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New Online Banking Report Published on Youth Banking: Attracting Tween, Teens, & Under-25 via Online/Mobile

By Jim Bruene Posted on July 18, 2011
Categories: Online Banking Report, Strategies, Youth market

We were still in the Web 1.0 world when my kids (teenagers now) started their first savings accounts. So there were few youth banking services available to facilitate online savings and spending.

Fast forward 10 years. We have Facebook, we have Twitter, we have mobile weather info. But we still have virtually no youth banking tools at the major U.S. banks (Wells Fargo is furthest along, see screenshot below).

And that makes no sense.

There are 100 million people under age 25 in the U.S., and obviously, 15 to 25 years from now, a good portion of your profits will come from this group. However, in the next five years, this cohort will generate exactly zero percent of profits.

In the branch-based past, it made business sense to wait another five years to start selling to this group. After all, high-school graduates closed their bank accounts when they moved to college. College graduates closed theirs when they moved to their first job. And first-time job holders switched accounts when they landed a better job, and so on.

But that was a different time. In today’s remote-banking world, THERE IS NO REASON TO EVER CLOSE YOUR ACCOUNT. You just send in a change of address and keep logging in to the same place.

A 12 year-old girl today is expected to live another 70 years (boys, only 65 more). So if those kids won’t ever need to close their accounts, it stands to reason that getting them hooked to their parents’ online banking becomes pretty important.

That’s why we are seeing interesting startup activity in this area including (from recent Finovates):

Bobber Interactive
Kiboo
MatchFund
MoneyIsland (from BancVue)
Thwakk
Tile Financial

And there is a rush to social media, such as the brilliant Young & Free campaigns invented by Canada’s Currency Marketing.

Finally, the report includes articles from two industry experts:

Justin Hosie of Chambliss, Bahner, & Stophel PC on the importance of bank compliance with the Children’s Online Privacy Protection Act (COPPA)
Matt Cullina, CEO of Identity Theft 911, writes about the importance of protecting your kids against identity theft

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About the report
______________________________________________________________

Family Banking: Online/Mobile Services for Tweens, Teens & their Parents (link)
In a remote banking world, your most-promising prospects aren’t even driving yet!

Published: July 15, 2011

Author: Jim Bruene, Editor & Founder, Online Banking Report

Length: 52 pages (10,000 words), 52 Figures, 7 Tables

Cost: No extra charge for OBR subscribers, $495 for everyone else (here)

Abstract here

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Wells Fargo offers up solutions for four age groups (18 July 2011; link)

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Is Prepaid the Durbin Antidote?

By Jim Bruene Posted on June 22, 2011
Categories: Credit/Debit Cards, Debit Cards, Prepaid/gift cards, Strategies

Prepaid cards have been a bit of an afterthought for most banks and card issuers. Sure, they make the occasional appearance on banking sites in December as holiday gifts. But mainstream they are not.

But that was before traditional debit cards suddenly became unprofitable (note 1) thanks to the upcoming U.S. debit interchange price controls (see Durbin rant, note 2) combined with with last year’s reining in of overdraft fees.

It’s pretty easy to predict what happens next. Banks will do what any business would do when offering a popular, yet unprofitable product. Raise prices with new monthly/annual/transaction fees. And for customers that are fee adverse, banks will offer two alternatives:

Credit cards for the credit worthy
Prepaid cards for everyone else

Bottom line: Prepaid bankcards are about to become much more popular. Here’s why:

More interchange revenue to the issuer
Easier to sell online with fewer risk management and compliance issues
Great entry product for teens and pre-teens
Porting the prepaid “card” into mobile phones and other contactless form factors
Valuable service for underbanked segments
More utility: can be gifted, used for traveling, used to deliver allowance, and so on

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Notes:

1. The price controls apply only to banks of $10 billion or more.
2. I am really disappointed in the Durbin interchange price controls. I was sure Congress would delay the matter, but unfortunately I was wrong. My feeling is that price controls are an absolute last resort when there is not enough competition to create a free market price. I don’t think that was the case with debit interchange.

Long-term, the whole exercise is a zero-sum game for the businesses, merchants and banks, who will adjust their prices to cover costs and ensure a normal profit. The only likely loser is the consumer who will be deprived of innovations killed off by the dramatic shift in interchange.

Here’s my scorecard of the post-Durbin winners and losers:

Short-term winners:

Merchants, obviously
Prepaid card issuers (which are not covered by Durbin price controls)
Consultants, lawyers, marketers and professional services firms involved in drafting and communicating new bank prices and policies
Financial institutions exempted from Durbin (under $10 billion) could pick up share and/or be able to gain fee revenue by matching the large bank price increases

Short-term losers:

Large banks will see revenue declines until they can get new fees introduced and move transactions to credit/prepaid
Consumers who will see fee increases from banks faster than they’ll see price decreases from merchants
Payment startups and business consortiums whose business model was predicated on disrupting debit

Long-term unchanged:

Merchants who will eventually pass on the interchange savings due to price competition
Banks who will make up the revenue loss with new fees and/or by channeling transactions to higher-margin products
Consumers who will pay more in bank fees but less for goods and services, an overall wash

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What is the ROI of banking innovation?

By Jim Bruene Posted on June 3, 2011
Categories: Fee Income, Pricing, Strategies

An executive on the front lines of product development at a major financial institution recently asked me this question:

How can I prove that innovation really matters to the bottom line?

I’ve been a “product guy” my whole career so I take it for granted that “building a better mousetrap” eventually trickles down to a boost to the bottom line. That worked at Microsoft, Apple and Caterpillar (my first job).

But they are manufacturing companies. That better mousetrap, be it Win95, the iPod, or a D10 tractor, brought in direct, usually profitable, revenues.

It’s harder if you are a retailer. If the Gap spends a million dollars to improve search and discovery on its website, will it really sell enough extra jeans and sweaters to make the investment back, let alone earn an acceptable return?

Banks are both retailers (branch and online) and manufacturers (checking accounts, loans). But today, the P&L from their digital efforts is more like the Gap than Apple. You have to sell a lot of extra checking accounts and car loans to justify even a modest website investment. This has held back digital investments for 15 years (see note 1).

But what if banks started acting more like a manufacturer when it comes to digital products, by creating new services to package and sell on their own merits.

For example, instead of spending a couple hundred thousand every year to give everyone remote check-deposit capabilities free of charge, create a new digital product called, The Magic Check Deposit Service, and sell it for $2.99/mo. This product not only reduces costs, since it will have far fewer lapsed and/or clueless users, but also pegs a monetary figure to the service, thereby increasing its perceived value even if you end up giving it away to your best customers.
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The Numbers
_____________________________________________________________________________

Let’s crunch a few numbers. Assume it costs $0.50/mo to support each user + $0.25 per check deposited + $20 per tech support call (I made these up so don’t quote me).

Free service:
Cost = 50,000 users x 0.67 checks/mo + 1,000 support calls per year = $420,000
Fee revenue = $0
Customer retention value = ??? (some positive number)
———————
Net = ($420,000)

Subscription service:
Cost = 5,000 x 4 checks/mo x 100 support calls per year = $92,000
Revenue = 5,000 x $2.95/mo = $177,000
Retention value = ??? (same as above)
——————–
Net = +$85,000

Change in net (delta) = $500,000
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Bottom line
__________________________________________________________________

With either approach you get to tout the benefits of the new innovation to capture the branding value. But under the subscription model, only those who really stand to benefit from the service use it, and you end up with a small profit or at least less of a loss. In the above example there is $500,000 gain compared to the free model.

Yes, this is over simplistic. Yes, you’ll take some grief for charging when others are giving it away. It’s possible you might even lose a few customers, but not $500,000 worth. And the biggest benefit of all, you can actually afford to create the new service now, instead of tabling it for five years until it becomes a competitive necessity.

Back to the original question. Honestly, I have no idea how to prove that innovation has a good ROI. What I do know is that for the past 100+ years, clever manufacturers have created billions in value by beating the competition with new products and services. I’m pretty sure financial companies will do the same with their online and mobile offerings.

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Note:
1. See our current Online Banking Report, Creating Fee-Based Online & Mobile Banking Services.

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BankSimple’s Vision Statement is All About High-Touch

By Jim Bruene Posted on March 30, 2011
Categories: Service, Simple, Strategies

Over the years I’ve published more than a million words and this is the first time I can remember using the term “vision statement,” and in a headline no less. I’ve spent enough time in large companies to know that when you hear “vision statement” it’s time to run for the exits. Usually, even the employees don’t buy it, let alone the customers it’s supposed to impress.

However, BankSimple’s vision statement is not only believable, but also sets a great tone for the startup’s upcoming launch. It’s also cleverly positioned on the homepage to “jump up” above the fold as you scroll down.

Why does it work? Everyone knows that BankSimple, with its Twitter DNA and $3 million in venture funding, will have good tech. So the startup focuses on people and service in its vision statement to make it clear that it’s not some aloof, high-tech company where it takes a search warrant to find the customer support number, but an actual human-powered organization (see details below). Nice touch (note 1).

____________________________________________________________________________

Breaking “the vision” down point by point
____________________________________________________________________________

It’s no surprise that the non-bank bank is tackling the fee issue. It’s in the news and it’s always high on the list of customer dissatisfaction. But notice they are not using the word “free” or saying “no fees.” They are just saying they will be transparent with pricing and will not surprise with penalty fees when you can least afford them.

Everyone talks about service, so this isn’t particularly novel. But the use of “prioritize” and “real” will resonate with the segment they are targeting.

Grabbing the mobile positioning is brilliant. That’s absolutely where the market is headed, so you might as well make it a key differentiator. And while no one knows what “true mobile banking” means, it sounds good.

I’m not sure this adds a whole lot to the vision. In the text by this point, the bank talks about “plain, simple language.” Sounds OK, but not as compelling as the other points. I’d have nixed it and kept it to a tidy four-point vision instead.

The tagline for this point is, “You’re a real person, not an account number.”

Bingo. Here’s a pure-play online bank run by uber-techies, but they are saying they are really all about the people. High tech. High touch. Love it!

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Note: Yes, I’m aware that BankSimple abbreviates to BS. And no, I’m not its biggest fanboy. See this self-proclaimed “love letter to Bank Simple.”

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Prioritizing Financial Information Flow

By Jim Bruene Posted on February 7, 2011
Categories: Alerts & Messaging, Google, Strategies

I’m just finishing an enjoyable novel by Cory Doctorow, Makers. It chronicles two inventors operating in the United States 15 to 20 years from now (the actual time period is not revealed) after another economic/tech downturn, similar to the 1999/2000 dotcom crash.

Readers will recognize most of the technology and information services used, e.g., email, IM, blogs and Twitter. But Doctorow’s vision for these services a decade or two into the future is quite enlightening.

One area that’s much improved over today’s practices is the use of technology to prioritize the avalanche of information bombarding users. Here’s a passage from the book:

He’d been tuning his feed watchers…for nearly a decade, and this little PR item rang all the cherries on his filters, flagging the item red and rocketing it to the top of his news playlist, making all the icons on the sides of his screen bounce with delight.

All you news junkies out there, isn’t that how you want your email/RSS/Twitter/ Facebook streams to work? The most-important info pops to the top and alerts you at the same time. Google is doing great work along these lines with its Priority Mailbox introduced in August (previous post), which now works on mobile phones as well (see inset).

Opportunity for Netbankers: I’m looking forward to the time when my bank, card issuer and/or third-party aggregator does the same for my finances and alerts me to odd transactions, excessive charges, and potential savings. And more importantly, helps me take action to resolve the issue.

But it can’t be delivered in a pile of email alerts sent every day. I tune those out. Just tell me about the IMPORTANT transactions triggering the “financial alarms” and keep mum about everything else. Thanks.

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New Year’s Resolutions for Online and Mobile Banking

By Jim Bruene Posted on January 4, 2011
Categories: Strategic Planning, Strategies

Last year, one of my personal new year’s resolutions was published in the New York Times Bucks blog. That provided extra motivation to make it happen, though ultimately I still fell short in my goal to cancel one unused recurring service each month.

But I like the motivational benefits of making goals public, so in that vein I’m publishing my first annual list of new year’s resolutions for the online/mobile banking industry (roughly in priority order):

1. Make online/mobile banking a profit center: Cross subsidies work in many industries, e.g., giving away the razor to sell the blade. But with Congress determined to regulate the price of blades, it’s time to start pricing the razor for the value it delivers. Online/mobile banking provides enormous benefits for consumers and even more for businesses. It’s time to charge for it, at least for premium services.

2. Mobilize: Retail banks did a great job going mobile in 2010. And online-balance queries and transaction lookup are the all-important table stakes going forward. But that’s not the end of the project. Mobile is more important to your future than online, so work hard on your version 2.0 mobile service launching this year or next.

3. Make it family friendly: Kids these days have grown up online and will do all their financial work via online/mobile services. Financial services companies should take a page from the telecom industry and start providing youth banking services via family bundles controlled by the parents.

4. Socialize: I’m in the camp that there is no such thing as a bad financial institution blog, Facebook page, or tweet. Boring? Yes. Lame? Sure. But, any reasonable effort is better than none. In 1996, there were a lot of bad Web pages. But was it better to get a page posted and learn from it or spend years developing a great “Web strategy” before doing anything? Early adopters are usually willing to cut you some slack on your first “beta version.” Just the fact that you are willing to get your feet wet automatically puts you above the competition.

5. Make it into a game: Over the holidays, I read a great article in Fast Company about how everything we do can, and probably will, be made into a game. And banking has a head start on other businesses looking to make a game out of everyday commerce. Frequent flyer points for credit card purchases started this movement more than 20 years ago. Now, everything a customer does financially can be rewarded with loyalty points all tracked through pervasive online/mobile connectivity.

I could go on, but then it would be harder to achieve my new year’s resolution of publishing an Online Banking Report on each of these topics.

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New Online Banking Report Published: 2011 Guide to Online & Mobile Products, Pricing & Strategy

By Jim Bruene Posted on October 11, 2010
Categories: Online Banking Report, Planning, Strategic Planning, Strategies

In case you hadn’t looked at your calendar, it’s Q4 everyone. Time to sharpen your pencil, fire up your spreadsheet and create that glorious semi-fictional piece of work, the business plan.

And we at Online Banking Report are on your side. That’s why every year we put every online/mobile idea we can think of into our Annual Planning Guide for Online & Mobile Banking.

This year, it’s 84 pages long with a thousand or so possible tactics, tips, and strategic endeavors for your online and mobile services. But we don’t make you wade through all 1,000 to find the six you need. The ideas are separated into three buckets:

Best practices (5% of total): Must-have features to maintain parity with the competition
Best tactics for competitive advantage (25% of total): Ideas that will help you stand out from the pack and/or drive incremental revenue/profit
The rest (70% of total): Every company has different strengths and weaknesses; these tactics could be perfect for you

And we’ve also taken our favorite 20 and isolated them in their own section. Here is their alpha order:

Activity dashboard/ticker
Archives, long-term
Automatic alert enrollment
Blog/Twitter and other social media
Credit score/report zone
Email channel
Home equity center
In-statement merchant ads
Lending center
Micro/small-business services
Native mobile app (iPhone/Blackberry/Android)
Personal finance functionality
Premium/VIP online services
Prepaid/gift cards
Retirement planning center
Student banking/financial education center
Text (SMS) banking
Transaction streaming
Ultra transparent (flat fee) mortgages
Usage-based contests/rewards

About the report:

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2011 Product, Pricing & Strategy Guide for Online & Mobile Banking (link)
Will online banking fees make a comeback?

Author: Jim Bruene, editor & founder

Published: 30 Sep. 2010

Length: 84 pages

Cost: No extra charge to OBR subscribers, $695 for others here

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Friday Musings: Amazon.com Should Buy Barnes & Noble and Partner with a Direct Bank

By Jim Bruene Posted on September 3, 2010
Categories: Amazon.com, Branch Banking, Direct Banking, Off-topic, Strategies

One of the best things to happen in 20 years of living in northeast Seattle was the opening of Barnes & Noble in our local shopping center, replacing the tired old department store, Lamonts.

For this family of readers, the massive, two-store B&N has continued to be a cherished destination for more than a decade. When the boys were young, it was Tuesday night story time (with free fresh-baked chocolate-chip cookies). Later, it was a place to spend their birthday money on new books, music and DVDs. And I’ve personally bought at least a couple hundred items there over the years.

But I’m also an Amazon.com fanatic and buy most everything I can there nowadays. My wife and I (though not the boys yet) are ebook addicts, reading on our iThings via the Kindle app (note 1). So, I’m more than a little concerned about our neighborhood Barnes & Noble. Printed books and other media, along with CDs/DVDs, are on their way out, so is there any hope of keeping the neighborhood B&N in business?

Musing 1: B&N Rescued by Amazon.com
Here’s my dream: Amazon buys Barnes & Noble, perhaps partnering with a major financial services brand (note 2), and turns it into a fully online/mobile channel-integrated super store. Amazon’s major online departments could be recreated within the massive B&N footprint: the book store, of course, electronics, music, movies/TV, toys, home and garden, shoes, and so on.

High-volume goods would be stocked and available for purchase. Consumers could also pick up goods ordered via online/mobile enabling same-day delivery for many items. But the main focus of the store would be self-service online shopping. Shoppers in the shoe department, for example, could see and hold various styles, but would place an order through a mobile app or online kiosk, to get their specific size delivered to the store or their home. The concept would be to showcase a wide variety of items without incurring the costs of holding massive inventory within the store.

Musing 2: Amazon Financial Centers Installed within the Super Stores
Though I’m not a huge fan of branches, they still have their place. Amazon could turn a corner of the store into a financial services center. The center would feature deposit-taking ATMs to handle those pesky checks and would have a financial specialist or two on hand to help customers with mortgages and other high-touch financial needs (no transaction activity, however).

Financial center staffers could also be incented to help drive users to co-branded Amazon loyalty programs with online and in-store sales diverted from credit cards to ACH/debit, saving the company tens of millions in annual interchange. Financing big-ticket items could also create a massive new revenue stream for the retailer.

While the financial operations could be private-branded under the Amazon name (e.g., Sears), it would probably make more sense to partner with a major direct financial services company such as ING Direct, Citibank, or Schwab, or an international giant such as Standard Chartered, Barclays, or OCBC which would gain a major footprint in the United States with 700+ strategically located mini-branches (notes 3, 4).

It’s not going to happen, Amazon is a Wall St. darling as a pure-play ecommerce company, but for the sake of the neighborhood, I wish it would.

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Notes on the the business case (see huge caveat, note 5):
In this simplistic proposal, I’m ignoring a zillion issues which are beyond the scope of this blog. For example, would existing B&N leases even support Amazon’s product mix? But to an outsider, it looks enticing for the following reasons.

B&N is currently valued at less than $900 million and change after a recent run-up after it announced that it was for sale (note 6). In comparison, Amazon’s is worth $62 billion today. As a matter of fact, its market cap has grown $7 bil since I started this post a couple weeks ago, enough to buy seven Barnes & Nobles. Clearly, Amazon could afford it, though whether shareholders would support it is another matter.
Merging with B&N would take out one of Amazon’s major competitors, theoretically allowing the company to boost prices. With $25 billion in revenues, a quarter-percent (25-basis point) price increase at Amazon would add $60 million to the bottom line.
In-store pickups could help reduce Amazon’s massive shipping expense.
And while B&N isn’t currently generating a profit, it was operating cash-flow positive during the past 12 months (+$120 million).
Amazon could partner with other direct commerce companies to spread the risk. The financial services mini-stores alone could bring in $100 million annually assuming a $10,000 per month rent/rev share per location (note 3). And other retailers might also be interested in mini-stores within the big Amazon box: Microsoft, Dell, Sony, HP, Drugstore.com, and so on.

Other notes:
1. While I consume almost all fiction digitally, I still like to buy printed business books to keep on the reference shelf. I find it easier to remember they exist that way. Even my semi-Luddite brother has jumped on the Kindle bandwagon at the new $139 price point.
2. I mostly added this to justify posting it here. Ironically, this strategy is almost the polar opposite of our Online Banking Report: Creating the Amazon.com of Financial Services originally published in 1998 then updated in 2000 (more recent summary here).
3. I’m not including another 600+ B&N locations on college campuses, because many of those would not be a good fit for financial services and/or the schools would not allow a competing financial provider on campus.
4. Adding financial stores to Barnes & Noble retail locations could be problematic if the leases prohibit banking operations due to exclusive deals with other banks in the shopping center.
5. Caveat: Although I do have an MBA, my balance-sheet reading skills are quite rusty. And I don’t have an ounce of retailing experience (outside banking), so please realize this is primarily conjecture on my part.
6. There’s also another billion in long-term debt and other obligations.

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The Eight Core Functions of Online Banking

By Jim Bruene Posted on August 5, 2010
Categories: Strategies

What could be more fun on a gorgeous summer day than boiling down online banking to its core functions?

From the consumer’s perspective, banking is pretty simple. You stash away some money in the bank and then you spend it. Rinse. Repeat.

The online/mobile banking experience should echo that simplicity. Here are eight key things users should be able to do:

See: View balances, checks written, purchases made, images, and so on
Sort: Interact with the data by rearranging, categorizing, tagging and so on
Save: Store all data, images, and reports for future reference
Share: Allow other authorized users to view/receive selected info
Send: Move money to pay bills, transfer funds, pay down loans and so on
Select: Choose account options, change service plans, modify settings, and so on
Service: Investigate and fix issues
Secure: Batten down the hatches for all financial matters

I believe the industry is only about 10% to 15% of the way towards delivering on these eight items. Most online banking services are pretty good with See. And there’s been a lot of work done with Secure and Send, but they are not nearly perfected yet (I spent 40 minutes in the branch Tuesday sending a $3,000 wire, and I still don’t know if the recipient got it). But the other areas are wide open.

Did I miss anything?

Note: Photo credit — Adonis Hunter (Flickr)

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BankSimple Scores More Press

By Jim Bruene Posted on August 2, 2010
Categories: Public Relations, Simple, Strategies

In the history of online banking, has there ever been so many words written about a company before it’s even opened for business? I can’t think of any.

It’s a two-edged sword. Free publicity is great for building a brand. But it can also ratchet expectations up so high that delivering the goods becomes harder.

The BankSimple team is keeping things low-key on its website. You even have to search a bit to figure out how to get on its mail list (see note 1). But some of the press accounts are downright giddy over the yet-to-be-launched-nonbank bank (note 2).

Case in point: Friday’s Mashable post which generated 1,000 Tweets, 365 likes, 33 comments, and eight Diggs. The author, Jennifer Van Grove gushes about BankSimple, using terms usually reserved for a new Apple i-something launch:

The Banksimple formula is one that puts customers first and focuses on automatic, “worry-free” money management with a digital twist and penchant for social integration.

…the startup’s bleeding-edge approach to banking that we predict will be both controversial and groundbreaking.

And these were the subheads in the article:

A New Way to Bank
Predictive Money Management
Social Media Meets Banking
Fee-Free for Real
The Zappos of Banks

But after all that setup, the reader comments were predominantly skeptical/negative. I think it all sounded a little too good to be true.

Relevance to Netbankers: Despite the skeptical Mashable comment thread, there is a real appetite in the country (world?) for fresh ideas in the banking sector. But there’s also huge trust hurdles for financial startups. BankSimple is planning a hybrid model. A Web-based, social-media-loving startup running on the banking rails (note 3). It worked for PayPal. It will work again (note 4).

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Notes:
1. Prospective customers must first click on the Join tab on the far right of homepage. Users are asked for their email address (obviously) and something I’ve not seen before, their bank balance. Maybe it’s just me, but that seems a little too forward for a beta invite page and may dissuade some from leaving their name. Also, it seems just a bit out of step with the bank’s populist message. Not a big deal.
2. And given that this is our third post on BankSimple, I guess we are in that category as well.
3. We’ve written about this theme many times over the years; the last time we published a full report was almost ten years ago: Online Banking Report: Building the Amazon.com of Financial Services.
4. This is a general statement. Until I understand what it’s doing, I’m not predicting anything about BankSimple, other than it will get a lot more press.

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Can Banking Income Woes Be Fixed with a $5.95 Fee?

By Jim Bruene Posted on July 17, 2010
Categories: Bank of America, Fee Income, Pricing, Strategies

When I see large numbers, say a billion or more, I mentally divide it by the number of people impacted to make it more meaningful. In Seattle, we are about to embark on our very own Big Dig, replacing the 1953 waterfront viaduct with an underground tunnel. The $2 billion cost estimate comes out to about $1,000 per person in the Seattle metro area, and that’s before the “expected” cost overruns (see note 1).

Bank of America announced yesterday that due to the just-passed financial reform, its revenues will drop by $4.3 billion annually (WSJ article), more than two waterfront tunnels every year. But across 55 million customers, that’s only $78 per person. Coincidently, that’s exactly two $39 debit-card overdrafts.

To make up for the lost revenue, the bank needs about $6 per month in fees across the entire customer base (note 2). I can envision a package of new and existing benefits pitched to customers to convince them to pony up the $5.95/mo in new fees. For example:

Real-time mobile/desktop alerts
Lifetime data backup in the cloud
Linked OD protection
Instant bill pay with guaranteed delivery
Remote deposit capture
No-hold customer service with guaranteed same-hour call back
Custom fraud tools with fraud-loss guarantee
Online financial management tools
Desktop/mobile apps fine-tuned for specific customer segments
Rewards program for self-service/estatements
Two-way alerts
Monthly credit score

It will take years to make the transition. But in the end, consumers will get used to paying modest monthly fees instead of facing $39 overdraft-fee shocks several times per year (note 3). And banks/credit unions can spend less time soothing exasperated customers. It could be a win-win.

Notes:
1. Luckily, we have municipal debt, so we can pay this off at $75+ per person, or coincidentally again, about $5.95/mo for 30 years. And the state is helping out too, so the Washington population will be pitching in to help lower the actual cost to Seattleites.
2. This is an extremely simplistic example to make a point and does not factor in cost cutting, commercial banking revenues, etc.
3. Since banking is highly competitive, any new fees will work only to the extent the overall price/value of the services remains competitive.
4. For more ideas, see our annual planning report, which includes a section on potential fee-based online/mobile services.

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Debit Card Overdraft Protection: 2 Steps Forward, 1.9 Back

By Jim Bruene Posted on July 13, 2010
Categories: Bank of America, Deposits, Checking, Savings, CDs, Fee Income, Fifth Third Bancorp, PNC Bank, Strategies, US Bank, Wells Fargo

So far, I’m underwhelmed with the industry’s online marketing response to the new opt-in debit card OD protection regulations. I expected to see new pricing models transforming small overdrafts into a value-add for debit card users, rather than the onerous penalty they had become over the past few years.

On the positive side, the elimination of OD charges for small transactions is a good first step. Three of the five FIs in our mini-survey have dropped fees on ODs of less than $5 (PNC and GTE Federal) or $10 (U.S. Bank). And Wells even makes a bit of a game out of it: Customers who cover the OD during the same day incur no fee.

And Bank of America has just thrown in the towel on the whole notion, running full-page ads (p. A11 in today’s WSJ; Overdraft Control landing page) saying they’ll just deny any attempt to overdraw via debit card. The retail giant joins Citibank and ING Direct, which already followed the same approach.

But financial institutions are missing an opportunity here. Take Wells Fargo, for example. When I ran across the bank’s new homepage ad for debit card OD protection (see first screenshot), I expected to click through and find a novel take on the new federally mandated opt-in requirement (see second screenshot).

Wells does a good job explaining how the new rules benefit customers (the two steps forward):

The bank’s website copy is understandable and nicely outlines the lower-cost credit line, and savings account transfer options are offered
The toll-free number to sign up is prominent, although where’s the online signup option?
Great to see online and mobile balance-tracking tools offered up to help avoid overdrafts in the first place
My favorite: Customers are allowed to cover the overdraft during the same day and avoid the charge

But much of that uptick in consumer goodwill is negated when you get to the pricing:

Debit card overdrafts are $35 each, with a maximum of 4 per day, or a $140 daily penalty if you opt in and make a mistake coffee-shop (or more likely bar-) hopping some weekend.

In a spot check of other financial institutions, it’s clear that Wells Fargo is far from alone in the $30 per item price range:

US Bank will charge $10 per overdraft of $20 or less and $33 for all others; it will charge for up to 3 ODs and 3 returned items for up to 6 per day; there’s a $25 fee if you don’t pay back within a week, but no charge for any item that results in less than $10 in total negative balance.
Fifth Third Bank will charge $25 for the first overdraft each year, $33 for the next three, then $37 each after that; maximum of 10 per day; $8 per day after the third day it’s not paid back; no OD charge if negative balance is $5 or less.
PNC Bank charges $36 per item up to 4 per day, plus $7/day the account is overdrawn for a maximum of 14 days.
GTE Federal Credit Union is charging $29 each, with no charge on under-$5 items (blog post, Facebook post)

I just don’t see customers being too pleased with the price/value here. Wouldn’t customers, and shareholders, be better served with a value-based pricing strategy? How about $5 each for an under-$100 mistake? Or follow the telecom model and sell debit card overdraft protection as a $4.95/mo subscription.

By my simple math, a million customers paying $5/mo is a whole lot more revenue than a few thousand paying $35 a pop. Then there are all the side benefits: customer goodwill, reduced customer service headaches, positive word-of-mouth, and the PR/marketing value of making debit overdrafts into a real service.

Debit card OD link on Wells Fargo homepage (13 July 2010)

Landing page (link)
Click to enlarge

Note: Upper-right graphic from Horizons North Credit Union, which is charging $25 per item, with no limit on the number. The opt-in ad is a huge part of its current homepage (inset, click to enlarge).

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