Online Financial Services Scorecard: December 2007


With the exception of refinance shoppers, most financial products experienced a downturn in both shopping and applications compared to November (see November chart below). This is not unusual during the busy December holiday period. Other observations:

  • On the bright side, the mortgage refi category experienced a sharp spike, up 27% in shopping volume, as mortgage rates dropped for conventional loans. However, that activity did not lead to an increase in applications, as that total dropped 17%. The busy holiday period may be to blame for the lack of follow through or consumers may have held off anticipating further rate drops.
  • Surprisingly, mortgage applications for home purchase actually increased 8% even though shopping activity dropped 5%.
  • There was no good news with home equity, as shopping declined 10% and application/leads went down 6%. Several companies experienced double-digit drops in conversion and leads/applications.
  • Credit card applications decreased 6% overall and with all but two of the tracked companies experiencing declines. The only good news: shopper-to-applicant conversion was up more than 3 points compared to November.
  • On the deposit side, the number of shoppers and applicants was down across-the-board. Several large financial institutions saw double-digit drops in prospects and applicants.
  • The biggest decline, most likely due to rate cuts, was in the high-yield savings category, which posted a 23% month-over-month decline in application volume. Conversion rates also slipped for all but two companies indicating that shoppers may have been disappointed with the posted rates.


Compete Financial Services Scorecard Nov 2007

About the Financial Services Scorecard
In April, we introduced the Financial Services Monthly Performance scorecard produced by Compete. It summarizes the overall performance of 23 large U.S. financial institutions and lead-generation sites. Refer here for the detailed methodology as well as companies tracked.

New Online Banking Report Available: 2008 to 2017 Forecast

image The latest Online Banking Report: 2008 to 2017 Online Banking & Bill Pay Forecast, is now available. It was mailed yesterday to subscribers. It's also available online here. There's no charge for current subscribers; others may access it immediately for a charge of US$395.

The report includes our latest 10-year online banking and bill pay forecast. This year we bumped our long-term usage forecast by 10% to 15% due to a more robust outlook for adoption, especially from mobile-only users (see note 1). For example, we are now projecting 64 million U.S. households banking and/or paying bills online by 2012 compared to last year's forecast predicting 56 million in the same period.

We're still not quite as bullish as Forrester, who's calling for 72 million online banking households by 2011 (post here), but we've closed the gap (note 2). 

In addition to the forecast, we summarized the top ten innovations of the past year. Thanks for the input from all the readers who answered our call for nominations in late December. We'll publish the list here in a few weeks, after subscribers have a chance to see it first.


  1. While we show mobile usage as a separate line item in the forecast, mobile-only banking users are included in the overall online banking forecast. 
  2. By comparison, our forecast for 2011 is 62 million. 

June Online Financial Services Scorecard from Compete

Compete June scorecard

In April, we introduced the Financial Services Monthly Performance scorecard produced by Compete. It summarizes the overall performance of 23 large U.S. financial institutions and lead-generation sites. Refer here for the detailed methodology as well as companies tracked. 

Overall June highlights:

  • Traffic of financial shoppers was up across all product types except high-yield savings which dropped 2%.
  • More important, applications were up across all products ranging from 3% in savings to 26% in mortgage refinance.
  • A total of 2.9 million product applications were booked; 200,000 more than the 2.7 million last month.

Specific financial institution performance:

  • Bank of America improved its credit card conversion rates dramatically, booking a 30% increase in applications despite only 10% growth in shopping traffic.
  • In checking accounts ING Direct, WaMu, and Wells Fargo all increased the volume of prospects looking at checking account options. 
  • Emigrant, HSBC and ING Direct were all able to increase application volumes despite a flat or declining volume of potential prospects.
  • Home equity prospect traffic grew at 12 of 16 providers and conversion rates were improved at 10 of 16. Bank of America, Citibank, Countrywide and had the largest month-over-month percentage gains in both prospect and application volume (note 1). 
  • In home-purchase mortgages, nearly doubled its prospect traffic compared to May, while significantly improving lead conversion.
  • In mortgage refinance, also posted the largest percentage gain in prospects but grew applications at a lower rate, resulting in a significant decline in conversion. Quicken Loans showed greater efficiency, almost doubling application volume with roughly the same number of prospects as in May.


1. For loan products, leads from lead-generation sites such as are combined with actual applications at financial institutions into a single "lead/application" category shown in the table.

ING Direct Adds 220,000 Accounts in Fourth Quarter

The FDIC database has been updated with Q4 numbers, allowing all the data miners to slap on their hard hats and get to work. Since reporting on the tepid third quarter of ING Direct (U.S.) (here), we've been looking forward to the year-end data.

The biggest surprise is that the bank not only reversed the Q3 account run-off, it managed to add 220,000 new accounts, its best fourth quarter ever. However, things weren't so rosy in terms of deposit balances, which increased just $800 million, the lowest Q4 increase since 2001 when the bank had less than $3 billion in total deposits.

For the full year, ING added $7.2 billion in deposit for an 18% increase, the first time the bank had less than 40% year-over-year growth. And almost the entire increase came in first quarter. The bank essentially had no deposit growth in the final nine months of the year (see table below).  

It will be interesting to see what impact its new high-rate Electric Orange checking account will have on deposit and account growth. The account was growing rapidly during the final stretch of the invitation-only launch period, growing from $1 billion on deposit Dec. 31, to $2.2 billion by mid-February (see coverage here).

Small Business Payment Research

Bai_logoAt its annual TransPay Conference, BAI unveiled new research into small business payment needs and opportunities. The most dramatic finding: More than half of small businesses (annual sales of $500k to $10 million) would be "likely" or "very likely" to switch banks for "better payment services." In comparison, only about 10% of businesses with sales between $50 million and $250 million felt the same way.

Obviously, there are some serious, unmet needs among small businesses. Some of the things they most wanted (percentages indicate how many small businesses desire each feature):

  • Straight-through processing of payments from business to bank (70+%)
  • Identity-management platform that safeguards the business identity and protects your accounts when conducting business electronically (70+%)
  • Electronic payments package integrating accounts payables, accounts receivables, and expense tracking (65+%)
  • Live intraday financial position (55+%)
  • Bank services that can easily be integrated into your payroll and HR systems (60+%)
  • Automated card-based, expense-processing system that ties in key partners (50+%)

Sizing the small business payments market
BAI Research also assembled an excellent summary of "payments by business size," shown below. It's interesting to note that the number of payments made by larger businesses is less than one-third of all business payments. The other two-thirds comes from small businesses, including almost 16% from the micro-business market (under $100,000 in annual sales).  While most of these businesses use consumer payment services, there is clearly an opportunity for more targeted micro-business payments. For more information, see Online Banking Report #107/108, Small and Microbusiness Banking 4.0.


Do the World Bank’s Remittance Estimates Add Up?


Venture capitalists have reason to love the remittance business: Official estimates of overseas money-flows from the United States range upwards of $30 billion a year and are growing. The World Bank's estimate of overall remittances to developing countries is $167 billion for 2005, up 73 percent since 2001.

As a result, investment capital has been feeding innovative companies using modern technology, all planning to take market share away from industry leaders Western Union and MoneyGram International. There’s only one problem: According to a recent study by the Government Accountability Office (GAO), those estimates are at best optimistic, and at worst, wildly inaccurate—perhaps by two-thirds.

Continue reading “Do the World Bank’s Remittance Estimates Add Up?”

Internet Sales Now Migrating to Debit Cards

By 2007, debit cards will edge out credit cards as the Internet payment vehicle of choice, says Ed Kountz, senior analyst at Jupiterresearch.

According to Kountz’ research, online credit card payments accounted for 42 percent of all online purchase volumes, compared with 39 percent of payment volumes for debit. But by next year, those numbers will reverse—39 percent for credit and 42 percent for debit. And by 2010, says Kountz, credit cards will account for 35 percent of online purchase volumes, compared with 46 percent for debit. That translates to an 8 percent annual compounded growth rate for credit between now and 2010, compared with 14 percent for debit.

“The conventional wisdom you’ll hear from the associations is that there’s really no overlap (between credit and debit),” says Kountz. “And from a value perspective, credit will continue to predominate. I don’t think you’ll see debit wipe up the floor or eliminate credit—that’s much too simplistic to say. But issuers need to be prepared for that shift as it comes down the pike; the short-term impact on credit will be moderate, but longer term, it does clearly pose a challenge for what has traditionally been a credit-dominated world.”

Credit’s predicament is only compounded, according to Kountz’ research, by the rise of non-card payment alternatives available online, such as stored-value cards and peer-to-peer payments. Such alternatives won’t be taking over the space anytime soon, but the growth rates will be strong: 21 percent for stored-value cards and 12 percent for peer-to-peer payments. And even though they’ll be coming off a very low base (4 percent of online payments in 2010), and be restricted to items like wireless content, market share for those payment vehicles will more likely be cut from credit’s hide than debit’s.

This can’t be good news for the credit card business. Even though some analysts like to spin the shift in consumer preference from credit to debit spending as no big deal, since the issuers collect their fees from whichever card a buyer uses, the fact is that the credit apparatus is deeply entrenched in issuers’ establishments. This means that at a minimum, the increased use of debit will create internal shifts at those companies as credit revenues and transaction volumes decline. Since e-commerce sales is the fastest-growing segment of card payments, Kountz’ research is at best unlikely to give credit establishments much comfort looking forward.

This is especially true because, as Kountz points out, paying online with a debit card means low-fee, PIN debit transactions, since no signature can be given to authenticate the transaction. Today, no adequate online PIN-entry mechanism is widely deployed, but so-called screen-based floating PIN entry is one possible solution. That innovation involves an on-screen PIN pad into which the buyer makes PIN entries by mouse click, instead of using numbers on their keyboard, thus maximizing security by making it impossible for a keylogger virus to steal the PIN. ATM Direct is currently conducting a pilot program for this system.

”The alternative is some sort of token that’s not necessarily a hardware plug-in,” says Kountz. “I’m still skeptical of the whole token approach. You can lose them or not have them with you when you need them, and for a consumer, it’s just one more thing they have to manage. But assuming (floating PIN entry) can be done securely and effectively from a consumer perspective, it’s a much more intuitive approach than adding hardware.”

The implications of Kountz’ observations for issuing banks can’t be encouraging. Although he declined to speculate on how the phenomenon he describes would affect them, the fact is that revenues from credit card operations are a significant fraction of the largest American banks’ earnings. Some 60 percent of credit card earnings are debt, and PIN debit interchange is significantly lower than signature debit and credit card interchange.

To the extent that online transactions migrate from credit cards to PIN debit, then, it’s a small step to conclude that the fastest-growing payments sector today is set to yield lower per-transaction revenues than the rest of the cards sector, in turn minimizing the revenues growth curve for those banks’ overall card operations. This hardly means that credit cards are disappearing, but combined with the likely future minimization of interchange fees, either through regulation or litigation, it does mean issuing banks are going to have to start running faster, just to stay in place, and much faster to get anywhere.

“Certainly, credit profitability, and credit overall, has been moderating growth-wise, and I expect that trend to continue,” says Kountz. “Resting on the laurels of the past is no longer enough.” (Contact: Jupiterresearch, Ed Kountz, 617 423 4372)

$28 Billion in U.S. Banking Deposits Up for Grabs Online

Forrester’s Ron Shevlin weighs in Jan 10 with an estimate of the amount of deposit balances chasing higher rates online. Using recent (Q4 2005) survey data gathered from 4700 online households, he concludes that 30 percent of online consumers have $10,000 or more in liquid assets. Furthermore, three out of four of those households (24 percent of all online households) are interested in increasing the rate paid on their savings accounts. But one in four of those wouldn’t move until they could get 3.5 percent or more in additional interest, an unlikely scenario for most consumers. That leaves 18 percent of online households (24 percent x 74 percent) ready, willing, and able to make sizable deposit moves online.

To quantify the amount of deposits in play, a number of assumptions must be made: the amount of liquid assets held in checking accounts; the amount that would be available to move to another account; and the willingness to move balances for various rate differentials (see the Forrester report for complete details). Forrester’s conservative analysis assumed that only those willing to move for 1 percent or less in rate differential (6 percent of all online households) would take action, potentially moving $28 billion from low-interest checking accounts to high-interest savings accounts.

Taking a less conservative approach, one could also argue that with many direct banks paying 3 percent more than typical interest-bearing checking accounts, the potential deposit switchers are much more prevalent, closer to the 18 percent we derived in the first paragraph. Under these less conservative assumptions, much more would be at stake, as much as $60 billion or more. Furthermore, the Forrester estimate considers money being held only in checking accounts and does not include other liquid assets in savings accounts, CDs, and money-market funds.

Whether $28 billion or $60 billion, the total deposits at play are a small percentage (0.5 percent to 1.0 percent) of the $6 trillion in insured deposits in the United States.

Action Item
We highly recommend the report for anyone looking to reprice deposits for online customers, or even if you just want to understand what’s at stake. The report is available free-of-charge for Forrester clients, or $249 pay-per-view from its website.