Will Technology Mean the Death of Customer Relations for Banks?

by tom 22. August 2014 15:37

We all know that technology is changing the landscape of banking and financial services. New competition from prepaid cards and “neo banks” is eroding banking revenues, and many banks and credit unions have been surprisingly slow to react. Perhaps traditional banking practices are just too difficult to adapt to new consumer demands, or maybe these technology-driven upstarts aren’t seen as a real threat by bankers.

I recently read an interesting post on BankInnovation.com by Matt Harris, a New York venture capitalist, that sums up the challenges presented by the prepaid card market in particular. Here’s his observation in a nutshell:

Small banks and credit unions have traditionally survived and thrived based on their local relationships and physical footprint; the prepaid architecture has unleashed the entrepreneurial energies of dozens of new and compelling branchless competitors, who challenge long‐standing relationships and make geographic density irrelevant.

It all boils down to the changing relationship between banker and customer. Following the recent recession and the birth of protests like the Occupy movement, consumer faith in the banking industry has plummeted. Let’s face it, few consumers have a friendly relationship with their local branch bank. Many consumers see the bank as something they must deal with to manage their checking and savings, and a resource when they have to borrow money. Like it or not, consumers have seen banks as the only game in town.

That’s no longer true. The evolution of pre-paid cards is eliminating the need to ever set foot in a bank branch. As Harris points out banking products “have always been driven by regulators and bank technology vendors, not by consumer preferences in any event.” Entrepreneurs who are offering easy-to-use prepaid debit cards and online transaction services are bypassing the regulators and delivering new services with real consumer appeal. The banks have been demoted from retailer to wholesaler, with consumer bank accounts now powering these new third-party debit cards and neo-bank accounts. Banks are becoming a “commodity utility.”

And then there is the geographic problem. Banks and credit unions have always embraced the policy, “If you build it they will come”; if they have more local branches and create a strong physical footprint they will be able to attract more local customers. Before the smartphone, banks on opposite sides of the street would compete on fees and interest rates. Now the smartphone is enabling branchless banking, which means consumer are putting mobile convenience ahead of location. And with more new non-regulated bank-like products hitting the market other companies with prime real estate, like Wal-Mart, can serve the same role as branch banks.

As a result, the bank-customer relationship  is eroding, and with it bank profits. Banks need to establish deeper customer relationships to increase share of wallet. In the pre-web days, consumers used to rely on their bankers for financial counsel as well as protecting their money. Now the web has taken over as the go-to for financial support, and bankers don’t have the same opportunity to build that customer relationship.

Reversing the trend will not be easy. As noted in an opinion piece this week in American Banker by David Uhl, senior vice president of consulting services for Aubrey Daniels International, the age of the results-driven banking culture is past. If anything, running banks strictly by P&L performance will cost business in the long run since it promotes practices that place profits before people. It might be more profitable to reward employees for providing better customer service, not just adding to the bottom line.

In the age of Internet banking consumers care less about brand and local branch access and more about convenience and service. Those banks and credit unions that can deliver more convenience and better service will have a better chance of elevating themselves from a commodity to trusted partner willing to support consumers in all aspects of their financial lives.

Weekly Term Accounts APY Spread and Premium Index–Aug 18

by tom 18. August 2014 16:08

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

image

“Innovate or Die!” – Or Maybe It’s “Implement or Die”

by tom 17. August 2014 21:59

A common mantra in the banking world is “innovate or die.” The argument is that banks have to pursue the latest technology to keep pace with the competition (not even get ahead, mind you), and those who fail to enter the race will drop out.

I urge you to read the latest blog post from Ron Shevlin of Aite Group. Shevlin makes a very cogent argument for how banks need to address innovation, and it’s not as simple as he who has the best toys wins, nor are the banks acting like lemmings chasing the latest technology over the nearest cliff.

Shevlin quotes a study from Knowledge@Wharton:

“Disruptive innovations need not lead to an incumbent’s fall, despite prevailing academic theory arguing otherwise. Startups introducing disruptive technologies are more likely to end up licensing to incumbents or agreeing to be acquired rather than turning into rivals. Once the technology is proven, among other factors, start-ups tend to form alliances or merge with market leaders, thus preserving the status quo.”

He then notes that applying this viewpoint, banks are faced with a three-phase challenge regarding new technology: assess/acquire/deploy.

  1. Assess the latest innovations to see what has market momentum;
  2. Acquire the technological innovations that seem most promising at the right time (i.e don’t build it, buy it); and
  3. Deploy or exploit the new technology to your advantage.

Seems simple, right? Using this approach you don’t have to innovate, you just have to savvier than the next guy and ready to scoop up the right innovations at the right moment. So why is this so hard for banks?

Largely because financial institutions are not structured to take advantage of innovation. Innovation comes from brainstorming, so ideas are generated with no execution strategy, or innovation gets lost in strategy which becomes more about budget allocation than trying something new. And even if something innovative is identified, getting it off the ground is another matter. Deployment is hard, especially when the organization is adverse to adopting new technology that could require risk.

So while banks are monitoring the market, financial upstarts like PayPal and Google are coming up with innovative alternatives for mobile transactions and online bill pay. Sure, financial institutions can wait for these upstarts to prove the technology and demonstrate consumer demand, but by that time they are playing follow the leader; it’s too late to acquire technology that has already penetrated the market.

Bankers by nature are risk averse. Innovation by its nature requires risk. This oil and water combination continues to leave banks and credit unions playing catch up on emerging technologies like mobile banking and e-wallets. They aren’t structured to embrace new. So maybe they don’t have to innovate or die, but they need to adopt more of a carpe diem approach, identifying future trends that yield the best market  possibilities and implementing them before someone beats them to market. That doesn’t mean financial institutions have to blaze new trails and assume all the risk, but they do need to be willing to back those trailblazers who seem to be headed in the right direction.

Banks and credit unions don’t have to be the innovators, but they do need to be implementers. They need to be prepared to embrace a good idea when they see it rather than waiting for the market to respond. It’s not so much a matter of “innovate or die” but more a matter of “lead, follow, or get out of the way.”

Weekly Term Accounts APY Spread and Premium Index–Aug 11

by tom 11. August 2014 16:16

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

image

The Risk of Mobile Banking – Are 1 in 10 Deposits Really Fraud?

by tom 7. August 2014 14:52

Don’t believe everything you read in the press or on the Web for that matter. According to reports earlier this year, a study by the Center for Financial Services Innovation determined that 10 percent of people using their cell phones to make mobile deposits had the check returned to the originating institution. The most common form of mobile fraud is depositing the same check twice; once via smartphone and once at the bank. But if the statistics are right, then that means one out of every 10 deposits is fraudulent.

That number seems out of line with  reality, especially when you consider  the growing demand for mobile banking services, and financial institutions’ willingness to embrace services like mobile deposit. Consumers are starting to expect mobile banking as part of their basic banking services, and they are even willing to pay a fee to enable mobile deposits. That can’t be because 10 percent of them are crooks.

In fact, the headlines are misleading. In an article this week that appeared in Bank Systems & Technology, Lee Wetherington, Director of Strategic Insight for ProfitStars, said he didn’t believe the report statistics and did some further digging. What he uncovered was that the study shows that 10 percent of customers of “prepaid” mobile remote deposit capture (mRDC) services had their deposits returned. The study defines prepaid mRDC as checks converted by mobile wallet providers. In other words, these are deposits to non-banks.

So it seems those 10 percent of alleged mobile fraudsters are using Google Wallet, Amazon, and PayPal and they are having their checks returned. That’s a far cry from 10 percent of all mobile deposits.

So it seems the race for financial institutions to implement mobile banking isn’t fraught with as much risk as was initially expected. This also shows that while consumers are more willing to embrace the concept of the mobile wallet from companies rather than banks, there is always risk associated with counting on an uninsured entity to take care of your money. Banks continue to reign as the power behind the mobile wallet, and they have the benefit if the FDIC behind them. So while the mobile wallet from Amazon or Google may seem “cool” at the moment, banks and credit unions are still in a better position to upgrade their mobile financial services and give consumers what they want, including peace of mind.

Tags: , ,

Mobile Banking | Consumer Confidence | Banking Technology | In The News

Weekly Term Accounts APY Spread and Index–Aug 4

by tom 4. August 2014 16:14

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

image

Tags: , , ,

Banking Trends | CD Balances | National Pricing Indicator

Can Technology Enable Made-to-Order Banking Services?

by tom 31. July 2014 15:59

Technology is taking over the banking industry, but is that a good thing or a bad thing for customers?

In an article published this week by BAI Banking Strategies, Jeff Marshall outlines his vision for the evolution toward one-click banking, where analytics systems become sufficiently sophisticated to integrate online and in-branch banking so customers get the best of technology and personal service. Marshall’s example cites a customer seeking a loan, who fills out the paperwork online and then completes the transaction in the bank, with all the paperwork and approvals prepared. As Marshall writes:

Ultimately, we see a migration toward “One-button Banking,” or giving the customer everything he or she needs through any channel via one button. Think of the evolution of the smartphone, where the capabilities have increased, but the number of buttons has decreased. Banks have an opportunity to do the same thing, using data analytics in an omnichannel strategy to give customers more, more simply and in a more timely manner.

But is this really what customers want from their banking experience? Do they want to do all their financial shopping online without advice? Can automation really meet customers’ banking needs or are they looking for more personalized service?

A study conducted by Cisco Systems indicates that consumers are becoming more comfortable with online bank interaction. They showed willingness to provide more information about their financial habits in exchange for protection from identity theft (83%), more savings (80%), more personalized service (78%), and greater simplicity (56%). However, they still want personal financial advice; 54% said they want automated systems to provide financial recommendations.

Automating banking saves overhead for financial institutions and provides customer convenience, but it also tends to lead to depersonalization. Customers are stuck with cookie-cutter options. They can choose one of the menu items without a opportunity to discuss personalized options or alternative products that might better suit their needs.

In addition to streamlining transactions, technology can be used to promote personalization as well. Consider the case of the Oversea-Chinese Banking Corporation (OCBC), which launched a big data initiative to learn more about their customers. Using all the information they could find, OCBC was able to create customer profiles and target personalized marketing messages across 10 channels (email, ATM transactions, online, text, etc.). The result was an increase in leads of 417% and conversion rates as high as 40%.

This is a proven approach to target your current product offering to the profiles of specific customers. But what about personalizing products to meet specific customer needs? The Model T Ford was available in one model and one color, and today there are dozens of customized Ford cards in multiple colors. Will customers settle for the cookie cutter products or will they expect banks to offer more customized products? As Matthew Lifshotz, Director of Global Business Development for Choice Financial Solutions, writes in The Financial Brand:

A paradigm shift is taking place, from a product centric approach (off-the-rack) to a customer centric approach (made-to-order), where customer involvement shifts from just purchase to the development as well. It’s become more important than ever for companies, especially those in financial services, to be nimble and respond quickly to this market demand.

Does this mean banks and credit unions need to follow the consumer goods example and offer made-to-order products, like Nike custom shoes? Perhaps. As the OCBC example shows, we have the technology is to identify and target specific customers with custom products. We even have the technology to help customers create “roll your own” financial products online.  Whether consumer demand for customized financial service products will become a differentiator for banks and credit unions has yet to be seen. However, consumers will continue to look to online services for their banking needs, and they may ultimately expect a robo-banker to help them customize their loan and savings products.

So are the days of in-person, in-branch service numbered? Will banks start to adopt the Amazon transaction model for banking?

Weekly Term Accounts APY Spread and Premium Index–Jul 28

by tom 28. July 2014 16:10

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

image

Tags: , , ,

APY | National Pricing Indicator | Market Research | Deposit Products

Amazon Sets its Toe in the Mobile Wallet Pool

by tom 24. July 2014 16:36

For those of you who may have missed it, Amazon is the latest brand name to step gingerly into the mobile transaction arena with the quiet introduction of its new Amazon Wallet.

imageOffered both through Amazon and the GooglePlay store, the new Amazon Wallet app provides a central location to store loyalty and gift cards in a digital format, as either a bar code, QR code, text, or image that can be stored on your smartphone. The idea is to “reduce the clutter in your wallet or purse” and to give users a means to shop at supported merchants, including the ability to check their card balances. The Amazon Wallet is also being included pre-installed on Amazon’s new Fire handset.

Consumers can add gift cards to their Amazon Wallet mobile account online through their Amazon account. While Amazon users can buy gift cards online using their credit cards or bank accounts, i.e. the transaction methods associated with their account, they can’t directly access their bank account or credit card via the Amazon Wallet, but that capability can’t be far off.

Amazon Wallet is still a poor competitor to Google Wallet and other mobile competitors, but Amazon has its sights on expanding support for its local merchant base. The company has been offering Amazon Local for some time, sending email subscribers coupons and special deals from local merchants. With the new Amazon Wallet they now add easy gift card and payment options to support local merchants.

And Amazon clearly has its eye on the larger mobile transaction market. Once the company lets users manage store cards, credit cards, and debit cards they will become a viable competitor for PayPal and Google. Amazon is also looking seriously at expanding its capabilities for peer-to-peer payments.

Mobile wallets are the new form of transaction, like it or not. Research shows that 44 percent of smartphone users want to use their handheld devices for person-to-person payments. Researchers also have found that only 27% of all consumers and nearly half of smartphone users (44%) report overall interest in being able to use their smartphone to process in-person payments. Only 12 percent of consumers surveyed say they are ready for mobile payments (although this number is probably higher today since the data is more than 12 months old). The biggest obstacle to mobile payments is a concern about having sensitive personal data stored on a device that can be stolen or lost.

What is driving mobile wallet adoption, however, is shopper loyalty programs. According to Yankee Group, 61 percent of consumers say that receiving coupons and special offers are enough of an incentive to use their mobile wallets. And 53 percent said that receiving reward points would compel them to use their mobile wallets more frequently.

So how is the mobile wallet boom going to affect banks and credit unions? If mobile payment options like Amazon Wallet and PayPal continue to thrive, then credit cards and bank accounts will be the invisible back end that powers transactions. The brand name associated with the transaction, however, will be whatever service provides the mobile wallet. And if consumers are clearly looking for incentives to adopt mobile payments, then perhaps some of the reward points associated with credit cards could migrate to bank-owned mobile transaction systems. 

In any case, for financial institutions it looks like a case of “if you can’t fight them, join them,” either by partnering with mobile transaction providers to support smartphone transactions, or developing a mobile transaction offering that is attractive enough that it will give consumers incentive to adopt the banks’ mobile wallet instead of Amazon Wallet, PayPal, or Google Wallet.

Do you see banks and credit unions taking a more aggressive approach with mobile wallet adoption? Does it make more sense for banks to offer their own mobile wallet solutions or to defer to the name brands like Amazon?

Tags: , , ,

In The News | Mobile Banking | New Products | Banking Trends

Weekly Term Accounts APY Spread and Premium Index–Jul 21

by tom 21. July 2014 16:48

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

image


Become MRI Fan on FaceBook!

FaceBook Icon