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The Death of Free Checking

January 2, 2011 Leave a comment

All I wanted for Christmas was for someone to sit down with me and explain how a checking account was profitable.  Well, I didn’t get that present, and I still don’t know.  Now, I don’t really believe that free checking accounts will go away.  But I do believe that banks and credit unions that continue to focus on checking accounts may go the way of the dodo.

Changes in banking laws have done nothing but hurt the profitably of checking accounts.  In the past, fee income and interchange fees drove the focus on this account type. Now, overdraft fees have been drastically reduced.  It also looks like a law will be passed that will limit the amount that can be earned from interchange.  But as they say, trouble comes in threes.  Number three will be mobile payments.

This summer, iPhone 5 will hit the market, and along with it, NFC capable phones.  Although the Android based Nexus S is NFC capable, it’s not currently being used with mobile payments.  Apple will change that.  Even with “antennagate”, Apple has sold close to 6 million iPhone 4s.  A newer phone that fixes the old problems and adds NFC will be big.  The kicker would be offering the iPhone on Verizon’s LTE network.

With all of this pushing down the profitably of checking accounts, why would banks and credit unions continue to focus on them?  I think the industry has it wrong.  Checking accounts are the razors, savings accounts are the blades.  If you look at the history of the industry, savings and loans are how we made money.  Fee income from checking accounts was just the gravy and caused the industry to get lazy.

Once it got to the point that fee income became the focus, the beginning of the end started.  The interesting thing is, customers seem to be most interested in savings and convenience.  According to one poll*, customers that signed up for Bank of America’s “Keep The Change” and Wachovia’s (Wells Fargo) “Way 2 Save” programs did so to build their savings accounts.  Of course, the banks most likely did it to build their interchange fee income, but they also built up their deposit base.

I am definitely in the savings and customer convenience camp.  Apparently, I’m not the only one.  At the end of the day, banking is a service industry.  Focusing on customer needs is what built the industry.  Now, it’s what will save it.

*The people surveyed consisted of me (BofA customer) and a cousin (Wells customer).  See, you can find a statistic for anything

Photo from Ziggy on GoComics.com

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FIs Are About To Be Blindsided…Again

May 13, 2010 5 comments


I’m not sure if you heard, but this little tech company out in California has a couple of neat devices called the iPhone and iPad.  So far, banks and credit unions have been holding back from jumping into the mobile banking space.  But I believe momentum will grow exponentially over the next two years.

The problem is it might just be too late.  One of the main reason FIs haven’t jumped into the mobile space is because there is no clear ROI.  Instead, they mostly hear about the cost savings in other areas like the call center.  No one is charging for mobile banking in the United States.  And until Bank of America, Wells Fargo or Citibank does, I don’t think anyone will.

One idea I have heard floated for income is charging commercial customers.  The reason being companies are typically charged for using cash management services.  Another one is getting transaction income from mobile payments. Make no mistake, mobile is the biggest growth area for financial services.  I believe that within five years, customers will access their account information mostly from a mobile device.  The iPad and other “tablet” computers will only accelerate this growth.

Fiserv’s iPad demo at Finovate Spring 2010 is just a sample of what’s to come.  But what no one is noticing are the companies that are going around banks and credit unions.  Square’s apps for the iPhone and iPad will take away from those lucrative merchant accounts that customers normally get through their FI.

The biggest threat is the new Transaction app that Apple is working on.  Basically, Apple will turn your iPhone into a credit card by using NFC.  So just like PayPal became the standard for online transactions, it looks like Apple could become the standard for mobile transactions.  And if everything is going mobile, where exactly does that leave your FI?

Control-Alt-Delete

January 5, 2009 Leave a comment

Well, what a year 2008 was.  Right now, a lot of people are wishing they could just do the ol’ three-finger salute on the whole banking industry.  Between the sub prime crisis, close to 30 bank failures and Big Daddy Madoff, it’s no wonder.  Getting back to basics is what is needed to turn everything around in 2009.

I’m really looking forward to seeing what this year brings.  For one, I believe SMS will emerge as the standard in mobile banking.  Last year, a lot of banks started researching this channel.  This year, we will begin to see a lot of rollouts.  In our market, we’ve already seen a few banks launch a mobile banking product.   I’m sure there will be even more announcements by the end of the year.

Seeing how the receivers of TARP funds use their new capital will be interesting also.  I suspect that a few banks will use their excess cash to pick up a competitor or two.  Also, will we lose one of the big three this year?  Citi is looking kind of shaky right now.  Bank of America still has to integrate Merrill Lynch.  If the next fallout happens in credit cards, both could be in even more trouble.

All in all, I’m excited about what this year may bring.  With a new administration, I expect to see some major changes.  Here’s to brave and exciting New Year.

Categories: Bank of America, Mobile Banking, TARP Tags:

New Age Marketing

October 16, 2008 1 comment

There’s word of mouth marketing, and then there’s word of mouth marketing. These pictures of a kitted up Crown Victoria were sent to me. For some reason, I don’t think Bank of America has sponsored this car. But hey, is there a such thing as bad publicity?

BofA car

BofA car

Money in headlight

Money in headlight

Money in night deposit

Money in night deposit

Card in Grill

Card in Grill

Pictures from CarDomain

Categories: Bank of America

Another One Bites The Dust

September 29, 2008 2 comments

Bank Failure
Washington Mutual, IndyMac, Lehman Brothers, Merrill Lynch, Bear Sterns, Fannie Mae, Freddie Mac.  Those are just the high profile failures this year.  As of Sunday, Wachovia had started preliminary talks with Citigroup and Wells Fargo about a possible merger. As time goes on, the banks that bet on the subprime market keep looking a bit more shaky then previously thought.

A while ago, I joked about Bank of America failing.  Now, it’s not so funny.  I’m not totally convinced that they’re out of the woods yet.  A few months ago, Ken Lewis was being condemned about his purchase of Countrywide.  Now that he’s bought Merrill Lynch, some people are calling this purchase a smart move.  Maybe I missed something, but didn’t Merrill Lynch lose money in the subprime mortgage market also?  I fail to see how buying an investment house that has more subprime mortgages on the books is a good thing.

Maybe Bank of America thinks they can get some help from this “bailout plan” the government is proposing.  I hope Mr. Lewis knows that there is a clause of “no executive windfalls” included in the bill.

All these failures have lead to a lot of discussion on blogs and Twitter.  One major topic was, should the government even bail out these companies?  The smaller banks were closed and their assets transfered to other institutions.  Right now, it’s looking as if you’re a big bank, the government will step in and save you, if you tell them you’re in trouble early enough.

Unfair? Perhaps.  I have mixed opinions on the topic, but I do feel the government needs to make drastic changes in the banking industry.  One area is fixing the repealing of the Glass-Steagall Act (Banking Act of 1933).  Glass-Steagall was set up to avoid the very thing we’re going through now.  Commercial banks owning investment banks seems to be a big conflict of interest.  It’s very similar to the proverbial “fox guarding the hen house.”

Bank of America is within a breath of the 10% US deposit threshold.  With them now owning Merrill Lynch and also holding a significant number of subprime mortgages, what would be the effect of almost 10% of all US deposits suddenly going in conservatorship?  Too big to fail?  I wouldn’t bet on it.

This brings up the second area we need to look at; lowering the maximum percentage of US deposits.  When that 10% threshold was set, I’m sure the lawmakers couldn’t imagine the amount of wealth we currently have.  Maybe 10% just seemed like a nice, round, low number.  But if Wachovia is merged with another big bank, this new bank, Bank of America and JP Morgan will control 30% of all US deposits.  Does the knowledge of 3 banks controlling almost one third of the nation’s household deposits make you a little nervous?

Repealing Glass-Steagall has allowed banks to be directly over our savings, mortgages, pensions and retirement accounts.  Yes, offering banking, investment and insurance services can be beneficial to our customers.  But lately, we’ve seemed to lose focus on how to best serve our customers.  We all need to take a serious look at ourselves and figure out how to get out of this mess that we helped create.  I think the last thing we want is a government controlled “Bank of U.S.”

Photo by Paolo Margari

Time Sure Flies

July 23, 2008 3 comments

With all the hustle and bustle, I didn’t realize that I’ve been blogging for a year now.  I must admit that so far, it’s been a lot of fun.  I’ve been able to connect with a lot of people and been introduced to a lot of ideas and technologies.

Thanks to all that have continued to be avid readers and share their ideas.  Looking over my blog stats, the most popular posts have dealt with mobile banking and Walmart’s MoneyCard.  I’d just like to take a moment to discuss those two topics.

How to Get a No-Fee Walmart MoneyCard

By far, this has been the most popular post.  It kind of makes me wonder why banks/credit unions don’t offer a similar product.  I don’t know the exact number of Walmart cardholders, but from the complaints I’ve heard from our customers, I think customers would love a card like this.  Eventually, overdraft fees will become a very sensitive topic.  You can already find some very public posts about how banks are handling their overdraft fees.

As people become more educated about fees, this particular fee income could dry up.  Why not offer pre-paid cards to your customers?  This could open up that unbanked/underbanked market that we all hear about.

Mobile Banking

Why the iPhone Doesn’t Matter For Mobile Banking has gotten a lot of hits.  With the release of the iPhone 3G, there have been a slew of articles concerning the iPhone and mobile banking.  A few of the popular ones are by Ron Shevlin, Morriss Partee, Jim Bruene and Mark Schwanhausser.

Me, I think mobile banking will become a vital channel.  Here in SC, we have a lot more rural customers with poor internet connections.  These same customers tend to have cell phones, which opens a new channel.  After reviewing surveys and actually talking to customers, I feel this is a channel that we can’t ignore.  Yes, there is no ROI at the moment, but the same could be said for online banking ten years ago.

As for the iPhone’s impact, I still think it won’t drive mobile banking, for most of the industry anyways.  According to our web stats, BlackBerry users still access our site more the iPhone users, though the iPhone is gaining.  But most BlackBerry users got their phone through their company.  iPhone users tend to be on the leading edge of technology.

The typical cell phone owner is not going to get a high end phone with a data plan.  Once the price of data plans drop, then we’ll see an increase mobile web users.  Until then, adoption of mobile banking through the mobile web will be slow. 

To put it in perspective, Mark mentions that Jack Henry’s goDough is at 65 banks and has a total of 6,559 users.  That’s about 100 users per bank.  Bank of America now has 1 million mobile web users.  I wish BB&T would release their numbers since they offer SMS alerts.  I know they have way more than 6500 users.  It wouldn’t surprise me if they sign up that many per week, with no major advertisements.

Over the last year, it’s been fun watching the banking industry evolve.  I look forward to many more and I’m glad you’ve decided to join me.  Here’s to many more.