cannot be accomplished online, for example:

  • Deposit a paper check via mobile camera (USAA, Chase, PayPal and many more)
  • Transfer money to your friend by "bumping" phones (PayPal, ING Direct)
  • Alert you to special merchant offers in your exact location that are redeemable simply by using your bankcard (BankOns)
  • Pay your bill automatically by scanning the billing statement (Mitek)
  • Upload paper receipts and append them to expense reports (Expensify)

And the latest addition to that list:

  • Receive feed of transactions and tag them with categories for future reference and reporting (Chase Jot)

________________________________________________________________________________

How Jot works
________________________________________________________________________________

Chase’s new app (announced 1 June 2011) may not be as cool as remotely depositing a check, but it’s much more useful for most cardholders. The iPhone and Android app, which is currently available only for the bank’s Ink business credit card, sends push notifications of each transaction (see inset) and enables users to (relatively) quickly append transactions with category information, i.e. "tag" transactions. 

image One key Jot feature, missing in most mobile banking services, is a running list of the transactions waiting to be tagged (see right).

That way, when the business owner has a few spare moments, they can quickly get caught up with their categorizing work. This ongoing attention will reduce the quarterly game of "what’s that transaction" played when finalizing the company books.

So not only does Jot save time, it potentially improves the quality of the accounting data, always a good thing for business management. 

The app also includes other business credit card management functions such as basic reports by tag, the ability to change employee credit limits, and info on outstanding balances and payment due dates.

While the functionality is still pretty basic (e.g., there is no way to add more than one tag to a transaction), there are only 60 days of transactions available, and login needs to be simplified, overall Jot is a winner. We are tagging it with an A-.

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Notes:
1. The Jot landing page is well done and includes a series of four short demo videos.
2. For OBR subscribers, see our previous Online Banking Reports on mobile banking and payments.

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M&T Bank Adds FICO Credit Score View to Online Banking, Charges $2.99/mo

By Jim Bruene Posted on
Categories: Credit Reports & ID Theft Protection, Fee Income, M and T Bank

image It figures. As soon as I write a report complaining about the dearth of online fee-based services, a major bank launches one, practically the same day.

Buffalo, NY-based M&T Bank just released an upgrade to its online banking system adding:

  • Intuit’s FinanceWorks PFM
  • Equifax-provided FICO score

Both are good moves, but it’s the credit score service that’s especially novel. It’s integrated directly into online banking, so customers needn’t log in to another site to view their score. And the bank is charging for it, to the tune of $2.99 per month. 
___________________________________________________________________________________

Potential
__________________________________________________________________________________

It will be interesting to see how M&T promotes the new feature to its online banking base which numbers 700,000 to 800,000 (active monthly users) based on traffic estimates from Compete. I’m also curious to see whether the bank upsells pricier, full-featured credit monitoring and/or credit reports to the $2.99/mo base. (I’d be surprised if they don’t.)

There’s no mention of a free-trial period, but based on industry experience, that is likely to be one of the best marketing strategies available. Given all the misleading advertising in the market (“free” credit scores that cost $15/mo), I’m pleased to see that M&T is upfront about the cost, mentioning it within the first 50 words of the landing page.

With an aggressive promotional campaign, it seems possible the bank could eventually get 10% to 15% of its online base using it. Then M&T gets a dual benefit: a unique and powerful tool for its customers and $3.5 million in incremental gross revenues (if it hits 100,000 users). The bank can also upsell credit monitoring, credit scores for other family members, along with balance transfers and other credit products. 

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M&T Bank landing page for new integrated credit score (link; 6 Jun 2011)
Note: Pricing disclosed upfront (yellow highlighting is ours)

M&T Bank landing page for new integrated credit score (6 Jun 2011)

Note:
1. See our current Online Banking Report, Creating Fee-Based Online & Mobile Banking Services.

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What is the ROI of banking innovation?

By Jim Bruene Posted on
Categories: Fee Income, Pricing, Strategies

image An executive on the front lines of product development at a major financial institution recently asked me this question:

How can I prove that innovation really matters to the bottom line?

I’ve been a “product guy” my whole career so I take it for granted that “building a better mousetrap” eventually trickles down to a boost to the bottom line. That worked at Microsoft, Apple and Caterpillar (my first job).

But they are manufacturing companies. That better mousetrap, be it Win95, the iPod, or a D10 tractor, brought in direct, usually profitable, revenues.

It’s harder if you are a retailer. If the Gap spends a million dollars to improve search and discovery on its website, will it really sell enough extra jeans and sweaters to make the investment back, let alone earn an acceptable return?

Banks are both retailers (branch and online) and manufacturers (checking accounts, loans). But today, the P&L from their digital efforts is more like the Gap than Apple. You have to sell a lot of extra checking accounts and car loans to justify even a modest website investment. This has held back digital investments for 15 years (see note 1).

But what if banks started acting more like a manufacturer when it comes to digital products, by creating new services to package and sell on their own merits.

For example, instead of spending a couple hundred thousand every year to give everyone remote check-deposit capabilities free of charge, create a new digital product called, The Magic Check Deposit Service, and sell it for $2.99/mo. This product not only reduces costs, since it will have far fewer lapsed and/or clueless users, but also pegs a monetary figure to the service, thereby increasing its perceived value even if you end up giving it away to your best customers.
______________________________________________________________________________

The Numbers
_____________________________________________________________________________

Let’s crunch a few numbers. Assume it costs $0.50/mo to support each user + $0.25 per check deposited + $20 per tech support call (I made these up so don’t quote me).

Free service:
Cost = 50,000 users x 0.67 checks/mo + 1,000 support calls per year = $420,000
Fee revenue = $0
Customer retention value = ??? (some positive number)
———————
Net = ($420,000)

Subscription service:
Cost = 5,000 x 4 checks/mo x 100 support calls per year = $92,000
Revenue = 5,000 x $2.95/mo = $177,000
Retention value = ??? (same as above)
——————–
Net = +$85,000

Change in net (delta) = $500,000
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Bottom line
__________________________________________________________________

With either approach you get to tout the benefits of the new innovation to capture the branding value. But under the subscription model, only those who really stand to benefit from the service use it, and you end up with a small profit or at least less of a loss. In the above example there is $500,000 gain compared to the free model.

Yes, this is over simplistic. Yes, you’ll take some grief for charging when others are giving it away. It’s possible you might even lose a few customers, but not $500,000 worth. And the biggest benefit of all, you can actually afford to create the new service now, instead of tabling it for five years until it becomes a competitive necessity. 

Back to the original question. Honestly, I have no idea how to prove that innovation has a good ROI. What I do know is that for the past 100+ years, clever manufacturers have created billions in value by beating the competition with new products and services. I’m pretty sure financial companies will do the same with their online and mobile offerings.

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Note:
1. See our current Online Banking Report, Creating Fee-Based Online & Mobile Banking Services.

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