Category Archives: Mobile

In Defense Of Bank Branches

I got this from a CNBC article on bank branches:

“Mobile transactions are easier for customers and cheaper for banks to service, according to Diebold, a company which specializes in ATM and branch transaction services. In the company’s 2010 investor presentation, it estimated a $4.25 per transaction expense at a bank branch versus only 8 cents through mobile banking. A 2013 Deloitte study found 40 percent of consumers were willing to pay more for the ease of mobile banking, too.”

My take: There’s so much wrong with that paragraph — both stated and implied — it’s hard to know where to begin.

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So let’s begin with the first sentence. Why would mobile transactions be “easier” for customers? Because they don’t have to go to into a branch to conduct the transaction? What if the transaction (or interaction) requires some discussion or involves some level of complexity?

If we’re talking about checking the balance on a account, or transferring funds between accounts, then sure, a mobile transaction may be easier for a customer to do than doing it other channels or through other methods. But the blanket statement “mobile transactions are easier for customers” doesn’t hold water. Unless, of course, you assume that the only transactions that exist are those that more easily done through a mobile device.

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The implication of the second sentence — which states that branch transactions cost an average of $4.25 per transaction vs. $0.08 per transaction for mobile transactions — is that shifting transaction volume out of branches and into the mobile channel will result in huge cost savings for banks and credit unions.

Won’t happen. Not unless you shut down a large number of branches, which is a whole lot easier said than done. In addition, these cost estimates are terribly misleading. They are not variable costs. The branch does not start the day with $0.00 in costs and add $4.25 (on average) every time someone comes in to conduct a transaction.

The CNBC article quotes Brett King as saying “Customers, on average, visit a branch 85% less than they did in 1995.” Assuming that the branch transaction volume declined by 85%, then a driver of the supposedly high transaction costs in a branch is the fact that the volume of transactions in insufficient relative to the cost of operating the channel.

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And if you do shut down branches, there might be negative side effects. Again, from the CNBC article:

“Even in the face of real estate and transaction costs, bank branches are a critical tool to attract new customers—if only serving as expensive billboards for the company in a choice-heavy world. ”It’s going to be very difficult to convince people…that you’re a major presence in a market and you’re here to serve them if you don’t have any physical presence,” said Jonathan Larsen, Citigroup’s global head of retail banking.”

This really gets to the problem of the channel costs that people throw around. The $0.08 mobile channel transaction likely produces no revenue, while the $4.25 transaction might.

It’s akin to why I want to slap people who think direct mail is dead upside their heads. It’s about ROI. If a <1% response rate produces $1 million in revenue for a $10k investment in direct mail, and a 10% response rate in another channel (e.g., social media) produces $10k in revenue for a $1k investment, the larger response rate doesn’t matter. Sure, the social media campaign cost less, but the direct mail campaign produced more revenue.

It’s the same with channel costs. Looking at average transaction costs ignores the composition of those transactions. Smart managers don’t ignore the transaction composition.

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My guess is that Apple could save a lot of money by cramming its products into much smaller stores, and locate those stores in the seedy sections of the cities where they do business. In fact, they could just shut down those stores, and take all product orders online. I’m sure the company could develop a mobile app to merchandise products and take orders.

Yet it doesn’t, and everybody with a Twitter account falls over each other to tell the world how great their Apple store experience was.

Nobody brags about their bank branch experiences, though (except for my dad).

The real problem with bank branches isn’t a higher cost per transaction. It’s a two-fold problem: 1) transaction composition is (still) skewed too much towards service (vs. sales) transactions, and 2) those sales transactions suck.

OK, that last point (#2) was unfair and unsubstantiated.

But the fact of the matter is that many of the sales-related transactions that occur in branches are conducted by employees unqualified to help consumers make smart decisions about their financial lives. And the information that the employers — banks and credit unions — provide to those employees to help conduct those sales transactions is woefully lacking.

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There are industry participants and observers who think that branches will become places where consumers will go to discuss their financial needs and lives, and become more sales-oriented than service-oriented. Others think branches are dead (or rapidly dying) and have no shortage of data to prove their point. 

I think the debate is stupid. There’s no reason why any particular bank or credit union couldn’t go branchless. And there’s no reason why any particular bank or credit union couldn’t make their branches the equivalent of an Apple store. 

It’s not a matter of whether or not branches are a good idea (or not), or whether they’re alive or dead — it’s a matter of execution. It’s about having a commitment to making the branch work (or getting rid of them), and understanding the inconsistent and conflicting decisions that so many banks and credit unions make that undermine channel strategies.

For related posts, see:

What To Do About Bank Branches

Distorted Visions Of The Branch Of The Future

Why Don’t Banks Innovate?

There appears to be no shortage of opinions that banks don’t innovate (see here and here  and here  and…you can find the other 17 million references yourself). 

Rather than arguing whether or not this assertion is true, let’s assume for a moment that it is. The key question, then, is: Why don’t banks innovate (or why haven’t banks innovated)?

Is it because:

a) They’re too stupid to innovate

b) They don’t know how to innovate

c) They’re too risk averse to innovate

d) There’s been no need to innovate

If I were to take a poll, I’d bet that the majority of respondents would answer B, followed by C — even though many of you would like to select A.

I think the answer is D.

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When the Innovation Snobs talk about innovation I think what they’re really looking for is large-scale change in the industry. After all, there have been plenty of technology “innovations” in the industry like ATMs, online banking, online bill pay, PFM, mobile banking, remote deposit capture, etc., but none of these “innovations” seem to satisfy those that call for more innovation.

Despite these innovations, the industry has changed little in terms of power structure and business model (as it applies to the retail sector, that is). Even the sadly misguided Mashable article Can the Internet Replace Big Banks? recognizes this. 

So why haven’t we seen large-scale, transformational change — or innovation — in the industry, despite the advent of the Internet, the Web, and more recently, mobile technologies?

Because — until recently — there has been no need for the industry to change.

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For large scale change to happen in retail banking, three elements need to be in place: technology change, demographic change, and economic imperative.

There’s no formula, but if one of these elements isn’t sufficiently present, change isn’t going to happen. 

Since the mid-90s, the emergence of Internet technologies has created the technology change required to cause industry innovation or transformation. With the advent of mobile technologies, even more technological change is pushing the industry to change. 

Many Innovation Snobs think that this is sufficient to cause change, but it isn’t. And one reason why the technology change wasn’t enough was because we didn’t have sufficient demographic change. 

Ten, even five, years ago, Boomers and Seniors dominated the generational composition of the US population. While we were willing to try technologies like online banking and bill pay, and even willing to open online savings accounts with a firm like ING Direct, we still did our banking business the old-fashioned way: We opened up checking accounts with the same old providers we did 20 or 30 years ago (although many of them merged along the way, of course).

It’s only been more recently that the demographic shifts required to effect industry change have come about. The emergence of Gen Yers as a significant percentage of the US population is a recent phenomenon. What’s different about this generation (from a financial services perspective) is their willingness (or desire) to find an alternative to checking accounts. When Seniors, Boomers, and even Gen Xers became adults, we automatically opened up a checking account. Not so with Gen Yers.

Without this demographic shift, the simple development of online banking, bill pay, etc. was insufficient to bring about large-scale industry change.

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But even the demographic shift by itself isn’t — and hasn’t — been enough. There’s another reason why innovation hasn’t occurred, and I think the Innovation Snobs really miss this point: There has been (until recently) no economic imperative to change. 

Ten years ago I did some consumer research about the drivers of customer loyalty in banking. I went out to my bank clients to tell them the findings, and tell them what they had to do differently to improve customer loyalty. Their response was pretty underwhelming: “Why should we do anything differently when we’re making money hand over fist?”

They had a point. The chart below shows industry ROE from 1998 through 2009. From about 1993 through 2007, industry ROE fluctuated in a narrow band of about 13% to 15%, before falling off the cliff in 2008. 

20130325_ROE

With those kinds of returns, who’s got an incentive to change?

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This is why we haven’t seen the innovation that the snobs have called for. The elements of change haven’t sufficiently been in place. 

But with advent of mobile technologies, the shift in demographics, and the economic issues facing the industry, we might actually be on the cusp of some bigger change. 

Despite the rebound in industry profits since the worst of the financial crisis in 2009, ROE has not come back as fast, and is only at about half of the historical levels of 13%-15%. 

McKinsey did an analysis and estimated that industry profits could reach $154 billion by 2015, up 27% from its 2010 level. But for the industry to reach 12% ROE in 2015, profits would have to be roughly twice that amount — about $312 billion. 

How is the industry going to get there? For that, we can turn to another leading consulting firm, BCG. For the industry to reach historical levels of ROE, cost reduction could put 3 to 4 percentage points on the ROE level (that’s not 3%-4% cost reduction, you know). BCG believes another 2 to 4 points could come from pricing and growth.

20130325_BCG

With all the regulatory changes that have occurred in the past few years, I don’t see how price manipulation is going to help. The banks have been limited in their ability to alter interest rates and fees every step of the way. 

The demographic shift may help to fulfill the growth imperative as a new way of Gen Yers need mortgages and car loans. But the shift away from checking accounts (and the inability of banks to generate significant revenue and profits from these accounts) may inhibit the banks’ ability to put that 1 or 2 percentage points onto ROE through growth.

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So we may actually see some innovation in the industry over the next few years. It’s not like the banks are too stupid or don’t how to innovate. They haven’t had the economic imperative to innovate. Until now.

Stop Spewing Mobile Wallet BS

If I’ve learned anything about doing consumer research it’s this: You can’t ask consumers their opinions about things that they don’t know.

So, feel free to publicize your research about which mobile wallets are most popular with consumers, if you want, but I’m not buying any of it.

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comScore recently conducted a study regarding consumers’ awareness of mobile wallets and found the following (chart pulled from a Venture Beat article):

According to the study, nearly half of all consumers (assuming the study was a study of all consumers) have used PayPal’s digital wallet. That would mean that pretty much everybody in the US who owns a smartphone has used PayPal’s digital wallet.

I can hear the PayPal people laughing at that all the way here on the other side of the continent.

I find it funny, too, because, until recently, PayPal didn’t even have a digital wallet. According to articles published last March, May 2012 was the expected launch date for the Paypal digital wallet. (p.s. I can’t find any articles that confirm that it was launched last May).

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Well, hold on a second here. Maybe our terminology isn’t accurate.

Maybe Paypal has a digital wallet, but not a mobile wallet. Yes, that must be it.

But if that’s the case, then Amazon’s one-click buying should be considered a digital wallet, too. And since you can make P2P transactions from many banks’ online banking platforms, that’s kind of a digital wallet, too, no? But comScore didn’t ask about the awareness of either of those wallets.

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If you’re confused about the difference between a digital and mobile wallet, or what a mobile wallet exactly is, welcome to the club. According to the Venture Beat article (citing the comScore study), less than half of the respondents really understand what a digital wallet is.

But, if that’s the case, then I have a question for Venture Beat: Why would you title the article “PayPal destroys Google Wallet, MasterCard, Square, and Visa in digital wallet study”?

Total BS. The comScore compared apples to vaporfruit, and VB — which acknowledged the consumer confusion — runs with a bogus headline.

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Let’s take a look at some of the other numbers.

According to the comScore study, 1% of respondents use (or have used) the Lemon Wallet and 2% use LevelUp.

The companies, themselves, report quite different numbers.

A Mobile Commerce Today article from December 2012 stated that LevelUp had reached the 500k user mark. Meanwhile, a Bank Systems & Technology article from November 2012 said that Lemon Wallet had 2.5 million users. 

My calculator says the number of Lemon Wallet users are 5 times the number of LevelUp users. Yet the comScore study reports that LevelUp’s market penetration is double that of Lemon’s.

Maybe my calculator is broken.

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What should we make of all this?

Simply, that the mobile wallet space is one messy pile of you-know-what at the moment, and that any claim about who’s winning or losing is: 1) bogus, and 2) the work of a fool.

NeoChecking Accounts

Green Dot recently launched a new type of FDIC insured DDA that is opened and fully serviced on a mobile app.

The app includes a savings vault that allows customers to move money into a savings account without gaining access through the debit card, bill pay which includes P2P payment capability, and an ability to easily load funds through direct deposit, RDC or cash at Walmart locations. The Fortune Teller budgeting tool provides point-of-sale advice on the impact of a purchase on the customer’s budget.

The account will charge $2.50 per ATM transaction for out of network ATMs, a 3% foreign transaction fee with the debit card, and $9 to customize the card design. Overall, Green Dot expects four revenue streams from the product: 1) Debit interchange income (the firm has less than $10b in assets, so no rate cap); 2) Service fees; 3) Float on deposits; and 4) A voluntary monthly fee of up to $9 (no, I’m not joking).

GoBank will target consumers with less than $100k income, does not plan to add a credit product, and does not think the new offering will cannibalize its GPR business.

My take: GoBank represents a new type of product in the market, which, for lack of a better name, I’ll call NeoChecking Accounts.

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Back in August 2011, I published a post here titled The Imaginary War Between Movenbank and Banksimple. A bank exec had tweeted “Just wait til the MovenBank / BankSimple wars….” which I took issue with. At the time, my perspective was:

“One day Movenbank and Banksimple may very well be rivals at war. But for now, the two firms are better off collaborating than fighting. The two firms have to educate consumers on what a new type of bank is, will be, or could be. They have to build demand for the new type of bank they’re building. Which is, of course, no easy feat.”

I wasn’t thinking clearly (no smart-aleck remarks).

It isn’t just the new type of “bank” that the firms have to educate consumers on, it’s a new type of product.

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When my generation — Baby Boomers — went into the working world, (among those of us whose brains weren’t fried from LSD and marijuana) we opened up a checking account. Actually, many of us opened a 2nd account, because we had one in college, from a bank that we vowed to never do business with again.

When the next generation — Gen Xers — went into the working world, (of those whose septums weren’t deviated from too much cocaine) they opened up a checking account. Didn’t think twice about it.

But today, it’s different. It’s not an automatic thing for Gen Yers to open up a checking account (the fact that many struggle to enter the working world is part of it, but not all of it). They don’t write checks (they actually don’t know how). They want alternatives.

But other than prepaid card accounts, there are few real alternatives. That’s what’s changing with accounts like those announced by GoBank and Movenbank. They’re not just alternatives to banks — they’re creating alternatives to checking accounts.

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I told Movenbank founder Brett King that I was going to write a post titled NeoChecking Accounts. He said:

“Don’t use ‘check’ because one of the key behaviors of the new account type is the anti-check behavior.”

The intention is spot on, even if the wording wasn’t. Accounts don’t have behaviors, consumers do. But Brett’s premise —  that a key driver behind consumers’ use of GPR cards is that they don’t need checks, but need a card — is dead on.

But I don’t have a better name for this new account. “Spend account” or “Transaction account” doesn’t seem new or sexy enough.  So I’m going with NeoChecking Account. If nothing else, Keanu Reeves will like it.

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There are two other things related to the emergence of this new account that bears mention:

1. Mobile-centricity is a big duh. GoBank’s and Movenbank’s emphasis on mobile-first, branchless (and maybe cardless) is not a big deal. Every bank and their mother has mobile banking or will. Well-established FIs like USAA could probably wipe the floor with GoBank and Movenbank when it comes to mobile capabilities. I’ve seen critical reviews of the mobile apps from some large banks. That’s easily fixed. It’s no big news that the startups focus on mobile. They’re not going to build a branch network, and they’re going to focus on the group of consumers who are not entrenched in their financial relationships, and who represent the disproportionate share of demand for financial accounts — Gen Yers. This segment relies so heavily on their mobile device for everything, they’re sleeping with the damn thing, and taking it places I’d rather not talk about.

2. Interest in the startups isn’t about the desire for a new kind of bank. Startups and non-mainstream FIs (e.g., Ally) love to tout how they’re a “new” kind of bank, and love to cite the low consumer trust numbers that research has reported over the past few years.  Who cares? As I demonstrated in Bank Vs. Credit Union Realities, the top 50 banks grew deposits by 8.5% for the 12 months ending June 2012 while credit unions’ share balances increased 6.0% (from October 2011 through September 2012). Big banks like WF, JPMC, US Bank, and PNC each had deposit growth about double the credit union total. People want a new type of bank? Nonsense. They want a new type of account.

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Bottom line: GoBank is a sign of things to come. Gonna be interesting. 

A Billion Mobile Bankers?

Someone recently forecast that, by 2017, there will be one billion mobile banking consumers across the globe.

Having forecast mobile banking consumers myself (just US, not globally), I’m interested in these projections as a sanity check against my own numbers.

Here’s my quick and dirty analysis to see if the 1 billion number is reasonable.

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The Population Reference Bureau projects that world population will reach ~7.5 billion people by 2017, ~80% of whom will be in lesser-developed countries. The PRB also estimates that, worldwide, roughly 30% of the population is under the age of 15.

These points are relevant because: 1) the unbanked rate is much higher in lesser developed countries than developed countries (~75% vs. 10-15%), and 2) I’m assuming that people under the age of 15 don’t have checking (or prepaid) accounts.

These assumptions/projections leaves us with .95 billion banked adults in the developed countries, and 1.05 billion banked adults in the lesser-developed countries, for a total of 2 billion banked adults, worldwide. For mobile bankers to hit 1 billion, the adoption rate for mobile banking would have to be 50%.

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There is another possible scenario where the total can more easily get to 1 billion: A change in the unbanked rate.

With the growth of prepaid accounts and other alternative types of accounts, if the unbanked rate in lesser-developed countries drops to 50%, than there would be approximately 2.1 billion banked adults in those countries, or 3.05 billion banked adults worldwide.

For mobile bankers to hit 1 billion by 2017, the adoption rate would only have to be 33%.

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Bottom line: The key variable in determining whether or not there will be 1 billion mobile bankers by the end of 2017 is the unbanked rate. The global rate of smartphone adoption rate is high and will certainly continue to be. In addition, the demographics of some large countries — who can make or break the forecast — like China and India skew to younger consumers who are more likely to adopt and use mobile technologies.

A more important number is this: How many newly-banked people (in both developed and lesser-developed countries) will be mobile-only (or at least, predominately-mobile)?

[Note: You might be thinking, wait, shouldn't that be "predominantly"? No, not necessarily]

Consumers Don’t Want Mobile Offers

BuyVia, an app/website that claims to be the first all-in-one smart shopping experience across devices (whatever that means), conducted a consumer survey which found:

“The majority (56%) of shoppers want to be notified of deals via push notifications on their mobile devices when in an area with local deals.”

My take: Oh really?

As a wannabe legitimate market researcher, I would never publish research results based on an insufficient sample, but from time to time I use my wife and/or daughters as sanity checks (which is ironic, since I usually blame them for my insanity).

I asked my wife “Do you want to be notified of deals via push notifications on your Blackberry when you’re in an area with local deals?”

The look on her face said “What are you talking about?” but her mouth said “What’s a push notification, and how would I know if I was in an area with a local deal? What does that mean?”

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I could ask 1,000 consumers the same question I asked my wife to get their responses and see if the answers differ from my wife’s.

But I’ve already asked consumers about their interest in receiving offers, and the results I got don’t jive with BuyVia’s.

In Q2 2012, Aite Group asked 1,115 US consumers “how important is it to you to receive special offers from merchants on your mobile device when shopping?” Just 14% said “very important,” 27% said “somewhat important,” and 60% said “not very important.”

By generation, how many responded “very important”? A not-so-whopping 23% of Gen Yers, 17% of Gen Xers, 8% of Boomers, and 0.6% of Seniors.

From this, I’d find it hard to conclude that “the majority of shoppers want to be notified of deals via push notifications on their mobile devices when in an area with local deals.” But maybe BuyVia was only considering younger consumers to be “shoppers.” After all, us old people (Boomers, Seniors) don’t really matter any more, do we?

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Why don’t consumers want offers pushed to them?

IF you’re thinking it’s because consumers see advertising as a nuisance and a disruption, I would agree. But I think that there is another reason: Data privacy.

Aite Group also asked consumers about their willingness to share various types of personal data with merchants and retailers in order for that data to be used to personalize offers. For the various types of sources, we asked them to tell us:

  • I have no reservations with this information being accessed
  • I have no reservations as long as I have given the provider permission
  • I am willing to allow access to this data but only if I am asked for permission each time
  • I am willing to allow access to this data but only if it is done anonymously
  • I am not willing to let merchants and retailers access this information under any circumstances

The differences between generations are, again, significant:

Percentage that say that merchants and retailers should not access 
this information under any circumstances
Source                                Gen Y   Gen X   Boomer  Senior
Current searches                       28%     40%     51%     65%
Purchase history (from retailer)       28%     44%     55%     66%
Search history                         29%     44%     55%     70%
Purchase history (from FI)             32%     48%     56%     71%
Location information                   33%     44%     56%     73%
Payment information (i e credit cards) 35%     47%     60%     73%
Social networking profiles and posts   35%     46%     62%     74%
Web browsing history                   35%     47%     56%     74%
Checking/savings account balances      40%     56%     67%     85%

Source: Aite Group survey of 1,115 US consumers, Q2 2012

Still want to try and convince me that the “majority” of consumers want offers pushed to them?

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The truth (like I can claim to know the “truth”) is not as simple as “consumers want mobile offers” or “consumers don’t want mobile offers.”

We want offers to magically appear when we want them to, which can be at any point in the purchase decision process. That point differs across people, and differs for even a particular consumer based on product, mood, and a million other factors.

We say we don’t want merchants/retailers to use our personal data, but then complain when they don’t “know” us. 

We’re OK with our favorite merchant or vendor pushing offers at us, but G*d forbid that a big evil bank pushes an offer at us. That’s grounds for regulatory reform. (If you get an unwanted offer from a big bank, tell Dick Durbin. He’ll enact legislation to outlaw the practice). 

The reality is that some subset of your customers and prospects will be OK with your pushing offers to their mobile device, and using some subset of their personal data to personalize that offer, and provide some rationale for why the offer is relevant. 

The best you can do is figure out which customers/prospects are in that subset, and what you can do to grow the segment. 

In the meantime, don’t believe claims like “the majority of consumers want to be notified of deals via push notifications on their mobile devices when in an area with local deals.”

Top Of Phone Wallet

Credit card marketers are well versed in the concept of the “top of wallet” card.  The idea is simple: With so many Americans walking around with multiple credit (and now debit and prepaid) cards, issuers want their card to be top of wallet — the one that consumers pull out most often when paying for something. 

Although current interest in digital wallets among US consumers is pretty low, there’s a new competitive dynamic that will emerge over the next few years: The desire among providers to be the “top of phone” (digital) wallet. 

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Digital wallets will try to influence consumers’ choice of payment mechanism, as well as what they buy and where. The development of the digital wallet ecosystem — the FIs, merchants/retailers, telcos, and technology companies — will be a critical determinant of what functionality will be provided, how effective the wallet is, and who will and won’t succeed with their digital wallet offering.

If you’re developing a digital wallet today and expect that card emulation is the goal here, you should go back to sleep. If your digital wallet simply stores card numbers, and passwords/IDs and things like that, lean in a little closer so I can smack you upside your head. 

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It’s going to take a while for this competitive dynamic to emerge, though.

I already have six wallet apps on my iPhone. Don’t use any of them. Don’t really know what they do, can do, or should be able to do. 

If you’re reading this, it’s a good chance you’re not normal. No wait, bad choice of words — make that you’re not “average.” You’re probably chomping on the bit to use digital wallets. 

You can loosen your grip on the reins, Bucko, because that horse is trotting — not galloping. 

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Digital wallets are to 2012 what account aggregation was to 2002. 

Back then, when we asked consumers if they wanted account aggregation, they said no. What they were thinking, however, was “WTF are you talking about?”

Some FIs (and at least one technology company) thought back then that account aggregation was something they could charge customers for because they (only somewhat correctly) thought it was painful for consumers to get a consolidated view of their financial lives. 

People didn’t know what account aggregation was back then, and they probably don’t know what it is today, either. What do they know, however, is that their bank or credit union offers something called PFM which gives them an opportunity to link some accounts and see their financial picture. 

It’s not account aggregation they’re “buying” into — it’s the ability to see a consolidated picture. Account aggregation is infrastructure. 

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This is what’s going to happen with digital wallets. 

Nobody really knows what a digital wallet is — there is no standard, predefined, agreed-upon set of functionality. 

Sure, the visionary early adopters — like you — think you know what it is, and what you want it to be. 

But the rest of us don’t. 

One flavor of digital wallet may be Wallabyesque and help consumers choose which card — oops, I mean “funding account” — to use for a particular purpose. 

Another flavor of wallet might focus on protecting and securing someone’s personal information when making mobile payments, and sharing only a specified amount of information with the merchant when making a transaction. 

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Bottom line: The key point is that we’re early in the evolution of digital wallets, but as they mature, different flavors will emerge. The battle will focus on getting your wallet to be the one the most consumers use (in practice, they’re not really going to want to use three or four wallets every day — they may download that many, but not actively them). In turn, that will likely drive choice of funding account. Have fun competing. 

Mobile Wallets: Looking For Convenience In All The Wrong Places

Lots of discussion these days regarding the adoption of mobile wallets, and whether or not they provide an added level of convenience for consumers. Writing in American Banker, Daniel Wolfe says:

“Convenience is a tired selling point for mobile wallets. The argument goes that tapping a contactless card or payment-capable phone against a special reader is so much easier and faster than swiping a card that a consumer would be eager to change their habits. In reality, most people, of course, don’t consider plastic cards all that time-consuming. Checks and cash may take a little more time than cards, but not enough to make most people demand some kind of relief.”

My take: The industry needs to redefine its perspective on mobile wallets’ convenience.

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Daniel is totally right that swiping a plastic card isn’t all that time-consuming. And even if checks and cash do take longer, let’s get real here: The heavy check writers are not the people who will be adopting mobile wallets because of its promise added convenience.

But I disagree with the point regarding mobile wallets’ selling point. Convenience is not a tired selling point. In fact, more broadly speaking, added convenience is usually the best selling point — or reason for adoption — for new technological innovations.

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The problem with the mobile wallet convenience story is that many people aren’t looking at it broadly enough. The real added convenience for mobile wallets isn’t at the point of tender transfer (I’m trying to avoid saying “point of transaction” because there are multiple steps in the transaction process, of which “tender transfer” is one).

Mobile wallets will prove out their convenience advantage in three aspects:

1) Receipts. Even though swiping a card is fast and easy, credit and debit transactions still produce a paper receipt. And if that transaction occurs at a Staples, Best Buy, or CVS, it produces about 3 pounds of paper receipts.

There is a growing segment of the population that wants to go paperless — not just for monthly bills and statements, but — for everything. It’s not a “green” thing. It’s a convenience thing. Managing all this paper is a huge hassle.

Personally, when I travel now, after making a reimbursable purchase, I take a picture of the receipt, email it to Xpenser, and throw the stupid piece of paper away (on the ground, of course, because I don’t want to be confused for some Green-weenie).

2) Rewards. Reward redemption is a real pain-in-the-you-know-what. Redeeming rewards at the point of sale using mobile wallets will become a key selling point for consumers to shift their behavior.

3) Coupons. Is there anything more 1980 than seeing someone in the supermarket scanning a ton of coupons at the register? Eventually, even the least likely candidate to adopt mobile wallets will recognize that the technology’s ability o to store and use digital coupons is way more convenient than what they do today.

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One last question to consider: Why is the industry’s view of mobile wallet convenience so limited?

I have a theory, and it has to do with organizational structure.

In many banks and card issuers, mobile payment (and wallet) initiatives are still led by, and perhaps even limited to, the payments group.

What that means is that marketing’s, and maybe even the online channel group’s, level of involvement is limited.

No offense to the payments people, but I find that their focus is often limited to the payments transaction and how it’s processed and cleared. And not on how it impacts consumers.

Time to move over (Payments) Rover, and let (Marketing) Jimi take over.

Why Do People Switch Banks?

About two months ago, I changed the tagline on this blog. Thanks a lot for noticing [sarcasm].

Google it. It’s a line from a Grateful Dead song, but it perfectly fits the tone and content of this blog — uncovering and dispelling the delusions that many people have about marketing and financial services. 

One of the delusions that needs to be dispelled is why people switch banks. In a recent Bank Innovation TV clip, a claim is made that three out of four people would leave their banks if the bank didn’t offer remote deposit capture (mobile RDC to be more precise, although I didn’t really know there was a difference).  

I don’t know the source of that statistic, but whoever made it public should be forced to debate Joe Biden (that’s a pretty painful punishment, no?).

Aite Group surveyed consumers earlier this year about their financial lives — about 10% switched banks last year. So right off the bat, the idea that 75% of consumers would switch banks for any reason is preposterous.

The predominant reason why people switched in 2011 can be attributed to one thing: Fees. Seven in ten of the people who did switch, did so because their old bank started charging fees, either for the account or for using a debit card.

As important as customer service is, just four in ten cited poor service at their old FI, or superior service at their new FI.

How many people switched because their old bank didn’t offer mobile RDC? I don’t know, because I didn’t ask.

But I did ask if they left because their prior bank didn’t offer mobile banking. Six percent of switchers cited the lack of mobile banking as a reason for switching.  And every one of them also cited other reasons — fees being the most common one.

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Bottom line: I’m not trying to disparage RDC. It’s an important tool to attract younger consumers to your financial institution. But the likelihood that three of four of your customers will leave you if you don’t offer RDC is about as likely as Joe Biden behaving in a debate and letting his opponent finish a sentence.  

Mobile Banking In 2017

One of the first “rules” I learned as an industry analyst was “Don’t comment on the competition’s research.”

So much for that rule. 

Another analyst firm has come out with its forecast on mobile banking adoption in 2017. According to an article in CU Times: 

“Much quicker than many expected, mobile appears primed to emerge as a dominant banking channel with a predicted 108 million users by 2017. That pencils out to some 46% of all U.S. bank account holders.”

My take: When I see forecasts like this, I typically do some back-of-the-envelope calculations to determine the feasibility of the forecast, and to help me figure out what assumptions were probably used to arrive at the number. 

I find the 108 million number doable. Here’s how I arrived at that conclusion:

Mobile banking adoption is highly driven by age (i.e., generation). Younger consumers, to date, have adopted mobile banking more aggressively, and that’s not likely to change. So, there are three key factors for determining how many mobile bankers there will be in 2017:

1. How many people of each generation will there be?

2. How many people will have a banking account?

3. How many people of each generation that has a banking account will adopt mobile banking?

Drawing on statistics from the US Census, I was able to estimate how many people there will be in the US in 2017, using today’s generational labels (i.e., in five years, the oldest boomers will be 70, but that doesn’t make them seniors — they’re still boomers).

Here’s my back of the envelope calculation:

                      Mobile adoption
         Est. pop       2012 2017   Banked  Total Mobile Bankers
Gen Y    75,000,000      39%  80%     90%    54,000,000
Gen X    40,000,000      28%  60%     90%    21,600,000
Boomer   75,000,000      15%  40%     90%    27,000,000
Senior   35,000,000      8%   20%     90%     6,300,000
        225,000,000                         108,900,000

At an 80/60/40/20% adoption rate across the generations, and assuming that 90% of the population is banked, 108 million mobile bankers by 2017 is pretty feasible. It assumes that the adoption rate for each generation will at least double in the next five years. That’s aggressive, but considering the rate of adoption of smartphones, not unrealistic.