Zopa Wins OBR Best of the Web

Obr_bestofweb_3UK-based person-to-person lender Zopa <zopa.com> is the fourth and final company to win an OBR Best of the Web designation from Online Banking Report in 2005. Also winning this year were:

Zopa_peopleThe company’s innovative lending model is highlighted in Online Banking Report’s annual, Top 10 Achievements in Online Financial Services. The report will be published next week (OBR #125).

JB

Four Banks with 4% for Homepage Special Savings Rate

Online competition continues to heat up as the major banks begin offering 4% APY specials just in time for the holidays, and those year-end bonuses. Today, four of the top 20 U.S. consumer banks are offering specials of 4% or higher on their homepages:

Citi_4cd_homepageCitibank (2nd largest U.S. deposit base) is the biggest player to crack the 4% mark with a nine-month certificate aggressively promoted on its homepage with a page-dominating animated banner and hawked in one of the bank’s four postage-stamp ads running along the bottom (click on inset for a screenshot).

Note also the large Red Cross donation banner (bottom) supporting fund-raising for South Asia earthquake relief.Citi_4cd_email_10_21

An email advertising the 4% CD was sent to customers 21 Oct. 2005. It was identical to one sent 1 July 2005, except the rate was 3.45% at that time (click on screenshot right).

Other Top-20 Bank Specials
Three other top-20 banks also offer 4% or higher deposit specials on their homepages:

  • HSBC (10th largest), which has marketed a high-rate savings account for much of the Hsbc_4savings_homepageyear (NetBanker, Aug. 26), increased the emphasis with a huge front-and-center ad on its homepage, a red piggy-bank with 4% in it (click on screenshot right).
  • National City (11th largest) has raised the bar even higher with a 4.75% Thanksgiving SpeciNat_city_4cd_thanksgivingal, a 14-month CD that requires a National City checking account ($1500 minimum opening deposit) and at least $10,000 (click on screenshot right). Here’s the fine print:

    To qualify for this offer, depositor must have an existing National City personal checking account or open a Preferred Interest Checking account with $1500. Annual Percentage Yield is available from 11/21/05 through 11/30/05. Maximum deposit limit $250,000. Offer only available for consumer deposits.

  • World Savings (#17) has a lower-key link to a 4.16% 4-month Internet Special CWorld_4cd_homepageD (click on screenshot right). The rate is good for $10,000 to $250,000 and must be opened with "new money" (from outside the bank).

JB

UK Loan Marketplace Zopa Offers 2% Bonus

Zopa_2bonus_homeThe new UK-based person-to-person loan marketplace Zopa <zopa.com>, first discussed here Aug. 3, is offering a 2% bonus to lenders who make money available prior to 30 November 2005 (click on screenshot left). In order to earn the bonus, would-be lenders must offer competitive rates.

The website cites an example of the potential return of a 4.9% rate on a 36-month installment loan:

  4.9% interest paid by borrower
+2.0% Zopa bonus
(1.3)% expected loss rate
———————————-
5.6% return to investor

Analysis
Zopa claims to have attracted 32,000 users, including 16,000 lenders in the eight months it’s been online. So far, it has not lost any money to loan defaults, but that would not be unusual for a lender in its first few months.

The 2% bonus to lenders is not sustainable since the company only books a 1% loan fee, plus commissions, if any, when borrowers elect to take credit insurance. Evidently the company has more buyers (borrowers) than sellers (lenders). With such a novel concept, it’s no surprise that the number of people willing to take money is higher than those willing to give it out.  As the concept becomes better known, and assuming that interest rates are allowed to float, the supply of money should reach equilibrium with demand.

JB

Washington Mutual Adds High-Rate Deposit Accounts

Washington Mutual, the sixth largest U.S. bank ($172 billion in deposits), becomes the most high-profile financial institution to officially throw their hat in the direct banking business, looking to stem the tide of high-balance deposits headed to ING Direct, Emigrant Direct, and others.

According to yesterday’s report in American Banker, the bank will begin testing a high-rate deposit product available only from its direct banking unit, WAMU Direct, in four markets: Boston, Philly, Atlanta, and Phoenix.

Apparently the bank will be using the domain name <wamudirect.com> once the transfer of the name is made from the California man who had originally registered it. The bank won rights to the domain name in an arbitration case settled Oct. 14.

JB

Wachovia Passes 3 Million Online Banking Customers

Here’s the latest online metrics from Wachovia according to today’s presentation at BAI’s Retail Delivery Conference by Lawrence Baxter, the bank’s Chief E-commerce Officer:

Overall bank size:

  • Serves 14 million households and businesses
  • $289 billion in deposits
  • 4th largest U.S. bank
  • 3rd largest U.S. brokerage
  • 3,900 financial centers and brokerage offices
  • 95,000 employees

Online metrics (calculations in italics are ours):

  • 3.2 million active online customers (23% of its 14 million customer/biz households)
  • 1.3 million online brokerage enrollments
  • 230,000 active online small business customers
  • 11,000 corporate clients online
  • 32,000 Wealth Management households online
  • Annual bill payment volume of $25 billion and 66 million payments ($380 average payment)
  • Over $66 billion annually in online funds transfers ($20,000 per active customer)
  • 50 million online check images viewed annually (16 per customer)
  • Over 45 million electronic alerts sent annually (1.2 per customer per month)

Analysis
Only major surprise is the small number of alerts per customer, just over 1 per month. The average bill payment amount, $380 per payment, and annual volume of funds transfers, $20,000 per customer are high, and probably include business volume.

JB

ING Direct Adds Virtual PIN Login Pad

Ingdirect_usa_pinpadING Direct’s <ingdirect.com> three million U.S. customers now must enter passwords into the site with an on-screen PIN pad. Users have the choice of clicking on their numerical PIN or typing the corresponding letter into an on-screen box (see screenshot below). The letters are scrambled each time to defeat many keylogging programs.

Although, the virtual PIN pad technology has been widely deployed elsewhere in the world, it’s new in the United States.

Analysis
Until recent deployments at Bank of America (NetBanker May 26), Citibank (NetBanker May 30), E*Trade (NetBanker March 2), and a handful of others, ING Direct has been the sole U.S. bank making at least a minimal attempt to make login more secure. For the past four years, it’s required a third piece of information at login (partial social security number or year of birth). It’s not really multi-factor authentication, because the third piece isn’t too difficult to figure out, but it at least provided the perception of better security (click on screenshot below to see closeup of login page).

Ingdirect_usa_pinpad_fullThe virtual PIN pad, first used by ABSA Bank in 2003 (see Online Banking Report 96/97), isn’t foolproof, but it does make it tougher for key-loggers and phishers to successfully recreate the login process at the bank. It’s also a relatively inexpensive improvement with very little customer impact. In fact, I’d expect that the customer response is overwhelmingly positive.

If the bank combines these cosmetic security features with robust behind-the-scenes authorization controls, it should have enough to keep the crooks at bay AND satisfy regulators.

JB

EbayBank.com???

Ebank_ambankerOn the front page of today’s American Banker and on the cover of its Retail Delivery pullout section (see inset), there is an eye-catching EBANK logo presented in eBay’s distinctive font. It’s an intriguing lead-in to an otherwise predictable story on eBay’s PayPal unit and the extent to which it competes with banks. (Note: For American Banker, the cover graphic gave it more "street appeal" so that the paper was more likely to be picked up by the thousands of attendees at BAI’s big technology conference in Orlando.)

This is an old story. PayPal has offered a suite of consumer banking services for more Payment_choices_1than four years (click on table below) including debit cards, bill payment, credit card (issuer), consumer finance loans, credit card processing, ACH processing, money market mutual funds, international payments, interbank transfers, fraud protection, and insurance for funds on deposit. The only new service this year is the credit card payments gateway business it purchased from VeriSign earlier this year; though that is more of a line extension than a new business.

Analysis
Paypal_timelineYes, PayPal competes with bank, primarily in merchant processing, an area most banks got out of more than a decade ago. And we’ll see more ecommerce players, such as domain registration services company GoDaddy, offering integrated PayPal payment options (see inset). However, none of PayPal’s other financial service offerings have a measurable market share, and are unlikely to be causing any lost sleep by execs at Bank of America, Citi, or any other financial institution.

The American Banker article speculated on eBay’s interest in moving further into banking by buying a charter and opening a full-service Internet bank. But no evidence was presented for either side of that argument, nor did the author find any industry analysts to comment.

It reminds me of the "controversy" in the mid-90s about Microsoft competing against banks. Although it was mostly fodder for the trade press, we debunked the notion In the very first issue of Online Banking Report (April 1995). There was no way that a successful software company, accustomed to 50%+ margins, would invite the regulatory scrutiny and compliance hassles of the relatively low-margin banking business.

Although eBay has done some strange things, such as jumping into the telecom business via its recent Skype acquisition, we seriously doubt that the auction giant has any plans to open or even lend its name to a full-service Internet bank. It doesn’t need those regulatory and compliance headaches.

However, the company will continue to exploit areas of ecommerce, like auction payments and auction purchase financing, that are not well-served by existing players. But if you’ve put together a franchise that can hold its own against BofA/MBNA, ING Direct, and Schwab, you have little to fear from eBay or Microsoft. In fact, there are opportunities to leverage these trusted brand names to INCREASE your revenues. For example, PayPal provides developer tools that would allow a bank to integrate with the online payments provider to facilitate financing for bank customers.

Previous articles:

JB

Progressive Insurance Quotes Competitors’ Rates

Over the years, many of our pet peeves, such as lack of email messaging, have either been resolved, or are on their way to being fixed.

Here are some of the rants that have appeared in the pages of Online Banking Report during the past 10 years:

  • Failure to use email for account-related messaging
  • Too easy to login to someone else’s account
  • Loan applications that were too cumbersome
  • Bill payment that was too slow and confusing
  • Lack of interbank transfer functionality

However, there is one issue that few have tackled; something we call open lending, or acting more like a mortgage broker than a lender. An open lender would give customers the option of seeing competitive lending products while researching loan options at your site.

IndyMac <indymac.com> is the only major lender we’ve seen embrace this idea, earning an OBR Best of the Web in 2001 (OBR 73). Another company that uses this technique in its online and offline advertising is Progressive Insurance <progressive.com>.

Progressive_comparison_ticker_2On its homepage, Progressive runs a near-real-time scrolling box with actual price comparisons for recent customers (see inset). It is even brave enough to show comparisons where they are NOT the lowest price. Note in the inset that GEICO comes in $36 less that Progressive; but if you watch the ticker continue to scroll, you will see a half-dozen companies with higher rates.

Why would a financial services company actually HELP its customers find a better deal elsewhere? Because in service industries, it’s not ALL about the price. Do you want to stay at the motel with the lowest price in the city? Do you want to be operated on by the doctor with the lowest bid? Do you want to buy insurance from a fly-by-night discounter?

No customers want a good VALUE from a company they TRUST. And what better way to demonstrate both by allowing customers to easily compare your prices with others. Many of them are going to do it anyway. Why let them off your site to do the research? Let them stay at a site they trust, help them convince themselves you offer acceptable value, the close the sale with a super-convenient application.

In Online Banking Report #125, due out in a few days, we’ll look at the pros and cons of open lending. Then in Part 2, scheduled to be published by year-end, we’ll take a closer look at Progressive’s comparative quote process in detail and build an open lending system that could be used by a bank or lender to deliver similar results.

In the meantime, if you’d like to look at our notes on Progressive’s innovative quote process, download the Word doc here.

Washington Mutual’s ID Theft Play

Wamu_idtheft_logoWashington Mutual <wamu.com>, which has been pitching free checking in Seattle for as long as we’ve lived here (mid 1980s), recently added ID Theft Services to its list of free checking account enhancements.

A mid-October direct mail we received at our home touted the following benefits, along with a $75 American Express Gift Cheque, for signing up for a new checking account (italics are theirs):

  • No direct deposit required
  • Free Telephone Banking
  • Visa Check Card
  • No per-check charge
  • Free Personal Online Banking
  • Free Personal Bill Pay service
  • Free ID Theft Services

In addition, to the above bullet points, the Free ID Theft Services had its own paragraph, one of just four total in the short sales letter:

Exclusively for Washington Mutual customers: Free ID Theft Services. If you become a victim of identity theft, we provide insurance that helps you with your legal and other identity theft expenses up to $5,000 with no deductible. This valuable service also provides professional assistance, plus access to credit reports, management tools and more.

Wamu_idtheft_shortNo other information was provided in the letter or the fine print. But looking at the bank’s website we find that the free services lead to a pitch for full three-bureau credit report monitoring from Intersections <intersections.com> (click on inset for partial screenshot or download the entire screenshot, links will not work). It’s all explained on Washington Mutual’s proprietary identity theft site, ID Theft Inspect <idtheftinspect.com>.

Analysis
With all the concerns about online safety and fraud protection, it makes perfect sense to offer identity theft protection services to customers, especially when you will be helping defrauded customers whether you make it an account benefit or not.

We like how WAMU offers certain services to all account holders, then upsells them into full credit report monitoring. However, the bank’s pitch for fee-based protection could be far more effective if it:

  • Offered online signup — Currently customers must signup in branch or call a toll-free number.
  • Disclosed the price — There is no mention of a monthly fee, either in the main body of the copy, or in the detailed disclosures. This is a sure way to lose customers.
  • Provided a more detailed view — The promotional copy does a good job of explaining the benefits; however, beyond a few blurry screenshots, there is no way to preview the level of detail to be provided with the service. The bank needs an online demo, tutorial, or FLASH presentation.

Overall, we give it a B+; disclose the price and it’s an A-.

JB

E*Trade “Debit Card” on Google

As we searched Google today for debit card info, we noticed E*Trade on top of the paid search results with an AdWords listing entitled Platinum Visa Debit Card (it was the first "banner" on the top of the search results).

Etrade_landingpage_debit_on_google_1Interestingly, clicking on the link takes you not to a single-product pitch for a debit card, but to the broker’s E*Trade Complete product which combines brokerage, banking, and lending into a single offering (click on inset for landing page screenshot).

Note: The graphic image appearing in the middle of E*Trade’s landing page features a check, debit card, and security token overlaid on a screenshot of its online banking area.

AnalysisEtrade_complete_1
Showcasing its Complete product on debit card searches shows good mastery of search engine marketing by E*Trade. The online giant figures the type of person searching on debit cards will be intrigued by the total control promised by the package account. The out-of-scale security token also adds a reassuring touch to the image (see inset). 

JB

Debit Card Volume Passes Credit Card (or did it?)

DebitcardFor years it’s been a matter of when, not if, the number of debit card transactions would surpass credit cards for purchases in the United States. Depending on who’s doing the counting and how you define the market, debit surpassed credit:

a) in 2000
b) in late 2004
c) not yet, but by early 2006

Sources:
a) Dove Consulting as announced in its Oct. 25 news release with The American Bankers Association; includes volume of purchases made in-store only; projections built on research with 3000 consumers
b) The Nilson Report, Sept. 2005 (#842); includes any purchase transaction, in-store, phone, or online; projections built on industry data, much of it provided by the major card brands; credit totals include card purchases made with proprietary cards, such as oil or department stores; debit totals include signature- and PIN-based traditional debit card and prepaid cards
c) SourceMedia’s Cards & Payments, Oct. 2005 citing data from its sister publication, ATM & Debit News; projections built on industry data and like Nilson includes proprietary store cards in the credit totals and signature- and PIN-based transactions in debit

The Numbers
The Nilson Report had debit ending the year with 19.7 billion transactions, 600 million more than the 19.1 billion credit card transactions (see note 1). Market share was 51% for debit, 49% for credit. Whereas ATM & Debit News showed credit transactions still running ahead of debit, with 22.1 billion for credit and 17.5 billion for debit (see note 2). For 2005, they project 23.5 billion for credit and 21 billion for debit. Extrapolating from the growth rates, debit should surpass credit in late 2006.

The total dollar volume of charges will continue to be dominated by credit. With more than double the average transaction size, $84 vs. $37 for debit, the share of total dollars spent was nearly 69% for credit vs. 31% for debit, according to Nilson.

It’s helpful to look at these huge numbers on a per household basis. Across all 108 million U.S. households, the average annual number of debit and credit card transactions is 360 per year, or 30 per month.

Looking at debit only, the average across all households is 180 transactions per month. But considering that only about 60% of the country is an active debit user, the average per active household is closer to 300 per year, or almost 1 per day. Unlike credit transactions which are divied up among the 12 cards carried by the average customer, many of the debit transactions occur with plastic from the customer’s primary financial institution. This creates a rich data stream for online banking statements and analytics.

Opportunities
As good as this debit data stream is, it’s only half the picture without the credit card transactions, especially since the larger purchases still tend to go on a credit card. This is one of the places where account aggregation could play a key role by offering a simple way to aggregate all card transactions into one online storage facility. The full picture, incorporating all plastic volume, will create an information stream that is highly valued and difficult for competitors to match. And by knowing you customers card habits, you can make successful pitches to steal the receivables from competitors.

  • Debit rewards: Although debit card spending is not as lucrative as credit cards, especially with the downward trend in debit interchange, major players are still looking to reward spending. Yesterday we looked at Citibank’s ThankYou Points program that offers 1 point for every $2 of spending on signature debit and 1 point for every $3 spent on PIN-based debit. Assuming that two-thirds of debit spending goes to signature, the average customer would earn about 3000 points per year, valued at $25 if redeemed for a gift certificate or $50 if saved and used towards a $400 coach ticket (25,000 points required).
  • Credit line cross-selling: How do you make debit cards as profitable as credit cards? Attaching a line of credit to the account. Overdraft credit lines are extremely popular and are even more desirable with heavy debit users who increased transaction levels increase the chances of overdrafting the account. The increased outstandings could help fund a rewards program, therefore improving retention and increasing interest income at the same time.
  • Alerts and other messages: If you are a typical debit user, racking up 25 transactions per month, and with no 25-day grace period like credit card users, you will have a great appreciation for a bank that keeps you informed of your debit transaction flow. Transaction confirmations are the simplest and most valuable message. But there is also demand for more advanced alerts that would inform users when a debit card transaction appears out of character (possible fraud) or if holds from hotels or gas companies may significantly impact checking account balances. These value-added alerts could be packaged with rewards and lifetime statement archives into a premium online banking program priced from $3.95 to $9.95/mo (or $39 to $99 per year).

For more information:
Online Banking Report #96/97, Account Aggregation v3.0
Online Banking Report #118: Lifetime Statement Archives
Online Banking Report #109: Pricing (premium products)

The Nilson Report, #842, September 2005
Cards & Payments, Debit Card Report, Oct. 2005, pp. 22-26

Notes:
1. The Nilson Report credit card volume includes Visa, MasterCard, American Express, Discover, proprietary store cards, and gas station cards. It does not include proprietary T&E cards such as Diners Club, Universal Air Travel Plan, car rental cards, or phone cards
2. SourceMedia’s debit cards include Visa, MasterCard, and cards issued by financial institution and used through EFT networks.

JB