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Allpoint Surcharge-Free ATM Finder Launches on iPhone

By Jim Bruene Posted on March 4, 2009
Categories: ATMs, iPhone

This is the application I wanted to build, a surcharge-free ATM finder, but my business partner wisely talked me down from that ledge last month (see note 1). I can officially deep-six that idea with the launch of Regular Rate and Rhythm Software‘s Allpoint ATMs: Surcharge-free ATM Locator.

The app went on sale today in the Apple App Store for a one-time $1.99 fee (iTunes link). The app, which directs users to one of 37,000 Allpoint ATMs, could not be simpler:

Launch the app
See the nearest Allpoint ATM
Tap for walking/driving directions courtesy of Google maps (see inset)

Using WiFi, it took 19 seconds from the moment I pressed the application button to when the nearest ATM location was listed, inside a Safeway five blocks away (note 2). With WiFi off (Edge network), it took just 4 seconds longer. Mapping the location, if necessary, took a few more seconds.

There are very few finance apps where users will willingly pay a fee. But this ATM finder, which saves about two bucks every time its used (note 3), should be popular at $1.99. Of course, it won’t be long before the free, ad-supported version comes along, so the windfall may be short-lived.

Bottom line: This is a great tool for credit unions, community banks, and direct banks looking to compete against the massive ATM networks of the major banks. The best strategy is to build this right in to your own iPhone/Android/Blackberry app. But until then, you can at least point customers to this app.

Notes:
1. While it’s a great opportunity for financial institutions, or scrappy coders to build, it’s ultimately not what we want to focus on. Still, it could be a gold mine, at least until financial institutions, especially credit unions and community banks, start adding it to their own iPhone applications.
2. This was news to me, even though I’ve lived in then neighborhood for a decade.
3. Assuming you would otherwise use an ATM which levies a $2 surcharge.

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Blaze Mobile Wallet Transforms iPhone into Payments Device at the Point of Sale (sort of)

By Jim Bruene Posted on March 3, 2009
Categories: iPhone, Mobile Banking, Mobile Payments

It will take years before the mobile phone fulfills its promise as a true mobile payments device. Or will it?

If you don’t mind a bit of a work-around and you limit your purchases to MasterCard PayPass-enabled merchants, you can pay by cell phone today thanks to Blaze Mobile.

How it works:

Download the Blaze Mobile Wallet at the Apple App Store (iTunes link), cost $1.99 (note 2).
Sign up for a Blaze pre-paid MasterCard issued by MetaBank
Affix the MasterCard PayPass RFID sticker to the back of your iPhone
Wave and pay at MasterCard PayPass terminals

Granted, few people will go through this trouble just to buy an Arby’s sandwich without pulling out their plastic (note 1). However, it shows that the technology is available today to enable at least some mobile payments. And for financial institutions, it provides a cool way to differentiate debit and credit cards.

Notes:
1. According to MasterCard, there are 463 PayPass locations within 25 miles of my Seattle location.
2. The wallet also works on other mobile platforms, see the company’s website.
3. Previous post on paying via credit card stickers (here).
4. For more info see our Online Banking Report on Mobile Payments.

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Cology’s TuitionU.com Acquires Student Loan P2P Lender GreenNote

By Jim Bruene Posted on March 3, 2009
Categories: GreenNote, P2P Lending, Student Loans

TutionU.com’s acquisition of Finovate Startup alum, GreenNote, was announced today (press release). The social student lender debuted at our conference last year (video here).

TuitionU.com is a student loan portal operated by Cology Inc. According to Compete, the traffic to TuitionU.com has been running from 1,000 to 2,000 visitors per month during the past year. GreenNote has recently been averaging 6,000 to 8,000 monthly unique visitors (see chart below).

TuitionU.com homepage reflects GreenNote acquisition (3 March 2009)

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Citibank Launches Dedicated iPhone Application

By Jim Bruene Posted on March 2, 2009
Categories: Citi Mobile, Citibank, iPhone, mFoundry, Mobile Banking

Earlier today, Citibank launched a dedicated iPhone app (iTunes link) powered by mFoundry. Previously, certain Citi cardholders could use the Firethorn iPhone app, but there was no App Store listing under the Citi brand.

The app, which is free to download, is currently number 10 in the App Store Finance (free) category. It will likely rise to the top, at least briefly, as Citi customers download the app.

The app is featured on the Citi homepage today (see first screenshot below) and is front and center on the Citi Mobile landing page (second screenshot below). The bank has also posted a nine-screen demo of the app here (see inset).

Anyone that’s ever used a mobile website will appreciate the Citi login screen (see inset below). A jumbo-sized numerical keypad is included below the signin area to make typing the PIN easier on the small screen.

The Citi application does the usual four functions:

check balances
transfer funds
pay bills
find Citi branches and ATMs

The bank wisely informs users that their iPhone access can be deactivated immediately in the event of a lost or stolen phone by calling its toll-free number.

With this launch, four of the 10 largest U.S. consumer banks have a dedicated presence in the Apple App Store: Bank of America, Chase, and PNC Bank.

Citibank homepage features the iPhone app (2 March 2009)

Left: Landing page for Citi Mobile (link, 2 March 2009)

The Citibank application page in the iTunes App Store (link, 2 March 2009)

Note:
1. See our Online Banking Report on Mobile Banking for more information on the market.

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Finovate Startup Conference Company Descriptions

By Jim Bruene Posted on February 26, 2009
Categories: Conference Calendar, Conferences, Finovate, Launches

To give you an idea of the types of innovations being funded in financial services these days, here’s a capsule description of the first 48 companies demoing at FinovateStartup April 28 in San Francisco (note 1).

Attention attendees: You have just one day left to register (here) at the discounted price of $795.

Finovate Startup 2009 Participants

Acculynk
Acculynk is a payments solutions provider with a suite of software-only services that secure online transactions by utilizing a graphical, scrambling PIN-pad for the secure entry of sensitive cardholder information.

AlphaClone
AlphaClone is a web-based investment research service that lets users explore the investing ideas of top hedge fund and institutional money managers.

Aradiom
Aradiom is a mobile solutions provider and designer of Java mobile applications and platform development technology including turn-key applications, embedded soft-token security solutions and BlackBerry® enterprise applications.

BillShrink
BillShrink is a personalized savings advisor that helps consumers make smart, money-saving decisions by providing continuously updated, personalized, usage-based recommendations on everyday services like credit cards and cell phone plans

BudgetTracker
BudgetTracker is a personal finance manager that allows users to manage their finances and keep track of their budget, bills, and transactions online without having to install software.

CalendarBudget
CalendarBudget is a free online personal budgeting tool that helps users organize and track their finances, plan future spending and save money.

Centrro
Centrro is a financial search engine that allows consumers to anonymously shop for personal financial products that best fit their specific credit profile.

CircleUp
CircleUp provides group communications services, which enable actionable and efficient interactions across diverse social, email, mobile, messaging and private web networks.

Cooler Inc.
Cooler Inc. enables users to know, decrease, and offset the global warming impact of their everyday purchases and activities by using the country’s only peer-reviewed carbon calculator to calculate impact and then providing reductions targets and strategies, and offering recommendations on high quality carbon offsets.

CreditArray
CreditArray is a vault of proprietary information to allow consumers to better apply for and manage their credit portfolios.

Credit Karma
Credit Karma provides consumers free access to their credit score and offers credit simulators, advice, and credit score comparison tools in order to allow them to more actively manage their credit and financial health.

GoalSpring
GoalSpring’s product, DebtGoal, makes paying down debt as easy and efficient as possible by taking into account all of a customer’s debt and helping them organize, optimize and pay it down.

Expensify
Expensify simplifies keeping track of business expenses by combining an electronic payment card and a web-based expense manager to automate expense report preparation, approval, and reimbursement.

Green Sherpa
Green Sherpa offers personal cash flow management software that lets users conveniently download, manage and update all their financial accounts via a single online resource.

Home-Account
Home-Account is in stealth mode at this time.

HomeATM
HomeATM provides a secure PIN debit and PIN credit card transactions method via the Internet that utilizes the HomeATM swipe pad technology to allow users to conduct secure PIN-based transactions from home, ensuring virtually zero fraud and lower merchant processing fee costs.

iBearSoft
iBearSoft is the creator of iBearMoney, a personal finance application for the iPhone that allows users to input and categorize their transactions, run financial reports, analyze payments, and keep track of expenses.

iThryv
iThryv is a financial literacy platform that combines a content delivery system and an incentive system in order to create an immersive learning environment which provides a powerful tool when used in partnership with online banking and core providers.

Jwaala
Jwaala provides software for banks and credit unions that improves their online banking services. Their MoneyTracker application offers a personal financial management solution that can be added to any bank or credit union’s existing online banking solution.

kaChing
kaChing is a social investment community that applies an open source and social-networking strategy to offer every investor the opportunity to find outstanding investors, emulate their portfolios, and access the returns, insights, transparency and talent previously only available to wealthy individuals.

Kapitall
Kapitall is a rich web application that aims to make investing easy for everyone. Inspired by game design, Kapitall combines an graphical user interface with tools that make it easier than ever to research companies, build portfolios, share ideas and get smarter about the market.

Lending Club
Lending Club is an online social lending network where people can borrow and invest money at attractive rates.

LendingKarma
LendingKarma is a person-to-person lending site that makes it easy for parties that know each other to create loans and provides borrowers and lenders with tools to help service the loan and see it through to repayment.

Looniesdesk.com
Looniesdesk.com enables people to manage their finances online using an open source financial platform that allows developers to build sophisticated applications which will help users enhance their experience and increase the efficiency of the service.

Mint
Mint is an online per
sonal finance service that securely downloads users’ financial transactions, allows them to categorize their transactions, provides a unified view of all account activity and relevant account alerts, and offers personalized suggestions for significant savings opportunities.

Moneta
Moneta provides a secure, quick and easy form of online payment that directly debits users’ checking or money market account allowing users to only enter a secure username and password when making online purchases.

NCore
NCore provides enterprise class delivery channel solutions to financial institutions within the Asia Pacific and Middle East regions fusing applications, innovative security and middleware technology into a single integrated platform.

OurCashFlow
OurCashFlow offers personal finance management tools for financial institutions that can turn their website into a place where customers can create a budget, save money and achieve their savings goals.

Pennyminder
Pennyminder helps individuals and small groups manage their shared and personal finances by tracking deposits and withdrawals allowing them to see what’s happening with their money

People Capital
People Capital is a peer-to-peer private student loan service that utilizes a unique scoring system to predict a student’s potential and provide a true, unbiased measure of the economic value of an education that empowers students to make better educational decisions and offers multiple advantages for both borrowers and lenders.

Pertuity Direct
Pertuity Direct offers social lending for personal loans by bringing together the advantages of capital markets, social networks and traditional banking.

Portfolio Monkey
Portfolio Monkey provides free online portfolio management tools to help average investors optimize their portfolios and find customized investment ideas so they can create more efficient portfolios with higher expected return and less risk.

Prosper
Prosper is a person-to-person lending marketplace where people list and bid on loans using Prosper’s online auction platform.

The Receivables Exchange
The Receivables Exchange is a real-time online market for trading accounts receivable that gives businesses access to working capital at a competitive cost by connecting a global network of accredited investors to the nation’s small and mid-sized businesses.

Rudder
Rudder is a free personal finance software designed to minimize the effort required in managing money by helping users to manage their budget, track their bills and analyze their expected income and projected expenses.

Silver Tail Systems
Silver Tail Systems provides fraud prevention to defend users’ websites against business logic abuse through the use of behavior detection, efficient investigation and real-time mitigation to track suspicious behavior and divert the bad actors, leaving legitimate users unaffected.

SimpliFi
SimpliFi provides independent financial advice online. Users can complete a profile and receive a personal financial plan with specific actionable steps.

SmartHippo
SmartHippo uses the power of the community to find users the best rates on financial products and services.

SmartyPig
SmartyPig is a social saving service that helps users save for a specific goal by allowing them to invite others to contribute to their account, providing incentive boosts from top retailers, and offering a competitive interest rate.

Strands
moneyStrands is a money management service that helps users get information on anything from practical savings tips to getting help tracking expenses down

Syphr
Syphr is a technology and marketing credit union service organization that created RateMatch, a service that matches participating credit unions with the thousands of credit report purchasers per month.

ThreatMetrix
ThreatMetrix helps companies control online fraud and abuse in real time by profiling the device used in an online transaction so companies can determine whether the users are fraudsters or customers.

Transparent Financial Services
Transparent Financial Services is online comparison-shopping service for small businesses that uses technology to help users compare and purchase financial services like payroll processing, credit card processing and business loans.

Victrio
Victrio offers a credit risk management system that uses voiceprint recognition technology to fight credit card fraud and identity theft.

Wesabe
Wesabe is an online personal finance management tool that provides members with information about where they spend and links them with a community dedicated to helping each other make smart financial decisions.

WeSeed
WeSeed seeks to demystify the stock market by helping real people share what they know and make smart investing decisions based on the collective wisdom of the community.

ZimpleMoney
ZimpleMoney is a web-based financial services platform enabling people and organizations to manage and administer financial agreements including loans, leases, rentals, tithing, trusts and settlements.

Note
1. Several other participants are remaining anonymous for the time being.

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Virgin Money Joins UnCrunch America

By Jim Bruene Posted on February 25, 2009
Categories: Advertising & Promotion, Bank of America, Lending Club, Loans & Credit, P2P Lending, Virgin Money

UnCrunch America, the peer-to-peer lending educational/marketing campaign spearheaded by Lending Club (note 1) got a big boost with the addition of Virgin Money USA.

Not only does Virgin brings its considerable brand recognition, it legitimizes the effort as a true cooperative project, and adds a huge new category to the site, home loans. Plus, they get a much bigger number to put on the top of the homepage (below): $74 million instead of $1 million.

Other financial services participants include: Credit Karma (note 1), On Deck Capital and Geezeo. The campaign has its official launch today, although the website has been active since December (previous post).

The timing of the UnCrunch launch is perfect, following President Obama’s assertion last night that lending was the “lifeblood” of the economy. All active lenders, especially credit unions, should consider joining this effort or using similar themes in their marketing.

UnCrunch home page (25 Feb 2009)

Virgin Money UnCrunch landing page (link, 25 Feb 2009)

Notes:
1. Lending Club and Credit Karma will be participating in our upcoming Finovate Startup conference April 28 (see full lineup here).
2. For more info on the market, see our Online Banking Report on P2P Lending.

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Visiting the Center for Future Banking

By Jim Bruene Posted on February 25, 2009
Categories: Bank of America, Strategic Planning, Strategies

Yesterday, while visiting Boston, we had the opportunity to tour the Bank of America-sponsored Center for Future Banking, a part of the famed MIT Media Lab.

We talked to researchers looking at:

consumer behavior in budgeting and managing their finances
mobile ecommerce tagging
artificial intelligence at the point of purchase

It’s always energizing to be on campus and see what the bright minds are up to. It’s a great reminder that creative thinking, new ideas, and new technology always propel us forward.

The BofA folks were doing a great job maintaining a positive attitude, but it was also obvious that the events of the past six months have taken a toll. Hopefully, that’s temporary.

A couple interesting conversation points:

The Center is absolutely open source, dedicated to helping move the industry forward, not just BofA; they hope more banks and industry players will at some point join their research efforts.
There may be more startups and more innovations due to the economic downturn as otherwise unemployed individuals start new companies.
There’s more need than ever to rethink traditional models.
This could be the absolute best time to start a financial services company.

Thanks to Abhishek Mehta, who splits his time between Bank of America in Charlotte and the MIT Media Laboratory, for spearheading the visit. Thanks also to Jeff Carter, Srini Nallasivan, and David Price from Bank of America for the inspiring conversation. And a special thanks to the grad students and staff at the lab for allowing us to interrupt their work and learn about their projects: Kwan Hong Lee, Katherine Krumme, Nathan Greenslit, and Sajid Sadi.

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Nine More Added to Finovate Startup Conference Lineup

By Jim Bruene Posted on February 23, 2009
Categories: Conferences, Finovate

The financial services startup community will be out in force April 28 at our second annual Finovate Startup conference.

The nine new companies below, along with the 39 participants announced two weeks ago, plus several we can’t yet name, bring the total to 50 startups. That’s eleven more than last year! We can now say that we’ll have the largest group of financial services startups ever assembled in one place.

Don’t miss your opportunity to talk to the companies that will help change the financial services landscape in the coming years. Join the many bank, credit union, and technology execs in San Francisco on Tuesday, April 28, for a thought-provoking and exciting day (see note 1).

The early-bird deadline ends Friday, so register now for just $795. Current Online Banking Report subscribers can save even more. Look on the back page of the most recent issue, or email info@netbanker.com for your customer discount code.

Here are the latest additions to the conference (note 2):

Notes:
1. And if you can come early, don’t forget BarCampBankSF2, happening Saturday and Sunday, April 25/26 (previous post).

2. Are you a startup interested in participating? Contact Eric Mattson.

3. Members of the media, including financial industry bloggers, should request a press pass here .

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Mint, Quicken Online Release Registered-User Totals

By Jim Bruene Posted on February 20, 2009
Categories: Intuit, Metrics & Market Research, Mint, Personal Financial Management

mint_logo We’ve regularly cited third-party estimates of website traffic to Mint and other PFMs. More often that not, we’ll get a comment or email taking us to task for using such inexact and/or irrelevant data. But we believe that website traffic, even a rough approximation, is a leading indicator of success.

Luckily, we now have better metrics for the two online leaders. In response to what appears to be a truth-in-advertising query from Intuit’s general counsel (see note 1), Mint disclosed its registered-user count (note 2), which has been growing at an average of 17% per month in Q4 2008 and so far in this year.

As of yesterday, Mint had 934,000 users, double third quarter’s end-count. That’s 3,400 new registered users per day (seven days a week), almost 25,000 per week. The company should pass one million before St. Patrick’s day.

While this growth in registered users is impressive, what’s truly astonishing is that 70% of the registered users, 680,000 so far, have entered at least one bank or credit card username/password in order to automatically download transactions into Mint.

In response to Mint’s disclosure, Quicken Online reported its 650,000 registered users, currently growing at a 45,000-per-week clip. If that continues, they’ll pass one million before the April tax deadline.

It looks like there’s quite a battle shaping up between the two leading online personal finance specialists. And don’t overlook the banks. Both Bank of America (2.5 mil as of April 2008) and Wells Fargo (1 mil as of Nov 2008) have more online personal finance users at this point.

What it means: Account aggregation, left for dead a few years ago, is making a fearsome comeback. The three biggest players, Bank of America, Mint, and Quicken Online, now have more than 4 million registered users, approximately 4% of all U.S. banking households (note 3).

Table: Mint Registered Users by Month

Month-End	Registered Users*	Monthly Gain	Month/Month % Gain
Aug 2008	404,000	—	—
Sep 2008	458,000	54,000	13%
Oct 2008	544,000	96,000	21%
Nov 2008	606,000	62,000	11%
Dec 2008	720,000	114,000	19%
Jan 2009**	864,000**	144,000**	20%**
Feb 2009***	934,000***	—	—
Avg gain/mo	—	94,000	17%

Source: Mint, Feb. 2009
*Registered users are anyone who has signed up with email address
** Through Jan 25 (per Mint letter, 28 Jan)
***Through Feb 19 (per TechCrunch post, 19 Feb)

Notes:
1. Intuit’s letter to Mint here.
2. Mint’s response here.
3. Yodlee provides the aggregation engine for both Bank of America and Mint.
4. For more info, see our Online Banking Report on Account Aggregation and Online Banking Report on Personal Finance Features

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How Can Online Banking Develop its Own Black Card?

By Jim Bruene Posted on February 18, 2009
Categories: Barclays, Credit/Debit Cards, Premium-level Products, Pricing

Yesterday, I looked at a list of free services likely to come under pressure as banks work on the Herculean task of returning to normal profitability. One area that’s likely to remain free for the foreseeable future is online and mobile banking, at least the core account-access portion of it.

But we continue to believe that financial institutions are missing a revenue opportunity to provide premium fee-based services to certain segments.

If American Express can command $2500 per year for its black Centurion Card and Barclays $495 per year (see note 1) for its slightly more pedestrian Black Card launched in December (see note 2), why can’t banks get $10/mo for a similar premium version of online and mobile banking? The short answer: They haven’t tried.

Just for the sake of discussion, here’s a “gold online banking” service for which I’d pay $15 per month without a moment’s hesitation:

High-end website and iPhone app
Long-term (7+ years) online storage of images, transactions, statements
On-demand credit score like Credit Karma
Credit bureau alerts when negative items hit
Account aggregation with weekly summaries like Mint
Email customer service with 30-minute or less turnaround time
VIP phone and tech support with no phone tree
No overdraft/NSF charges (within limits of course)
Travel rewards/sweepstakes on electronic transactions
Pre-filled one-click credit application
Extra security options
SMS balance inquiry
Iron-clad, no-fine-print security guarantee with 100% immediate reimbursement and emergency credit line

For more elaboration on these benefits, see our Online Banking Report on Pricing Online Services.

Visa Black Card homepage (15 Feb. 2009)
Includes one-page online application

Note:
1. The benefits of the Visa Black Card are similar to those from many gold/platinum cards. One of the biggest differentiators is free limited membership to Priority Pass which gets cardholders into 500 airport lounges in 250 cities. However, according to the FAQs, Black Card holders are limited to two complimentary visits per year, so this would cost $154 annually if purchased directly from Priority Pass. In fact, for $349 annually, you could get unlimited access to airport lounges.
2. The Visa Black Card has been advertised with full-page ads in the New York Times, the latest on 10 Feb. 2009 on p. A5 (national edition).

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Will the Troubled Banking Sector Start Pulling Back on Free Consumer Services?

By Jim Bruene Posted on February 17, 2009
Categories: Pricing, Strategies

One thing that’s clear in today’s banking crisis: many credit products were severely underpriced relative to the risk. That means the entire financial services industry must reprice their product lines to get back to a “normal” level of profitability.

For consumers and businesses, that means higher rates, more fees, and most likely fewer free services. One thing that will surely be scaled back is the extensive branch system, which in the United States amounts to one full-service, often elegantly equipped, bank branch for every 1,000 households (see note 1).

But what other free services will disappear? Here are the current freebies that banks will closely examine in coming years. In most cases, the free benefits aren’t going away entirely, they’ll just be available to fewer customers. They are listed in order of most vulnerable to least.

Free online bill payment: In our opinion, across-the-board free bill pay has never made economic sense for most financial institutions (note 2). We expect banks will begin charging the less-profitable portions of their customer base for it.
Free branches on every corner: Branches are a huge, vastly underused, capital expense. There will be significant reductions in this area during the next 20 years (note 1). Branches aren’t going away entirely, but they’ll be far fewer, they will be smaller, and they will charge fees for many services currently offered free of charge.
Free credit card annual fees, interest-free grace periods, and rewards: Non-revolving credit card users get a great deal under the current system, 30-to-45 days interest free grace period, plus card rewards, and little or no annual fee. Card issuers, hit by lower borrowing by their prime customers and higher default rates from others, will restrict free services for convenience users.
Free mailed statements: As the cost to mail statements continues to rise along with the percent of customers with online access, this freebie is destined for extinction. As with most benefits transitioning from free to fee, less-profitable households will see the fees first.
Free telephone customer service: Telephone customer support is relatively inexpensive compared to branches since most routine questions are answered automatically and human support can be outsourced to lower labor-cost areas. But we expect that free human customer service will eventually be limited to the more profitable households, with others paying per-use or annual fees.
Free ATM usage: Most banks will continue to offer free ATM use across their own networks, but will probably add qualifying criteria, such as minimum balances, debit card usage, direct deposit, and/or estatement usage.
Free checking: Because “free” checking isn’t really free after factoring in penalty fees and cross sales, it’s not likely to disappear from a bank’s marketing toolkit. However, unprofitable customers will see even more fees tacked on to their accounts, such as per-use charges for branch services, telephone support, etc.
Free online/mobile banking access: Online and mobile access is an inexpensive service to provide and is likely to remain free for most customers. However, we expect banks and credit unions to begin offering upscale “gold” versions that will carry annual/monthly fees for more benefits.

Notes:
1. For our take on the future of bricks and mortar, see Online Banking Report: The Decline of the Branch.
2. For more info on pricing bill pay and other online services, see Online Banking Report on Pricing.

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Pertuity Direct Launches Financial Mashup: Consumer Loans + Mutual Funds + Social Finance

By Jim Bruene Posted on February 15, 2009
Categories: Launches, Loans & Credit, Online Banking Report, P2P Lending, Pertuity

Last month I wrote about Pertuity Direct’s impending launch. It’s been live for a few weeks, and I’ve had a chance to review it in detail. The model is so unique, we created an entire special report on the company. It is available to our Online Banking Report All-Access subscribers here. Others can purchase for $195 here. And if you just want the executive summary, read on.

Overview
Pertuity Direct is an amalgamation of two financial services plus a social lending community:

Mutual fund: Retail investment assets are gathered via the National Retail Fund, an interval mutual fund created by Gemini Fund Services. The fund plans to invest primarily in consumer loans originated by Pertuity Direct (see note 1). At the outset, there are two mutual funds to choose from: one will invest only in loans to prime customers with credit scores of 720 or higher; the other will take on more risk and invest in loans to borrowers with 660 or higher scores. Minimum investment is $250 and current estimated fund expenses are 3.1%.
Consumer loans: Three-year installment loans of $1,000 to $25,000 will be originated by Pertuity Direct under state licensure. The loans will be sold to The National Retail Fund who will hold them until they pay off. Pertuity Direct will be paid a 1% servicing fee from the fund. Borrowers also pay a 1% to 2% loan fee at funding. The company is currently licensed in 37 states.
Social lending: The last, and least, piece of the product is a social lending forum, where mutual fund investors can purchase Pertuity Bucks to give to already-funded borrowers to help them repay their loans.

Analysis
Whether this should be called “peer-to-peer lending” is open for debate. Pertuity Direct makes all the loan decisions and sets the rates. Investors have no direct influence over which borrowers are funded. However, there is a social element because investors can donate to borrowers through the community area. The model probably most resembles a member-owned credit union or mutual savings bank.

From an investor’s standpoint, it’s a unique opportunity to capture banking interest margin without actually buying shares in a commercial bank. The mutual fund is more like a bond, so it should be less volatile than owning equity. Although current estimated management fees of just over 3% are a drag on earnings, the company hopes the percentage falls as the funds gain assets.

However, the mutual fund doesn’t have the liquidity or upside of an equity investment. It’s an interval fund, meaning they will allow some redemptions each quarter (note 2), but it’s not publicly traded. There’s also the matter of how they value the underlying assets of the fund. A proprietary model will value the consumer loan portfolio each day, but since the assets are not publicly traded, there is no way to really understand if that model is working until there is a performance history.

Summary
Pertuity Direct does a credible job weaving these three disparate businesses together and its management team, with experience at PNC Bank and E*Trade, have great ideas on taking this business to the next level. But much remains to be done to educate the market and overcome the hesitancy of jittery investors. We will be following them closely (note 3).

Screenshot: Pertuity Direct homepage (2 Feb. 2009)
The company posted a 3.5-minute YouTube video of founder Kim Muhota explaining the company’s offering.

Notes:
1. While the intention is to invest in Pertuity Direct-initated loans, the funds can also invest in other vehicles.
2. The prospectus says that it will allow 5% to 25% of its funds to be redeemed each quarter.
3. CEO/founder Kim Muhota will be participating in our FinovateStartup 2009, so you’ll be able to hear directly from him.
4. For more info on P2P lending, see our Online Banking Report on P2P Lending.

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