Why New Financial Technology Remains Important

imageWith all the bad financial news circling the globe, you may not have been thinking about innovations in financial technology. While that’s understandable, this is not the time to ignore the fundamental changes occurring in the consumer marketplace (see below).

Yes, we are biased towards new technology, but with registrations to our upcoming Finovate Conference running 75% ahead of last year, there seems to be plenty of people who agree. By the way, this is the last day to save $100 on your ticket (register here) and ensure your ring-side seat on Oct. 14 to see these 24 inventive financial companies showcase their latest improvements.

Finovate 2008 lineup in NYC Oct 14

But let’s address the elephant in the room. Is this the time to be concerned about new bank tech products, or is it time to just hold on and ride out the storm? While good arguments can be made on either side of that issue, here are two interesting examples that made bold bets on online technology in the middle of Internet gloom and doom: 

ING Direct, launched during the depths of the dot-com bust (Sep 2000), is on track to become a top-10 U.S. bank by the end of the decade (note 1)

PayPal, also launched right before the low point (Nov. 1999), now has more customers that any other financial-services provider in the world other than the payments gateways themselves (Visa, MasterCard)

Who will be the ING Directs and PayPals coming out of the current crisis? Your guess is as good as mine, but my vote goes to the companies that do the best marrying online services with mobile delivery.

Why financial technology remains important
There’s no doubt that budgets will contract in 2009 and beyond. But new technology usually holds the promise of cutting costs or at least making it easier to serve more customers without adding resources. Here are the trends you cannot afford to ignore in your 2009/2010 plans:   

1. Always-connected mobile consumer: Consumer services continue to move online as ubiquitous broadband and cellphone connectivity keeps most banking households connected 24/7 at home, work, and now with mobile, everywhere. Apple’s iPhone, and the next generation of competitive devices, are changing the game in mobile. There are already more than twice as many mobile phones in the world as there are credit cards (note 2). And location-based technology allows users to interact with merchants and payment providers in new and potentially more secure ways.

Implication: Mobile services today are about where the Internet was in 1996. And globally, mobile banking and payments will be even more important than online banking and payments. 

2. Over-extended consumers seek guidance: Just as millions of amateur stock traders learned a harsh lesson about risk vs. return in 1999/2000, tens of millions of consumers will are learning the downside of extensive debt and leverage in 2008+.

Implication: This is a great time to get consumers hooked on tools that help them manage their spending, savings, and debt. And virtually all the activity will take place online with mobile support.

3. Branch exodus intensifies: The U.S. over-investment in branches will come to a screeching halt in 2009. With several of the big branch builders, especially WaMu, being acquired, there will be less of a competitive imperative, not to mention less capital, to build fancy new branches on every street corner. Some of the savings will be funneled into alternative delivery. Even the fanciest website can be built today with the fraction of the cost of a single urban branch.

Implication: Increasingly, financial institutions large and small will compete online.

4. Online research is the norm: According to a 2007 study published in November by the National Association of Realtors, 84% of households used the Internet in their search for a house. And in a dramatic change compared to ten years ago, online sources were nearly as important as humans in locating the house that was ultimately purchased (29% found it online first vs. 34% who said their agent told them about it). Similar numbers are reported for autos and other big tickets items.

Implication: A good web presence is crucial to landing new customers.

Note:
1. Industry consolidation is helping them move up the ranks, they jumped two spots in the past week alone.

2. Source, Communities Dominate Brands blog, 8 Jan 2007 (with updates)

Online Financial Services Scorecard: June 2008

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The June financial shopping numbers released by Compete revealed a mixed bag as interest in credit cards, home equity, and purchase loans fell double digits compared to a year ago. However, deposit activity moved in the opposite direction.

More specifics:

  • Although credit card application volume was relatively flat (down 1% for the year and down 4% for the month), the number of shoppers decreased 39% compared to a year ago. Although the data shows only application volume, there has likely been a sharp drop in approvals, as underwriting standards stiffen and credit-worthy applicants stay on the sidelines. 
  • In June there was a slight drop in checking shoppers (down 4%) and applications (down 5%) compared to May. However, year-over-year both were up with a 32% increase in shoppers and a 6% increase in applicants.
  • However, savings shoppers increased 51% from last year and 7% from May with applications up 43% compared to last year and 24% over last month.
  • High-yield savings showed similar gains compared to a year ago, with 31% more shoppers and 30% more applications. 
  • Home equity and purchase mortgage activity were both off compared to the previous month and also a year ago. The only good news was an increase in refi activity with 10% more shoppers than May and 27% more than a year ago. But application volumes were down 21% from May and down 34% compared to last year.

About the financial services scorecard
A little over a year ago, we introduced the Financial Services Monthly Performance scorecard produced by Compete. It summarizes the overall performance of 23 large U.S. financial institutions and lead-generation sites. Refer here for the detailed methodology as well as companies tracked.

Notes:
1. Year-over-year comparisons were added to the chart beginning in March 2008. Because of ongoing methodology tweaks, the percentages in this table may be slightly different than if you went back to the data from a year ago and calculated the change. 

2. Leads/applicants = Leads or applications depending on whether the site tracked is a lead-generation site or an actual lender.

Visa Announces Android and P2P Mobile Initiatives

image Visa today put a stake in the ground to be viewed as the innovation leader, a position that American Express has claimed for some time with its chip cards, social media efforts, and even an online lab site. At today’s “innovation briefing” in NYC, Visa announced several pilots and upcoming initiatives.

Mobile person-to-person transfers
The most far-reaching announcement was the ability for Visa cardholders to transfer funds from one card to another via mobile device. So far, just one bank is participating in the pilot. US Bank says it will make the service available to a few thousand cardholders as a test later this year. PaymentsNews has more details here.

It sounds good, but as always the devil is in the details. For instance:

  • Through what hoops will cardholders have to jump to enable their card and phone for the service?
  • Will the transfers be treated as cash advances triggering fees and finance charges?
  • Will it be available to all cardholders using any mobile phones? 

Visa jumps on the android bandwagon
A more immediate innovation is a location-and-alert-based service built for Google’s android platform, a new mobile system launching in late October. Visa’s new service, to be rolled out initially by Chase Bank (no time frame given), promises some important new developments:

  • “Near real-time” purchase alerts (see note 1) so you can see immediately whether your server added an extra digit in front of your tip on that bar tab. The real-time alert pilot was announced a month ago (here) involving several thousand accounts at PNC Bank, SunTrust Bank, US Bank, Wachovia, Wells Fargo, Royal Bank of Canada, TD Bank, and Vancity.
  • Visa merchant finder based on your location-based/GPS technology  (nice!) with targeted marketing offers (hmmm??). The merchant locations will be integrated with Google Maps.

Again, PaymentsNews has the entire press release here.

Notes:
1. Visa says that the alerts will arrive “typically before (the consumer) leaves the store.”

2. For more information, see our Online Banking Report on Mobile Money & Payments.

Pennyminder is Tenth Online Finance Startup to Launch/Unveil in September

image What a month for financial tech startups! Partly due to DEMOfall, TechCrunch50 and our Finovate, there’s been at least 10 online financial service launches or unveilings this month in North America alone (note 1).

That could be the sign of a bubble about to burst, or it could just be a bunch of smart people meeting very real market needs. Only time will tell. 

Lucky number 10 is Pennyminder, an online personal finance startup based in Vancouver, BC. I met founder Vince Hodges at BarCampBankBC last Saturday (coverage here). Although Pennyminder joins a crowded field, the seventh personal finance manager (list below) to launch this month, it’s the first ever based out of Canada. That alone should help it gain some traction.

Vince proffered a beta invite, so I’ve had a chance to look at it. It’s a nice, clean design that allows user entries/statement import and supports an expense sharing/social angle. I don’t know if that’s enough to compete with the dozens of U.S. and international personal finance sites, many with VCs funding a wider range of features, but it’s a good start.

Pennyminder will have to figure out a way to break through the clutter, such as partnering with credit unions and/or banks.

Here are six more newcomers this month:

Note:
1. Includes the seven mentioned here plus three more I’ve yet to blog about.

New Online Personal Finance Manager Thrive Rounds Out Finovate NYC Conference Lineup

image With three weeks remaining before Finovate NYC, the final company in the demo lineup is stepping out of stealth mode and announcing its participation in our second annual new-products conference. See the full list here.

image Thrive will be launching its entry in the online personal finance marketplace, JustThrive.com, at Finovate on Oct. 14. The company hopes to differentiate itself with more advanced financial planning tools while still remaining free. Founder and CEO is Avi Karnani; Marc Matsumoto is CMO.  

Currently, the service is in closed beta testing, but Thrive recently updated its homepage with a timely message playing off last week’s financial debacle (screenshot below). 

We had a chance to meet with the NYC-based founders earlier this year and were impressed how they’d studied the current players and were aiming to leapfrog the competition. However, there’s been significant innovation in the space this year, and they enter a crowded field (more on that tomorrow).

At this point, I can’t say anything more specific about Thrive’s plans, but after it becomes publicly available we’ll be back with a full analysis. 

Thrive homepage for its new JustThrive service 23 Sep 2008

Notes from BarCampBankBC

imageI attended my second BarCampBank Saturday in Vancouver BC. I was part of the first North American camp in Seattle last July (coverage here).

For me, this one was more interesting. There were more people (50-60 compared to 30-40 in Seattle) and more financial institutions represented, including both credit unions and banks. HSBC Direct even helped sponsor the event.

image First a note of thanks to organizers William Azaroff of Vancity; Tim McAlpine, creator of Common Wealth CU’s Young and Free program and  founder of Currency Marketing; and Gene Blishen, CEO of Mt. Lehman Credit Union who has the coolest graphics in the whole world (see inset). 

If you want to see session notes, check out the weekend entries at William’s blog. He did an amazing job facilitating the sessions and live blogging. You can also watch archived video streams of five of the sessions, courtesy of Brent Dixon, posted at his Open Source CU blog (turn on the embedded player and click the “on demand” button in the lower bar). 

Here’s what I highlighted in my notebook: 

  • Mobile could be more game-changing than we give it credit for. The ability to communicate in real-time as consumers engage in shopping, bill payment, and so on is so powerful, it’s difficult to grasp the long-term implications. 
  • Social media tools like Twitter could be used to harness customers’ reactions in real time, a virtual sentiment meter as one of the campers said (was that you Brent?) Why not have a “what are you thinking” box displayed after customers login. The responses could be aggregated and trended to see how the bank is performing over time.
    They could also be broadcast to all customers to build community.
  • Even in this progressive group, only two of the financial institutions are blogging: Vancity’s ChangeEverything which is really more of a platform for social change than a true broadcast-type blog and Verity Credit Union (note 1). Reasons for not blogging seemed to be some variation of “lack of resources.” It’s hard to argue with that. But basic blogs such as UW Credit Union or Piedmont Credit Union, both of which I think are very effective, can be put together in just a few hours per week.
  • Financial literacy, or lack thereof, was a common theme and there seemed to be a consensus that the industry should help schools and parents do a better job preparing youth to handle money and debt. This is what iThyrv, which debuted at TechCrunch50 last week, is using as their primary market-entry strategy (previous post here). Andrew Taylor, Jwaala CEO, participating remotely via the live webcast, threw out the the idea of a financial literacy score similar to FICO. Again, that’s part of the iThryv model. It’s a good idea if it were to catch on, although that seems like a long shot.  

Note:
1. Many (most?) of the credit union representatives had personal blogs.

Web-based Self-Service Debt Collection Makes the News

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It’s not often that bank collection techniques make the business press, and when they do, it’s usually not a good story. But last week’s WSJ article by personal finance writer Jane Kim featured a relatively positive spin on how banks are working harder to collect revolving credit debt.

She cited two examples of Web-based self-service applications trying to turn early collection efforts into a non-confrontational, positive experience including:

  • WaMu’s self-service website, <wamucanhelp.com>
  • The Virtual Collection Agent powered by Online Resources that is being rolled out by three of the top-10 card issuers. The system was first shown to the public at last year’s Finovate conference (video here)

You can only look at the WaMu collection site if you have a WaMu credit card (screenshot below), but in perusing domain-ownership records, it appears to be hosted by Online Resources, so it likely resembles the screenshot below, a generic mockup from the Online Resources website.

Note the settlement offer listed at the bottom of the page. This offer can be produced dynamically based on input from the user as they use the self-service site.

What’s innovative?
While it won’t work for everyone, collecting past-due debts is one of the trickier areas of bank operations. Financial institutions have to be careful not to be too aggressive early on so they don’t appear heavy-handed and end up driving away an otherwise profitable customer, not to mention that customer’s friends and family.

That’s why a gentle email/text reminder with a link to a self-service support area makes so much sense. Not only can you speed repayments from delinquent borrowers, but also garner valuable goodwill by offering a positive experience via a collaborative online tool. Given the current environment, Web-based collection efforts could maintain precious account relationships.

Virtual collection agent from online resources (19 Sep 2008Virtual Collection Agent from Online Resources 19 Sep 2008

 
WaMu’s Web-based collection website <wamucanhelp.com> requires a WaMu card number for login  (19 Sept 2008)

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Online Banking Report Looks at New Security Technologies that Promise More Peace of Mind

image With bad news pouring down from all corners of the financial services world, it’s a difficult time to be a bank marketer no matter what condition your financial institution is in (see note 1).

imageBut besides sending reassuring emails to your customers, highlighting your strong balance sheet on your website (see inset), and for the few with blogs, dropping the occasional rosy post into the RSS or Twitter feed (note 2), what’s a banker to do?

When fear is rampant, little things can make a difference. Your customers have long been nervous about banking online. Most aren’t afraid enough not to use it, but lingering doubt remains.

Now might be a great time to follow the lead of ING Direct, Firstrade, and Muriel Siebert and introduce a software solution that provides extra security for online banking. While it won’t make a Fannie Mae shareholder any happier, it’s reassuring in these times that at least there are no crooks stealing your username and password.

obr_bestofwebOnline Banking Report publishes Security 4.0 (note 3)
In the latest Online Banking Report, we look at several promising software solutions that allow even malware-infested users to connect safely to their bank. Both solutions earned OBR Best of the Web designations (note 4): 

  • Rapport from Trusteer, now being distributed by ING Direct in the United States and Canada (previous post here)
  • SafeCentral from Authentium, being distributed by Firstrade and in testing at several major banks (Finovate Startup demo video here)

Online Banking Report: Security 4.0 Tabl of Contents Sep 2008We also take a closer look at Bank of America’s SafePass (previous post here), which is an easy way for customers to add an extra security layer to their login, although it won’t prevent certain malware to hijack the session. See the inset for the complete Table of Contents.

Online Banking Report subscribers may download it now here. Others may download abstract here, or purchase here. Cost is US$495. 

Notes:
1. But be thankful if your financial institution is not in the headlines right now. I’m in the hometown of WaMu and the headlines this morning were not pretty.
2. Blog post from Verity CU on 16 Sept.; Twitter update from First Federal today   
3. Our fourth full Online Banking Report on security/privacy; previous reports were #119, #93/94, and #48
4. OBR Best of the Web awards are given periodically to pioneering online banking features. It is not an endorsement of the company or product, just recognition for what we believe is an important development. Trusteer and Authentium were the 71st and 72nd recipients of the designation since we began awarding them in 1997.

Wachovia’s Initial Foray into Social Media is Impressive, Now Twitter That

Link to Wachovia Twitter page Taking a page from Wells Fargo’s playbook, Wachovia has ventured into social media, giving Twitter a try (see screenshot below and previous Twitter coverage here). The bank has sent 94 updates (aka Tweets) via its Twitter page since it began Aug. 18 and has amassed 340 followers.

But more importantly, they are leveraging the minimal customer-support expense to support Twitter (see note 1) with a nifty badge on its Contact Us page (see inset and screenshot below). That little bit of online marketing, demonstrating the Web-savviness of the banking colossus, is probably worth 1000x whatever goodwill they earn actually talking to customers via Twitter.

Wachovia Contact us page with Twitter badge 17 Sep 2008

Analysis
I’ll admit, I was expecting the usual corporate marketing-speak. But Wachovia is actually using the medium very well. So far, the bank has provided a realistic mix of low-key promotional items such as the following “Ike update” with real customer service response (see second example below).

Example 1 (earlier today): Promotional Tweet today mentioning the bank’s Hurricane Ike response with link to more info, e.g., <tinyurl.com/4vbbyn>: 

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Example 2 (this morning): Responding to a customer complaint: 

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This last message is directed back to a customer who posted a complaint about Wachovia in his public Twitter stream. Wachovia could have sent it privately, but they elected to respond publicly.

This is surprisingly bold, considering that the bank risks elevating the issue. For example, anyone following Wachovia’s updates can click on bastille71’s username and see that she is upset about a $250 overdraft charge. It’s unlikely anyone outside bastille71’s friends would have known about that had Wachovia not responded publicly via Twitter.

Twitter user bastille71 But anyone who really believes in social media will argue that the bank has far more to gain by demonstrating real commitment to solving customer problems.

Looking further at the above example, bastille71 (inset) has 135 followers on Twitter, her own blog, and who knows how many friends on Facebook. What are the chances that if Wachovia ends up refunding her $250, bastille71 (aka Miss Rehobeth) will write it up in her blog, Twitter it, and even talk about it with her co-workers and friends? 

And if you need more ROI than that, Wachovia has already received a good payback on its Twitter investment (note 1) with a nearly full-page article in American Banker last week during an otherwise not-so-positive news cycle for banks. In addition, the customer service innovation made several blogs and of course the bank’s been Twittered about in a positive way.

Note:
1. There’s no real cost to using Twitter other than staffing it with a social-media-savvy customer-service rep and someone in marketing/PR to look over his or her shoulders. 

Rate Surfer and MyMoney to Demo at Finovate 2008

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Finovate takes place four weeks from today (Oct. 14), and we’ve already surpassed last year’s attendee total. Luckily, we booked a bigger space, so there will be more bankers and tech execs to network with and everyone in the audience will have a seat at a table to park that laptop, Blackberry, iPhone, or whatever.

But the space isn’t unlimited and if we continue the sign-up pace of the past few weeks we’ll sell out well before Oct. 14. So, don’t wait too long, register here (see note 1).  

When we announced the Finovate lineup, there were three companies that chose to remain secret. Two of those are now being named (note 2):

  • Rate Surfer which participated in the TechCrunch50 DemoPit last week (post here)
  • MyMoney from Fiserv’s Galaxy unit, a Facebook application that allows users to check their bank balance and transactions from within their Facebook account (post here)

Note:
1. Clients with annual subscriptions to our All-Access Online Banking Report are eligible for a conference discount; email [email protected] for your client discount code.

2. The 24th company is in stealth mode and will be revealed on or very near the conference on Oct. 14.

Expensify Launches Decoupled Credit/Debit Card Using Prepaid Model

image Like Rate Surfer, which we wrote about yesterday, Expensify launched its new employee expense-management system from the TechCrunch50 DemoPit this week.

The San Francisco-based startup (note 1) combines a payment card with a Web-based expense manager and uses cellphone cameras to upload pictures of receipts to match against purchases. It’s a banking triple play: card, online, and mobile.

The target market is smaller businesses that want to automate expense report preparation, approval, and reimbursement to their employees.  

How it works
The heart of Expensify is a prepaid, decoupled credit card. I know that doesn’t make sense, but here’s how it works: 

  1. Sign up for an Expensify MasterCard prepaid debit card.
  2. Load it with value from any credit or debit card, Visa, MasterCard, or American Express. 
  3. Make purchases with the Expensify MasterCard.
  4. As each purchase clears, the prepaid balance is lowered, triggering an automatic “top off” charge of an equal amount to the consumer’s credit card, thereby returning the prepaid balance back to the original level.

Metabank is the issuer; here are terms and conditions.

Analysis
At first blush Expensify sounds pretty amazing. An expense management card that rides on top of your regular card, with mobile and Web-based integration. Brilliant, until you start thinking about costs. There’s that pesky thing called interchange. What Expensify has done is create two card transactions instead of one, doubling the amount of interchange paid.

To cover the extra interchange and create some revenue for itself, Expensify levies a 3% transaction fee on the cardholder. Although the card is otherwise relatively fee-free, that’s a significant surcharge.

Why would anyone pay 3% extra in order to use the Expensify card when they already have a credit card? The company believes that small businesses will pay the fee in order to get the expense-manager features and to help employees separate business expenses from personal ones. Businesses could have multiple Expensify cards tied to different categories of expenses (see screenshot below).

A business with just $1000/mo in expenditures would pay $360 per year. In addition, the business would tie up several hundred dollars in a prepaid account, because the only charges cardholders can make must not exceed the prepaid balance held in the Expensify account. 

I think the expense-management concept is good, especially with the mobile receipt integration, but it’s just too expensive in its current format. The founders should try to move to an ACH-based “topping off” process and remove the transaction fees. 

But regardless of how this specific product performs, the integration of payments, online and mobile, is a huge trend. If Expensify is nimble enough, they may be able to ride the wave.

Expensify homepage (10 Sep 2008)

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Note:
1. Since I didn’t see contact info on their website, here’s what the founders provided at TechCrunch50: Expensify, 548 Market St. #61434, San Francisco, CA 94104, Phone: 801.745.9064

My Best Interest Announces Rate Surfer from TechCrunch50 DemoPit

image In addition to the 51 companies chosen in advance to demo at TechCrunch’s annual conference, 120 more companies (note 1) are in the DemoPit. The DemoPit is an area outside the main hall where the companies that didn’t make the final cut to be on stage have a table where they can showcase their companies to attendees. And one lucky company, the one that collects the most tokens from attendees, will appear as company number 52 on stage in the last session tomorrow.

There were several financial services companies in the DemoPit Monday including Billeo, Expensify, and LoanKrunch. Today, there was just one, Rate Surfer from My Best Interest. Although the service will not go live until its debut at Finovate next month, the company today showed it to the public for the first time. It also added a downloadable demo program to its website if you want a sneak peek (note 2).

What it does
Rate Surfer is a credit card manager. It uses account-aggregation technology to import balance and rate data from all your credit cards. It then uses that data to help users initiate and track credit card balance transfers across their credit cards. Although not without rough edges still to work out, it could potentially save users hundreds of dollars in interest every year by helping them take advantage of transfer opportunities.

Main Rate Surfer page from its demo software (9 Sep 2008

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Notes:
1. There are 120 total companies, but each gets just a 12-hour day in the DemoPit, so there are 40 companies each day. Although, the Monday companies were given an extra day due to a wifi outage that plagued the hall much of Monday. In addition to these companies, there were 33 exhibitor tables and 22 TechCrunch alumni with tables, including Cake Financial and last year’s winner Mint.

2. It’s a 67MB download.