First Look at Google Checkout

Has Google found its iPod? Not the music player, but an end-to-end, ecommerce system that is safe, convenient, and above all, drop-dead simple to use? Something that does for online commerce what Apple did for digital music. That's a tall order, but we believe the search giant may have just such a hit on its hands with Google Checkout.

Google_checkout_logo_1For more than a year, there has been a great deal of speculation about Google’s entry into the payments arena. After months of quiet testing with carefully selected beta merchant partners such as Starbucks and Buy.com, Google Checkout was officially released yesterday <checkout.google.com>. Although the reaction in online blogs was mixed, we think it's a winner. The only question is whether it's a home run or a grand slam (or World Cup equivalents, one goal or four).

Google Checkout (previously known as Google Payments or Gbuy) is an online-payments tool integrated with the user's Google account. On the surface, it's similar to PayPal, but the true strength and potential threat is its close ties to Google’s already industry-dominant search function.

At this point, Checkout's functionality is more limited than PayPal's. There is no stored value, no subscription payments, no eBay integration, no non-credit card options, no integrated debit card, or money-market account. For the end-user, it's closer to a virtual wallet than a PayPal substitute. However, it goes way beyond what the ewallets of the late 1990s offered, taking control of the entire checkout process, a potentially disruptive technology in online retailing.

Google_checkout_starbucks_search

How it works
Google_checkout_starbucks Searches that match a Google Checkout advertiser include a shopping cart icon embedded within the AdWords' text box (see Google search on "Starbucks store" above). Users can buy products from these merchants in a few clicks without having to enter any additional information (see Google Checkout icon in lower left of the Starbucks shopping cart shown at right). This eliminates the dreaded merchant-account set-up process that causes massive shopping card abandonment problems, especially at relatively unknown merchants where privacy fears are greater.

Google_checkout_starbucks2First-time users are prompted to enter their credit-card, billing, and shipping information, which Google stores in its servers (see screenshot left). Subsequent purchases can be made with a simple Google username and password. Users can store additional payment and/or shipping options at any time. Complete purchase histories can then be monitored from their Google account.

Currently, just 100 merchants are participating (see places to buy), but given the potential merchant savings, expect that to change quickly. Of the 100 Checkout merchants, 24 offer a $10 discount off purchases of $20 or more (see DayDeals screenshot below).

Google_checkout_daydeal2Like PayPal, Google shields the buyer’s credit-card number and other personal information beyond what is necessary for shipping purposes. However, Google also provides the option of keeping the user's email address confidential, a spam-limiting function not available via PayPal.

When a user selects the confidential option (see screenshot below), Google forwards the seller's confirmation message to the end-user.

Google_checkout_finalstep_2 

Sellers are paid directly through their own Google Checkout account. Google has significantly undercut PayPal on pricing, at least for smaller merchants. Google's fee is 2% of the sales amount plus a flat $0.20 transaction fee compared to PayPal’s typical 2.9% plus $0.30 (PayPal has a sliding scale with higher-volume, $100k/mo and above, merchants paying 1.9% plus $0.30).

In addition, Google advertisers earn credits against their processing fees. For every dollar spent on Adwords, sellers can process $10 worth of sales with no processing charges other than the $0.20 transaction fee. It amounts to a 20% discount on AdWords' spending, provided there is sufficient Google Checkout volume (i.e., at least 10 times the amount spent in AdWords).

Finally, sellers can create their own Buy Now buttons at the Google site, then drag and drop the HTML code into their websites. This allows small business sellers who are not currently ecommerce-enabled to immediately begin accepting Google Checkout.

Google is expected to provide additional data as the service matures. Having a hand in the process from product search all the way through to the purchase will allow Google to keep tabs on which ads actually result in a sale. This could mean changes to Adwords' pricing or structure.

Analysis
The pitch to consumers is appealing. In addition to the privacy shields, Google promises to mediate disputes, and gives users a central place to track purchases. But the biggest consumer benefit: a common user interface for checkout, something that previous ewallets never provided. As you can see in the screenshot below, after shopping the merchant site, the contents of the cart are transferred to Google. At that point, Google takes over, offering the end-user the following options:

  • Change shipping method with all costs itemized
  • Add a coupon code
  • Change credit card
  • Change shipping address
  • Shield email address from merchant
  • SIgn up for promotional messages from merchant
  • Links to the user's Google account
  • Concise summary of the billing info, including exactly how the charge will appear on the user's credit card statement
  • Concise summary of the merchant's return policy

Google_checkout_dvdempire

Will consumers give up more personal information to the largest data repository on earth? Initial polls seem to suggest so. In addition, you can bet that merchants will create incentives to move credit-card and/or PayPal volume to Google to save as much as 3% on card processing. For a retailer with a 10% margin, that's a potential 30% lift.

You might be thinking that free credit-card processing is a short-term loss leader that will end as soon as a critical mass of merchants adopts Google's system. We don't think so. Put yourself in the shoes of a Google advertiser. You now know that you'll earn a 20% discount on your AGoogle_checkout_signindWords' buy. Will you let that drop to the bottom line, or might you use some of that windfall to goose your bids on Google a bit? If it's an efficient market, eventually much, if not all, of the "free" card processing will flow back to Google in the form of higher bids. And since not all merchants will qualify for the 20% discount, Google might actually increase its total take due to the "discount." Brilliant.   

Google_checkout_ccregCitibank's role
The program should have little impact on retail banks, since at this point Google Checkout must use a bank-issued credit or signature debit card to participate. However, Citibank is paying Google to be the "preferred card" on both the Google sign-in page (click on inset above for closeup) and the credit-card registration page (click on inset right). The credit-card giant is hoping the $5 (or 1000 Thank-you points), will entice users to enter their Citi card into the Google wallet. The $5 bonus offer ends Aug. 1.

Retail banks might want to consider supporting the payment service with a secure gateway to various online payment alternatives so users can manage their PayPal, Google, and other accounts directly from a secure online banking area.

If you are a credit card processor, however, this could eventually pose a threat to your market share and/or margins. Even without factoring in the AdWords' credit, Google's highly publicized 2% discount rate, along with a lack of monthly fees, is a bargain, especially for small businesses. However, given the reluctance of businesses to change banking relationships, it will be years before the impact is felt.

JB

Citibank cracks the “Wired 40”

Wired_cover_190_1We are huge fans of Wired magazine <wired.com>, having read just about every one of its 190 monthly issues. In fact, eight or nine years ago I used to tell friends that the goal of Online Banking Report was to translate the technology magazine into "banking terms."   

I still recommend the magazine to anyone interested in the future of digital communications, marketing, or content (that ought to cover anyone reading this). So if you're not already on board, head to its website and plunk down US$10 for an annual subscription.

Wired 40
Wired_40_logo_1Every year Wired publishes its list of its top 40 companies, The Wired 40. Most are large companies selected for their strategic vision, global reach, killer technology, and hunger for new ideas. The latest ranking (July issue) has Google at #1, knocking Apple from the top. The biggest surprise, New Corp. hitting the chart at #9. The company, which wasn't even ranked last year, has become an Internet giant with its purchase of MySpace last year (see NB March 16).

Here's the top 10 with last year's rank in parenthesis:

  1. Google (#2)
  2. Apple (#1)
  3. Samsung (#3)
  4. Genentech (#7)
  5. Yahoo (#5)
  6. Amazon.com (#6)
  7. Toyota (#8)
  8. General Electric (#17)
  9. News Corp. (NEW)
  10. SAP (#11)

Ge_wired_onlineAs you would expect, there's not much in the way of financial services in the list. However, Citibank holds on to the number 38, down two spots from last year. Not entirely coincidental, Citi is one of the few major financial services advertisers in Wired. This month, the bank has a huge buy, with a fold-out front-cover spread pitching its "Citi identity theft solutions."

GE (#8), Yahoo (#5), Microsoft (#36), and even Google (#1) have significant retail financial services, although they account for mere slivers of the giants' overall revenues.

Like Citibank, GE elected to make an ad buy this month, pitching its high-yield deposit products on the online version of the Wired 40 list (see inset).

Falling out of the top 40 this year was TD Ameritrade which the magazine said still "ruled etrading, but what once was a disruptive technology is now a commodity."

Online Banking’s “Second Wave”

In today's Wall Street Journal, personal finance writer Jane Kim does a roundup of what she calls "the next wave of online banking." The impetus for the article was Yodlee's new MoneyCenter that will be available to consumers in early July. I was interviewed for the article and provided several of the examples along with the market size estimate.

In addition to Yodlee, the following developments were chronicled in the article:

  • Citibank's <citibank.com> 50-fold increase in online interbank transfer limits from around $2,000 to $100,000 this summer. In what may simply be a self-serving comment made to a reporter, the bank cites the demand for its new e-Savings account as an impetus for the change.
  • Commerce Bank's (NJ) Virtual Private Bank <virtualprivatebank.com> for customers with $1 million or more in investable assets.
  • Wells Fargo's My Spending Report, a simple integrated spending report we discussed last year. (NB Feb. 17, 2005)
  • Bank of America's <bankamerica.com> account aggregation and recently expanded account alerts.
  • Chase's <chase.com> next-day bill payment.

Analysis
Although most of these examples are relatively minor improvements, it's good to see the mainstream press recognizing online banking innovations. The last few years have been dominated by security concerns, and we believe it's a great sign that reporters are looking for "what's next." It would be wise to have an answer to that question when your local paper calls.

We believe the Virtual Private Bank (VPB) from Commerce and the Yodlee system deserve closer examination. We'll cover Yodlee's new product when it goes live next month. And, although we won't be able to drop a million into Commerce Bank, we'll take the VPB for a test drive later this week.

JB

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

Chartway Federal Credit Union Referral Campaign Falls Short

Chartway_logo_1Sometimes it helps to see how NOT to do something. Today's victim: Chartway Federal Credit Union <chartway.com> which has been running a clever, but poorly executed, 8.00% APY certificate-of-deposit special on its website for the past month (see screenshot below).

Chartway_8apy_referral

Analysis
The good news
: It's a great offer. Any member making a successful referral gets to put up to $8,000 in an 8-month CD earning 8% (notice a theme there?). To qualify, the referral must bring in a new credit union member that opens a checking account along with the certificate OR initiates a $500-minimum direct-deposit relationship. The new member also gets to put up to $8,000 in an 8-month CD.

Members can make up to three referrals for a total deposit of $24,000. With the CU's normal 6-month rates at 3.4%, its more than double the normal rate of return, earning both the referrer and referee an extra $31 per thousand over the 8-month term or almost $250 extra per certificate (pre-tax). The eye-catching offer is featured front and center on its webpage.

The bad news: There is no hyperlink. Clicking on the logo, headline, or text does absolutely nothing! There aren't even any instructions on how to participate. Viewers are simply left hanging. The only extra info provided are the disclosures delivered via mouseover (see screenshot above).

It harks back to websites of the mid-90s that were put together by the "ATM guy." Unless you are trying to entice users to go on scavenger hunt through your website, this is a major mistake, and it's been that way for nearly a full month.

JB

Five Percent Savings Rate from Citibank

In yet another aggressive deposit-pricing move, Citibank raised its e-Savings rate to 5%, the first major high-yield player to surpass the magic 5% mark on a savings account with a low minimum balance. IndyMac (5%, $25k min) and Countrywide (5.25%, $50k min) hit 5% before Citi, but have higher minimums.

Keep in mind, Citi's account requires a checking account, a significant part of the strategy that has attracted more than $2 billion in new money in the past three months (NB June 1).

Citi_5percent_home_1

Citibank’s e-Savings email

Last night, Citibank sent selected checking-account customers an email solicitation for its 4.75% APR e-Savings account. I live outside its branch network, so Citi may have elected not to send the message to customers serviced by traditional branches.

Citibank_email_esavings_with_imageThe message was direct and to the point (click on screenshot left). Citibank even included the impressive 4.75% interest rate in the message subject. The only distracting portion of the message was a garbled first word in the second paragraph. It was probably caused by incompatibilities in software rendering of the apostrophe in the first word, "there's." To avoid this type of error, make sure you proof your message in multiple email clients.

The bank continues to engender trust in its marketing messages by including the "email security" box in the upper-right corner which includes the customer's full name and last four digits of their ATM card. The security information is prominently displayed, in a blue shaded box to make it more prominent, even if the user has images blocked (see screenshot below).

The bank also includes short text messages that appear where the images would have been displayed (alt-text tags) making the message relatively readable even for users that never download the images.

Citibank_email_esavings_no_image

Surprisingly, the landing page for the offer was a generic product page. The campaign would be much more effective if the bank had reinforced the e-Savings benefits on the landing page like it does when it advertises online (see NB March 29). Click on the following link to see a screenshot of the landing page. —JB

Appendix

Landing page
(displayed when clicking on the "signup" button in the email).

Note: I tested the link on my laptop where I am not recognized as a customer and on my desktop that saves my username in a cookie. Both times I was served the same landing page (below).

Citibank_email_esavings_landing

Banking on SMS

by Pieter de Villiers, CEO of Clickatell

Clickatell_logoIn the fight against financial fraud, it's a simple technology that is proving one of the most effective deterrents, as well as being a cost-cutting tool that builds customer loyalty.  Thanks to the incredible reach of SMS, its simplicity, and the fact that it is the most accessible messaging technology in the world, banks are introducing text messaging as an added layer of security for their customers to tackle the problem of identity theft.

Case studies
Fnb_za_logo In South Africa, for example, First National Bank (FNB) <fnb.co.za> claims that its SMS service, called inContact, has not only reduced fraud by 43%, but also has brought about increases in Internet-banking security. Client retention has increased by 15%, and call center costs have been reduced. With 22 million messages sent every month to more than 1.1 million subscribers, FNB is the largest single sender of text messages in the country, responsible for 26% of all messages.

With the widespread adoption of mobile communications, it’s a fair assumption that most people with a bank account, credit and debit cards will have a mobile phone. “Contactability” is rarely an issue. With very few exceptions, a text message will reach its intended destination, and it will be read. It is a peculiarity of mobile communications that while many people will ignore a call, they will always look at a text message. It is also a private communication.

Like FNB, a growing number of banks are realizing the power of the text message, and SMS is being introduced as an added layer of security for their customers. By simply receiving a text every time a transaction takes place, money is transferred, or an account is accessed, customers have immediate visibility of their account and can alert their bank about any suspicious activity.

The “soft” benefits are enormous as well. Banks can’t operate without a high level of credibility. Customers have to trust banks to trust them with their cash, their money management and their credit. FNB’s efforts have gone a long way to building and maintaining this level of credibility and trust. In addition, SMS brings the bank closer to its customer: It shows that the bank is innovative and at the forefront of best banking practices, and it raises brand awareness. SMS is not just a technology for FNB; it’s another channel to the customer just like its branches, ATMs, the Internet and telephone banking.

Bankinter_logoThis is not just a South African trend. Spanish bank Bankinter <bankinter.com> has launched an SMS-based service to inform people each time their bankcard is used. A system warns the user via SMS of each banking operation made with the card. If the customer has not initiated the transactions, the card can be canceled immediately.

Nationalbank_aus_logoAn article in Australia’s Herald Sun Business Daily cites an internal report from the National Australia Bank (NAB) <national.com.au>. The bank is concerned that it is losing AUS$1 million (US$760,000) due to Internet banking fraud. As one of its initiatives to reverse this, the bank has launched an SMS system to provide PIN-protected access to Internet banking services. According to the report, executives at the bank predict that online fraud will be reduced by 90% once 90% of customers have signed up for the scheme.

SMS and consumer behavior
It is the very nature of SMS and mobile phone use that contributes to these success rates. People have their mobile phones with them, wherever they are, and typically welcome the SMS security initiative as it means that both the customer and the banks are responsible for account security. The proactive alert makes life far more difficult for the criminal. If the losses through fraud of the financial industry can be reduced, then ultimately the customer could benefit from lower charges.

Never intended to be a commercial product, SMS has taken the world by storm. Mass implementation by mobile operators happened in the early 1990s, and the spread of inter-network roaming agreements provided the momentum to drive SMS take-up and make it a true mass market messaging service. According to Portio Research, 761 billion SMSs were sent in 2004 – that’s more than 100 messages for every man, woman and child on the planet.  Portio estimates that worldwide SMS traffic volumes will grow to 2,379 billion in 2010.

With the benefit of hindsight, the success of SMS is not surprising. It is simply an ideal form of peer-to-peer communication: cost-effective, with exceptionally high reach. As a marketing tool it demonstrates a very high response rate of up to 82% for branded campaigns and an average of 16% for other campaigns. It is immediate, reliable and personal. Messages can be customized to appeal to individual groups. Communicators can automate message sending and receive detailed reporting on activities. It is the accidental cash cow of the cellular industry, and the strength of its very simplicity is being leveraged by increasing numbers of businesses worldwide.

***

Pieter de Villiers is the CEO of Clickatell <clickatell.com>, a mobile messaging provider that allows businesses to connect people anywhere, with any message, across any device. Clickatell is headquartered in Redwood Shores, Calif., with offices in South Africa and the United Kingdom.

National Bank of Australia Helps Users Create Ads for its World Cup Soccer Team

Nationalbankaus_worldcup_makead_logo_1Earlier in the year, we lamented the lack of creativity by banks in leveraging Super Bowl mania at their websites (see NetBanker Feb. 3). Not so with the other "football."

Nationalbankaus_worldcup_makeadNational Australia Bank promotes its World Cup entrant, the Socceroos, with a clever, make-your-own ad microsite (see screenshots below). A small graphic on its homepage (click on inset for closeup) leads users to the interactive ad-building site. Users create custom video shorts by dragging-and-dropping video clips into a storyboard. User then adds own text and chooses from several soundtracks to complete the creation. Ads are posted online and can be viewed either by looking at "the latest," "the most popular," or celebrity ads. There are 320 posted as of today.

Nationalbankaus_worldcup_makead_build

Analysis
This is smart in so many ways:

  1. The novelty of the website creates positive publicity in the media, on and off-line.
  2. The bank creates a positive association with its brand by leveraging the national pride generated by a World Cup entrant.
  3. Nationalbankaus_worldcup_makead_example_2 The "cool factor" of interactive content positions the bank as "with it."
  4. As users upload their ads to video-sharing services such as YouTube, the bank will get a viral marketing boost. The bank wisely plasters its name at the beginning and end of the content, positioning itself on an equal footing with the end-user author (see inset). 

This is another clever example of user-generated content, something we'll see more of as mainstream businesses ride the wave of blogging's popularity: MySpace, YouTube, and 10,000 Web startups. (Click on the link below for additional screenshots). —JB

First page of the ad making microsite:

Nationalbankaus_worldcup_makeadhome_2

Listing of favorite ads:

Nationalbankaus_worldcup_makead_favorite_2

Listing of celeb ads:

Nationalbankaus_worldcup_makead_celebs

Events Calendar

Upcoming conferences of note include:

  1. BAI's Retail Delivery, Nov. 14-16 in Las Vegas; the grandaddy of banking tech conferences featuring a massive exhibit hall and thousands of attendees from around the world.
  2. American Banker's Technology Forum, Oct. 11-13 in Silicon Valley; much smaller than Retail Delivery, but highly focused on online banking and payments issues.
  3. BAI also offers its Combating Check & Payments Fraud Conference, Sept. 25-27 in Baltimore, MD. The first day also includes the CheckImage Forum in conjunction with ECCHO.

Click on the following link for the complete calendar through year-end:

Conf_jun_nov_2006_5

Online Banking by Businesses Surpasses 50%

Break out the bubbly. Twenty years after online banking became widely available, and ten years after it migrated to the Internet, more than half of U.S. small businesses (sales between $500,000 and $10 million) bank online. And one-third of the laggards say they'll move online within the next year.

Online banking usage
Here's the breakdown of online banking usage by business size as reported by BAI Research at the company's recent TransPay Conference:

Small business
48% >>>$500k to $1 million
51% >>>$1 mil to $5 million
54% >>>$5 mil to $10 million

Mid-size
61% >>>$10 mil to $50 million
67% >>>$50 mil to $100 million
89% >>>$100 mil to $250 million

Satisfaction with online banking
These companies are relatively satisfied with the service. Only 2%, a remarkably low number, report dissatisfaction. However, there is room to move users into the very satisfied category occupied by 44% of the sample.

Here's the breakdown, again courtesy of BAI Research:

44% >>> Very satisfied
46% >>> Somewhat satisfied
8%   >>> Neither satisfied or nor dissatisfied
2%   >>> Somewhat dissatisfied
0%   >>> Very dissatisfied

Online banking features
And what are they doing online?

91% >>> Deposit tracking
86% >>> Balance reporting
48% >>> Wire transfers
45% >>> Stop payments
38% >>> Tax payments
36% >>> Initiate ACH transfers

Finally, if you need some market sizes for your spreadsheet, click on the link below to see a good breakdown in payments by business size.

Small Business Payment Research

Bai_logoAt its annual TransPay Conference, BAI unveiled new research into small business payment needs and opportunities. The most dramatic finding: More than half of small businesses (annual sales of $500k to $10 million) would be "likely" or "very likely" to switch banks for "better payment services." In comparison, only about 10% of businesses with sales between $50 million and $250 million felt the same way.

Obviously, there are some serious, unmet needs among small businesses. Some of the things they most wanted (percentages indicate how many small businesses desire each feature):

  • Straight-through processing of payments from business to bank (70+%)
  • Identity-management platform that safeguards the business identity and protects your accounts when conducting business electronically (70+%)
  • Electronic payments package integrating accounts payables, accounts receivables, and expense tracking (65+%)
  • Live intraday financial position (55+%)
  • Bank services that can easily be integrated into your payroll and HR systems (60+%)
  • Automated card-based, expense-processing system that ties in key partners (50+%)

Sizing the small business payments market
BAI Research also assembled an excellent summary of "payments by business size," shown below. It's interesting to note that the number of payments made by larger businesses is less than one-third of all business payments. The other two-thirds comes from small businesses, including almost 16% from the micro-business market (under $100,000 in annual sales).  While most of these businesses use consumer payment services, there is clearly an opportunity for more targeted micro-business payments. For more information, see Online Banking Report #107/108, Small and Microbusiness Banking 4.0.

Business_payment_metrics

MyRichUncle Discounts Student Loans

Myrichuncle_logo_1If you are looking to boost student-loan volume, you had better postpone that summer vacation. The upcoming July 1st interest-rate boost has created much FUD (fear, uncertainty, and doubt) for borrowers. The reason: existing borrowers have the opportunity to lock in the current rate of 5.3% on Stafford loans or 6.1% on PLUS if they consolidate their loans and refinance prior to July 1. After that, most lenders will raise rates on these loans by almost 2% to the new rate caps of 7.14% and 7.94% respectively.

Unless you already have resources in place, it's probably too late to participate in the student loan refi boom. However, a high level of activity will continue through July and August as students and their parents look for money to cover that big tuition bill in September.

Google_studentloan_jun15_06_2

With the vast majority of college-bound teenagers using search engines, online marketing is a powerful way to find prospects. However, you won't be alone. A Google search today for "student loan" had 87 advertisers bidding on the term (see screenshot above). So it's going to take more than a simple ad buy to break out from the online crowd.

The top 10 advertisers on Google today for "student loan" (11 am PDT search from Seattle ISP):

  1. NextStudent.com (across top)
  2. loantolearn.com (across top)
  3. AstriveStudentLoans.com (across top)
  4. National City (right)
  5. CollegeLoanSite.com (right)
  6. GMAC Bank Funding (right)
  7. ScholarPoint.com (right)
  8. MyRichUncle (right)
  9. Key Bank Education (right)
  10. EducationFinancePartners.com (right)

MyRichUncle
Myrichuncle_homeIf you look through these top advertisers, you'll see a number of innovative techniques for capturing loan applications or leads. One of the big innovators, advertiser #7, MyRichUncle (see screenshot right), has recently earned positive PR by announcing that it will continue to price its Stafford and Plus loans 1% to 1.75% BELOW the new July 1 maximum rates. The company even earned a nice Jane Kim sidebar in today's Wall Street Journal.

Aside from its pricing and memorable name, MyRichUncle also does a good job of succinctly summarizing the available options and steering borrowers into the correct program. It even offers a Preprime loan option for students without credit histories or co-borrowers.

JB

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