E*Trade is running a clever teaser advertisement on MySpace today. The 200 x 175 pixel ad in the right-middle area of the user's homepage asks, "Are you willing to accept a $1.50 fee to see this ad?" (click on the inset right for a closer view).
Choosing "yes" results in another screen saying, "Are you sure?" while selecting "no" yields a "Good." Either way, a pitch for E*Trade's ATM rebate program is the final screen (click on inset left for a closeup). Users clicking through end up on the landing page shown below.
Although it took me a moment to figure out the premise, that a $1.50 fee to view an ad is as absurd as paying that to use an ATM, it's a clever campaign. The company is sure to get good click-throughs, at least on the teaser ad. Whether the company signs up enough good checking accounts is another matter. But if you are courting young online users, you must take a look at MySpace (see
NetBanker March 16).
Flipping through the latest issue of SmartMoney magazine, it came as no surprise to see a full-page advertisement from Fidelity. But what caught my eye was the subject matter. Margin loans.
And this was no soft-sell pitch with smiling 50-somethings sipping Chardonnay on their deck. It was all business, showing how Fidelity's margin-lending rates fared against those of its major competitors. The hard-hitting approach isn't carried through to its website though, which opts not to show any comparative data.
E*Trade, one of the best financial marketers, is said to be offering teaser rates as low as 3.99% to encourage investment clients to transfer higher-rate debt to their margin accounts (WSJ, 4/20/06). However, its published rates vary from 6.74% to 9.74%. The retail banking sweet spot, loans of $50,000 to $250,000, are priced at 8.74%.
Fidelity doesn't go quite that low. Rates vary considerably depending on the balance, but under $500,000, borrowers pay 8.5% to 10.5%. Only those borrowing more than $500,000 pay an ultra-low rate of 5.5% (see inset for current rates).
What's going on here? Brokerage firms are finding that customers are willing to borrow against their securities to finance all types of non-investment purchases. UBS AG's wealth management unit says that 75% of its $10 billion in margin-loan outstanding has been used to purchase things other than securities.
Expect more competition from brokerage firms as empty nesters and younger retirees finance portions of their lifestyles with loans against their investments. Deferring tax liability on portfolio gains is a big part of the decision to borrow. But there's also the psychological aversion to seeing investment balances decline.
Financial institution loan officers should be well versed on the risks of margin loans, and instead offer home-equity loans and cash-out refinances with similar rates and no risk of a potentially disastrous margin call.
The best time to grab the attention of your online banking customers is immediately after they log in. Many financial institutions post offers and important information on a "splash screen" shown to customers before they see their account info. PayPal has been especially active in this area, placing new info in front of users every month or so for the past four years.
Where’s the second-best place to position an offer to online banking customers? In our view, it’s the screen displayed after successfully logging out. At that point, customers have completed their tasks, but you still have their attention as they wait to see that they’ve successfully ended their session. Last month, we looked at Bank of America’s preapproved credit card offer at logout (NetBanker Feb. 23).
E*Trade is another financial institution using the logoff-screen real estate effectively. Today, they displayed two offers designed to attract additional customer assets to the bank (click on inset for a closeup):
- Free one-year subscription to MorningStar’s stock-information service ($135 value) for transferring $20,000 or more into a new E*Trade Complete Investment Account (see the landing page below)
- 4.4% teaser rate (good for three months) for deposits into the bank’s Money Market Account. New customers earn the rate on any deposit amount, existing customers must deposit $25,000 or more to earn the special rate. After three months, rates revert to the normal, 3.6% for $50k or more or 2.75% for $5k to $25k (see the landing page below).
MorningStar offer landing page >>>
4.4% APY offer landing page>>>
Today E*Trade added yet another new feature to its website, the Intelligent Investment Analyzer. It sounds a lot sexier than it is, an eight-question asset-allocation worksheet. But that’s the point. E*Trade is using classic marketing techniques to identify customer needs and concerns and design the solutions to address them.
The company’s core messages touch on security, maximizing investment returns, minimizing loan rates, and so on. And the messages are delivered with an understated flair. For example, look at the homepage graphic above. It delivers the message in a number of ways including good color, an effective image of an open laptop displaying a colorful pie chart, and copy that emphasizes key benefits:
- Fast: "recommendations in minutes" and "one-click investing"
- Smart: "diversified," "optimizer," and "intelligent"
- Personalized: "custom recommendations"
Who wouldn’t be tempted to click through to see what’s behind the optimizer? Unfortunately, the questionnaire, powered by Thomson Financial, isn’t particularly appealing (click on inset left for a closer view). And once completed, users are required to log in to their E*Trade account to view the "All Star" mutual fund recommendation designed to fit your self-described investment needs. But all in all, it’s an excellent lead into the company’s mutual fund area.
For more on E*Trade’s string of innovations, select "E*Trade" in the topics reachable via the top navigation bar, or click here.
Wow. It’s not often a press release rates an article in BOTH The Wall Street Journal and The New York Times. But that’s exactly what happened today when E*Trade made the relatively innocuous announcement that it wouldn’t hold its brokerage customers responsible when their accounts were defrauded.
Consistent with previous innovations, the online brokerage and banking powerhouse wrapped its new message with impressive graphics and copy (see inset above-left for graphic displayed on its homepage today). Clicking on Learn More leads to an impressive security area where E*Trade touts four main protective measures (click on inset above-right for a closeup)*:
Electronic statements with paper turnoff
Antiviral and firewall software, which can be purchased through a link to Norton (60-day free trial offer); users can also run a real-time scan to check for vulnerabilities
It just goes to show you how skittish the public has become about online security. I’d wager that most brokerage customers are sophisticated enough to realize they will eventually get their money back if it’s stolen from their account. So this is a non-event from a financial standpoint. E*Trade even admits that online fraud cost it only $2 million last year, less than the cost of one of their famous Super Bowl ads. The brokerage also said there were "fewer than 50 incidents," implying a fraud loss of approximately $40,000 per incident.
Evidently E*Trade’s marketing department prevailed over its legal counsel and actually put the company’s fraud-protection policies in writing. It’s amazing that makes headlines in 2006 and may say more about the growing need to cover your behind to fend off the class-action bar even if it means scaring off customers.
We hope this prompts other financial institutions to take similar action. One of the main functions of financial institutions is safeguarding assets. Customers, online or otherwise, shouldn’t have to guess whether certain types of fraud are covered. As any good lawyer would say, "Put it in writing."
*The screenshot displayed here is only the top portion of the security area, to download a screenshot of the entire page, click here.
Credit card companies have been poaching revolving balances from each other for years primarily through direct mail. It helped boost the share of early movers, such as Capital One. But once the tactic was widely copied, it dragged margins down for all.
The same technique has been used online with dedicated balance-transfer microsites posted by Bank of America and others beginning in 2003. The online balance transfer is better than paper because it can be interactive, prompting the user to make additional transfers, or to correct errors in the information input. However, it still requires the user to make a trip to the website to make the transfer.
Enter E*Trade’s new Mileage Maximizer program, launched with a page-dominating color ad in Tuesday’s Wall Street Journal. With the Mileage Maximizer, the bank encourages users to make purchases on their existing non-E*Trade rewards card, then have the balances AUTOMATICALLY swept to an E*Trade 8.9% APR line of credit each month. The bank’s website is used to initiate and maintain the transfer process. But like recurring bill payments, once the sweep is established, it will occur each month with no interaction by the user.
E*Trade may well be the most innovative online financial services company. Here are some of the industry firsts they’ve logged over the years:
- 2001: MyLoanTeam from E*Trade Mortgage (OBR 73)
- 2003: Real-time funds transfers (OBR 96/97)
- 2005: 7-year online transacation archives (OBR 118)
- 2005 (March): First U.S. bank offering security tokens for online access (NetBanker 2 March 2005)
- 2005 (December): First virtual rewards card, Mileage Maximizer
Editor’s Note: Mileage Mazimizer was awarded an "OBR Best of the Web" in our report on online lending published Jan. 31, 2006 (OBR 126).
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).
Interestingly, 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.
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).
Today’s American Banker (subscription required) reported that E*Trade will give security tokens to its high-roller customers, those that trade more than 5 times per month or who have more than $50,000 in their accounts.
As we reported in January, E*Trade has been testing the service with several hundred customers.
The quote of the day is from famed Gartner analyst, Avivah Litan:
However, banks face little risk from trying the technology, which has significant potential, she said. "If they get low adoption, they’re not spending very much money. If they get high adoption, they sell a lot more services. I could see people switching to E-Trade if they offer this type of security."
The days of simple username and password access are numbered. Don’t be the last one on your block to install a security system, that’s a sure way to become the target of cybercriminals, and even worse, scathing press reports when customers are victimized.
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.
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.
Although it takes some work to get the whole thing, E*TradeBank’s $175 new-account bonus is the richest we’ve seen for a new checking account. Here are the bonus levels (see file for download below):
$75 Open a checking account with at least $1000
$75 Begin a direct deposit of at least $1000 per month
$25 Pay 2 bills online within 60 days
For screenshots and the fine print, download the following file: