Online Customers Aren't the Only Target for Mobile Banking Services

While attending the 2009 Mobile Financial Services Congress in Miami a little over a month ago, there was a consistent message from almost all of the speakers that a mobile banking customer is less likely to attrite, more likely to use additional engagement services such as bill pay, and less costly to serve.

Interstingly, it was also emphasized that while most banks have promoted the use of mobile banking to their current online banking customers, the real financial benefit is realized when a customer who is not as heavy a user of online banking is converted to the mobile channel. In other words, it makes stronger financial sense to try to segment offline customers and implement a proactive channel migration strategy to convert channel usage.


Some of the presenters at the Mobile Financial Services Congress suggested that offline customers who are quickly purchasing the newest wave of smart phones may actually bypass the online channel in favor of mobile banking services.

M-Com and Fiserv presented the findings from recent research that reinforced this trend. Nearly two-thirds of those surveyed reported contacting their financial institution once a week or more through traditional bank channels. Nearly half of survey respondents use their bank's call center or interactive voice response to help manage their finances. These are among the costliest channels for the bank to support, with each call center transaction costing an average of $3.75 and each automated voice response system transactions costing an average of $1.25. Conversion of even a small percentage of these transactions to the mobile channel would bring high returns. The study also found that the offline customer not only is aware of mobile banking (70%), but also have an interest in these services (60%). The primary area of interest is in checking balances (46%), contacting customer service (37%) or locating a nearby ATM or branch (30%).

It is clear there is a tremendous untapped opportunity for converting offline customers to the mobile channel with enhanced targeting, expanded enrollment opportunities (channels other than online) and improved communication of benefits of this channel. The banks that are the most aggressive in reaching out to these households will reap the greatest rewards

New Checking Plans Emerge in Response to Reg E

Already experiencing loss of fee income due to lower transactions and lower OD/NSF fees resulting from higher balances, banks are beginning to develop and introduce new checking products that can supplement these lost revenues.

In place of traditional free checking accounts are value-based accounts that allow customers to customize their account for a fee. Features such as identity theft, rewards and even enhanced OD/NSF protection can be selected from a menu of enhancements that allow a bank to replace some of the fee income that already has been lost or will be lost in response to Reg E.

One of the first to build a new array of checking accounts was BBVA Compass which introduced Build to Order Checking more than two years ago.
With a foundation account that features online banking and bill payment, customers can select from a list of additional features for $2 a month. These range from double reward points or cash back on transactions to a free OD waiver, free foreign ATM transactions or interest on the acccount. Customers can even change the features they prefer as their checking behavior changes. According to representatives from the bank, this account represents approximately 80% of the new accounts opened. A few months ago, BBVA Compass expanded their product line to include a small business version of the Build to Order Checking.

Another interesting alternative offered by some banks is an account with a line of credit attached to cover any overdrafts on the account. Not necessarily new to the banking world, some of these accounts with a line of credit are regulated by Reg Z as a credit product as opposed to Reg E, which covers electronic payments.

Finally, there are some banks that are developing a much stronger online checking product with debit transactions and online bill payment requirements while some banks are linking checking accounts with savings accounts to enhance relationship depth and profitability.

It is clear that we are seeing a new wave of product innovation in response to market conditions and the upcoming new transaction regulations. I will continue to share new ideas as they are introduced.

Small Business is Big Business

While most banks are spending more time and resources trying to address the needs of small businesses, a large percentage of this segment is still underserved. According to a Javelin Strategy & Research report released last year, about two-thirds of the 26 million small firms don't have business banking accounts.

Smaller companies usually integrate their business and personal relationships or simply open another personal account according to the Javelin report released late last year. That means they may pay lower account fees, but also don't receive cash flow and treasury service attention from a bank's small business sales team, potentially impacting the business' ability to grow.


At a time when banks are looking for ways to acquire new customers and generate additional revenue, marketing to and serving this untapped banking segment is a win-win for banks and small businesses alike. The challenge is to uncover these somewhat hidden relationships. Sometimes, banks are evaluating transactions to determine what customers are using accounts for business purposes while others are using social media to have small businesses indentify themselves.

According to several reports over the past two years by Aite Group, while smaller businesses tend to use banking services similar to consumer banking relationships, their payments habits show tremendous growth opportunity for debit and credit cards as well as online banking services. In fact, according to Aite, only 4% of spending by small businesses currently is done on a small business credit card. Capital One has already responded to this opportunity by allowing small businesses to combine their business rewards with their personal rewards. Other banks are tracking checks and ACH transactions to help find underserved businesses.

Alternatively, firms like Bank of America are leveraging the power of social media to develop the Small Business Online Community which has over 50,000 registered users, while American Express continues to promote their very successful small business OPEN Forum where small businesses can find articles, expert blogs, success stories and advice with limited networking opportunities. Wells Fargo is also the first bank using blogs to stay in touch with small business and retail customers, while VISA teamed up with Facebook to create the VISA Business Network for small businesses to share advice and potentially grow their customer base.

Going forward, bank marketers should take notice of the smaller business market (under $500,000), tieing together personal and business relationships, changing payments behavior and providing better cash flow solutions that can help these business grow.

Building Long-Term Deposits and Relationships Automatically

Over the past several years there have been a number of financial institutions that have built automatic savings programs where customers can set goals, establish recurring transfers between accounts to fund the goal(s), and track their savings progress.

One of the first programs developed was the Orange Savings Account from ING Direct which greatly simplified the process of opening new accounts for various savings goals. Following the success of the Orange Saving Account, SmartyPig was another program with that same goal in mind, making it easy for a customer to setup savings goals.

A customer can name their accounts, set the deadline for reaching their goals and even use an interactive calculator to determine the amount they will need to set aside each month. What makes Smartypig unique is that they added a social element to the mix . . . allowing other people such as friends and family members to contribute to the customer's goals as well.

The customer can even place a widget on their Facebook or MySpace page. Once the customer reaches their goal, they can either put all of your savings plus interest on a debit card, have it sent back to their bank, or receive bonuses by having the amount placed on a gift card from participating merchants like Macys, Amazon, Best Buy, etc.

While SmartyPig brings unique technology to its enterprise, it remains a one trick piggy (offering only savings accounts) and is a still-small Internet start-up. Being able to grow a savings account product from $0 to $500 million in deposits in less than two years is a phenomenal feat but its success can be assailed.

Full-service banks have begun to copy some of SmartyPig’s basic features and leveraged their own new savings features. For instance, U.S. Bank introduced the S.T.A.R.T. (“Savings Today And Rewards Tomorrow”) program in late 2009 in test markets, giving a $50 Visa gift card to a customer depositing $1,000 or more into a U.S. Bancorp money market savings account and establishing a monthly transfer from their U.S. Bank checking account. If a customer chooses to transfer between $.25 and $5.00 from their checking account into his money market savings account each time he uses his U.S. Bank debit or credit card, the S.T.A.R.T program counts those toward program term fulfillment.

In addition, customers maintaining a minimum $1,000 balance in the new savings account for 12 months will receive another $50 bonus, while U.S. Bank is offering another $100 bonus for establishing an automatically funding savings account tied to the bank’s standard checking account.

Building new products that encourage a long-term savings perspective supports the current trends toward more conservative money management while providing tremendous opportunity for additional cross-selling and relationship building. I fully expect more banks to develop both online and offline savings alternatives and to use these products as part of their onboarding and lifestage communication processes.

Capital One Continues to Innovate

Historically an aggressive marketer and innovator in the credit card industry, Captital One has expanded its reach in recent years, using their growing banking franchise as the foundation for introducing innovative banking products. In addition to having a relatively rich debit rewards program and expanding into online and small business banking, they have recently introduced a new savings product called "InterestPlus Online Savings".

The saving program offers an above market interest rate on balances over $2,500 in addition to a 10% quarterly interest bonus payment paid if the customer uses their Capital One credit card once a month.
The bonus can also be earned if the customer maintains a minimum balance of $15,000 each month. The bonus for using the credit card is similar to other promotions done by Captial One in the past 12-18 months to cross-sell services and relationships off their credit card foundation.

The promotion of the new service began in December of last year through the bank's web site, statement inserts, direct mail and with email according to Comperemedia. Using strong visual elements such as comparative bar graphs and icon buttons similar to what I have seen with ING mailings, it is clear that Capital One plans to leverage their strong marketing talents from the credit card industry in building a strong bank brand.

SIFMA Asset Management Account Roundtable Recap

I would like to thank the people from the Securities Industry and Financial Markets Association (SIFMA) as well as co-chairs Jennifer Byrd from Morgan Stanley Smith Barney and Steve Newcamp from Federated Investors. As always, the event was well attended and the sharing of ideas and insights from the speakers and participants was great. I would be remiss if I didn't also thank my own company, Harland Clarke for the amazing dinner at the Battery Park Gardens Restaurant where, even with the rain, the view of the Statue of Liberty was super.

Some interesting takeaways from the meeting:

• Lucy Suarez (Fiserv): The impact of mobile can not be overlooked and the demographics of mobile banking users is trending older over time. As referenced in some of my previous blogs, a majority of iPhone owners and a large percentage of smart phone owners use mobile banking monthly. She also referenced that deployment by financial institutions of all sizes is growing rapidly. The future of mobile will definitely go beyond balance inquiries and transfer of funds to include mobile deposits, person-to-person payments and the ability to sign-up for the service without online banking required.
• During the product development breakout session, it became apparent that, while a case can be made for the development of mobile banking applications for the AMA product, virtually none of the firms in attendance even have a mobile banking product in development. This may end up being a competitive disadvantage in the marketplace or a significant advantage for the two firms who have mobile capabilities today.
• One of the major advantages of a robust AMA product also seems to be a hurdle for product development. Highly customized and information laden paper statements seems to limit product innovation in the areas of rewards, household PFM and product integration. To combat this challenge, Wells Fargo Advisors provides an annual rebate of fees if a customer agrees to a more flexible online statementing option.
• Margaret Henry, Ph.D. (Scantron): Margaret discussed the significant differences between a 'satisfied' client and a client that will be loyal and will refer business to a financial institution. She compared different survey techniques and survey results in the marketplace while sharing results from some of Scantron's clients who have experienced improvements in scores as a result of a robust measurement process.

There was a great deal more learned at this program which I have been lucky enough to present at three times over the past five years. What always amazes me is the amount of sharing that is done by this rather tight knit group of organizations that serve the most desirable of clients.

Cardlytics Introduces Bank Statement Innovation

At a time when banks are looking for ways to generate new revenue and increase customer loyalty, Cardlytics has developed a way for banks to leverage transaction data to deliver targeted offers to clients on their online bank statements.

Since the privately held company launched the innovative product last November, more than 100 marketing campaigns have been run, reaching half a million bank customers. According to a recent AdvertisingAge article, the company expects to have 50 to 70 financial institutions on board by the end of the summer, reaching some 10 million customers by the end of the year.

The program uses transaction data such as the date and amount of purchase, location and merchant to develop special offers by the merchant where the transaction occurred or by a competing merchant in the same category. Imagine an offer from a local restaurant appearing on your statement after a recent purchase from the same establishment. Or maybe an offer from a competing eatery.

The activation of the offer is electronic without any special processing by the bank or retail institution. When the offer is activated by clicking the area on the online statement, it is converted the next time the debit or credit card is used at the participating merchant and the purchase is processed by the bank.

The merchant pays for the online ad to Cardlytics, with a pay-for-performance model with the bank getting a piece of the action. Initial response rates for the program, according to Cardlytics has been very favorable, with the only drawback potentially being the lack of demographic data available for targeting.

This type of turn-key rewards program could expand quickly, using the same type of model and insight that is used for Google with their paid advertising. The success, however, will hinge on a combination of the banking industry's ability to embrace a push-based retailing concept and the customer's acceptance of a perceived sharing of data. As with most new online concepts, acceptance will most likely vary by segment.

Banking on Social Sites Unlikely

According to a new research report by Forrester, Banking On Social Sites Is A Work In Progress, while social networking sites have a 30-day active population of more than 400 million users of which more than half visit on any given day, that love doesn't extend to banking through social networks. In fact, more than 70% of online households surveyed showed little or no interest in accessing their accounts through social sites like Facebook. Not surprisingly, the reasons for the lack of interest revolves around privacy and security concerns more than anything else.

So, while the majority of large financial institutions continue to look for more ways to leverage social networking's ability to engage customers, resolve problems and ultimately build loyalty, the reach of these sites beyond stronger interactive communication remains to be seen. At the very least, consumers will need the stronger security guarantees, authentication and more that is already afforded customer who use online and mobile banking.

Use of Online Banking and Bill Payment Continues to Grow

According to the 2010 Consumer Billing and Payment Trends survey published this week by Fiserv, the number of households that use online banking increased more than six-fold between 2000 and 2010, and the number that use online bill payment increased nearly eight-fold. In fact, 72.5 million U.S. households (80 percent of all households with Internet access) use online banking, while 36.4 million households (40 percent of all households with Internet access) use online bill payment.

Illustrating that online bill payers are not just the youngest and wealthiest demographic, in 2010, consumers age 21-34 made up 28 percent of online bill payers, consumers age 35-54 made up 48 percent, and consumers over age 55 made up a surprising 24 percent of all online bill payers, while more than a third of online bill payers had a yearly household income of less than $50,000.

In addition, as other studies have shown, consumers who pay bills online consistently use more services from their financial institution than the average customer, with usage of additional services becoming even more pronounced in recent years. Loyalty is also strong, with 49 percent of customers who use online bill payment saying they were less likely to switch to another financial institution as a result of their experience with the service.

Fiserv suggests that with the similar benefits of biller direct and emerging technology alternatives (such as PFM), it will be more important than ever to illustrate the benefits of bank-based online bill payment including the consolidation of billing and payment into a single site and the ability to eliminate the need to remember multiple passwords.

Alternatives to Online Bill Payment May Drive Stronger Engagement

Research has shown that one of the strongest engagement tools for new and existing checking customers is to have the customer set up online bill payment. Unfortunately, even with aggressive 'switch' programs, the success banks have had trying to get customers to sign up for online bill payment has been less than overwhelming.

To try to simplify the signing up for online bill pay (and reduce first year attrition), some banks have moved to promoting the payment of bills using debit and credit cards. In the case of using a debit card, the payment still is taken from a customer's checking account and the process for signing up can actually be easier than with a traditional biller. In addition, using a debit card for bill payment can generate interchange income for the bank, rewards for the customer, and if the payment is recurring, it will not be subject to the new Reg E stipulations.


Chase Bank has done an excellent job of promoting bill payment using debit and credit cards through an online tool called Chase Payee Directory. With this tool, a customer can select the company they want to pay with an interactive directory.

With the goal of getting new and existing checking customers to use their checking account becoming as important as retaining the customer, these forms of moderate innovation will certainly become more commonplace.

Mobile Banking Can Improve Customer Acquisition by Sixty Percent

One of the more startling takeaways from the Mobile Banking and Emerging Applications Summit this week was when Bob Hedges from Mercatus mentioned that mobile financial services could improve customer acquisition rates by as much as 60% in key customer segments (age under 50) for early moving banks. In fact, according the research findings which were presented at blinding speed at the conference, a bank's mobile presence was more important than online banking, ATM presence or even the convenience of local branches in a customer's decision to select a bank.

Combined with the statistic that more than 30% of U.S. consumers are either using or considering using mobile financial services in the next year, and it is understandable why the best quote from Hedges at the conference was that, "Making a business case for mobile banking is like making a business case for oxygen"!

Other findings shared by Hedges at the conference included that mobile financial services users have higher incomes than traditional customers, use more services and have up to 12% lower attrition (which has been supported by other findings provided by banks recently at other conferences).

Finally, Hedges emphasized to the more than 300 bankers in attendance that the rate at which consumers are adopting mobile banking is must faster than originally anticipated, with an expectation that the number of mobile banking consumers could surpass those who use online banking by 2015.

Given the positive impact that introducing the mobile channel could have on acquisition efforts, servicing costs, utilization of services and attrition, there is no doubt that mobile banking will be emphasized by banks over the next 18 months. Obviously, the spoils will go to those fast moving banks that can introduce mobile banking to their customers and prospects the quickest and who can continue to promote and enhance their offerings to a increasingly technology driven target audience.

The Mobile Banking Response to Reg E

In a June 9 webinar entitled, Mobile Alerts and Reg E presented by Javelin Strategy & Research in conjunction with ClairMail, there was a great discussion of how mobile banking and financial alerts can play an integral role in both the opting-in process and the enhancement of the customer experience after August 15.

By providing enhanced information about the customers accounts and allowing the customer to be 'in control,' the perceived value of mobile banking can be enhanced. In addition, the ability to use mobile banking alerts to help avoid OD and NSF fees enhances the value of the device even more. It was mentioned that as many as 90% of customers who receive alerts will actually take action based on the alert (through signing on to their online banking account (33%), calling (33%) or visiting the branch (14%)).


The ways mobile banking can assist a customer would be real time alerts, real time account balances, two-way interactive alerts and transfers (like the Chase Bank introduction recently), and mobile PFM tools. In other words, mobile enables a highly personalized, proactive interaction with the bank when an overdraft occurs.

From the bank's perspective, Clairmail emphasized that the mobile channel enables banks to generate new revenue, increase satisfaction, drive adoption and retention and help to eliminate customer distrust of the bank thanks to enhanced transparency. In addition, the mobile channel can allow the bank to cross-sell overdraft solutions at the time the customer can relate the most . . . when they about to have a transaction rejected or a fee imposed.

PNC Uses Social Media to Support Reg E Efforts

It appears PNC Bank is leveraging all available channels in their effort to capture as many opt-ins as possible. Today, I received a Tweet from PNC Virtual Wallet offering a description of the difference between overdraft protection and overdraft coverage. The message directed me to my Inside the Wallet Blog within the Virtual Wallet online banking site.

On the Blog, PNC innovation and Virtual Wallet leader Michael Ley, describes the options a customer has as to whether to opt-in or not with his post, "To “Opt In” or not “Opt In”… What is the Question?". Illustrations are used to help describe the options a customer has.

If after I read the Blog posting from Mike Ley, I still want more information, I am directed to the PNC overdraft solutions landing page for all the answers to Reg E questions as presented using a video presentation from the head of deposit products at PNC, Todd Barnhart. In addition to the very clear video, further descriptions are provided around overdraft solutions, including several overdraft protection options (with direct links) as well as the pricing schedule for overdraft protection. The site also has an extensive FAQ section and more ideas around managing money.

Overall, the integration of online and social media communication in addition to traditional direct channels used by PNC will most definitely improve the bank's Reg E opt-in rate. It will be interesting to see the ways in which other banks get their regulatory message out and the success rates experienced.

What is the Future of the Branch?

When was the last time you went into a branch to do any banking outside of opening a new account, closing an account, getting a mortgage or doing a mystery shop? Better yet, did you even go into the branch to establish your last financial services relationship? For me, I most recently opened a Virtual Wallet Relationship and never saw a banker in person. What was amazing about the experience is that I was 'cross-sold' a savings account, debit card, online banking, auto save and bill pay without ever feeling like I was sold or talking to a banker. I did it myself . . . all online.

So, what is the future of the bank branch? According to a channel preference survey conducted by the American Bankers Association (ABA) last August, 25 percent of consumers preferred to bank online as opposed to any other channel.
For the first time, this channel preference exceeded the desire to bank in a branch office. And, while consumers over 55 clearly preferred to use a branch, every other demographic group preferred the speed and convenience of the Internet.

It is interesting to note that even though the mobile channel is definitely a area of significant investment and interest in our industry (as noted by my blog on June 7), the adoption rate was only 1% in the survey, with much of the activity still being transactional in nature. Despite this, Bank of America has opened more than 4 million mobile banking relationships.

In a recent set of blogs by industry pundit Brett King entitled, Branch Networks: Where Do We Go From Here? (Part 1 and Part 2), he makes a very strong case for banks reorganizing to make their organization structure channel agnostic. In much the same way that most industry experts believe product silos should be torn down in favor of customer segment management, King makes the case for having channel managers all as equal peers with the focus on the customer and an eye on how money is actually transferred among the channels, how the channels are used and how revenue is generated.

King also indicates that the branches as we know them today need to change in both form and function. With a core function of the daily branch operation concentrating on check processing, and with the number of checks written dropping while technology such as business and personal Remote Deposit Capture is increasing, something needs to change. We are already seeing the architecture of new branches change, with more specialized sales/service offices surrounding a smaller transactional lobby. But even these sales and service offices could be remote, and most of the transactions done today are too costly to be handled using expensive real estate.

Eventually, we will probably see different channel strategies such as Huntington Bank's strategy of expanding branch hours on weekdays and opening on Sundays or possibly branches that resemble an Apple retail store where the focus is on customer engagement and specialized service and where transactions are more of a by-product. The focus on new strategies is even part of this Fall's BAI Retail Delivery Conference where there will be a Multi-Channel Strategy Summit led by representatives from Novantis and M&T Bank.

Whatever strategies are selected, it appears the days of expanding branch networks are gone and we will see an emphasis on consolidation, optimization and the leveraging of new technology to integrate the branch as part of a broader and improved customer experience. As Brett King said in his recent blog, " . . . it's time to start to think out of the box".

How is your bank changing their delivery channel emphasis?

Responding to the Self-Directed Bank Customer

According to a soon to be published Accenture survey of senior banking executives from major banks across the world, there has been a significant power shift between banks and their customers that has resulted a lowering of customer profitability levels. The research entitled, Customer 2012: Time for a New Contract Between Banks and Their Customers?, found that nearly half of the executives have seen their average customer profitability decline by 5-15 percent since the beginning of the financial crisis.

According to Noel Gordon, global managing director of Accenture's banking practice and co-author of the research, “Consumers have emerged more confident in making financial decisions for themselves, more skeptical of their bank brands, more price-conscious and more willing to move away from institutions that provide poor service.
For the banks, traditional profit-recovery strategies – rate and fee increases, conventional cross-selling and organic growth – will not readily fix the problem because broader customer expectations and service demands have risen in the wake of the financial crisis.”

The vast majority of bank executives surveyed (83 percent) reported increased demand for “direct” services – online, telephone, and mobile – since the financial crisis, and nearly two-thirds (63 percent) believe that meeting those demands will be a major challenge for their companies in the next three years. What is interesting about the research is that nearly half of the bankers also cited that customers want more personalized services.

These traditionally conflicting customer desires of alternative channel access and increased personalization can only be addressed through the collection and application of enhanced customer insight including data from third parties, payment behavior, channel use tracking, customer preferences and survey data integrated across all lines of business and available to front-line employees. This insight needs to drive more sophisticated segmentation and intelligent interactions with the goal to 'pull customers' as opposed to 'pushing product'.

Accenture believes there are six strategies banks can use to foster stronger relationships:

• Identify and understand customer behaviors and trends to continually evolve marketing and distribution strategy.
• Provide interactive, targeted customer service while decreasing costs.
• Leverage IT to provide personalized interactions.
• Apply retailization tactics to foster experience-based loyalty.
• Use transformative efficiency to reduce unit cost for customers, partners and suppliers.
• Support the rapid evolution of business and operating models.

With decreased loyalty, increased price sensitivity and online capabilities that make switching financial providers easier than ever, only banks that can fully leverage customer data and enhanced analytics to deliver needs-based solutions will be in a position to reverse recent customer profitability declines.

How is your bank positioning itself to respond to the self-directed customer? What strategies are you using to capture and use transactional, behavioral and social insights? Are your marketing communication strategies changing? I would love to hear from you.

Bank 2.0 is a Bank Marketer Must Read

There are not many books (or anything else for that matter) that I find compelling enough to pre-order. Sure, there may have been a Cleveland Indians or Cavaliers championship jersey I jumped the gun on, but I have never stood in line for an Apple product or pre-ordered a movie to be the first on my block to own it.

I made an exception a few weeks back with the book Bank 2.0 - How Customer Behavior and Technology Will Change the Future of Financial Services by Brett King not only because I was intrigued by the title, but because I have been following Brett's Banking4Tomorrow blog for a couple months and I find his take on the changes in our industry both enlightening and spot on. King is also an international speaker and is an industry advisor on Huffington Post (Business News).

This evening, Brett King’s book Bank 2.0 begins US distribution with a NYC launch (I actually ordered one from overseas a couple weeks ago and several more for some of my colleagues and clients from a U.S. distributor). While I am definitely not done with the close to 400 page book, it is a great business read for anyone involved in marketing, channels, distribution, innovation or the product area in a financial institution.

The book begins by discussing the significant changes that have occurred and will occur in customer behavior as a result of the advent of the Internet and smart phone and the expectations associated with these channel shifts. King discusses the impact of the shift in control from the bank to the customer and the choices that have resulted and will result in the future. These changes are illustrated in his book's video presentation.

While there is a bit of an international bias in the book due to Brett's background, his observations are all valid and well documented with statistics even though the banks and consumers in the states may be a bit behind their counterparts overseas. He illustrates the three stages of consumer behavioral disruption as shown below.

Part 2 of the book is all about the channels that customers use and the ways banks will need to reconfigure these channels in the future to win. Individual chapters focus on the branches, call centers, online banking/web, mobile and even ATMs. What I found both surprising and different about this section compared to many business books is that King is not shy about providing both opinions on how to address the changes that are occurring (with facts to support his recommendations) as well as a vast number of real life examples of both the good and bad in the industry. There is definitely a continuous ROI focus on all of his thoughts based on his vast experience in the industry. 

In the third section of the book, there is a look into the future of banking. Brett digs much deeper into the customer experience and channel impact of the changes that have already taken place and what bankers can expect in the future. As can be expected, there are discussions around social networking, new technologies, the future of payments and what the banks role may be in the P2P world as well as a good analysis of the impact on bank sales, marketing and advertising.

Throughout the book, King challenges banks with regard to their response to the massive customer changes in the past decade. In fact, he has even developed an inforgraphic around the lack of true innovation banks have done and whether the innovation has been done in the areas that matter.

This book is both thought provoking and fact-based, and is definitely a must-read for any banker (or industry supplier) who wants to stay current with the massive changes in our industry and wants a glimpse as to what is right around the corner.

DDA Under Siege

As part of the planning committee for this year's BAI PaymentsConnect 2011, I would love to take credit for the great title of this program track, but I am not sure even the great minds at the BAI could have foreseen how apropos "DDA Under Siege" would be for bankers attending this year's conference that wraped up today in Phoenix.

If there was a unifying theme from the many sessions I participated in this week, it was that revenue lost from last year's Reg. E and this year's Durbin amendment can not be completely recaptured through repricing. Instead there needs to be a stronger focus on targeted customer acquisition, share of wallet growth strategies, retention, product innovation and cost containment. While everyone at the event seemed to be interested in what others were going to do around checking repricing, the energy was definitely focused on building a stronger platform for the future.

Sessions at the conference started with a review of the BAI/Finacle Innovation Imperative Customer Sentiment Study completed last Fall, which found that while there is still a ways to go in the customer's confidence in the economy and the banking industry in general, the view of bankers is more closely aligned with the consumer than in the past couple years. This uniformity of beliefs should assist as banks try to build messaging around their checking repricing and try to improve the customer experience. The study also found that the customer's perception of their bank being 'innovative' tends to correlate with satisfaction, product ownership and overall confidence in their bank.

Steve Mott from BetterBuyDesign followed the BAI research presentation with a very fast paced competitive overview of the payments industry, including a discussion around Google, PayPal and several potential payments platforms from the U.S. and even China. His message was that it will be up to the banks to leverage their customer relationships, distribution network and trust advantages to maintain some level of ownership of the consumer payments continuum. He emphasized, however, that the bank 'ownership' of payments is anything but guaranteed.

David Stewart, Senior Expert from McKinsey & Co. expanded on his recent BAI Banking Strategies article, emphasizing the continued importance of the debit card in the bank's payment product arsenal. In addition to providing financial metrics around the value of the debit customer and the real impact of repricing with net interest margin and other fees are included, he emphasized that trying to move mindshare or marketshare from debit to credit may be close to impossible in today's economic environment. David also shared the view of McKinsey that the potential for merchants to 'steer' payments from one payment vehicle or another was unlikely since doing so may actually cost the merchant more in discounts than could be retrieved in interchange savings.

David also left the attendees with the following strategies for trying to reposition the debit product in the future:

• Base debit strategy on new debit economics as opposed to the old economics
• Price products for competitive advantage
• Rationalize customers on the relationship level not just checking level
• Remember that the debit product is still sticky and builds customer engagement

Ending the morning sessions was a presentation by Hitachi Consulting around the findings of their semi-annual Consumer Payments Preference Study released last Fall. Some of the highlights included:

• The millennial generation provides a good opportunity for growing payment volume (especially around mobile)
• Ease of use and convenience drive payments behavior
• Debit is still the preferred payment method
• Credit for online purchases expected to increase
• Micropayments will continue to increase

Hitachi also emphasized that security continues to be a concern of consumers and is impacting the take up rate of mobile for payments.

The afternoon sessions revolved around ways that banks are trying to take back the payments franchise and extend relationships beyond just the DDA, with speakers from the Federal Reserve, Fiserv, Comerica, Fifth Third, Peak Performance Consulting, Novantas, TD Bank and Huntington Bank all providing unique viewpoints. It was clear during these sessions that the days of every bank having close to the same product set are over. While some of the larger banks may retain a Free Checking program (PNC's decision was referenced often during the conference), many are completely revamping their deposit product portfolios in a way that reinforces their brand and leverages their customer franchise. All of the banks were also bullish on credit products as well as the need to continue to capture increased share of wallet.

Hank Israel from Novantas stated that banks should segment their customers based on channel preference and will most likely price their product set in one of the following ways:

• Keeping Free Checking (hoping to make it up on volume)
• Fee for services (make it up within the checking product set)
• Product bundling (packaging product sets based on customer needs)
• Relationship pricing (drive value from relationship perspective)

A strong case was made for all banks to move more to a relationship focus that can optimize customer profitability and focus on customer needs.

Tuesday's sessions focused on how banks can go on offense through mobile banking, prepaid debit and mobile payments as well as how institutions can better defend their customer base through onboarding and rewards. Some of the key takeaways from the mobile banking session presented by FIS and M&I Bank included:

• Smart phones will be used by the majority of consumers by the end of 2012
• Mobile banking will surpass online banking by 2015
• Remote deposit capture is the 'power app' that engages the customer (more are needed)
• Mobile banking customers have a 53% lower attrition rate (Tower Group)
• Mobile banking customers decrease VRU use by 55%

The speaker from M&I Bank also emphasized the need for banks to build mobile banking critical mass quickly, with a focus on expanding the solution set coming after 'getting the basics done right'. He referenced that mobile banking customers at his bank had higher balances, increased check card usage, and a better bill pay adoption rate than similar customers without mobile banking.

Greg Schreacke from First Federal Savings Bank and Robert Gitner from Velocity Solutions discussed the market potential for prepaid debit and how a bank could build a checking product set around the card. Research was presented that showed the following characteristics of a prepaid debit user:

• 53% have a checking account
• 50%+ want a prepaid debit because of overdraft fees
• 47% want immediate access to funds
• 46% believe they can get better service at a retailer than a bank
• 43% have had a previous problem that limits their ability to open a traditional checking

In the mobile payment presentation done by Calvin Grimes from Fiserv and Emmett Higdon from Forrester Research, the impact that mobile banking has on the customer relationship was again emphasized. It was shown that not only is a customer who uses mobile banking 30% more likely to stay with a bank, but the customer is also 26% more likely to recommend their bank. The team emphasized that now was not the time for banks to stand on the mobile financial services sidelines, but instead should be searching for ways to move their mobile solutions from being simply informational to being more transactional.

While many banks are still trying to build the business case for mobile payments, the following benefits were shared:

• Customer acquisition and retention benefits
• Lower cost of servicing
• Revenue generation potential and revenue retention
• Competitive parity
• Better customer experience
• Deeper customer engagement

It was also mentioned that, while security and privacy concerns still remail around mobile payments, these concerns will eventually work in favor of traditional financial institutions since customers inherently trust banks more than companies like Google, Apple or even their phone company.

The presentation that I did in partnership with Bill Stamp from KeyBank focused on the market trends around onboarding as well as the basics on development and implementation of a successful onboarding program. Interestingly, when the attendees were informally polled as to their current onboarding programs, while the majority were doing something, less than half were using more than one communication channel, very few were leveraging three channels, and only one bank was communicating with their customers more than 5 times in the first 90 days. It was stressed that this lack of a focused and consistent onboarding process could hamper organization's objectives of improving customer engagement, increasing fee income and definitely hurt cross-sale and retention efforts.

Bill's presentation around KeyBank's onboarding program illustrated that developing and managing an onboarding initiative is an ongoing process where testing of offers, channels, and communication sequence and cadence is continuously needed. Bill also shared how an onboarding process can reinforce cross-selling done at the new account desk and the importance of reinforcing engagement with services before the cross-selling of other products.

To further reinforce the importance of engagement and retention in a highly competitive and revenue challenged marketplace, Tom Brooks from Regions Financial Corporation, Lynne Laube from Cardlytics, and Aaron McPherson from IDC Financial Insights showed how a highly innovative merchant-funded rewards program may be the answer for banks looking to move away from a 'reactive' interchange funded program to a 'proactive' program that could be bring higher value to the customer and even make money for a bank.

Lynne Laube discussed two macro trends in the banking industry that has paved the way for a merchant-funded program:

• Digitization of payments (where and how payments are made)
• How customers relate to banks (>50% have online banking with 7 visits a month to their online banking site)

The benefits of a program like Cardlytics offering shared by the panel included the ability to target actual transactions for incremental growth and engagement. The benefit to the customer is that offers will always be relevant, while the merchant benefits from only providing offers to people very likely to be interested in their services. Since the targeting potential is so strong, more valuable offers can be developed as opposed to when a merchant is discounting to the masses.

While the program at Regions is relatively new, the benefits included:

• No enrollment is required (all customers with online banking and electronic statements are included)
• Ease of value transfer (no coupons are needed since the customer can electronically 'activate' an offer and 'redeem' the offer simply by using their debit card)
• Immediate notification of earnings/rewards
• Rebates deposited directly into account
• Offers are targeted and relevant
• Integrated user experience
• Fully funded as opposed to being a contingent liability like with points programs

The success of this innovative rewards program was probably best illustrated when Lynne mentioned that Cardlytics is partnering with 2 of the top 5 banks already and expect their customer base to grow from 15M today to more than 60M by the end of the summer. For more information on Cardlytics, read my earlier blog on the company done last year.

Without a doubt, this was a well-timed conference covering a broad range of topics on the front burner of many banks. On each attendee 'to do' list upon leaving, I am sure there will be a review of any pricing changes not yet implemented, a strong focus on ways to engage and retain new and existing customers we can ill afford to lose, and a much more accelerated movement to future payment products like mobile and even P2P.

I would love to hear from other attendees about their experience and takeaways.

A Little Note From BankSimple

After hearing about the vision of BankSimple several months ago, I decided to see if the development of another new online bank would be different. To begin with, I accepted their invite to be part of their beta test once the bank officially launched some time in 2011. Yes, I accepted an opportunity to be on a waiting list to potentially open an account.

As a lifelong bank marketer, I also followed the story of the bank's founders and the development BankSimple (The Buck Stops Here). I was intrigued by the fact that BankSimple would not really be a bank at all, but instead, simply provide a better front-end experience with a myriad of banks being used behind the scenes to generate the highest returns (and lowest costs) for their customers.

According to their web site, the bank was going to require only a single account and one card, use simple language, treat customers as people and not account numbers, eliminate surprising fees and provide a heightened level of customer service. They would provide online, ATM and mobile access to their accounts and would provide financial tools to help a customer manage their money. Sounded good . . . but not much different than almost any bank promise.

Today, however, BankSimple set themselves apart from any of my current or previous banks.

They sent me a personalized, seemingly non-promotional email from a Customer Relations Representative named Rachel acknowledging my request for an invitation to try their bank and asking for my 'story'. Rachel asked for my "loves, hates, quibbles, desires, hopes and dreams" regarding my financial life. Her email used a Helvetica type and had no fancy creative elements included (just like an email from a co-worker or friend).

Doesn't sound like an email that was developed by a committee that then went through a bank's compliance and legal departments after several levels of management approval, does it? Rachel then went on to say that the bank was committed to building the best service a bank can offer and wanted to know "what's up?" (when was the last time your bank asked 'what's up'?). The email was so personal (it was titled 'A little note from BankSimple' and allowed me to respond directly to Rachel@banksimple.com) it begged for a response as to what I would love to see from my bank.

For those who are cynical by nature and don't believe there is a real Rachel, she was just hired ONE WEEK AGO by the bank as one of BankSimple's first Customer Service Representatives with an accompanying press release.

I responded to Rachel with some of my visions of a perfect bank. I also tweeted about the email from Rachel since the experience is so unusual for a bank. I don't know if the dialogue will continue via email, but I was again surprised when I got a response to my tweet about my email (in 10 minutes at 9PM et) from RACHEL!

Interestingly, even if I don't get an email response, the bank (and Rachel) have already surpassed my expectations, and there will be part of me that will feel like my response might have had an impact on the bank's development. Not a bad way to build an affinity and loyalty before the bank has even opens it's virtual doors. And when it comes to word of mouth marketing, I think they did pretty well in my case.

Finally, if you wonder if there is a demand for another online or bricks and mortar bank, simply watch the very robust discussion on Twitter around BankSimple and the desire for a traditional bank alternative. Up to now, this new financial entity has done a lot of things right. It remains to be seen if they can perform to this level once they start to handle money in addition to PR.

What is your bank doing to build trust, dialogue and word of mouth? Does your team have a Rachel?

Banks Slow to Embrace Potential of Tablet Computing

One year ago yesterday, Apple announced it had shipped it's first million iPads. Since then, it sold 14 million more in 2010 and is expected to sell between 30 and 40 million units in 2011 despite supply challenges in Japan. New research from Gartner predicts that global tablet sales will increase from 17.6 million in 2010 to nearly 70 million in 2011 and close to 300 million by 2015. During this time, the average price should fall to about half of the current level, which is just under $500 for entry level models.

Given this growth trajectory, and with banks continuously touting their desire to 'enhance the customer experience', how has the industry completely fallen asleep at the developmental control switch when it come to leveraging the tablet computer for engaging the customer? Given the demographic profile of the early adopting tablet owner (higher income, technology savvy, business traveler), and the retention experience found with mobile banking, it is even more surprising that only a handful of banks have even introduced iPad banking applications.

According to a recent ranking of financial and banking iPad apps by Netbanker, there are only 7 banks ranked in the top 200 apps related to finance and only 2 banks (Chase at #9 and USAA at #20) ranked in the top 20. Chase was not only one of the first banks to develop a native iPad app (as opposed to a converted iPhone app), but they have leveraged the camera included on the iPad2 to facilitate their remote deposit capture service. USAA rebuilt their already industry leading iPhone application for the iPad, providing users with the ability to manage a wide range of financial transactions such as paying bills, transferring funds, placing trades, getting real-time stock quotes and viewing their USAA insurance policies. Members can also electronically add or replace a car on their policy, receive an electronic auto insurance ID card and receive free financial advice in the form of stories and videos customized for a unique iPad experience.

USAA iPad Financial Literacy Library

In the past week, Bank of America also introduced an iPad banking application that leverages the capabilities of tablet computing. Highlights of the new app include an enhanced bill pay calendar, a ledger format for showing account balances, some transactional enhancements and other functions that come closer to mimicking their online banking site as opposed to their mobile banking app. While not providing remote deposit capture capabilities within the iPad app, the app is already ranked in the top 50 in the finance category.

Another bank that was quick to introduce a native iPad banking application with enhanced functionality was BBVA Compass. According to Alex Carriles, SVP and director of mobile and internet strategies for BBVA, "One of the first goals that we had when we decided to develop something for the iPad was to avoid the mistake of looking at the iPad as a large iPhone".

The most noticeable difference between the bank's iPad app and its iPhone app is its appearance. The iPad app's display looks like a bound book with an image of a staple on the center of the page and the image of a ribbon separating different sections. There is a tool that lets customers scroll through images of cashed checks much like albums on iTunes and allows a customer to look at pie charts that illustrate distribution of funds in various accounts.

While a bit cumbersome for everyday transactions such as balance transfers, balance inquiries, and online bill pay, the larger, tactile screen and increased navigation are just perfect for Personal Financial Management (PFM) functions like self-serve wealth management, financial literacy and investing. Many of the more progressive investment firms such as TD Ameritrade and Charles Schwab have already developed robust apps that allow customers to conduct research and conduct more complex transations on the tablet.

In the same way that investment firms can use the enhanced capabilities of the tablet to illustrate charts, graphs and investment recommendations, banks could apply the same logic to engagement and cross-sell messaging and the building of financial dashboards specifically for the iPad. Comparison charts, links to third party financial service firms, illustration of rewards program benefits and even opportunity alerts are perfect for the tablet user. Another unique capability of the tablet is the ability to leverage high definition video or even face-to-face chat in the sales or relationship enhancement process. This provides for an excellent expansion into the small business and commercial customer space where financial advice can be delivered via either online or offline webcasts to executives on the go.

Based on a recent study by eMarketer, tablets provide the perfect online shoping experience where owners are both highly engaged as well as more captive than with smartphone applications.

So, what will it take for more banks to build native tablet banking applications that take advantage of the functionality of the tablet as opposed to trying to expand a mobile app or compress an online banking app onto a tablet? With the introduction of the Blackberry Playbook (with enhanced data security features), numerous Android supported tablets and other players entering the market, how can banks not allocate resources to provide their customers an enhanced experience?

As a avid user of my iPad, I am disappointed my bank has not moved beyond an already market leading online and mobile banking application to support my expanded expectations on my iPad. As was the case with mobile banking, the institution that is first to create the 'WOW' factor will grab the lion's share of the lucrative first adopter market that has already fallen in love with their tablet.

But, I want more than what traditional mobile banking applications can provide. I am looking for financial statistics, financial advice and financial management tools all provided in both an engaging and entertaining package. Kind of like Angry Birds for banking.

Maybe the yet to be introduced BankSimple or MovenBank will surprise me.

An Open Letter to BankSimple

On January 18, you impressed me when Rachel Giuliani from BankSimple wrote an email to me unexpectedly asking me for my "loves, hates, quibbles, hopes and dreams" regarding my financial life. Her email seemed surprisingly personal coming from a bank I had signed up to be part of a beta test several months earlier. In her letter, she piqued my interest when she told me she represented a 'new' bank that was committed to building the best possible customer service without surprises.

Her timing was great since I had been a bit upset with my current bank. Not only had my bank changed their fee structure without a clear notification, but they seemed to be looking for new ways to generate fees for actions I had become accustomed to not paying for. Sure, I could avoid the fees as I had in the past by maintaining a steady balance in my account, but even that had been raised to a level that really didn't correspond to the value I felt I was receiving from the bank.

You made it so easy for me to respond to Rachel's email since she even provided her email address (rachel@banksimple.com). And, as opposed to feeling like my response would end up in some black hole of customer service or would be responded to by a person not even named Rachel, it was easy to see that my new pen pal had been hired just a week earlier as the first of two customer service representatives to provide 'brilliant customer service'.

I was definitely impressed that almost immediately after a wrote my email to Rachel late at night, she responded within 10 minutes! I was falling in love with your bank even though it hadn't opened yet. I was so impressed that I immediately tweeted about my experience, spoke about my dialogue with Rachel at conferences, and posted a blog entry about my new friend from your bank on this site (A Little Note From Bank Simple, January 18, 2011). That blog post generated by far more traffic than any post I have done before or after. Talk about word of mouth marketing (WOMM)!

As with any new relationship, there were some of my friends (Ron Shevlin) who were naysayers. They said it I was getting my hopes up that the communication between Rachel and I would continue. They said that the proof of a good relationship is in the long term communication and caring, and not just a single series of emails. They said I was getting my hopes up that I had found a new bank and that I might be setting myself up for being disappointed.

I am starting to believe they were right. Not only has Rachel seemed to move on to other friends as your team has grown, but the promises of a great, new banking experience that she spoke of remain just a promise. Maybe my optimistic personality got the best of me again. Sure, your leader Josh Reich tells me about the fact that you have received a lot of new funding and that you have found new corporate partners in Visa, some banks and even TXVia. You even got my hopes up when you hired Alex Payne from Twitter. but it has been 6 months since Rachel last wrote and the only time I hear about BankSimple now is through traditional press releases and trade publication interviews.

Much like in the movie Jerry Maguire, where Renee Zellweger says that Tom Cruise 'had her at hello', you really had me at 'simple'. But now, there are other banks that are starting to look a lot like how you once looked. You have competition in existing banks like Ally, and ING where there are no fees, easy access and even interest on my accounts. You also have a new competitor coming down the road that is compared to you every time they talk to industry insiders. Brett King's MoveNBank seems to be looking for friends also, allowing me to be part of their beta group in 2012. There are some of my friends like Jim Bruene from NetBanker who wonder if MoveNBank may even 'outsimplify BankSimple.

So when is Rachel, Josh, Alex and the rest of your team going to let me see more than promises? I know you have moved to a new headquarters, but to say I am ready is an understatement. Since January, my old bank (yes, I switched once already) has raised fees and cut back the value they provide again, with many of the other large banks following suit thanks to Durbin and other pressures.

If you are not quite ready to let me kick the tires or take your bank for a ride around the block, the least you could do is have Rachel write me again and assume me that our potential relationship is still alive. Otherwise, I will consider the great communication 6 months ago a nice experience, but also another lesson that all banks are alike when it comes to customer service and promises. They love to tease you, but when it comes to delivering on a promise, they fall short.

Please write.

If not you, maybe some of my blog followers can either assure me that I should remain patient or that I should move on.