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The latest research from Online Banking Report is now available here for purchase ($395) or for subscribers to download here (Online Banking Report is our sister publication).
The 32-page report lays out the toolkit for building your own so-called "Web 2.0" banking site. It delves more deeply into the important tactics of blogging and RSS/XML feeds. Download the full Table of Contents here.
Today's New York Times (p. A8, national edition) has a half-page, red-and-blue ad for Bank of America dominated by the headline:
If you have a computer, you have a bank.
The visual is a generic laptop with a generic browser displaying Bank of America's homepage. Text copy and sub-heads emphasized that 20 million are now using BofA online banking.
The ad-copy emphasized three benefits:
Call to action: visit www.bankofamerica.com/yourownbank (see screenshot below).
Screenshot: Bank of America's landing page
(click to enlarge)
Analysis
There are several interesting things about this ad.
Taken together, it's an interesting effort, although it looks more like corporate branding rather than an effort that will generate enough accounts to justify the five-figure tab to the NY Times.
Screenshot: BofA's Build Your Own Bank from 1999
(click to enlarge)
In a blog post today, person-to-person lending pioneer Zopa announced several usability improvements in its upcoming release, a new My Zopa screen and Quick Lend area.
But what caught our eye was Zopa's upcoming option to guarantee the return of principal for its lenders. There's no free lunch, of course, so an insurance premium must be paid when lenders choose this option. Even though that will cause returns to fall to a more "normal" rate, it could be a psychological boost that brings in more funds. At minimum, it will generate press coverage.
The new guarantee is still awaiting U.K. regulatory approval. We'll look at it in more detail when it becomes available.
What's the biggest obstacle to online banking innovation in the United States? No, it's not security, ease of use, or customer education. The biggest problem is lack of fee income.
Unfortunately, online banking came of age in a golden time for U.S. financial institutions, with rate spreads at historical highs, customer loyalty at a peak, and fee income on the rise.
Banks, flush with profits in most business lines, decided not to bother with the difficult task of wringing fee income out of the new channel. So we ended up with near-universal adoption of the FREE model despite little economic justification for the subsidy. Sure, online banking customers are more profitable, but so are safe deposit customers. And you don't offer those free across the board.
The results are predictable. With online banking being cash-flow negative, many management teams have under invested in the online channel, while subsequently over investing in branches (see Online Banking Report #128, The Demise of the Branch).
Fighting free
There is no way to eliminate free online banking altogether, but you can nip away at the edges, convincing some customers to voluntarily pay fees for value-added services.
One promising avenue is converting users into a premium, fee-based online banking option, the same way American Express convinces its members to increase their annual membership fee two-fold by trading up to a Gold Card.
But in order to convince customers to voluntarily give up their free service, the fee-based version must have compelling benefits. The following three hot areas could be used to anchor a platinum online banking service. The first two we've looked at before (see previous coverage here), but mobile banking is the newcomer that offers much promise:
previous two items are relatively easy to do today, in the United States, the mobile market is just revving up with Cingular's recent announcement to add a banking application to its mobile "desktop." We've seen a live demo using a real bank account, and it's impressive. The partners on the service are Firethorn and Checkfree (see upcoming Online Banking Report #138, due out in late January 2007). Any premium online banking program should include one or more of these three core, value-added services. Then, additional minor services, such as security alerts, can be layered on to further differentiate premium banking from plain-old banking (POB).
For more information about online banking pricing and premium service offerings, see Online Banking Report #109, Pricing.
Texans Credit Union <texanscu.org> has added complimentary ID theft insurance and help services to their checking accounts. The new service is promoted through a somewhat confusing "Upgrade Now" call-to-action near the bottom and a large graphic (which rotates with two other spots) in the middle section of its gorgeous homepage (see screenshot below; notice how they use drop shadows to highlight the page).
Analysis
It's an OK perk, but doesn't do anything to help members prevent ID theft. To do that, members need credit report monitoring, which is available for $70 to $140 per year from the credit union's co-branded program with Identity Fraud Inc. (see screenshot below; read the full terms and conditions here).
However, it's not clear on subsequent pages whether members must take action to get the free service and which options they should choose to upgrade to credit report monitoring. We'd like it better if the credit union were more upfront about what is and is not included, and what the member must do.
"The biggest profit center at banks is customer ignorance, which banks have mistaken for customer loyalty."
— Gary Hamel, speaking to 1,000+ bankers at BAI's Retail Delivery Conference, Nov. 15, 2006
I've always been a sucker for management-guru speakers. I can still remember Tom Peters speaking at a sold-out show in Peoria, Illinois, back when I was a wet-behind-the-ears management-trainee for Caterpillar. It was 20 years ago during the height of "In Search of Excellence" mania and it helped me realize a lot can be done to improve business performance.
So every year I make it a point to sit up front when BAI trots out the guru-du-jour to inspire the banking crowd. This year, it was Gary Hamel, a Harvard guy that, I'm sorry to say, I hadn't heard of prior to Wednesday (see the End Note for a summary of his recommendations presented to the BAI crowd).
But man did he grab my attention with his challenge to the assembled bankers and tech-company reps (see quote above). He believes banks are vulnerable as customers become better equipped to compare the price of various financial services, a natural role of the Internet.
The importance of switching tools
Hamel believes financial services loyalty will disappear once customers discover how easy it is to move their accounts to pick up a hundred basis points on their savings rate, or avoid $35 overdraft fees.
In his BAI presentation, Hamel pointed to U.K.-based uSwitch <uswitch.com> as an example of a new tool to help financial customers compare and switch banking accounts (we'll profile it in an upcoming article).
As Hamel was delivering his keynote, Intuit was busy in a nearby Mandalay Bay eatery briefing analysts on its new account switching service, scheduled to go live December 15. The clever service is built on the Teknowledge aggregation engine acquired last year (data sheet here). Intuit's service is similar to Yodlee's service announced in September (see our coverage here). We'll be covering it in more detail as it goes live.
End Note:
Hamel's management philosophy
I have yet to read Hamel's books, but what he talked about Wednesday could be boiled down to the following:
During 11 years of publishing Online Banking Report, we've written about 500 words on so-called "mobile banking."
Even though it was a much-hyped topic in the late 1990s, our answer when asked about mobile banking was, "Fix your Web-based banking, add email alerts, and mobile will take care of itself."
But it looks like times may be a-changing. Cingular is throwing its considerable muscle into a phone-centered service using Firethorn's <firethornmobile.com> new platform (see homepage right), and the U.S. market for wireless services is enormous (per MasterCard & Cingular during their Nov. 16 presentation at BAI's Retail Delivery Conference):
Even more interesting, ClairMail shared market research showing that nearly two-thirds of U.S. consumers aged 18 to 34 have used text messaging during the past three months, demonstrating that even in the laggard U.S. market, a core group of consumers is ready, willing, and able to use the phone for more than just voice calling.
Analysis
There are three main reasons why mobile banking's time has arrived:
1. It works on common phones: Previous generations only worked on a subset of high-end PDAs; now most mobile phones can handle mobile banking.
2. It has a business case: Mobile banking can both increase fee income by being a core component of a Premium Online Banking service (see Online Banking Report #109) AND lower costs by migrating voice calls away from the IVR and into self-service.
3. The youth movement: Younger consumers interact with each other in real time via text and instant messaging. There is little doubt that they will value the same type of interaction with their bank.
We'll be looking at this subject in much more detail when we publish our first exhaustive report on the subject in January (see Online Banking Report in late January or early February).
BAI's Retail Delivery Conference continues to offer an excellent array of speakers on almost every delivery topic, from the "branch experience" to "optimizing multi-channel delivery." But one area that's barely covered is loan originations.
Only one session, out of 36 total, dealt with lending issues this year. And it was a last-minute replacement, not even in the program guide, substituting for NetBank and UPS's Banking on Brown, scrubbed after the announcement last week that the effort was being shuttered (see our coverage here).
Cornerstone Advisor's Steve Williams presented Consumer Lending: It's Not Just a Transaction Anymore. Although lightly attended, due to its placement at the closing moments of the show, he discussed a number of great ideas for improving loan originations, both online and in other channels. We'll look at some of them in more detail in coming weeks.
The presentation is available via email from swilliams@crnrstone.com.
For the next three days, I'll be in Las Vegas looking at the hottest new technology and innovations at the largest financial services event in the world, BAI's Retail Delivery Conference.
I'll report here on some of my favorite topics. If you are there, let me know what you found most interesting by emailing jim@netbanker.com.
Update (Nov. 12, 10 AM PST): Twenty-two hours later, the Verity website has been taken offline, but the blog is still running. However, there are no new posts since the original, although Verity's Shari Storm has responded to several member comments. From information in the comments, it sounds like Verity's log-in page was redirected for up to four hours on Saturday morning beginning about 6:00 AM. At least one member said they answered "screening questions" including mother's maiden name.
Seattle-based Verity Credit Union is in the midst of a major website spoof that began earlier today. The credit union is reporting that the log-in function to online banking, located on its homepage (upper-right below), has been redirected by a hacker.
Apparently, only the log-in function was hijacked. The credit union has control of its homepage and plastered a large warning over the front. The link after the warning, "more information," linked to the Verity blog for updates (see below).
It appears the log-in process is back under the credit union's control, although the warning is still there. When attempting to log in at 3:15 PM with a test name (I do not have a Verity account), I was redirected to an error message at <https://secure-veritycu.com/Common/SignOn/SignOnError.asp>, which appears to be a legitimate Verity secure page. There was no follow-up question asking for my credit card number as mentioned in the blog post (see below).
The incident was first posted to their blog at 12:02 PM today (see post below).
The silver lining
As bad as this is, Verity should be applauded for the rapid response, using both its website and blog to get the word out. Presumably, they also emailed customers, but those messages may or may not be believed in this day of rampant phishing.
You can follow the ongoing drama at the Verity blog, where customers have been redirected for the latest news. We'll keep you posted.
After a string of divestitures and the shuttering of money-losing operations, NetBank is returning to its core retail banking roots (see coverage here and here).
Whether the company remains an independent entity is up to its management and shareholders, but at least one analyst is speculating about a 2007 sale.
While not in a position to judge the value of the entire enterprise, I do know the brand itself has considerable value. The URL alone is worth millions. It could make a nice entry point into the U.S. market for an international bank looking to capitalize on the direct banking model, e.g., ING Direct.
The bank was launched in 1996 as Atlanta Internet Bank and went public in mid-1997. It was renamed NetBank in 1998 after securing the rights to the domain name for a reported $150,000.
NetBank was the second Internet-only U.S. financial institution, the first to go public, and the first to become relatively well known.
More than 70% of business-email users view most or all of their email messages in the preview pane.* Depending on screen size, resolution, and window sizing, the real estate available in the preview pane can be relatively small.
When designing messages, be sure to put the most important information in the upper-left corner to maximize visibility in the preview pane.
Here is a poorly designed email Chase sent to confirm posting of a credit card payment. It requires users to scroll right to view Chase's logo and log-in button. Here's how it looks on my 12-inch laptop screen running at 1024 x 768:
What not to do from Chase:
Better design from Bank of America graphics flush left:
(Note: BofA shows the last four digits of your account number; we changed them to xxxx in the screenshot above.)
Action Items
Even though it's just a routing email message, the poor layout makes it look like a phishing message. Chase could clean this up with just a few minutes of programming work. While they are at it, they should add a personal greeting and additional text disclosures to make it look less phishy.
*For more information, read our Online Banking Report #129/139, Email Marketing for Financial Services.