Using Technology to Power the “Cool” in Next-Generation Banking

by tom 8. January 2015 13:31

We have been writing about mobile banking and digital banking technology on a regular basis in this weblog. Technology is shaping the future of the banking industry, and technology-driven upstarts such as Apple Pay are having a dramatic impact on the way consumers think about their relationships with their banks and credit unions. One perspective on the future of digital banking was presented this week by Chris Skinner, author of Digital Bank, in a contributed an article on “Creating a Bank that’s Both Cool and Fair” for American Banker.

Skinner argues that for a 21st century bank to be “cool” it has to offer apps that simplify personal finance management, make it easy to authenticate users without account number and passwords, and reward customer loyalty in new and innovative ways. Many of these ideas jibe with what  the industry experts see for the coming year, so let’s take a closer look at some of these trends and the “cool” factor for tomorrow’s banks.

Convenience is a good place to start. What is driving online and mobile banking is the convenience factor for  consumers, and the simpler and more convenient banks can make transactions the better for their customers. Skinner predicts that banks will start using personal space and new technology, like voice prints, to authenticate customers. We are a long way from there, but simplifying authentication while improving security is clearly essential.

As smartphone technology evolves biometrics and other types of encryption and authentication will make mobile banking easier, and more secure. Banks also will get smarter about profiling their customers, and technologies like big data will not only play a role in developing new products and strategies, it also will help authenticate users based on known profile information about location, spending habits, and more. Mobile and online transactions will become simpler as security technologies and protocols improve until we get to the point where you can make a transaction with a finger swipe or a single click.  For the time being, bankers are going to continue to partner with payment partners like Apple to handle mobile transactions and promote mobile convenience.

Promoting the “cool” in next generation banking is going to be important for banks and credit unions to compete with prepaid cards and other types of emerging financial service offerings. Starting with the digital channel, rather than adapting conventional banking protocols to the digital world is one place to start. Innovative financial institutions are going to start with digital first and worry less about their brick-and-mortar business.

Skinner also suggests that cool banks will do a better job of treating their customers as human beings. This is going to require a cultural as well as a technological shift in many cases, but technology can bring financial institutions closer to their customers. Social media has already started to play a role in connecting customers to their banks. The challenge now is to personalize mobile and online banking, giving customers the assurance that their personal needs are being considered with custom product features and unique specials.

Loyalty programs are going to evolve with the aid of technology. Customers will be able to choose from new types of rewards that better suit their lifestyle, whether it’s cash back, special offers from retail partners, or donations to worthy causes. Personalized offers coupled with convenience are going to be the new cool.

So how do cool banks make their cash? With the recent economic downturn deposit rates aren’t generating revenue, and sources of fee revenue are coming under increased scrutiny. Maybe it’s time for banks and credit unions to rethink their customer approach. Rather than charging customers for services they don’t want, identify services they are willing to pay for and tie new revenue sources to convenience and value. Rather than relying on NSF revenue, for example, progressive financial institutions will work with customers to identify new convenience-based services that are worth a premium. They also will partner with retailers and others to offer deals on loans and credit card transactions, or to include a premium for convenience banking services. The revenue model for banks and credit unions will evolve into opt-in consumer fees and third-party revenue streams rather than forcing customers to pay to use their money.

What do you see as the key drivers for the “cool” banks of tomorrow? Where is technology going to have the greatest impact?

The Latest from ProductBuilder Alert

To help our bank and credit union clients stay up to date with new sources of revenue, Market Rates Insight maintains ProductBuilder as an ongoing database of new bank and credit union product ideas. You also can subscribe to our free weekly ProductBuilder Alert with the latest banking product ideas. Below is an excerpt from this week’s ProductBuilder Alert:


Prize-Linked Savings–Using Gamification to Promote New Deposits

by tom 9. October 2014 22:15

Even with the economy rebounding, consumers still aren’t saving. Personal savings are still in decline following a high of saving 15 percent of personal income in the 1970s.  The U.S. is facing a retirement savings crisis, with more than 36 percent of workers having less than $1,000 saved, 69 percent with less than $50,000, and 11% having saved more than $250,000.

To encourage saving, credit unions are adopting new prize-linked savings (PLS) initiatives to entice members to put their money aside. Some ask if this is gamification or gambling (to quote Credit Union Times), but PLS programs such as Save to Win have helped create 50,000 new accounts and save $94 million since 2009.

Credit unions are committed to offering tools to help members realize their financial goals, so creating a savings lottery as an incentive may not be that far-fetched. Of course, most credit unions are forbidden by law to offer prize-linked savings promotions since legislators say it promotes gambling, even though the savings accounts themselves are secure. But credit unions in Michigan, Washington, North Carolina, and Nebraska have been using PLS promotions for some time, and the law has recently changed in Illinois, Connecticut, and New York to allow PLS plans.

As reported by CU Times, the argument is that by offering prizes with some real cash value, it encourages people to really save. It’s the same as appealing to low-income families to save their money and gamble on getting a cash prize from their credit union rather than buying lottery tickets.

And apparently it works. A 2009 pilot program in Michigan with nine credit unions resulted in 6,000 new accounts in 18 weeks and an average of $100,000 per week in deposits per participating CU. A study by the Filene Research Institute suggests that gamification with prize savings accounts not only increases the accounts but also promotes member loyalty and increases engagement.

So what are we to take away from the prize-linked savings phenomenon that is encouraging CU members to save more in hopes of winning a cash prize? Clearly, banks and CUs can’t get into the lottery business, but gamification offers some interesting possibilities for financial product promotions.

What the PLS programs do achieve is they get consumers’ attention. Using the carrot rather than the stick, CUs can get members focused on saving and while they have their interest, educate them about retirement strategies and how to put money away for a new home, college, or whatever their dreams call for. This is clearly a win-win for both CU members and credit unions.

Perhaps banks can learn from the PLS strategy. While they can’t necessarily offer cash prizes, they can create incentives that appeal to customers’ competitive spirit. Social media is one of the hotbeds of gamification, with social followers competing to become mayor of a specific coffee shop or accumulating enough points to beat their peers in building virtual farms or kingdoms. While banks have been using social media for marketing, social media gamification is still unexplored territory.

Gamification has already taken off with banks in Asia and other markets, but U.S. banks have been slow to adopt gamification strategies to bring in new deposits or attract new customers. Maybe they’re missing something.

If you are interested in see the latest new bank and credit union products, Market Rates Insight maintains a weekly newsletters, ProductBuilder Alert, that highlights the newest promotional ideas for deposits, loans and fees. It’s free so please subscribe.

The Age Divide in Banking Channel Preference

by tom 4. June 2013 11:24

Our latest consumer research report, “Growth and Revenue Potential of Emerging Financial Services,” reveals that banks and credit unions are leaving fee revenues on the table. Part of what we uncovered is that different consumer age groups want different channels to do their banking. This opens up new possibilities for banks and credit unions looking for new strategies to attract and retain customers using mobile banking and internet banking.

This article was written by Dr. Dan Geller, who conducted the research, for BAI Banking Strategies discussing how age does matter when it comes to developing new customer channels:

One of the main factors financial institutions should consider in planning their mix of channels, such as the branch network, online banking and mobile banking, should be the age group of their customer base.Dan Geller Ph.D.

The latest consumer study conducted by MRI clearly shows a link between age group and a choice for banking channels; younger consumers gravitate towards digital banking, while older ones prefer traditional branch banking.

The study found that only 24% of Gen Y consumers, identified as those between the ages of 18 and 35, indicated a branch as their preferred banking method. Gen X consumers, who are between 36 and 46 years old, follow that pattern closely, with only 25% using a branch for their banking services. Conversely, 38% of consumers aged 67 or over, and 31% of baby boomers, who are between the ages of 47 and 66, do so, generating a variance of nearly 14% between Gen Y and the oldest group.

The inverse can be found when it comes to online banking. The majority of Gen Y, 69%, and Gen X, 68%, use online banking as their preferred banking channel, while only 61% of mature age and 65% of baby boomers do so.

When it comes to mobile banking, which is still a relatively a new banking channel, the picture is very similar. The youngest group of consumers, Gen Y, has embraced mobile banking as their preferred banking channel to the tune of 6%, followed by Gen X at 4% and baby boomers at 2%. Not surprisingly, none of the mature age participants in the study indicated a preference for mobile banking.

It’s important to note that consumers indicated these preferences as their primary banking channel and not necessarily the only banking channel. In other words, it is plausible that some consumers use a mix of these channels.

Our study, which will be released next month, also found variances in banking-channel preference among the income range of consumers, the size of the financial institution, such as national, regional or local, as well between consumers of banks vs. credit unions. For example, mid-size regional institutions have the highest branch preference and the lowest online use among consumers, whereas credit unions experience lower branch use and higher online preference than banks.

These findings are instrumental to proper planning of channel distribution, especially in the current environment of heated debate over the future of branches. When it comes to channel mix, there is no “one-size-fits-all” solution, and each financial institution will have to design and develop the right mix of channels based on the demographic and preferences of their consumer base.

Smaller Institutions Lead the Charge for Technological Innovation

by tom 11. May 2013 17:52

It’s very possible that credit unions and smaller banks could lead the way when it comes to technological innovation, and that’s a good thing if they want to attract the new generation of banking customers.

As in any business, the larger the organization the harder it is to promote innovation. As Tom Bryan, CEO of Nymbol Technology in Atlanta, wrote on an editorial in Credit Union Times this week:

“Not only is technology better, less expensive and more widely available than ever, more important, smaller institutions like credit unions are simply more agile. The enterprise-wide IT systems big players installed 20 years ago were cutting edge then, but today are legacy systems, often with outdated architecture that is difficult and expensive to upgrade.”

Younger customers have come to expect conveniences such as online banking and mobile check capture to be the norm. They are more inclined to make a cloud-driven transaction than walk into their local credit union or bank. Customers want virtual banking to be faster and accessible across a wide range of tools and apps. Frictionless transactions are the latest trend and it seems likely that smaller banks and credit unions will take the lead because they can be more nimble.

This agility to adapt to the rapidly evolving needs of customers is what gives the smaller institutions a leg up on their competition. Being able to bring new products and new product bundles to market faster will make these smaller institutions innovators that will attract early adopters. And these same institutions have the added advantage of experimentation. It doesn’t take as much effort to roll out a new product that has never been tried to see how well it’s accept. Larger institutions take longer to create and launch a new product or initiative, and when they fail they usually fail big. As they say in the world of innovation, fail fast so you can retool and try again.

And using technology can help makeCombat of David and Goliath. you even closer to your customers. New technology platforms, like social media, are providing a conduit for two-way dialogue between banks and depositors so you can ask what they want and how you are performing. That means adjusting banking products as policy based on consumer feedback. Here, too, the big institutions often fail because they try to make customer service a “one-size-fits-all” proposition with the result that no one feels particularly special. It can be argued that smaller institutions have a better opportunity to listen to their customers and deliver what they ask for.

Whether or not the Davids will beat out the Goliaths in their fight for consumer loyalty using technology has yet to be seen. But it’s going to be interesting to watch the battle for innovation in the meantime.

Credit Unions are Gaining Ground While Bank Business Declines

by tom 16. January 2013 18:47

With the current downturn in deposits, consumers are abandoning banks for non-profit credit unions according to a recent article by Motley Fool contributor Rich Smith. Reporting on a recent report by the National Credit Union Association (CUNA), credit union membership hit a record high in 2011, then exceeded it’s record with a new high of 93 million members in the second quarter; the largest quarterly increase since 2008. Clearly, consumers are looking for more from their financial services providers than banks have been providing lately.

A recent report from SNL Financial states that credit unions are gaining in a number of areas:

Credit card loans to consumers from credit unions rose $2 billion over Q3 2011 levels, exceeding $38 billion, a 5 percent increase. During the same period, credit card loans from commercial banks were at $669 billion, down from $671 billion in the third quarter of 2011. According the Smith:

The surge of interest in credit unions stems in part from recent highly publicized efforts by commercial banks to load up their customers with new fees -- on debit cards, on checking accounts, on ATM withdrawals. As well, there's the banks' role in the 2008 financial crisis, which came close to destroying the American economy. And toss in the banks' tooth-and-nail fight to preserve high interest rates, high service fees, and "universal default" policies on credit cards for a third.

Where  credit unions are winning the hearts and wallets of their members is through services. Where all Downpatrick_Credit_Union,_February_2010the large commercial banks used to offer free checking accounts, since 2009 the trend has changed and almost no banking institutions offer free checking these days. By contrast, 38 of the top 50 of the largest credit unions offer free checking to members. And where the interest rate for platinum tier cards averages 9.9 percent with banks, rates are as low as 5 or 6 percent for credit union credit cards.

Credit cards are also leading in loyalty programs, including rewards credit cards that provide airline miles, credits on purchases, and even cash. Interest on these types of cards average 11 percent among commercial banks, but credit unions offer robust rewards programs with interest rates at 7.5 to 6.25 percent. One credit union, the Educational Systems Federal Credit Union, even offers platinum and rewards cards at rates as low as 3.25 percent.

With tough times, consumers are shopping for better rates and terms over convenience and other factors, and credit unions are able to offer a more attractive options, particularly as banks continue to add new fees and raise existing fees to make up for low deposit rates. Banks need to find new,consumer-friendly services that will attract depositors, or they will need to find other tools and bundled products to win back depositors.

Mobile Deposits Give Credit Unions a Boost

by tom 23. October 2012 09:06

We recently posted a blog entry about how mobile banking is adding to the coffers of financial institutions in unexpected ways. Credit unions in particular seem to be benefitting from mobile remote deposit capture (RDC), where customers take a photo of a check and make the deposit using their smartphone. A recent article on American Banker states:

“While larger banks offered the service initially, credit unions and community banks are alsohome_MobileDeposit quickly adopting mobile RDC, a move that can boost overall use of electronic channels. While almost all financial institutions want to boost mobile and web banking, it's vital for smaller institutions to do so to reduce service costs and accommodate the lack of a geographic footprint.”

Mobile RDC is one of those areas that we identified in our recent Lifestyle Financial Services study that consumers not only want but are willing to pay for. Our research shows that about 63% of consumers want RDC, and nearly 67% of credit union members are willing to pay for mobile RDC. According to market reports, once credit unions embrace RDC, other benefits will follow.

The American Banker article notes that RDC draws attention to other mobile banking services. It also highlights other service benefits, such as support for a geographically diversified member base:

"We have a large portion of our members from the University of Texas …mobile RDC helps parents make deposits for their children more easily," says Corina Watts, a senior manager for University Federal Credit Union, an 132,000-member Austin-based credit union that has about $1 billion in assets and lists 17 branches on its website, mostly located in southern Texas.

RDC also is an inexpensive technology to deploy, but it can deliver big returns. There are service organizations that make it easier for smaller financial institutions to offer mobile RDC. Using a software-as-a-service (SaaS) approach, credit unions can offer RDC on a pay-as-you-go basis, either per transaction or on a subscription basis, and the value to members and the light RDC sheds on other credit union services will more than make up for any vendor service fees.

Weekly Term Accounts APY Spread and Premium Index–March 26

by tom 26. March 2012 20:09

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.


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:


Credit Unions Are Increasing Membership and Deposits

by tom 13. June 2011 20:35

According to this week’s National Pricing Indicator report from Market Rates Insight, credit unions have added a total of 725,531 new members during the 12 months ending March 31, 2011, at an average operating cost of $149 per new member acquisition.image

The average membership per credit union increased from 12,035 to 12,475. The incremental increase in the average membership per credit union occurred despite a decrease in the total number of credit unions from 7,498 to 7,292 - a decrease of 206 institutions. The absolute increase in the average number of members per credit union was 439. The average same-store increase, which excludes mergers and acquisitions, in the number of members was 97 new members per credit union (Figure 1).

imageTotal deposits (savings) at credit unions increased from $773 billion to $812 billion in the 12 months ending in March 2011 - an increase of $39 billion. The average deposits per member increased from $8,568 to $8,923 over the same time period - an increase of $355 per member.

The greatest increases in deposits occurred in regular shares accounts (savings), which increased by $23 billion, followed by Money Market account up $15 billion and share drafts (checking) up $10 billion. The greatest decreased occurred in share certificates (CDs), which decreased by $12 during the 12 months ending March 2011 (Figure 2).

One Way Credit Unions Are Attracting Younger Depositors

by tom 25. March 2011 15:27

Credit unions are continuing to struggle to connect with younger depositors. According to recent research from MyCUsurvey, credit unions are struggling to attract younger members. Perhaps it is due to a lack of online banking. Perhaps it’s because younger bankers don’t understand the value or structure of credit unions. Whatever the reason, younger customers just don’t feel engaged. As MyCUsurvey states:

“The latest survey revealed a direct correlation between the age of credit union members and customer satisfaction. According to the findings, there is a 30 point different in satisfaction ratings between older members (over age 65), and younger members (under age 30); older members are just more satisfied with their credit unions.”

Note that only 11 percent of Generation Y polled by Javelin Strategy and Research had a financial relationship with a credit union, as opposed to 15 percent of all other age groups. Compare this to 43% of Generation Y polled who had a financial relationship with a top 10 banks had as opposed to 38% of all other consumers. The reason is the demand for mobile and online banking; an area where credit unions lag.

So what can credit unions do to make themselves more attractive to younger depositors? Talk to them where they hang out in terms they understand. American Banker recently ran an article on how credit unions are building online community to nurture younger depositors, hiring online spokespersons through local contests. From American Banker:

Introduction to the Young & Free Campaign from Currency Marketing

“The online contests, and all that goes with them, are part of the Young & Free campaign, launched in 2007 by Currency Marketing, a credit union marketing company in Chilliwack, Canada. The campaign started from a fundamental proposition: Credit unions, faced with an aging population of members, had to do something to stay relevant and to gain a new, young base of customers.”

This is a brilliant approach that combines new marketing channels with social media. Basically, the program recruits a regional “spokester,” a social-media savvy person in their 20s who will represent the credit union for one year. They are paid an annual salary (typically around $30,000) to engage their peers using social media. Armed with flip cameras, smartphones, and laptops, they feed their social media channels with relevant content. They are required to run a campaign website, develop contacts through social media, write daily blog entries, and reach out to credit union members over Twitter, Facebook, and other channels.

And the campaign yields results. According to American Banker, nine credit unions participating in the program doubled their membership. Social media continues to prove itself to be a powerful tool for recruiting consumers, if you understand how to build a community. The Young & Free formula seems to be working for credit unions, and some of the savvier banks are sure to follow suit.

Social Media Poses Compliance Conundrum for Financial Institutions

by tom 18. March 2011 16:42

There was an interesting article posted on this week about the challenges social media poses to  financial institutions. New regulations from the SEC, FINRA, and the FSA in the United Kingdom are classifying Facebook, LinkedIn, and Twitter exchanges as public information that needs to be archived and “discoverable” in the event of an audit. Facebook posts are being classified as advertising and LinkedIn recommendations as endorsements, which means they fall under regulatory scrutiny. After all, you don’t want your broker tweeting stock tips. But this poses new challenges to financial institutions who are struggling to keep up with customer communications. As a recent report from Mercator Advisory Group notes:

“Financial firms that wish to excel at CRM must establish a presence and voice in most of the same online communities where their customers spend time. Increasingly, that means participating in social media of many types.”

In related news, a recent customer satisfaction survey conducted by MyCUsurvey reveals that credit unions are not attracting younger members. Part of that has to be due to the way that Generation Y and Generation Z like to interact with vendors.  They live online, talking to their friends by text and on facebookFacebook, and transacting their business on the web. Where banks are more sophisticated in their online banking strategies, credit unions don’t typically have the same resources. So even though banks and credit unions are struggling to harness social media as new channels to communicate with customers, it has to be part of a total online experience. Tweets need to turn into transactions with a click of a mouse or a touch of a smartphone.

So how are banks and credit unions addressing the challenges of tapping into social media without violating the rules? It’s a combination of common sense, proper oversight, and technology. Where financial institutions used to block online conversations altogether, they are now struggling to implement safe practices. Some are providing restricted access, allowing select individuals access to social media from IT-controlled computers to try to minimize missteps. Smarter institutions are adopting “best practice” guidelines with severe penalties for failure to follow the rules, such as termination for tweeting out of turn. And chief security officers and chief compliance officers are relying on technology to enforce the rules.

Vendors like Socialware and Actiance are providing technology platforms (both on-premise and cloud computing based) that give banks the ability to monitor, moderate, and archive online conversations as part of regulatory compliance. Granted, this imposes Big Brother restrictions on financial workers’ online activities, but the consequences of violation can be severe. FINRA levied $4 million in fines and initiated 34 disciplinary actions in 2011 for electronic communications violations.

So while social media poses a potential risk to banks and credit unions, the savvy institutions know they have to step up their online game to meet the demands of their customers. The rewards will far outweigh the risks, especially if they can be sure they abide by the regulatory rules.

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