Category Archives: Retail Banking

Why Bank Branches Suck (And Why The Branch Of The Future Stuff Is Nonsense)

Chris Skinner recently published a blog post titled Banks designed for humans, not money in which he argues that:

“Branches are banks’ retail stores but were designed for money. They were designed to handle physical forms of cash and cheques, as secure transaction centres. This is the core challenge of why everyone thinks branches will disappear. Because they are not retail stores engaging the brand community but transaction centres run like some administration process.”

In imagining — in Chris’ words — “how the branch experience becomes a retail experience fit for 2013 and beyond,” he identifies a few examples:

  • Washington Mutual (Occasio) and Umpqua removed teller counters and opened the dialogue over a face-to-face table form.
  • Caja Navarro and ING Direct instigate “community engagement” (Chris’ words) by having open house sessions. Caja Navarro offered evening classes in their stores including hair styling and flower arranging, and ING Direct offered sessions where anyone could just ask questions like: “how does a mortgage work?”
  • Umpqua allows branches to be booked in the evening for cocktail parties or business meetings.

My take: These are all interesting examples of alternative (and creative) uses of branch space, but do little or nothing to prove that the branch is an economically viable (i.e., profitable) way of doing business for banks.

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In his post, Chris cites a Bloomberg article that appeared shortly after Apple launched its retail stores:

“Jobs thinks he can do a better job than experienced retailers. Problem is, the numbers don’t add up. I give them two years before they’re turning out the lights on a very painful and expensive mistake.”

Bet that guy wishes he could take those words back.

But the important point is why he was wrong. So-called “experienced retailers” were experienced at selling consumer products (clothing, jewelry, shoes) — not technology products.

At the time of Apple’s launching of retail stores, there were two frames of reference: 1) How existing retailers sold consumer products, and 2) How existing technology companies sold technology products. Apple stores didn’t fit either frame of reference, and hence, geniuses like the one at Bloomberg wrote them off.

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Apple reinvented the way technology products were sold. (It took a couple of tweaks, they didn’t get it right on the first try). What Apple has got right, regarding the sale of technology products, is creating a retail experience that is:

  1. Visual. People want to see the product.
  2. Tactile. People want to touch and use the product.
  3. Informative. People want to talk to store reps who know about the products.
  4. Advocative (I made that word up). People want reps who will recommend products that are right for the customer, not just for the store.
  5. Lean. The buying process if fast, with a minimal number of steps. No waiting in cash register lines. Fast and lean.

Apple stores are successful because — for the most part — they succeed at accomplishing these five things. And it doesn’t hurt that the products Apple sells are products that consumers consider to be very important in their personal lives.

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This is why bank branches suck: They don’t accomplish these five objectives (yeah, I know, if I flip-flopped #2 and #3 we could say that branches aren’t VITAL. I hate stupid acronyms).

Granted, banks are handicapped here.

It’s tough to “see” and “touch” most financial products and services. You used to be able to touch a checking account — i.e., your checkbook — but nobody does that anymore, and you didn’t get that until days after opening your account anyway.

And, for the vast majority of consumers (at least here in the US), although money is really really important to us, our choice of financial products and providers isn’t. We spend more time figuring out what restaurant to eat out at on a Saturday night than we do which bank we do business with.

There is, however, no excuse for why banks don’t meet the informative and advocative hurdles.

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This is also why the various “branch of the future” concepts fall short: They don’t do anything to reinvent the way financial products are sold.

The branchlet concept is great — as are the hair styling, flower arranging, yoga classes, and cocktail party ideas. But they only address the efficiency (cost) side of the coin, not the effectiveness (sales) side.

Chris was spot on in describing the branch as a “transaction centre run like some administration process.” Hair styling and flower arranging classes, however, is just lipstick on a pig. 

Chris was also spot on in suggesting that banks should “combine the two worlds: the retail store and the remote experience.” But I’ve yet to see a “branch of the future” concept that does that. Most BOTF concepts bring more technology into the branch, but few (if any) do anything to integrate the branch experience with the remote experience.

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Banks (and credit unions) have two huge hurdles to overcome in order to make branches profitable:

1. Redefining how financial products are sold. Sitting down at a desk with someone who may or may not be well informed about the products, asking me personal questions about my finances that I have no interest in sharing, talking about they may or may not be right for me….it’s a crappy experience.

2. Getting more people engaged in the management of their financial lives. Chris talks about “using stores as a method of building a sense of community around your brand.” It works for Apple because people really care a lot about their choice of smartphones, PCs, and music devices. You don’t get brand engagement without product category engagement.

There’s a chicken-and-egg situation with this last point. If I’m not engaged in the management of my financial life, why would I go into a branch to learn how a mortgage works? (Unless, of course, there was a free meal there. Free drinks, even better. Offer Macallan 18yo Scotch and I’ll even come in for the hair styling and basket weaving classes).

Apple may have reinvented the way technology products are sold, but the company is successful with its retail strategy because they get people in the door. Ironically, when new products are released, there’s often a line, and people can’t get in. But you know what I mean. 

Flower arranging classes don’t count as a way of “getting people in the door.” Banks don’t have the luxury of having a “cool” product that, when announced, will drive flocks of people to line up at the door. 

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The recent consumer research I’ve done (not yet published) suggests to me people are increasingly engaged with their financial lives. Younger consumers are more engaged with their financial lives than older consumers, and certainly more so than older consumers were when they were in their 20s and early 30s.

But the financial services industry has a long way to go before it can talk about branches as a place that fosters a sense of “ownership, belonging, and loyalty.”

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Bank Customers Want A Seamless Experience (My Foot)

Foot wasn’t exactly the first body part that came to mind, but I’m trying hard to keep it family-friendly here.

Yet another consumer survey from yet another technology company finds that bank customers want…..wait for it….a seamless and personalized customer experience. And that consumers are even willing to share personal information with the bank in order to get that personalized experience!

Only problem here…well, actually, it’s one of a number of problems here…is that this really doesn’t hold water.

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Before I explain what the main problem is here, I should come clean and give you the self-psychoanalysis of what’s bugging me here.

It’s not simply a claim that doesn’t hold water.

It’s two other things: 1) the Questionable Chain, and 2) the potential revenue loss.

Here’s the Questionable Chain:

  1. A technology company commissions a consumer research study which asks consumers questionable questions…
  2. …which produces a bunch of questionable conclusions….
  3. …which finds their way into a questionable press release…
  4. …which provides a questionable argument for why said technology company’s technology should be purchased.

Here’s the potential revenue loss: They didn’t pay ME (or my firm) to do the study for them.

So yes, I have some dishonorable (questionable?) reasons for bashing the research. But that doesn’t mean that what I’m going to say about it is wrong.

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I’m not going to provide a link to the research or name the company. You can Google it and figure it out. I’m deluding myself into thinking that if I don’t mention the firm’s name, I can avoid pissing them off.

The headline of the press release reads as follows: “Consumers want a more seamless and personalized customer experience from their bank.”

My take: No they don’t.

Consumers want things to work. Period. But if you must elaborate, they want things to work the way they expect those things to work, when they use them, and where they use them.

And consumers don’t want to have to think about any of it. They just want it to happen. If you really think about it, what they really want is for banks to be invisible.

“Seamless” is a term that implies that there are seams that need to be hidden or sewn together. I don’t want “seamless” pants, I don’t think my wife wants a “seamless” dress. We want clothes that fit and look good.

Same mentality applies to banking. Consumers don’t think in terms of “seams.” It’s true that there are interactions that require handoffs between channels or people within the bank, and yes, customers don’t want things falling through the cracks or to have repeating their problem five times.

But those interactions are really few and far between for most customers. Most customers don’t start checking their account balance in one channel, and finishing it another. Or starting to pay a bill online and then completing the payment on their smartphone.

The concept of channel integration or consistency in banking is misused and overrated.

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The other problem with the press release headline is something that is very common among the customer experience transformists: There is no such thing as “the” customer experience.

Interactions between a bank and its customers run the gamut of many different types of transactions and interactions. There is no single “experience.” Washing over the differences in the types, qualities, and importance of the various types of transactions/interactions is fool’s work.

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A third problem with the press release: When asking consumers if they would provide more personal information in order to get more “personalization,” what does that really mean?

What are we talking about when we say “personalized” experience and what information is really needed to provide it?

Asking “would you be willing to provide personal information for a more personalized experience” — without getting into more specifics — is simply poor research. It makes for a nice headline, but it’s completely useless, and very misleading.

Let’s explore this for a moment.

How about I personalize your experience on this blog if you provide me with some personal information. OK?

So….why don’t you tell me your sexual fantasies, and the next time you access my site, I will show you pictures of people engaging in those sexual activities.

A “personalized” experience based on your personal information.

OK, sorry. Back to reality.

What exactly is a bank going to do to “personalize” customers’ transactions and interactions? (I’m trying to avoid using “experience”).

There have been lots of attempts to do this already: Use the customer’s name online or at the ATM, customize a dollar amount to be withdrawn at the ATM or the amount to be transferred between accounts, based on previous transaction history.

But those didn’t require additional “personal” information.

I simply don’t understand what personal information I’m supposed to be giving up in order to get a more “personalized” experience that I can’t visualize.

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The release also quotes a company exec as saying “Retail banks that succeed in providing a seamless customer experience across all channels to market- branch, mobile, online, contact center- will be the winners of the future. Superior customer experience will be the only long term sustainable differentiator.”

Nonsense. 

A corporate competency to continuously design, develop, and deploy superior products and services can be a sustainable differentiator. And as I mentioned before, customers don’t use every channel for every transaction/interaction, so this concept of seamlessness just doesn’t hold water. 

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The rationale for publishing research like this comes down to some combination of two reasons as I see it: 1) To generate publicity, or 2) To align or tie the company’s products to the concept of customer experience.

It may have succeeded on the first point, but I think it does little to accomplish the second. 

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

Do You Need A Minty Fresh PFM?

Intuit announced that it would offer banks and credit unions the opportunity to implement Mint as a PFM platform integrated with the FIs’ online banking platforms. As usual, NetBanker was all over this with it’s equally as typical excellent analysis. Jim Bruene’s list of pros and cons for FIs to consider regarding implementing Mint is spot on.

Well, mostly spot on.

There are a few points I’d quibble with. Jim writes:

“Many of Intuit’s 1,100 online banking clients (500 of which use Intuit’s FinanceWorks PFM) will jump at the chance to integrate Mint. Non-customers will be considerably more wary.”

Jump is not the right word.

For the 500 FinanceWorks users, switching to Mint will be a difficult decision. Mint.com may be the gold standard in PFM, but forcing users to change something they use (and may actually like) should not be taken lightly. I also find it difficult to believe that the other 600 clients have been holding off from deploying PFM because they’ve been waiting for Mint.

Jim also points out the potential for brand confusion:

“Adding another brand to your service is always a tough call. And if other banks offer the same Mint-branded PFM, have you lost the potential for competitive advantage? Furthermore, does driving your customer into Mint actually make you more vulnerable if Intuit or someone else releases a “conversion kit” to move all your account history to Mint.com or another bank’s Mint service?”

I don’t think of deploying Mint as adding “another” brand to the online banking service. What other brands are there? Geezeo and Money Desktop are industry, not consumer brands. Popmoney is not a strong consumer brand. There are no strong consumer brands in the world of remote deposit capture. Checkfree for bill pay? It’s not the Checkfree brand that draws consumers to use online bill pay.

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NetBanker’s list of pros and cons are excellent, but it my simplistic way of looking at the world, there’s one overarching question banks and credit unions need to answer here:

Economically-speaking, what are we going to get out of implementing Mint?

According to the nearly 500 credit union executives surveyed by Filene Research last fall, 6% of credit union members use PFM tools provided by their credit union. In other words, the 12 million users that Mint has (or so it claims) is more than double the number of PFM users the total credit union industry has (you can do the math).

1. Will integrating Mint into the online banking platform jump start PFM adoption in a way that other platforms have been unable to?

Geezeo and Money Desktop may have some stories to share about how their clients have seen better than 6% adoption of PFM.

2. If existing Mint users are happy using Mint at Mint.com, will they switch to using it at their bank’s or credit union’s site?

Yes, I too have consumer research showing that consumers would prefer to use PFM at their FI’s site — but those aren’t the existing Mint users.

The future Mint user experience confuses me. Intuit told me that they would not deploy the offers functionality of their dot-com platform in their FI platform. But couldn’t a consumer who uses Mint on their FI’s platform just go over to Mint.com to see these competing offers? If they’re already a Mint.com user, I have to believe the answer is yes. 

3. If we implement Mint, and our customers/members use it, what’s really the bottom-line impact to us (the FI)?

And that’s the question that few (if any) FIs can answer with any degree of certainty.

The research I’ve done shows that — according to consumers’ own perceptions — a minority of PFM users (~20%) deepen their relationship with their bank or credit union as a result of using PFM.

So if you’re a credit union with 6% PFM adoption, and deploying Mint would double that –no, hell, let’s make it triple that to 18%, and only one in five of those members will deepen their relationship from using the tools, the question is:

Is it worth deploying Mint to grow the relationship with 3.6% of our members?

There’s no simple way to answer that question. Who are those 3.6%? How will they grow the relationship? How much do we really need to invest in order to get that relationship growth? Could we be doing some differently with PFM to make the 20% impact rate expand to 40% of PFM users?

Bottom line: Deciding whether or not to implement Mint is not an easy decision. If your FI is willing to make a serious commitment — to PFM, not just Mint — as a tool and platform for nurturing and growing customer/member relationships, then you should do the hard work of figuring out if this is the right platform for your organization. If you’re not willing to make a serious commitment to PFM…

The Holy Trinity Of Financial Technology Success

I was at the Association of Financial Technology conference this week, where I got to present some research and ideas about the future of retail banking. The key message I tried to leave attendees with (who were predominantly employees of financial technology vendors) was that the changes coming down the pike in the financial services industry will create new opportunities for fin tech vendors. I told them: “It’s a good time to be you.”

Yeah, I lied.

Who was I kidding? It sucks to be a fin tech vendor. Always has, always will.

Really now, is there any industry more organizationally dysfunctional than financial services?

Selling technology into even a mid-sized financial institution means dealing with the CIO organization, the line of business, the CFO organization, compliance, and risk.

Everybody in a bank has their own budget to spend on technology, and if they don’t have a budget, they try to spend to someone else’s budget on a technology they need.

Oh, and good luck trying to calculate a cost/benefit or ROI on your technology. I’ll never forget what Pat Swannick, who used to run the online channel group at Key Bank once told me:

“Ron, if every technology initiative we’ve got going on in this bank actually improved customer retention to the extent that the project sponsor said it would, we’d be at 700% retention by the end of the year.”

Estimates of the impact of technology on expenses are no more realistic.

A panelist in one the conference’s sessions mentioned an article he had seen about how a very large bank is not charging for remote deposit capture services because the service will reduce branch interactions which average $2.80 per transaction.  Fin tech vendors salivate over information like this, because they can say:

“Our technology can be deployed for $0,04 per transaction, so if you can migrate 1 million transactions from the old channel to the new technology, you can save $2.76 million!”

Let me give you a lesson in accounting:

If your bank’s branch does 1 million transactions in January, and you calculate (through your primitive little accounting methods) that the total allocated costs of operating the branch was $2.8 million, your average cost per transaction is $2.80, and your total cost is $2.8 million.

If you deploy remote deposit capture at the beginning of February, and reduce branch transactions by 50%, or 500k transactions in February, what are the average and total branch costs for February?

The answer: The total cost was $2.8 million and the average cost per transaction was $5.60. Branch costs aren’t variable. The same people go to work in the branch each day, and the branch is open the same amount of hours and days. You didn’t save diddly squat unless you closed the branch and fired the people.

Bottom line: Deploying the technology produced ZERO cost savings.

This doesn’t sway fin tech vendors from claiming huge cost savings from the deployment of their technology, of course.

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But seriously, I really do believe there are opportunities for fin tech vendors coming down the line.

Of all the challenges facing retail banking, one stands out: The need to generate additional revenue.

And with the technology and generational changes that are occurring, the opportunity to generate revenue by providing technology-based services should be at the top of any bank’s list of potential revenue-generating services.

Selling in their technology to capitalize on this opportunity won’t be easy for a lot of fin tech vendors, however.

First off, many are not very good at calculating the potential revenue gains from charging for a technology-based service (not that the banks themselves are, for that matter).

Second — and I think most importantly — is that there is a new selling dynamic emerging.

Fin tech vendors have learned from 30 (or so) years of experience how to sell into the CIO organization and address the needs and concerns of the CFO.

But there’s a new constituent getting involved in a lot of technology decisions, especially those decisions involving customer-facing technology: the CMO.

20130322_HolyTrinity

The CMO is a relatively new buyer, and new influencer, of fin tech decisions. With different motivations and metrics for making technology decisions.

The CIO and CFO are still involved in these decisions, making the sales process even harder.

And in many banks, alignment between CIO, CFO, and CMO is not where it should be.

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The fin tech vendors who succeed will be those that navigate this trinity and help achieve alignment. And not necessarily those who have the best technology.

Another session panelist — the SVP of Digital Channel Management in a bank — mentioned how one vendor came into his office touting the superiority of the vendor’s integration capabilities, assuring the bank exec that integration would “never be a problem.” That vendor didn’t get very far.

Joking aside, it is a good time to be a fin tech vendor. Just not the one mentioned in the paragraph above.

Consumers Don’t Really Want Portable Checking Account Numbers

Switching Banks

According to a study conducted by BT and YouGov, 61% of US banking customers want portable banking account numbers. As reported by The Financial Brand:

“The research, which surveyed more than 6,500 people across six countries, found most consumers agreeing that a portable account number — one allowing them to switch banks without changing account details and causing major disruptions — would be useful.”

My take: No way. US consumers don’t want a “portable” banking account number (can’t speak to consumers in other countries, though).

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There’s an old marketing parable (?) that “people don’t want a drill, they want a hole.” This talk of portable banking account numbers is the same thing. 

What people want is less hassle closing accounts. If you tell them a portable banking account number will accomplish that, then, sure, they’ll tell you that they want portable banking account numbers. 

We want portable phone numbers across carriers because we tell so many people our number that switching numbers is a pain. Plus, I have a really cool number (because I’m a Yankees fan in Boston — remind me to tell you that story one day), and there’s no way I’ll give it up. 

But you’ve got to be one really strange nerd to know your checking account number, and be adverse to giving it up. 

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This kind of research scares me. 

Why is BT and YouGov asking US consumers if they want portable bank account numbers?

BT stands for British Telecom, no? Go back to England, BT. We have enough crappy telcos in this country, already, thank you very much. 

YouGov, on the other hand, according to its website, ”is a professional research and consulting organization, pioneering the use of technology to collect higher quality, in-depth data for companies, governments, and institutions so that they can better serve the people that sustain them.”

The people sustain the government? Huh?

If this research is aimed at influencing US policy on making it easier for consumers to switch banks by creating portable account numbers, they better be careful what they ask for. 

After all the Dodd-Frank disasters, I wouldn’t expect our government to have any foresight on unanticipated consequences, but government attempts to make it easier for consumers to switch banks by mandating portable account numbers will backfire.  

The cost of deploying this scheme is way beyond my ability. But I will bet that two things will happen:

1) FIs will pass the cost on the consumers, and

2) FIs will deploy other tactics to make it tough to switch — like 2-year contracts like the telcos use. 

In an interesting article on Financial Brand, Mike Branton of Strategy Corps reports on research that shows that consumers express a willingness to pay for what Mike calls “lifestyle financial services” like identity theft alerts and credit score reporting.

Want those services for free? No problem. Just renew your checking account contract for another 2 years, and we’ll throw in ID theft alerts for free. 

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Each year (at least for the past couple of years that I’ve seen research for), no more than 10% of US consumers switch banks. And it’s not for certain that it’s a different 10% each year. 

Why do we need a government policy that adversely impacts the other 90% to serve the 10%? Is that “fair” (which seems to be the mantra of the current administration)? 

It’s not like a policy mandating portable bank account numbers will help the unbanked. They don’t have account numbers. 

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Making it difficult to switch bank accounts is a fundamental element of Porterian (you know, Michael Porter of Harvard) strategy: Create barriers to exit.

Does this it make it inconvenient for the minority of consumers who want to switch? Yes.

But, boo hoo. We have bigger issues in the financial services industry to fix than this.  

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There’s another disconnect in this situation, as well. 

While there’s no doubt that (many) banks make it difficult to switch — out of them, that is — there seems to be no shortage of banks (and credit unions) touting how easy it is to switch to them. Here’s one example from one large regional bank:

This is just one example. There are plenty of other examples I could have included, especially from credit unions.

So, is it easy or not? 

If it is, then we certainly don’t need portable account numbers. And if it’s not, then there are a lot of FIs make false advertising claims.

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.

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]

Bank Vs. Credit Union Realities

Last July, I published (Motley) Fools Shouldn’t Write About Big Data in which I took Motley Fool to task for publishing something that I concluded was ”an embarrassment to high quality journalism” because of the article’s inconsistencies and unsupportable assertions.

As Britney Spears might say, “Oops they did it again.”

An article penned by a Motley Fool contributing writer titled Americans Keep Fleeing Banks, Flock to Credit Unions Instead contains the following:

“Given current public sentiment against the nation’s big financial institutions, it’s a sentiment a lot of Americans might be able to get behind. Not robbing banks, exactly, but taking their money out of them … and putting it in credit unions instead. Owned by their members (rather than by profit-hungry shareholders), credit unions have both an incentive to keep costs low and a complementary lack of incentive to raise costs high.”

After comparing bank and credit union fees and rates, the author concludes “None of this is good news for investors in banking stocks, granted.”

My take: Shoddy journalism at its worst.

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Let’s start with the title of the article which asserts that Americans are “fleeing” banks.

According to SNL Financial (no, not Saturday Night Live), through the first half of 2012, just a handful of the 50 largest banks experienced a decline in deposits from their 2011 levels.

As a group, the top 50 grew deposits by 8.5%. According to creditunions.com, from October 2011 through September 2012, credit unions’ share balances increased 6.0%. Big banks like WF, JPMC, US Bank, and PNC each had deposit growth about double the credit union total.

Consumers are fleeing banks? I don’t think so.

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Motley Fool dude also says that “owned by their members (rather than by profit-hungry shareholders), credit unions have both an incentive to keep costs low and a complementary lack of incentive to raise costs high.”

Wow. An entity that supports/advises investors insults them by calling them “profit-hungry shareholders.” As a “profit-hungry shareholder” myself — along with tens of millions of other 401(k) participants — I find this pretty insulting.

Who does the Motley Fool dude think credit union members are, anyway? They’re average Americans — a huge percentage of whom own stocks in companies and are, therefore, one and the same “profit-hungry shareholders” he derides.

More importantly, though, the statement implies that credit unions have an incentive to keep costs low — and that banks don’t. Nonsense. I guess Citi plans to eliminate 11k jobs because they just don’t want to manage that many people anymore. Cost-cutting is one of banks’ top priorities.

The last part of the MF statement — “complementary lack of incentive to raise costs high” — could have used a little editing. I think what it should have said was “complementary lack of incentive to raise fees high.”

But it’s still nonsense. Credit unions may be non-profit, but they’re also not-for-loss. There’s huge pressure on CUs to raise fees on checking. I’d be willing to bet that in a lot of cases, CU management actually wants to raise rates, but the board won’t let them.

In any case, the Motley Fool statement doesn’t hold water.

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Lastly, Motley Fool dude concludes “none of this is good news for investors in banking stocks.”

Geez, what rock is this guy living under?

According to a TheStreet.com article:

“2012 was a remarkable year for bank stocks, with the KBW Bank Index returning 30%, after falling by 25% during 2011. After a bumpy right toward year-end as the fiscal cliff negotiations dragged on in Washington, bank stocks have been strong so far during 2013, as positive economic reports continue to roll in.”

The article quotes one investment analyst as saying “Modest revenue growth, continued efficiency improvements, and deployment of excess capital are creating core earnings growth.”

So, tell me again, Mr. Motley Fool dude, why is “none of this good news for investors in banking stocks”?

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Bottom line: At a minimum, the Motley Fool article is just shoddy journalism, demonstrating little knowledge of the banking industry.

But I can’t help but believe that the author was just looking for ways to bash big banks — regardless of what the data says, or what the realities are.

I expect this amateurish, politically-tinged journalism from certain publications and media outlets (like MSNBC and HuffPo). But not from one like Motley Fool.

Kill The Unbanked

It’s time to kill the Unbanked. The label, not the people.

A Knowledge@Wharton post titled A Question of Value: Bringing Banks to the Unbanked contains a number of statements that bear a closer degree of scrutiny.

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K@W: “One quarter of all Americans households are not maximizing their banks’ services — or going to a bank at all — choosing instead to use such substitutes as check cashers, payday lenders and refund anticipation loans. [T]hese 34 million households are ostensibly on the radar of banks that could gain them as customers.”

My take: First off, if “these 34 million households are on the radar of banks that could gain them as customers,” then how could they be “not maximizing their banks’ services” if they don’t do business with banks? Second, why is it assumed that a customer who uses an alternative financial service provider is “not maximizing” their bank’s services? Payday lending rates may be high, but direct deposit advances offered by banks and credit unions aren’t exactly bargains. Assuming that one’s bank could provide a service better than that offered by an alternative financial services providers is not a defensible assumption.

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K@W: “Reaching out to these unbanked or underbanked consumers may become even more complicated due to an unintended consequence of the low interest rates set by the Federal Reserve in an effort to jumpstart the U.S. economy. As a result of the Fed’s move, the story notes, banks are earning less on individual transactions, which means they will have to come up with new ways to make money. That might include raising fees for services, which in turn could lead to more consumers being priced out of doing business with traditional FIs.”

My take: Hello! Where have you been Wharton? Banks have been raising fees for services for the past three years to recoup the revenues lost to the weak economy and regulatory changes. Many consumers have already been priced out of doing business with traditional FIs. But…why is this assumed to be a negative? Who said that only a “traditional” FI could provide high-quality financial services to consumers?

This line of thinking seems to be rooted in some misguided belief that a checking account is some kind of God-given right, and that paying for the account (or at least paying more than some arbitrarily determined amount) is a violation of that right.

The EU seems to be moving in this direction. Given the financial troubles the EU is having, is this really a policy we want to emulate here in the US?

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K@W: “Although the FDIC notes that the unbanked and underbanked sector in the U.S. tends to be composed mainly of “non-Asian minorities, lower-income households, younger households or unemployed households,” this group is not a homogenous section of the population. Instead, they represent a range of races, incomes and ages “with different sets of needs and different challenges,” notes Raul Vazquez, CEO of Progress Financial, a community-based financial services company targeting Latinos.”

My take: Thank you, Mr. Vazquez — your comment is spot on. Mr. Vazquez blasts a common misconception that anyone who fits the label Unbanked or Underbanked is some kind of underprivileged consumer being taken advantage of by big evil financial institutions and alternative financial services providers.

Wrong assumption. There is a growing segment of the population called the Debanked — mainstream consumers who are highly educated, and either employed or employable (due to their current status as a college student) — who willingly, consciously, and rationally avoid doing business with a traditional FI.

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K@W: “Many people do not like banks because they are tired of being charged fees that were explained in small print that no one reads,” [Wharton professor Keith] Weigelt points out. “They feel banks rip them off.”

My take: Granted, disclosure statements could be simpler and easier to read. But one $5 fee doesn’t put someone in dire straits. The people who pay out $1000+ per year in bank fees are doing so because of some so-called hidden fee. They do so because of their own behavior. They need help that banks aren’t set up to do. An Aite Group analysis from 2009 found that about one in consumers with a bank account would be better off getting out of checking accounts and using prepaid debit cards to manage their finances. As fees have risen over the past three years, that percentage has to have grown.

The reality of the financial services industry is that for many consumers, using so-called alternative products from so-called alternative providers isn’t a bad thing — it’s a good thing.

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And, in fact, that’s exactly what Mr. Vazquez says:

“Vazquez says that in order for the unbanked to begin relationships with traditional financial institutions, it might be necessary for them to first use community based organizations and other alternative products.  ”A bank is not necessarily built to meet the needs of these customers,” he notes. “With the overhead [banks] carry and the fees they impose on accounts, [the cost] might be too high for an independent banking relationship.”

My take: Mr. Vazquez is, again, spot on. But his comment hints at something I don’t hear many people talking about: That if the unbanked first use alternative providers before developing relationships with traditional FIs, then the unbanked aren’t always unbanked. In order words, for many consumers, unbankedness is a transitory phase.

What this means is that, rather than creating regulatory hurdles and constraints that force traditional FIs to serve the [temporarily] unbanked, public policy would be better served finding ways to fix the underlying factors causing the temporary unbankedness — which, in many cases, is temporary unemployment.

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K@W: “Banks are eagerly trying to attract a chunk of this “underbanked” population, but are still looking for the best way to do it. Their desire to serve this customer base may not be so much out of goodwill, Weigelt notes, as the desire for higher profits.”

My take: Banks have a desire for higher profits? Duh. That was a tough one to guess, eh? But part of the statement above makes no sense, and is indicative of the confusion surrounding the terms unbanked and underbanked. By definition, the underbanked are already doing business with banks. So banks really aren’t “looking for the best way” to attract them. They already have them. But, for whatever reasons, banks aren’t providing all the products this segment needs. Maybe it’s because they can’t provide those products profitably. If that’s the case, then banks really aren’t looking to provide those services to this consumer segment.

I don’t believe that banks can’t profitably provide those services, and have published a number of Aite Group reports over the past year trying to make the case.

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Bottom line: Consumer advocate groups, industry pundits, and other uninformed observers need to understand this: So-called alternative products are no longer alternative. And that terms like unbanked and underbanked have outlived their usefulness. 

It’s time to kill the unbanked.