Electronic Messaging Opportunities and How to use for Cost-Reduction Benefits
Electronic messaging is wide-open for innovation. The content, delivery, and
style of your electronic messaging provide numerous points of differentiation,
and the business case is positive with potential retention, cross-sale, and
cost-reduction benefits (see OBR 91/92 for a complete analysis).
Source: Online Banking Report, 9/04
Online Banking Benefits: Consumer Needs Pyramid
Before embarking on new product and marketing strategies,
perform a reality check on users’ expectations.
Source: Online Banking Report, 9/04 Notes: 1We call it the illusion of real-time
processing, because users don’t so much care whether a transaction is processed
in real-time, what they care about is that they can SEE that you have accepted
their transaction and have adjusted balances accordingly; the actual
debiting/crediting can occur behind the scenes in batch mode. 2It’s extremely
difficult to describe what’s “right” in words, but we know it when we see it.
Making Money the Old-Fashioned Way: Fees
In the U.S., online banking fees have all but disappeared. Online account
access fees went by the wayside at the beginning of the Internet era (circa
1995) and bill pay fees have been disappearing in the wake of Bank of
America’s highly advertised strategic decision to give away bill payment
beginning in 2002. However, as we discussed last month, do not give
up the notion of charging for online services. On the contrary, as more
users go online, there is a much bigger market for premium services along
the lines of American Express and Federal Express. Following is our list of
potential fee-based services and the range of potential charges. The “Low”
column lists the range of fees geared towards consumers, while the fees in
the “High” column are more appropriate for small businesses, which are much
less fee averse, and other high-end consumers.
Note: Commentary applies to the U.S. market only. Other international
markets have much different appetites for or against various fees.
Source: Online Banking Report, 9/04
Notes:
*The fees in the Low column are more appropriate for average consumer
users; the fees in the High column are more appropriate for micro and
small businesses, and some consumers with complex finances; for simplicity, we
have rounded most fees to the nearest whole dollar; however, common retail
pricing practices are to set prices below natural price points such as $9.95
instead of $10
Online Strategy Matrix Designed for your Business Planning Process
The following matrix is designed to assist your business planning
process. Consumer strategies are divided into three broad categories:
product, general marketing (on- and off-line), and customer
satisfaction/service. Each broad category is further divided into groups of
tactics aimed at a common goal. Finally, every tactic is categorized as
either:
· Best Practices (column 1): Required
features that every competitive financial institution should support
· Competitive Advantage (column 2): Top-rated
features that differentiate you from the competition
· Others (column 3): Other optional features to
help set you apart and/or support other company objectives
Source: Online Banking Report, 9/04
Notes: (1) Features to put you at parity with the best online banks; (2)
Differentiating strategies that provide either a competitive advantage,
incremental profits, or both; (3) Other optional tactics to create competitive
advantage and/or support other company goals.
Small and Microbusiness Strategy Matrix
In theory, small and micro businesses represent one of the most lucrative,
and relatively untapped, sources of incremental business. The reality is that
most small and even mid-size businesses are too busy to spend much time changing
banking relationships, unless they are a pre-startup1
and/or shopping for a credit line or loan. As we outlined in OBR 107/108, a
product offering optimized for business will differ somewhat from one built for
consumers. The following chart summarizes the product options for small- and
microbusinesses. See our prior report for more detail on each feature. The
options are divided into nine categories:
1. Statement data: viewing and organizing balance
2. Customer service: customer care delivered over the Internet
3. Accounting services: financial management tools
4. Payments and billing: e-checks, bill pay, email payments, ACH,
wires, invoicing, card processing
5. Security/privacy: privacy, security, permissions, guarantees
6. Lending: business tools, news, information
7. Website content/features: non-financial tools and information
8. Alerts: email, fax, telephone, and mail activity- and balance-level
alerts
1Pre-startup: The time immediately preceding business startup
phase. One of the first things an entrepreneur will do is open separate bank
account(s) for a new business venture; it helps keep records straight for
tax-reporting purposes. So it does little good to target any startup, since
most will already have business banking relationships established; you
really need a foot in the door in “pre-startup” mode, when the kernel of an
idea is just forming (see OBR 107/108, for ideas on how to target
pre-startups).
phase. One of the first things an entrepreneur will do is open separate bank
account(s) for a new business venture; it helps keep records straight for
tax-reporting purposes. So it does little good to target any startup, since
most will already have business banking relationships established; you
really need a foot in the door in “pre-startup” mode, when the kernel of an
idea is just forming (see OBR 107/108, for ideas on how to target
pre-startups).
Online Services for Microbusinesses
checkmark = must have feature; R = recommended feature; O = optional feature
Source: Online Banking Report, 9/04 checkmark = must have feature; R =
recommended feature; O = optional feature
Ten Quick Hits to Boost Revenues in 2005
Following are our ten most-promising tactics for generating incremental revenues during calendar year 2005.
Six Steps to the Big Idea of Effective Planning
A crucial part of the planning process is reaching deeply to find the
best ideas. Many companies already have a process in place, but if you are
looking for inspiration, consider the following six-step approach.
Six Steps to the Big Idea
1. Do Your Homework (Immersion): Study the situation, visit
competitors, read new research, talk to customers, interview employees,
attend a conference, poll your customer base, and so on.
2. Optimize the Environment: Clear away constraints to
thinking, go off site, stockpile the food and coffee, play music; do
whatever it takes to let your thoughts flow freely.
3. Rattle the Brain: Perform “thinking exercises” to
limber up the brain before tackling your specific problem (see our ideas,
left, or Jump Start Your Brain by Doug Hall for 37 more).
4. Generate Idea Nuggets (free form): Think of every
possible solution to the problem, regardless of how crazy; write them down
without judgments or justifications.
5. Assemble Idea Nuggets Into Strategies and Tactics:
Transcribe each nugget on a
3×5 card and arrange the cards into bigger concepts and ideas.
6. Be Bold: Don’t immediately dismiss strategies that seem
too big for your budget; winners
could be shopped to strategic investors or other financial institutions for
additional funding.
Source: Adapted from Jump Start Your Brain by Doug Hall, Warner
Books, 1995. A new version, Jump Start Your Business Brain was
published in Sept. 2001. Both are available in paperback from Amazon for
about $12 each.
Do Your Homework
To see potential opportunities in a new light, look beyond your normal
circle of peers, subordinates, and other industry sources.
| 1 |
Observe First-Hand: Find out how consumers really use online
financial services and observe how the services could be improved. For
example:
- Enter into a far-reaching conversation with an
important vendor, preferably in person - Arrange for a classroom of MBA students to debate the
pros and cons of online services - Attend a focus group on online financial services
- Hire a consultant for a brainstorm session
- Sponsor focus groups for branch and call center staff
to discuss serving/selling customers online - Post a short questionnaire on your website; have a
copy of each response forwarded directly to you (no staff filters) - Issue an RFP (request for proposal) for the
development of a “next-generation” service
| 2 |
Attend an industry conference: Away from the daily grind,
surrounded by the latest technology and bombarded by new ideas: a perfect
prescription for breakthrough thinking. The two biggest U.S. online banking
conferences take place in the fall, the American Banker’s just-completed
Financial Services Technology Forum and BAI’s Retail Delivery
which will be held next month in Las Vegas.
| 3 |
Dive in to third-party research: Grab a few research reports, head
to a quiet table in your favorite coffee shop, and turn off your Blackberry.
Now, really read the whole report, skipping the executive summary
until the very end. Take notes and highlight pertinent pages. At the end of
the day, create your own executive summary with a list of possible action
ideas and questions to share with your team.
| 4 |
Commission your own research: Research culled from your own
customers and in-market prospects is infinitely more believable than
national studies. If research budgets are nil, you can still post a short
survey on your Web for next to nothing and have results tomorrow. The data
won’t be applicable to your entire customer base, but it might provide a
number of good ideas and insights.
Or if you’d prefer to take a quick reading of consumer sentiment without tipping
your hand to the competition, consider tapping into the preassembled panels of
Web research companies. At InsightExpress http://www.insightexpress.com/
it’s possible to ask 200 consumers what they think of your idea for an
out-of-pocket expense of about $1,500. Questionnaires are easily
composed using online templates, and you’ll have results back within hours. All
results are stored online where you can run your own reports and cross
tabs.
Thinking Exercises: Integrated Account Aggregation
If a picture is worth a thousand words, what’s a Flash demo worth? Even
though we go to great lengths to describe innovative new services, it doesn’t
really sink in until you’ve personally sampled it. To loosen the cobwebs, we
recommend a hands-on session running an innovative online service through its
paces. If you need ideas, see Table 2, below. These are the innovative services
we’ve selected each of the past six years. You can find more information about
each by consulting the appropriate OBR back issue.
Table 2
OBR Thinking Exercises
1999 through 2004
|
Year |
Subject |
Exercise |
| 2004 | Integrated account aggregation | Use OneView from Everbank |
| 2003 | Premium online banking | Review 1st Source Bank of Indiana’s segmented online banking offering |
| 2002 | Account alerts | Use fyiAlerts from Charter One |
| 2001 | Savings | Open a savings account and setup automatic transfers at ING Direct |
| 2000 | P2P payments | Pay for an eBay purchase with PayPal (now owned by eBay) |
| 1999 | Account aggregation (stand alone) | Sign up and use account aggregation at VerticalOne (now Yodlee) |
Source: Online Banking Report, 9/04
2004 Exercise:
Integrated Account Aggregation
Direct banking pioneer Everbank (Jacksonville, FL; $2.7 billion) has
raised the bar again with its new online banking platform (screenshot left).
There is
much to be learned from its implementation, the culmination of three years of
effort. We’ll be reporting on it in depth in an upcoming report. But don’t wait
for us to tell you about it. Get out a pad of paper, study its website, and take
notes. If you really want to see it in action, you’ll need $1500 to open an
account, and you’ll need to wait a week for your paperwork to be processed.
Either way, pay special attention to the degree of integration occurring with
the account aggregation technology.
Time Needed:
– 60 to 90 minutes
Material Needed:
– paper for note taking
– (optional) $1500 to fund an initial deposit
– (optional) username/password for at least one outside
account to aggregate at Everbank
Instructions:
1. Visit the bank
www.everbank.com
2. Navigate to online banking demo and follow the instructions.
Optional: Open an actual account ($1500 needed). Note how Everbank’s account
opening process works compared to yours; jot down ideas for improvement.
3. Observe how the bank displays its online banking options. Pay
special attention to how account aggregation plays a role throughout the
service.
4. Finally, look closely at the boxed content on the right. Note the
features and functionality and think about what you would put in a similar box
within your online banking application.
Building the Case for Increased Investment
Every year it’s a battle to win approval for your business
plans. This process, though far from perfect, is a necessary evil to ensure
that only the most promising plans are funded.
Online banking, which in the U.S. generates little direct
revenue, often requires creative spreadsheeting to show a positive
NPV. Following are some of the positives to incorporate into a winning
business case.
-
Stay competitive: improving account retention and
increasing sales -
Improve sales by differentiating your products and
services with online functionality -
Increase cross sales, especially credit/loan
products -
Increase online banking and bill payment
transaction fees -
Create a new stream of monthly and/or annual
service fees with a premium service option -
Use marketing dollars more effectively through
targeted online promotions -
Reduce costs through self-service
-
Improve customer satisfaction, retention, and
cross sales
Allocating scarce budget dollars
If you are looking for the biggest bang for your buck, look
to online lending and small- and micro-business initiatives. According to
Celent’s study across 1.5 million Digital Insight users (in 2001),
online lending generates four times the combined value (NPV) of banking/bill
pay. Business services were even more valuable, resulting in returns of
nearly six times that of banking/bill pay.
Everbank made a sizable investment in a new online
banking platform, a highly customized mix of Metavante and Teknowledge
software. Previously, the bank used the S1 online banking platform.
NPV from various online banking products
|
|
$ Return (NPV)1 |
||
|
Product |
5-Yr Total |
Per Cust2 |
Index |
|
Banking, statement info. |
$6,000 |
$0.12 |
1x |
|
Bill pay |
$17,000 |
$0.33 |
3x |
|
Lending |
$83,000 |
$1.65 |
14x |
|
Small business |
$123,000 |
$2.45 |
20x |
|
Total |
$228,000 |
$4.56 |
38x |
|
Combinations |
|
|
|
|
Banking and bill pay |
$23,000 |
$0.45 |
4x |
|
All except small business (lending, banking, bill |
$105,000 |
$2.10 |
18x |
Source: Celent, 10/01 For a better understanding, read
Celent’s Customer Retention and Cost Savings Drive Online Banking ROI,
Oct. 17, 2001
(1) NPV over 5 years at a 50,000-customer bank; includes direct revenues,
cost savings, and retention. (2) Per-customer figures are across all
customers, on- and off-line, consumer and small business.
2005/2006 Planning for Premium Online Banking
As we discussed last month , there’s a real void in the marketplace when it
comes to premium online banking services. In today’s retail environment,
where you can choose from hundreds of varieties of every product on the
shelf, it’s shocking that Bank of America provides just a single flavor of
online banking to its 11+ million subscribers. Granted, users choose which
features to use, so the service isn’t truly identical for all.
But surprisingly, everyone still pays a single price: $0. For Bank of
America, that price point has been an important and highly visible component
of its strategic branding message. However, we view 100%-free online banking
as a temporary aberration. U.S. banks have had their hands full during the
past few years complying with new regulatory initiatives and fighting
fraudsters from around the globe.
And it’s a relatively recent phenomenon that online banking penetration
has surpassed 20% at many banks. Below that point, there aren’t enough
customers to make a segmented offering profitable. So even though it will
require extensive buyer education, we believe that by this time next year,
at least one, and possible two or three, top-10 U.S. banks will offer
premium online banking options.
The pioneer in this area is Online Resources, which began offering
MoneyHQ, a premium online banking option, late last year. Early
results are mixed. While Online Resources admits that client adoption has
been slower than expected, it is pleased with consumer adoption, which
stands at 9% of bill pay customers across the 45 clients who’ve been live
for at least four months. In total (as of Sep. 29, 2004), 120 clients are
signed, with 90 operational, representing 33% and 25% respectively of
eligible clients.
Strategically, we have no doubt that MoneyHQ is the right
direction, and the 9% initial adoption rate is encouraging. However, it’s
difficult for ORCC’s community bank and credit union clientele to
successfully educate the market on the benefits of premium online banking.
It may take the multi-million dollar advertising budgets of the big players
to really jump-start the service. We should know a lot more as 2005 unfolds.
Jim Bruene, Editor & Founder
Pricing Online Bill Payment
We just sent our latest report, “Pricing: The Fee vs. Free Controversy” to the printer. It should arrive in your mail in a week to 10 days.
In the report we look at the widespread practice of offering of online bill payment free of charge. You can read the report for our detailed conclusions, but suffice it to say, we are not wild about this trend. Online banking and bill payment provides significant value. And without a tangible revenue stream, it’s difficult to make the appropriate investments in the channel. We think bank customers will actually be better off in the long run if they shoulder at least a portion of the extra costs of a robust online banking service.
Free bill payment is particularly vexing. Here’s a service that runs circles around the paper equivalent. Users can save time, save money (postage, late fees, and check printing fees), can improve bill tracking and budgeting, and make their financial life easier. And, if the electronic payment doesn’t post at the biller on time, the bank and/or processor will go to bat for them to resolve the problem. Try doing that with a paper check that’s “lost in the mail.”
So why do banks insist on providing this beneficial and costly service free of charge? They are doing it for the “relationship” value. No doubt users love getting something for nothing. And we won’t dispute the correlation between bill pay users and higher household profitability. But so what. You can correlate higher profits with any service designed for a well-heeled audience.
The bigger question is this: Is free bill payment, costing $50 to $100 per customer per year, the best way to gain more loans and deposits from your best customers? It may be, but there may also be less expensive ways to achieve similar results, such as lifetime transaction archives or more account security options.
It’s a tough call.
If you’d like to learn more about the future of online bill payment, check out the Online Banking & Bill Pay Forecast: Current, future and historical usage: 1994 to 2016 from our sister publication, The Online Banking Report.