Branchless Banks now Hold 2% of U.S. Retail Deposits

By Jim Bruene Posted on
Categories: Deposits, Checking, Savings, CDs, Direct Banking, E*Trade, ING Direct, Metrics & Market Research

The Wall Street Journal published a story today that marks the growing importance of branchless online banks, Online Banks are Boosting Yields. Our sister publication, Online Banking Report, was the source for the article’s market statistics on branchless banks, which have developed a small, but significant following around the world.

In the United States, there are several dozen branchless banks, but more than three-quarters of the total branchless bank deposits are held by two banks, ING Direct and E*Trade Bank. Total branchless bank* deposits in Q3 2004 were about $65 billion, or 1% of all U.S. deposits, or about 2% of all deposits under $100,000. See below for more specific details.    

Branchless Bank Deposits
As of Sept 30, 2004, the deposit totals of the major branchless banks are as follows:

ING Direct       $26 billion in 1.9 million accounts ($14,000/acct)
E*Trade Bank  $23 bil in 2.3 million accounts ($10,000/acct)
NetBank          $2.7 bil in 200,000 accounts ($14,000/acct)
Everbank         $2.3 bil in 370,000 accounts ($6,200/acct)
All the rest      $5 to $10 billion total
————————————–
Total               $60 to $65 billion

Total US Deposits
The total amount of deposits held in U.S. commercial banks on 9/30/04 was $6.4 trillion including retail and commercial deposits.

If you look only at deposits of $100,000 or less (a proxy for retail deposits), total deposits were $3.7 trillion.

Branchless Bank Deposit Market Share
Branchless banks hold about 1% of all U.S. deposits ($65/$6400).

Looking at just deposits under $100k, branchless banks hold just under a 2% share ($65/$3700), actually 1.8% if you want to be more precise.

Source: FDIC

What it Means
It’s not as big of a splash as Amazon made in books, but it’s a solid start for an niche about 7 years old (Netbank started in 1997). I expect it will continue to grow 25% to 35% per year for the rest of the decade, eg, doubling the branchless banking deposit base every 2 to 3 years.   

*We define "branchless bank" as a separately branded insured depository institution that derives the majority of its business through direct methods (mail, phone, online) with minimal brick and mortar presence. We are excluding direct banking units operating under lending or insurance brands such as Principal Bank, State Farm Bank, IndyMac, MBNA, and so on.

—JB

Share this:

Send Post Twitter LinkedIn Facebook

FDIC Recommends Two-Factor Bank Authentication

By Jim Bruene Posted on
Categories: Security & Privacy

Now that the FDIC has officially come out in favor of two-factor authentication, it’s only a matter of time before every major bank has upgraded their login procedures.

According to a Dec. 24 New York Times article, E*Trade Bank will be the first US bank offering two-factor authentication for retail customers. They are expected to use a token system similar to that used by AOL and several international banks including ABN Amro, Credit Suisse, Rabobank, and First National Bank (South Africa), winner of Online Banking Report’s Best of the Web in November.

E*Trade’s system is expected in Q1 2005 and will be optional for the customer. It’s already in testing with 200 customers.

US Bank is also said to be testing a token system from Verisign.

Analysis: A simpler solution needed for the mass market
We commend these banks for doing something to reassure frightened users. According to Forrester, 26% of online users have not applied online for a financial product due to phishing fears and 14% have stopped paying bills or banking online. Finally 20% have stopped opening emails from their financial providers.

However, a hardware token is overkill for most retail users. It requires ongoing maintenance expenses, tech support, and is a logistical headache for the end user. It’s kind of like a car alarm. They make sense if you live in a high-crime area, but mostly they are just a nuisance.

Luckily, there are simpler choices on the way. Just yesterday, an interesting company was profiled in The Seattle Times, BioPassword. Its software records the unique typing patter of the end-user and will keep out anyone else attempting to type the user’s password. At a recent conference, the company offered up to $100,000 to anyone who could successfully login to its account, even after they’d been told what the password was. Not one of 1200 attempts was successful.

Entrust_identity_guardAnother interesting alternative to tokens is Entrust’s IdentityGuard which Forrester analyst Jonathon Penn raved about in a November 19, 2004 research note. The EntrusEntrust_identity_guard_2_2t solution is a low-tech version of the token, using a paper-based "bingo card" users are asked to enter digits from certain rows/columns of the card (see card right).

Another solution receiving a lot of attention, partly because ex-Intuit CEO Bill Harris is founder, is PassMark. The company touts its "2×2 factor" program that authenticates users to the bank and the bank to the user. The latter is done via visual aid, hence the company name. They also have an excellent easy-to-digest demo.

— JB

Share this:

Send Post Twitter LinkedIn Facebook

Citibank’s iPod Offer — Too Much of a Good Thing?

By Jim Bruene Posted on
Categories: Advertising & Promotion, Citibank

Citi_ipodForget about toasters.

Citibank is handing out iPod minis to new online banking customers provided they fund their new checking accounts with at least $2500 and pay at least two bills per month for a year.

Analysis
This raises the ante for online account acquisition. It's a pricey premium, even for Citibank, which has long been aggressive at its website, giving away eye-catching premiums such as DVD players or $100 cash.

There is no doubt that giving away the ultra-hot iPod mini will drive new accounts. But it may be over the top for a checking account offer, even by Manhattan standards.

How many 20- and 30-somethings will game the system just to qualify for the iPod? An even bigger concern is existing customers closing their accounts and reopening online in order to pick up an iPod.

But Citi knows what it is doing, and they must figure the new accounts, along with the publicity, makes the risk worthwhile. It will be interesting to see what this book of accounts looks like a year or two from now.

We think most financial institutions, at least those outside the NYC metro area, should keep premiums in the $50 to $75 range. It's enough to generate interest and applications, but not enough to create a buzz at FatWallet with people virtually salivating at the prospect of picking up low-cost iPod at the expense of a huge bank.

Aside: Kudos to Citi for posting a link to the Red Cross for tsunami relief.

If you'd like to learn more about the financial interactive marketing efforts, check out the Interactive Financial Marketing Database from our sister publication, the Online Banking Report.

Share this:

Send Post Twitter LinkedIn Facebook

Secure Bank Message Area Grows in Importance

By Jim Bruene Posted on
Categories: Alerts & Messaging, Service

One way around the rapidly declining effectiveness of email communications is to prominently post new messages within the secure online banking area. Not only is it useful to create an archive of bank communications, it also provides reassurance that no message(s) have been missed.

Ebay recently added this capability to its the My eBay platform, where users can login to track account activity. Ebay keeps messages for 60 days. Financial institutions should allow storage for far longer, one year at least.

Because bank messages are often time sensitive, you should also send the message, or a message notification to the user’s standard email account. Better yet, allow users to receive message notifications at multiple email accounts, therefore increasing the chances that one will go through.

Action Item
Many banks already have this capability, but it may be overlooked by customers, as they have become accustomed to receiving messages over the Internet.

Now would be a good time to remind customers to look in their message folder periodically. You might run a sweepstakes or treasure hunt that requires looking into message folders to win.

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

Share this:

Send Post Twitter LinkedIn Facebook

How to Make Your Online Banking Customers Feel Secure

By Jim Bruene Posted on
Categories: Security & Privacy

Link: Citizens Bank.

Most banks could help their customers increase their comfort level with online banking by doing four relatively simple things:

  1. Greet customers by name before logging in, so that users know they have arrived at the correct site.
  2. Post a prominent link to an online security area.
  3. Post an understandable discussion of the customer’s liability for unauthorized electronic withdrawals, preferable with a "guarantee" of zero liability if promptly reported.
  4. Provide hotline phone numbers and email addresses for reporting suspected fraud.

Citizens Bank, the U.S. division of Royal Bank of Scotland, does a good job with points 2 through 4.

Citizens_fraud_center A catchy homepage graphic for its "Online Fraud Prevention Center" directs users into a thorough discussion of online fraud and prevention techniques.

The bank’s Online Guarantee is highlighted with a graphic image and Citizens_onlineguarantee_logoa phone number and special email address, prevention@citizensbank.com are also included.

Finally, copy writing is user-friendly and links to third-party resources, such as the National Cyber Security Alliance, round out the section.

To learn more about how to promote online security and peace of mind, check out Marketing Security: The sensitive issue of publicizing security and authorization enhancements from our sister publication, the Online Banking Report.

Share this:

Send Post Twitter LinkedIn Facebook

Where’s the Holiday Bank Marketing?

By Jim Bruene Posted on
Categories: Advertising & Promotion, AmSouth, National City, PNC Bank

These days most major online retailers and consumer sites dress up their websites for the holidays.

Unless, they are bank sites.

Each year we surf major banks looking for holiday happenings. We were surprised again this year to find little creativity on bank home pages. On Dec. 21, none of the largest 30 banks in the U.S. had a major holiday theme running.

Two banks, National City (#11) and LaSalle (#15) were running prepaid gift card banners. And two others were running small holiday-themed promotions running, AmSouth Bank (#27) and PNC (#20).

PNC is running a tongue-in-cheek look at the cost of purchasing the items in the popular holiday song, The Twelve Days of Christmas. This year the total cost was $17,300, up 2.4% since last year. The bank has been tracking the cost for 20 years and provides a long-term look at the price increases. It’s very clever, providing valuable publicity and a positive impression of the bank.

AmSouth Bank has an interesting holiday promotion, one that ties directly to online banking a bill payment. Website users can personalize a holiday greeting card and send it to anyone with an email address. Users are encouraged, but NOT required, to use the cards as a notification of a check being sent through AmSouth’s bill payment system. The default "personal" message even says:

A monetary gift is being sent through AmSouth Bank, please look for it in your mail in the next 7 days.

Greeting card users do NOT have to be bank customers. AmSouth doesn’t say whether it is capturing email addresses. We would have to assume not.

Action Items

Add a holiday promotion for your 2005 marketing plan. It’s a great way to jazz up your website for the holidays and you can include a sales promotion at the same time, especially for prepaid cards or gift checks.

— JB

—————————————————-

If you’d like to learn more about the financial interactive marketing efforts, check out the Interactive Financial Marketing Database from our sister publication, the Online Banking Report.

Share this:

Send Post Twitter LinkedIn Facebook

Self-Employed Totals 10% of Work Force

By Jim Bruene Posted on
Categories: Small Business

Link: SBA Self-employed Research Results

A new report released this month by the U.S. Small Business Administration, estimates that U.S workforce is now comprised of 12.2 million self-employed (9.8% of the total) and 112 million employed (90.2%) workers.

What it Means
The self-employed are a significant market segment on their own right. At approximately 10% of your customer base, they warrant attention and possible product offerings specifically geared to their needs. See Online Banking Report 107/108 for more information on creating compelling online services for small and microbusinesses.

Action Items

1. Review your website and other marketing collateral, especially small-business-oriented material, to make sure it includes references to the self-employed.

2. Create a "self-employed" area on your website.

3. Consider creating special product bundles geared to this segment. Since traditional loan underwriting often penalizes self-employment, look closely at what you might do to enhance the credit aspects of the bundle.

4. Include "self-employed" in your search engine advertising buys and in other online promotional efforts.

5. Create a quarterly or monthly email newsletter specifically targeted to the segment.

— JB

Share this:

Send Post Twitter LinkedIn Facebook

Online Referrals for Real Estate Agents

By Jim Bruene Posted on
Categories: Lead Generation, LendingTree, Loans & Credit, Mortgage, Refi & Home Equity

Link: WSJ.com – Online Referrals For Home Sales Gain a Toehold.

Here's a way to gain incremental mortgage sales, new banking customers, and potentially a bit of direct fee income from your online services.

Develop an online real estate agent referral program.

Visitors would be able to query your website to find qualified agents specializing in their target neighborhoods. You could do it as a pure marketing play, with no Amexgiftcardincentives or referral fees; or you could provide eye-popping incentives, such as $2500+ gift cards from Home Depot or American Express offered by LendingTree at their realestate.com site.

In the LendingTree program, the value of the gift card depends on the size of the home purchased and/or sold (you receive an incentive for both buying and selling) as follows:

Incentive  Combined Value (bought & sold)
$250         $100,000
$500         $150,000
$1000       $250,000
$1500       $350,000
$2000       $450,000
$2500       $550,000
$5000       $1.1 million
$10,000    $2.1 million

The incentives are funded by the agent receiving the referral, who rebates a third of their sales commission to LendingTree. The consumer ends up with approximately $500 for every $100,000 in home value over $50,000.

LendingTree also tacks on an extra $100 if the buyer gets the mortgage from a LendingTree lender.

Currently, 7% of home buyers say they found their real estate agent through the Internet. (Source: National Association of Realtors study of transactions in 2003 and 2004, as cited by The Wall Street Journal, Dec. 9, 2004)

Caveats
This strategy is not for the faint of heart. While consumers will love it, driving additional business to your mortgage products, most real estate agents will hate it. So you have to weigh carefully whether it's worth the potential heat. If you rely on real estate agents for mortgage leads, you might want to consider the non-incentive version, where you simply forward home sales leads to agents based on zip code.

— JB

Share this:

Send Post Twitter LinkedIn Facebook

Improving the “Look and Feel” of Bank Emails

By Jim Bruene Posted on
Categories: Email Marketing, Email Samples, Service

In our most recent tests, we found great improvement in the quality and
timeliness of responses to Web-based queries. However, we found that the “look
and feel” of email responses left a lot to be desired. The typical bank response
was a few lines of text and perhaps a link or two to general information. And
because of poor choices in the FROM and SUBJECT fields, the responses looked
spam like and easily overlooked.

 

Compare those bank messages to email responses from leading Web-based
retailers and service providers such as GoDaddy, an Internet domain name
registrar (screenshot below). Most savvy retailers use graphically
appealing HTML messages to get their point across effectively, and when
appropriate, up-sell the user on a solution that solves their problem. In the
GoDaddy example below, I asked a question about website capabilities and
received an excellent response along with an appropriate upsell into their
$3.95/mo hosting option (see note point 4 on the screenshot below).

 

GoDaddy knows shows their savvy in responding to customer service inquiries.
Not only is it good looking and answers my question, it arrived eight minutes
after the question was submitted, beating by three minutes the
expected call center hold time listed on the website. That’s how to deliver
e-service, faster than alternative channels. The email response grabs your
attention with a well-designed layout including the following (see
corresponding numbers above):

1.      Answer to my question (at the top)

2.      A real person responding to the question

3.      Link to a privacy
policy                                                 
                                                                

4.      Banner to select the service upgrade about which I had inquired

5.      Phone numbers for customer support

6.      Repeat of my original question (not visible on the
screenshot)          

My only major complaint with GoDaddy’s message is that it fails to identify
itself in either the email From field (it used “Support”) or the
Subject field (it used: “Other: One page website incident 040506-001360”). 

Bank Examples

In comparison, the typical bank response is delivered in plain text with few
helpful links. Following are examples of banks responses to a general
non-customer query via their websites.  

The question posed: Do you offer overdraft protection that does not
charge for each advance?

Email response from Chase to a question about whether they
offered no-fee overdraft protection: The speedy response, 41 minutes, answered
the question correctly and concisely and provided a phone number for more
information. However, there were no links in case I wanted to sign right up for
the account I asked about. Score: A for service, D for sales. (09 Apr 2004)

Share this:

Send Post Twitter LinkedIn Facebook

PayPal Offers Preapproved Credit Line to Members

By Jim Bruene Posted on
Categories: Credit/Debit Cards, PayPal

PayPal now marketing Buyer Credit directly to buyers

 

Ebay’s PayPal unit already offers transaction accounts, interest
and non-interest bearing, debit cards, credit cards (through First USA),
online bill payment, person-to-person payments, interbank transfers,
merchant transaction processing, investment accounts, insurance, and
indirect lending. About the only thing missing from their line-up, revolving
credit and mortgage lending (see Timeline, Table 4, opposite).
Correction, make that just mortgage lending.  This summer the auction
payments giant added a revolving credit option called PayPal Buyer Credit
(see screenshot below). Until recently, it’s been mostly targeted to
sellers who are encouraged to offer it as a financing alternative on their
auction listings. Depending on the program sellers pay 0.50% to 3.75% of the
selling price to fund the financing. The most common offer on eBay during
the pre-holiday rush is no payments/no interest until April 2005 (see
screenshot opposite). If the buyer takes advantage of the offer, it will
cost the seller 0.50% of the purchase price, and the seller will receive the
entire purchase price, less PayPal fees, immediately (see Table 5, for
more seller costs).

Users are encouraged to apply for Buyer Credit in advance.
Assuming they are approved PayPal users can select Buyers Credit as their
funding source when checking out or sending money from PayPal. Buyer Credit
can be used to pay anywhere that accepts PayPal, it could even be used to
send money to an individual, but they must be a Premier or Business member.
Buyer Credit is provided by GE Capital Consumer Card Co. at an annual
percentage rate of 20.8%, which increases to 24.75% if the user becomes
delinquent (late twice during a six-month period). The rate is variable at
prime plus 15.5%, with a 20.8% minimum. Late fees vary from $15 to $35
depending on outstanding balance.

 

Table 4

Product Timeline

PayPal’s moves into banking

 

Table 5

Seller’s Cost to Offer Special Financing

Minimum
Cost*     Purchase              Offer

0.50%      $199                     No payments for 3 months and no
interest if paid in 3 months

1.75%      $199                     No interest if paid in 6 months

3.75%      $199                     No interest if paid in 12 months

0.60%      $999                     12 fixed monthly payments at 12.9%
APR

1.50%      $1999                  24 fixed monthly payments at 12.9% APR

Source: PayPal, 12/13/04             *Percent of purchase price

 

 

 

For more information

 

Table 6

Recent PayPal Stats

million unless otherwise stated

04-dec-f04.jpg

Source: Ebay financial statements, Online Banking Report, 11/04

Share this:

Send Post Twitter LinkedIn Facebook

Retail Delivery 2004 and Notables from BAI 2004

By Jim Bruene Posted on
Categories: BAI

The biggest banking show of the year, BAI’s Retail Delivery
www.bai.org was
held Nov. 16 to 18 in Las Vegas. Here’s what caught our attention this year.

 

1.   Channel integration: As mentioned on page one, we were
smitten with the “teller assist” hardware from Source Technologies
www.sourcetech.com .
Its vision: teller lines soon look like airport check-in counters, a mix of
touch-screen automation with human support. One teller can do the work of
two or three, as the customers do most of the work feeding deposit items
into a terminal that scans them and displays an image on the screen for
verification. The company says payback is one year.

2.   Security issues: Jim Van Dyke Principal of Javelin
Strategy delivered two sessions on the three Fs: fear, fraud, and
phishing. His new safety scorecard even made the Wall Street Journal
the day before he spoke (see WSJ, Nov. 16). Of the 39 banks surveyed
by Javelin, Bank of America came out on top with a 71 score on the
100-point scale (see Table 3 below).  One of Van Dyke’s key themes:
eliminating mailed billing and financial statements. It’s the one avenue of
fraud and identity theft that’s relatively easy to avoid while saving the
financial institution a substantial amount in paper and postage. Users
should be allowed to turn off paper statements and should be encouraged to
avoid putting any paper into the system by using debit at the point of sale
and using electronic options to pay bills. You can access a synopsis of the
research at www.javstrat.com
 or purchase the entire report for $2500.

Table 3

Top Scoring Financial institutions on Javelin’s Identity Fraud
Scorecard

maximum regular score = 100

04-dec-d01.jpg

Source: Javelin Strategy & Research presentation at BAI Retail Delivery,
11/18/04

*39 financial institutions evaluated by mystery shoppers across 44
criteria; scores ranged from 12 to 70.5,
max=105 including potential 5-point bonus, see below

**Wells Fargo had the top score of 73 across the three evaluation
categories; however they received a five-point deduction for using the
social security number as the default username; financial institutions could
also receive a five point bonus for not allowing nine-digit numerical
usernames (so users couldn’t use social security number); other than Wells
Fargo, we do not know if any of the above financial institution received
bonus additions or deductions. If so that could mean that their component
scores were different that what we deduced above.
 

3.   Account-to-account transfers: CheckFree (see also
number 7 below), Yodlee, and CashEdge were on the floor
discussing their latest improvements to interbank transfers. CheckFree’s new
bill payment platform includes interbank transfers, quick payee setup, and
user-input payment reminders. CashEdge, the leader in the burgeoning A2A
field, even landed another top-10 bank at the show. They now power
Citibank, Bank of America, and several yet-to-be-announced large
banks. By next year’s show, the company expects to be powering A2A for five
of the top 10 U.S. banks.

4.   Prepaid cash: American Express and WildCard Systems
www.wildcardsystems.com
 along with Visa and MasterCard of course, were on the
floor pitching prepaid gift and travel cards. A great opportunity for online
banking operations to monetize their user bases. To see the future of gift
card delivery online, check out payment processor iPay’s system  https://www.billpaysite.com/adv/giftpay/main.asp

 


 

5.   Branchless banking: Deloitte director Michael Raynor who
co-authored The Innovator’s Solutions with Clayton Christensen, used
ING Direct as an example of a potential disruptive technology in the
area of branchless banking. He said the jury was still out, but banks would
be wise to keep an eye on the ramifications from ING’s success. We couldn’t
agree more. And imagine if an ING Direct-like company sprinkled a few Source
Technologies truly automated tellers (see #1) around town, it could
be a viable business model. One that functioned as a true branchless bank
servicing transaction accounts as well as savings deposits.

6.   Automatic savings: ShareBuilder was on the exhibition floor
again, with a nice location. They are really on to something by providing a
low-cost way for investors to get involved in equity markets while
simultaneously introducing them to the power of automated savings.
ShareBuilder is marketing slick new account kits complete with a book, Smart
Money Magazine subscription, and $30 in cash for the first investment (see
screenshot below). It’s a great product to market during the holidays as
parents, grandparents, and others love the ease and value of this
politically correct gift. Wells Fargo and ShareBuilder
have been emailing well-designed holiday sales messages for the past few
years.

Wells Fargo is selling a ShareBuilder “Investor Starter
Kit” which includes a subscription to Smart Money, a Wall Street Journal
book, and $30 cash to invest. Total cost is $24.95, an excellent value.


 

7.   New CheckFree “bill management” platform: CheckFree continues to
improve its widely used platform with the goal of making it a complete “bill
management” center. Additions coming in version 4.1, available in Q2 2005
include:

  •          user-entered payment reminders
  •          integrated inter-institution transfers
  •          quick payee-setup that can be set up with just a payee phone
    number
  •          integrated checking account balance

 

Still lacking: security preferences for setting up a “firewall” around the
user’s payment system.

 

CheckFree’s consumer site leads with a powerful benefits-oriented graphic
and headline,
”Delete: Paper bills. Add more life.” Then immediately to the right is someone
reading a book on the porch, obviously enjoying their extra leisure time.

Share this:

Send Post Twitter LinkedIn Facebook