Recent mergers and acquisitions activity in the payments space.
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Who’s Who
This week’s promotions and new hires.
New Finance Products and Services
This week’s new products and services
Zillow and RedFin Cater to Do-It-Yourself Homebuyers
In many urban markets, new tools aimed at homebuyers are about to alter the purchasing paradigm. These tools, which make it much easier to scour home listings, determine market value, and make legally binding purchase offers, are slowly diminishing the role of the real estate agent, especially
on the buy side (sellers still need access to the multiple listings). Already, 24 percent of recent homebuyers first learned of the home they eventually bought through their own Internet research (see Note 1 below).
What does this have to do with online finance? Plenty. With 77 percent of home buyers already using the Internet in their home search (see Note 1, below), the online real estate venues will begin to play a much larger role in the process. Financial institutions that get their name in front of homebuyers early in the process have a much higher likelihood of being chosen as the mortgage lender. And with buyers less likely to contact a real estate agent early in the process, traditional agent referrals will become less of a factor in the mortgage-purchase decision.
The Latest Homebuying Resources
Zillow <zillow.com>, the Seattle-based company launched Feb. 8 to much fanfare (so much that it crashed the site) including favorable articles in Walt Mossberg’s Wednesday WSJ column, Seattle Times business section, The New York Times, and many others. Zillow, started by former Expedia founder and CEO, Rich Barton, allows users to research comparable housing market values, both current and historic. Similar services have been around for almost a decade, but none match Zillow’s depth of information and ease of use (click on screenshot right for a closeup). Note: Zillow is using an advertising business model. Currently, it displays Google AdSense ads on the right, banner ads across the top, and other ads scattered throughout the site. Real estate brokers and lenders are expected to be major advertisers. ZipRealty, a buyer’s agent that rebates 20 percent of the commission, is a major sponsor at launch. Other similar services: HouseValues.com, HomeSmartReports.com, and HomePriceCheck.com (from LendingTree).
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Redfin <redfin.com> another Seattle-based startup, provides not only home-value data, but also overlays home-for-sale listings and recent sales on a satellite image of the neighborhood (click on inset for closeup; red boxes are homes currently for sale, blue-green indicates a recent sale). And with a business model that includes pocketing 1/3 of the home-sale commission, while rebating 2/3 to the buyer, it offers a potentially disruptive business model to the real estate industry which generated more than $60 billion in commissions in 2005 (reference: Seattle Times, Feb. 5, 2006). Although the site covers only the Seattle metro area at this time (which generated $1 billion in commissions in 2005), its primarily California-bred executive team is planning a San Francisco area launch later this year.
Action Items
- Keep abreast of homebuying venues in your market areas. Consider advertising or sponsorship opportunities to drive new buyers to your financing options.
- Improve the visibility and benefits of your mortgage preapproval program. Look at what Third Federal has done with its Mortgage Passport, a lifetime mortgage preapproval service (NetBanker Jan. 23, 2006).
- Develop a robust real estate marketplace for your website. Use your impartiality as a drawing card, e.g., "Looking for a home? Check out yourbank.com’s Real Estate center, where we show you how to find ALL the homes in the market, not just the ones your agent wants you to see."
- For those not currently receiving referrals from real estate agents, consider adopting the Redfin discount real estate agent model, helping buyers earn large commission rebates. You could even take it one step further, allowing the rebate (which could be as high as 3 percent of the purchase price) to pay for all or part of the down payment at closing.
Run this scenario by your legal department: The bank refers customers to a flat-fee real estate attorney who handles the purchase offer and subsequent negotiations for a pre-set fee; let’s call it $500 (see Note 1). The remainder of the buying agent’s commission is used as down payment for a mortgage from your bank. On a $400,000 home, that potentially makes more than $10,000 available for the down payment.
Big Caution: Anyone helping cut real estate agents out of their full commissions will be extremely unpopular, and will face backlash from the local real estate industry. This strategy (#4) works only for financial institutions with relatively few ties to the existing homebuying power structure.
— JB
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Will MasterCard Allow Non-bank Issuers?
We are beginning to hear intriguing whispers that, post-IPO, MasterCard will begin authorizing non-banks to be card issuers.
Cash and Cards Are Both Endangered Species
Right around the corner is a world with neither cash nor payment cards. Contactless payments mechanisms—built into cell phones or even jewelry—are helping create this world, and the result will help change banking, thinks Theodore Iacobuzio, managing director of Tower Group’s executive research office.
The reality is that companies that once fed the banks’ payment networks—merchants, for instance—will be future competitors. But banks shouldn’t panic about this, any more than when, not so long ago, the Internet was supposed to be extinguishing banks. And banks won’t be disappearing now, either, thinks Iacobuzio: the anxiety over banking’s future, so prevalent in boardrooms around the country, is overdone.
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Paying for Email Delivery
It appears the pay-for-delivery email model could be gaining traction with announcements by Yahoo and AOL that they plan to start levying fees of $2.50 to $10 per thousand for guaranteed delivery. According to emarketing guru Anne Holland, who believes that these fees are inevitable, the cost to send email will roughly double for most large mailers.
Her advice:
- Make sure email addresses are accurate
- Prune inactive addresses from your list
- Segment your list into finer increments
- Look into RSS feeds for some of your messaging
We’d add:
- If you allow users to designate more than one email address, consider a nominal annual fee for the extra messages
- Along the same lines, you may want to reconsider the policy of unlimited free email alerts; changing it to a two-tiered approach with a couple free each month or unlimited for $3-$5/month
More information:
- Postage is Due for Companies Sending E-Mail, by Saul Hansell, New York Times, Feb. 5, 2006
- Report on Alerts and Emessaging (Online Banking Report #93/94)
- Report on Pricing (Online Banking Report #109)
—JB
Credit Card Portfolios: More Pressure, Less Profitability.
People have grown wary of credit cards. They’re paying them off faster; generally, debit cards are edging them out as payment vehicles. And at least for now, home equity loans are increasingly more popular than credit cards among consumers (click on inset for more details and see tables below).
The result? Credit card portfolios are losing profitability, even though net losses and delinquencies are down, and serious questions about the industry’s future are surfacing. So are questions about how wise banks were when they snapped up most of the monoline credit card operations last year. The business model needs an overhaul, says observers, but so far, issuers are just changing the oil. And there may be no way out.
Continue reading “Credit Card Portfolios: More Pressure, Less Profitability.”
P2P Lending Rates a NYT Article
While person-to-person (P2P) lending will never create the buzz or user base of eBay’s PayPal or Google’s GBuy, it passed a milestone yesterday with a favorable article in The New York Times. The short article looked at UK-based Zopa <zopa.com>, a recent OBR Best of the Web winner (NetBanker Dec. 1) and a similar service being hatched in Silicon Valley, Prosper <prosper.com> (formerly CircleOne).
Prosper, like many Internet startups before it, bears watching not only because of its relatively minuscule user base–currently, just 12 transactions are pending–but also because of its VC backers, Benchmark Capital, Accel Partners, Benchmark Capital, Fidelity Ventures, and Omidyar Network, along with its famous founder Chris Larsen, who launched E-Loan nearly a decade ago. The company has raised $20 million according to its website. Click on the screenshot, right, for a closeup of its homepage.
We’ll look at both companies in more detail in the next Online Banking Report (Number 127), due out at the end of the month.
—JB
Niche Lending Online: Health Care
Ten years after the first loan was originated online, there is still a surprising lack of effort at mining various lending niches. Mainstream categories, such as mortgages and credit cards, are rife with great marketing efforts. Home equity and car loans are also marketed effectively by a number of players.
But when it comes to smaller niche markets, such as small business or personal loans, the big players have for the most part stayed away.
One exception is Capital One, which recently added a new category to its main navigation bar, "Healthcare Finance (click on inset for closeup).
Healthcare Finance offers personal loans to consumers seeking to pay for the following categories:
- Dental
- Orthodontics
- Cosmetic
- Fertility
- Vision
The website features a 1.9% banner ad, but the fine print says that the rate will vary from 1.9 percent to 23.9 percent, quite a range. Loan sizes vary from $300 to $25,000.
Capital One is using Google Adwords to support its efforts. For example, searching for "loans for dental work" displays this ad (click on inset).
Action Item
Compared to other loan terms, the health care-related terms are relatively sparsely sponsored. You should consider adding these terms to your search-engine marketing plan. To make it pay off, you should build a landing page that speaks to the benefits of using your personal loan or line of credit for such expenditures.
More info: We’ll take a closer look at Capital One’s Healthcare Finance options in the next Online Banking Report to be published at the end of February (OBR 127).
—JB
New Financial Products from Mastercard and others
New product announcements from The Clearing House LLC, MasterCard, VISA, and more.
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Final Bank Marketing Score: Steelers 2, Seahawks 1
As we analyzed PNC Bank’s identity protection services (see previous article), we happened to notice this timely photo of its hometown Pittsburgh Steelers, scheduled to compete Sunday in the Super Bowl against the Seattle Seahawks (click on inset for closeup). PNC is the official bank of the Steelers.
We were curious as to how many banks were leveraging Super Bowl fever in the states of Washington and Pennsylvania. Using Yahoo’s directory, we found only one of 27 Washington Banks (see below), and two of 68 Pennsylvania banks with homepage references to their home teams.
And only First Mutual Bank <firstmutual.com> in Bellevue, Wash., has a promotion tied to the big game: a 4.05 percent "Championship Rate" on its High-Yield Money Market Deposit Account (click on inset for closeup).
The two Pennsylvania football tie-ins were simple eye-catching graphics on the homepage from Fidelity Bank (click on inset right for closeup) and PNC Bank (see above).
—JB
Editor’s Note: Since the Steelers won 21-10, we are wondering whether bank website appearance may be a leading indicator of Super Bowl performance. We’ll see next year.