KeyCorp Enters High-Rate Deposit Game

By Jim Bruene Posted on
Categories: Deposits, Checking, Savings, CDs

Keydirect_logo_1As we gave a cursory glance to the BankRate.com deposit rate table in today’s Wall Street Journal, we were surprised to see KeyDirect listed at the top of the Money Market and Savings Account section with a 3.66% APY and a $50 minimum deposit.

We were even more surprised to find that KeyDirect is not a small bank in the middle of Idaho, but a little-known division of KeyCorp, the $91 billion bank headquartered in Cleveland, Ohio. Key may be the first mainstream player to try to compete with the online-oriented direct banks such as ING DIrect, E*Trade Bank, and others. (See previous article.)

The success of Emigrant Direct, which said Monday that it has attracted more than 100,000 accounts with offers pasted all over BankRate.com, may encourage other traditional banks to test direct banking tactics. The New York-based bank said that the 100,000 accounts have an average balance of more than $30,000, meaning the bank has bagged more than $3 billion in deposits.

The next Online Banking Report (#120/121) will look at deposit gathering with a special emphasis in the high-rate game.

— JB

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Online Banking Confidence Still at 60%

By Jim Bruene Posted on
Categories: Metrics & Market Research, Security & Privacy

The problem with most published information on consumer attitudes is that they don’t show the trend. It’s interesting to see that a certain portion of the population expresses concern about ecommerce security, but it’s not really actionable unless you see it in context. That way you know if the concern is growing, stable, or lessening. Or if consumers are more concerned about branch lobby security, telephone, or mail security.

Kudos to Informa Research for publishing a table showing consumer attitudes on online banking security dating back to 2000. As you might expect, consumers are significantly more confident than they were five years ago (59% vs. 49%), but there has also been a substantial drop-off since 2003 (59% vs. 70%).

Percent of consumers that Completely or Strongly Agree with the following statement:
Internet-based transactions handled by financial institutions are safe and secure

2000  49%
2001  56%
2003  70%
2005  59%
———–_
Source: Informa Research, Aug. 2005, n = 1690

Analysis
Taking a cup-is-half full approach, we are pleased to see that the majority of consumers still consider online banking to be safe. Although the drop-off from 2003 is a concern, we’ve probably hit bottom, barring any dramatic breeches in the near future. As banks institute security upgrades such as multi-factor authentication, broader security alerts, and secure messaging, consumer confidence will grow.

—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.

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Is Zopa the Next Big Thing in Online Lending?

By Jim Bruene Posted on
Categories: Loans & Credit, Zopa

Zopa_logoThe Internet has changed a lot of things in the past 10 years, but banking isn’t one of them. Sure, it’s now much easier to check your balance or see who you wrote check #1127 to. But these are incremental improvements. Nothing like what online brokerages did for trading stocks, or eBay for selling junk.

Thanks to government guarantees, and consumer cautiousness with their money, it’s a bit hard to disintermediate the banking system. Or is it? 

Zopa_borrowingTake a look at UK’s Zopa, a recently-launched online loan exchange built by execs from Internet-only bank Egg. Zopa matches lenders and borrowers, cutting out the middlemen (actually inserting themselves in the middle instead of a bank), potentially creating a more transparent and less expensive system (Zopa takes a 1% loan fee).

Like the U.S. mortgage system, risk is spread around by splitting each loan into 50 or more pieces that are pooled and repackaged into loans that are placed with individual investors (i.e. lenders). The borrowers and lenders remain anonymous to each other.

Funding from Benchmark Capital and Wellington Partners is further insurance that the company will be taken seriously.

Analysis
Is this a disruptive banking technology? Maybe. Variations on this theme, such as Circle Lending, are in existence. But there hasn’t been an effort as well funded and stocked with talent as Zopa. If anyone can pull this off, it’s the Egg folks. The Zopa website is fresh and irreverent, taking on banks at every step of the way (click on inset above).

Banks are easy targets, but to make this work, it’s going to take an extremely user-friendly system, some fantastic marketing, and a little luck. One of the big problems any startup lender faces is adverse selection. In other words, too many borrowers will be on the verge of a sharp decline in their creditworthiness; a decline not yet reflected in the credit score used to screen borrowers and price their loan.

The only real cure for that is perfect underwriting and lots of volume, that’s why preapproved credit card direct mail has worked so well for several decades.

The company hopes to take the concept to the United States later this year. Given the speed of our regulatory approval process, that seems unlikely. Look for it in late 2006 or early 2007, if the UK version begins to gain traction.

We’ll take a look at the concept in much more detail in an upcoming Online Banking Report.

—JB

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Setting Flags in Electronic Bank Alerts

By Jim Bruene Posted on
Categories: Alerts & Messaging, Email Marketing

Inbox_flagNow that consumers are beginning to receive multiple alerts and other email messages from their financial providers, you risk the problem of "alert fatigue." It happens with any warning system. If you get too many warnings or status messages, you start to ignore them, rendering the system ineffective.

One way to make your message standout is to add a "high importance" flag to your outgoing message. In Outlook and Outlook Express, a small red exclamation point will show on the subject line in the message list (click on the inset for a larger image). In this example, the Washington State Department of Revenue added the flag when it sent password-changed alert. But it didn’t add the flag when sending a routine payment confirmation.

The key to making the flag effective is to not overuse it. Don’t ever put it on an advertising or marketing message. And use great restraint when attaching it to balance or confirmation messages. It’s best use, might be for security-related notices such as password resets and other sporadic and relatively unusual activity.

—JB

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Weird Offline Bank Promotions

By Jim Bruene Posted on
Categories: Advertising & Promotion

Hsbc_bankcabThe title of this article Weird Offline Promotions, is not meant to be a negative. Weird marketing can be effective if it helps people remember your product in a positive light.

For online banking, it can be difficult to create offline promotions that drive people to your website. ING Direct is one company that has pulled it off. Both with their offline cafes in four U.S. cities and their innovative promotions blitzes when they kick off a city-wide awareness campaign. For example, in Washington D.C. they showed up one day at the Metro subway and paid for everyone’s morning commute. It was expensive, but the publicity was enormous.

New Ideas

  1. Here’s one we’d never thought of, free parking for your clients. Apparently Lexus dealers in Georgia and southern Florida have pooled their money and arranged for the first 200 Lexus drivers to get preferred parking at Atlanta’s Turner Field and Sunrise, Florida’s Office Depot Center. Drivers still pay the going rate, but get the best spots. (Reference: BusinessWeek, July 18, 2005, p. 16). It may make more sense for a car dealer than an online bank, but you could tie it in to your auto lending program or some other VIP program.
  2. Another auto-related effort that’s been going on for several years is HSBC’s Bank Cab promotion in New York City (click on thumbnail below to see an archived copy of the HSBC Bank Cab website from May 2004). In 2003 and 2004 the bank sponsored several promotions that included two distinct red-and-white Checker cabs that roamed NYC providing free rides to HSBC customers who could present a current HSBC ATM card. Again, there isn’t a direct correlation to online banking, but your ad agency could probably think of some good ideas along the lines of convenience (easy banking, easy rides) or free rides (free rides, free online bill pay), and so on.

Hsbc_bankcab_may2004

We’ll continue this discussion in future articles.

—JB

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1.4 billion More Credit Card Mailers Hit the Recycle Bin

By Jim Bruene Posted on
Categories: Advertising & Promotion, Credit/Debit Cards, Metrics & Market Research

Junk_mailSome bad habits are harder to kick than others. In banking, the preapproved credit card mailing is apparently as addictive as nicotine. How else can you explain the record 1.4 billion solicitations mailed in Q1 2005 according to researcher Synovate? (">see previous article on 2004 mail volumes)

We can't speak for the economics of the recent mailings. On a macro level, things are going pretty well. Other than the sub-prime specialists, most credit card companies have weathered the economic slowdown of the past years admirably. However, we still think the online channel is vastly underused as a credit marketing vehicle.

Analysis
First, we'll crunch some numbers to compare traditional direct mail (DM) to online marketing (OM):

***DM***
1.5 billion pieces times $1 per piece = $1.5 billion in marketing
Fraud = 0.04% x 1.5 billion = 60,000 bad accounts x $2500 = $150 million
Teaser rate = 3% subsidy x $1.2 billion outstanding = $360,000 million
Total cost of program = $2 billion

===> Response = 0.4% times 1.5 billion = 600,000 good accounts

DM acquisition cost = $333 per good account

***OM***
30 million online banking households x $5 for 90-days of online credit offers = $150 million
Teaser rate = none
Fraud = 0.04% x 30 million =  12,000 bad accounts x $2500 = $30 million
Total cost of program = $180 million

===> Response = 30 million x 2% = 600,000 accounts

OM acquisition cost = $30 per good account

Implications
Depending on a multitude of factors, a credit card issuer can still make an account costing $333 profitable over its lifetime, but it's not going to be easy, especially with costly rewards programs demanded by most good customers these days.

Why not divert some of the direct mail budget to online marketing programs that eliminate the paper from the equation?

Every credit-worthy online banking customer should have preapproved credit available to them at all times. And it should be very visible when they are conducting activities that could indicate a potential need for extra cash, such as paying bills.

Alternatively, preapproved offers could be timed to appear at login when account balances dip below historical levels indicating potential cash flow difficulties for the consumer.

The beauty of this approach is that it's more about timing than price. Consumers needing $500 for the orthodontist today will be more concerned about a fast, convenient advance rather than playing the field to bag a 0% teaser rate and/or maximum rewards points.

The twin benefits of online credit marketing:

  • lower marketing expenses
  • less dependency on teaser rates and rewards programs

For an extended discussion of online credit card and loan originations, see:

Online Banking Report subscribers will receive updates to these reports this fall. 

— JB

 

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Phishing Awareness Less Than 30%

By Jim Bruene Posted on
Categories: Metrics & Market Research, Phishing, Security & Privacy

We’ve warned against using too many scare tactics on your website (see OBR 119, Marketing Security). Here’s data to support that argument.

The latest Pew Internet Project survey (PDF) found that more than 70% of Internet users had either never heard of the term Internet phishing (15%) or were unsure of its meaning (55%), leaving just 29% who said they had, "a pretty good idea of what the term meant." In comparison, 88% of Internet users had a pretty good idea of what Spam meant, 78% knew Firewall and also Spyware, while 68% understood Internet cookies, and even 52% knew Adware.

—JB

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Lockheed FCU’s Four Percent High Yield Savings Account

By Jim Bruene Posted on
Categories: Deposits, Checking, Savings, CDs

Just when you thought your new 3% APR money market account would wow your market, the word on the street, virtual street anyway, is that the 4% APR mark has been breached for the first time in several years.

Lockheed Federal Credit Union is culprit with a new account paying 4% on balances of $25,000 or more. It's so new, or so secret, you can't find it on their website. You must call to set up the account (800) 328-LFCU.

Lfcu_achieversAnd if think you're safe because your customers can't access this credit union special, think again. For $5, you can join Lockheed's Achievers Club, which qualifies you for credit union membership. You can join both in a single phone call.

— JB

 

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Making Saving a (Grocery) Game

By Jim Bruene Posted on
Categories: Advertising & Promotion, Deposits, Checking, Savings, CDs

Grocerygame_logoLast year the savings rate in the U.S. dropped to 1.3% of disposable income (personal income less taxes), slightly lower than 2003’s 1.4%, and the lowest since the depression (1934). This is far below the 10% or higher level that most personal finance experts recommend. The last time the U.S. as a whole saved 10% was 1984, and that was no anomaly. In the 15-year period from 1971 to 1985, the U.S. saving rate dipped below 9% on only one occasion (8.7% in 1977). Even without considering inflation, the total amount saved during 2003 and 2004, $113 billion/year, was the lowest total since 1974. (Source: U.S. Commerce Dept: Bureau of Economic Analysis)

Banks are in a great position to help improve this situation by making savings easier and more interesting. Online services can be used to automate saving and provide continual detailed feedback. In next month’s Online Banking Report (#120), we’ll outline a number of techniques.

One of the more novel approaches is to help coupon-clippers organize their assault on the grocery store by automating the process with online tools, tips, and links. Then as your customers chalk up savings at the grocery store, encourage them to deposit all or part of the windfall in a bank savings account. The growing balance will provide positive feedback for the disciplined approach to shopping.

Grocery_game_listFor inspiration, take a look at one of the more established coupon services called The Grocery Game. The Southern California-based online service provides a weekly list of advertised and unadvertised grocery specials married to a database of recently published coupons. The end result is an editable list of major grocery bargains priced at a 40% to 70% discount from retail (click on inset to see a sample).

The company’s stated goal is to save a family of four $1000 off their grocery bill during the first 12 weeks. Cost is $10 every eight weeks, after a $1 four-week trial.

The Grocery Game says it has 30,000 users in 43 states. Other sites with similar services include, Cairo, ShopLocal, Puget Sound Grocery Guide (Seattle), and Coupon Queen (Cleveland).

Financial Institution Opportunities
Banks could leverage The Grocery Game in several ways:

  • By simply linking directly to the service
  • By explaining the strategy with articles and advice, but not producing weekly shopping lists
  • By partnering with The Grocery Game or others to produce a co-branded or private-branded version at the bank’s website
  • By creating a simpler version in-house: After the initial programming, we estimate it would take only a few hours per week to enter the data from the grocery circulars and match it with items from the coupon database

But unlike The Grocery Game, which has no ongoing tracking mechanism, banks would want to program an area for user’s to document their grocery savings, and designate a portion of the grocery savings be deposited into a bank savings account. 

To encourage continued participation in "The Savings Game," customers could be rewarded with, what else, free groceries, when they hit savings milestones. Or rewards could be more interesting such as meals out or household items, something that would appeal to the coupon-clipping demographic.

For more info on The Grocery Game:

—JB

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3% High Yield Savings Account

By Jim Bruene Posted on
Categories: Deposits, Checking, Savings, CDs

Zions_bankrate_3offerToday's hot savings rate online is 3% or more. Many of the higher rates are from direct banks operating primarily online such as ING Direct, Bank of Internet, or Virtual Bank.

But increasingly, traditional brick and mortar financial institutions are experimenting with higher rate offerings. One of the most visible is Emigrant Direct, which has spent a small fortune this year advertising its high-rate offerings (see previous article). We also noticed Zions joining the game with this 3.3% offer to customers searching for a $10,000 savings account in California via BankRate.com (click on inset for more details). Zions also makes the account available to any customer visiting its website.

What's a bank to do?
If you are feeling pressured to step up to the 3% rate level online, you can do it with a special product that doesn't require repricing your entire savings account base.

Here are a few ways to try to separate your high-rate online account from regular savings accounts:

  • Give the account a separate name, such as Zions Bank's Internet Money Market Account
  • Require that it be opened online
  • Require that it be funded via ACH or wire transfer from another institution (aka new money)
  • Offer to match any rate found online, users would submit the URL of the competing offer in the application
  • Only promote it via special landing pages accessible through promotional advertisements, but not linked directly to your regular site
  • Require a promo code on the signup form

More 3% offers
Download this file shown below to see an analysis of the 3% offers from MyBankingDirect (NY Community Bank), ING Direct, Emigrant Direct, MetLife Bank and Western Financial. The first three earned grades of A, while MetLife and Western scored only Cs.

Download tour_of_banks_with_3apy.pdf

 

 

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eBay Motors’ FOR SALE Sign Direct Mail

By Jim Bruene Posted on
Categories: Advertising & Promotion, Ebay, Loans & Credit

Ebaymotors_protectionsLooking for a way to boost your market share in direct vehicle lending? Consider setting up an online used car emporium either using eBay as the transactional platform (recommended) or programming the site yourself.

Even though you could do it yourself, it would be difficult to match the auction giant’s powerful set of FREE buyer protections including (click on inset) including:

  • Purchase Protection: Reimburses up to $20,000 for fraud and material misrepresentation after a $100 deductible
  • 30-day, 1000-mile Service Agreement: Provides a 30-day warranty on major breakdowns on most cars under nine years old after $500 deductible
  • Ebay Feedback Rating: Prospective buyers can review the seller’s track record via the eBay feedback system

In addition, users can review the vehicle’s history by searching Experian VIN # records via an online link. Cost is $7.99 for a single VIN # search, or $14.99 for up to 10 searches. Finally, buyers can order a pre-purchase inspection of the vehicle for $100.

Financial Institution Opportunities
Here’s how a financial institution virtual vehicle site could work:

  1. Using eBay programming tools (eg. APIs), create a website that aggregates local vehicles listed on eBay.
  2. Buyers would handle the transaction through normal eBay channels, but you would have the first chance to make the loan. In order to maximize the returns, it’s recommended that you allow buyers to make purchases from anyone. As you’ll see later, the eBay fraud protection programs mitigate much of your risk in making "person-to-person" auto loans.
  3. To further boost volume, consider helping sellers market their vehicles in any of the following ways:
  • create downloadable FOR SALE signs complete with purchase details and/or referring potential buyers to the online auction (see inset for a version recently distributed by eBay in a direct mail program)
  • provide a customizable template for users to create their online auto listing
  • integrate customer listings with your own inventory of repossessed autos for sale
  • provide "incentive financing" programs that sellers could use
  • offer a wide variety of loan options for cars sold through the site

Analysis
The virtual auto emporium would have several marketing and promotional benefits:

  1. Creates interest and publicity about your website
  2. Drives traffic to your lending area
  3. Increases vehicle loan volume
  4. Creates an interesting program that could be featured in website, statement, and direct marketing campaigns (see eBay DM samples below)

Addendum: Ebay Direct Mail
Here are close-up views of the recent eBay direct mail received in early July. We may have been targeted due to recent activity, our second eBay Motors vehicle purchase.

Ebay_4_sale_dmThis 9×12 inch cardboard sign looks very similar to a sign you might purchase at the local drugstore to stick inside the window to advertise a car for sale. The FOR SALE is in bright orange and includes references to the FREE $20,000 purchase protection and FREE 1,000 mile service agreement (not visible in this scan).

This eBay version is intended to be displayed within the car and highlights the eBay listing number for more information. The back of the sign (click on the image below for a close-up), lists the features and benefits of selling your car through the auction site. It also includes an offer to return the $40 listing fee if the vehicle doesn’t sell. Sellers also pay a $40 flat transaction fee ($80 in total) if the vehicle sells.

Ebay_4_sale_back_dm —JB

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Citibank Logout Screen Example

By Jim Bruene Posted on
Categories: Citibank, Website Usability & Design

One neglected area of the online customer experience is logging out. Are you thanking your customer for banking online? Reinforcing that their secure session has safely ended? How about a little cross-promotion from time to time?

We’ve logged off more than a thousand times from dozens of financial institutions and it’s never been particularly noteworthy.

Citi_signoff_screen However, this week Citibank’s logoff screen caught our eye (click on inset for full screenshot). Not only did the bank thank us for our business, they posted an attractive promotion for its banking rewards program.

You may not have offer something quite as elaborate as the Citi program, but you can effectively use the logoff page to highlight service improvements, call attention to upcoming events, or highlight community involvement and volunteer opportunities.

—JB

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