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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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Mmmm…Gingerbread

November 17, 2010 1 comment

Mobile payments are about to get a serious toe-hold in the US.  In case you haven’t heard, Google is about to release the newest version of Android, Gingerbread, which will support NFC.  Once Apple releases their next iPhone in 2011, you can expect adoption to increase exponentially.

So what does this mean to banks and credit unions?  Most won’t be affected for a while.  But the big boys like Bank of America, Wells Fargo, Citibank and JP Morgan will really start to feel the pain sooner rather than later.  Mobile payments will allow users to connect their credit and debit cards to their phone.  But that’s only if Google and Apple decide to play nice.  They could set themselves up like PayPal, which means that everything would flow through ACH.  If that happens, you can kiss interchange fees goodbye.  The bigger banks would feel this first because their customers are among the early adopters.

Now, you can stick your head in the sand and hope that adoption doesn’t happen for another 10 years, or you can start planning your strategy today.  One thing I’d look at is charging a fee for any ACH withdrawal.  The second is getting familiar with iOS and Android.  Because if you aren’t planning to adapt, others are.

First ODP, Next Interchange

October 19, 2010 1 comment

Brett King, of Bank 2.0 fame, has a post over on Finextra titled The iPhone 5 Debit Card – coming soon.  In the article he discusses the potential impact of Apple’s iPhone 5.0 that will most likely be released next fall.  One highly anticipated feature is contactless payments, which is something I wrote about here.

Brett poses a question of “how will banks compete against Apple, Google, Microsoft and the carriers in the credit card space?”  Apple already has customers that setup their credit cards to use for iTunes.  You can bet that Google and Microsoft will do the same.  Google is better positioned than Microsoft, with their Google Checkout.  But I think Brett missed one important area.

For most banks and credit unions, credit cards aren’t a huge revenue source.  I’m willing to bet that those interchange fees they get from debit transactions has way more income.  I happen to use PayPal for a lot of online transactions.  One thing I recently noticed was, my PayPal account currently has $0 in it.  However, PayPal is able to directly transfer from my checking account to pay for any transactions.  This means that PayPal gets a percentage, but my bank gets nothing.  As far as my bank is concerned, it’s just an ACH transfer.

So, when mobile payments finally take off, it won’t necessarily be banks and credit unions that benefit.  With electronic transactions being the dominate form factor for payments, losing the credit card market isn’t what should keep executives up at night.  It’s losing the debit card transaction market.

Hope You’re Checking That Rearview Mirror

August 14, 2010 Leave a comment

While bank and credit union executives plan their mobile strategy or take a “wait and see” approach, industry outsiders keep on innovating. PayPal is updating their iPhone app so that you will be able to take pictures of checks and deposit directly into your PayPal account. As an additional bonus, PayPal has partnered with a number of charities so that you’ll be to donate directly to the charity of your choice. You can read more at TechCrunch.

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?

Banking On Mobile

February 3, 2010 3 comments

Apple’s announcement of the iPad has sent ripples throughout all industries.  The biggest question is, can we use it to further our business goals?  NetBanker has a post about what the iPad could mean to banking.  But before I get into that, I’d like to share some thoughts about the iPad in general.

To my core, I believe the iPad will have a much bigger effect on household computing than the Wii did on home video games.  When the Wii came out, it was considered a weak machine when compared to the competitors.  The wireless, motion controller looked cool, but it was a kids’ system.  Sony and Microsoft still haven’t reached the number of sales to that of the Wii.

While the PS3 and XBox were geared towards hard core gamers, the Wii was targeting causal gamers.  Nintendo went after everyone that didn’t really play video games, which is a much bigger market.  Say what you will, but I know a lot of people that ended up with “Wii-bow.”  The Wii was embraced by a market of age 2-100.  Adult care facilities even picked up a few systems for their residents.

Now, looking at the iPad, I see the same potential.  Blog posts by Ethan Nicholas on TechCrunch and Dan Moren at Macworld reinforce that belief.  There are plenty of posts, such as Randall Kennedy’s at Infoworld, that talk about how the iPad won’t kill the netbook.  I don’t think the iPad will completely kill the netbook, but it will make it irrelevant to the masses.  You see, the iPad isn’t geared for geeks or even heavy computer users.  It’s for all those people that want something that is easy to use and just works.

Being an IT guy, I too have to do tech support for my family and friends.  An iPad takes all that away.  There is no need to install anti-virus software and keep it updated.  No silly spam blockers, firewalls or driver updates either.  The iPad is a closed system, so it takes all those headaches away.  Plus it even functions as an e-reader, which is one thing that I can’t wait for.

I think the iBookstore will really open people up to using electronic devices.  One example is my wife.  This past spring I was going to get a Kindle for her.  Now, we read an average of ten books a month between the two of us.  She wasn’t interested in the Kindle at all.  She wanted to actually hold a book and turn the pages.  That was the best experience to her.  Well, her mother gave her a Kindle for Christmas.  Now I believe she loves that thing more than her Blackberry Storm and iPod combined.

Once people get an iPad in their hands, I believe they will love it just as much.  Oh, and one knock I heard was that it was a wi-fi device, no ethernet connection for when no wireless was available.  A lot of these potential households have wireless networks because they also have Wiis, PS3s and XBoxes.  So it will mostly be used at home or in places with a wireless connection.

So, how does this relate to banking?  Well, all these new iPad owners will become a lot more comfortable with computers in general.  They’ll finally have a device that is intuitive and makes checking their email, browsing the web and reading books simple.  As they get more comfortable, they’ll spend more time in that App Store and they’ll discover even more apps that fit into their life.

This is where your bank comes in.  All those customers that just weren’t interested in internet banking?  Now they’ll have the device that helps make them more open to using your service (hope your IB provider supports Safari and not IE6 only).  Even better, if you have an app in the App Store, you can provide a better banking experience to them.

If you didn’t have a mobile strategy before, you might want to start working on one now.  There will be a lot more people that want an iPad for home use than those that want an iPhone with AT&T.

Also, join us in Charleston on Feb. 27th, 2010 for BarCampBankCharleston where we can discuss topics like this in an informal group setting. The information site can be found here and registration here. This is a free event so come on down.

Picture by d!zzy/flickr

First Federal Launches Mobile Banking

October 16, 2009 6 comments

First Federal Mobile Banking

First Federal has now launched Mobile Banking for its customers.  I have to say, I am really excited about this new service.  While I was skeptical about the benefits of the service a couple of years ago, I have to admit that having my bank in my pocket is great.

Being a lead on the project was a lot of fun.  After looking at most of the vendors in the market, we finally decided on ClairMail.  We felt that text alerts was a very crucial piece to mobile banking and ClairMail fit our needs nicely.  One added bonus is that we are the first bank/credit union to offer mobile banking without requiring the customer to be an online banking user.

I believe this will allow the bank to tap even more potential users that may not necessarily want to use online banking.  Customers can use text messaging and/or mobile web for mobile banking.  Some of the features that are currently available are daily balance alerts, deposit/withdrawal alerts and transfers.  There is also a stylized iPhone version.  If you are a First Federal customer, you can register for mobile banking here.  Some screen shots are listed below.

SMS Example

Mobile Web Ex1

Mobile Web Ex2