With 2011 on our doorstep I thought I would put out my thoughts on the top online banking trends for 2011. Your feedback and thoughts are welcome, let me know if you agree/disagree or if I missed anything major. So Happy New Year and here we go:
1. Mobile Payments continue to gain traction. With Near Field Communication (NFC) announced on Android mobile platform and Apple iPhone expected to follow in competition a tipping point has been reached. While it will take awhile for the infrastructure to get built, this is the game changer for the future and must be included. Additionally, the announcement by AT&T and T-Mobile's announcement of building a new mobile commerce network, the groundwork is being laid for innovation in banking and in new ways not thought of yet.
2. Mobile usage for online banking continues its march to overtake the web channel. Could this be the year that banks finally realize how important mobile should be to their strategy? USAA has surpassed over 1M mobile users, BOA has doubled mobile users to 4M and overall mobile growth at 10% a year, mobile is on track to surpass web site usage in the next few years.
3. App Stores are the new delivery model. Pioneered by Apple, copied by Android and others, extended by Google Chrome beyond mobile this is the new model for pushing software onto all sort of devices, mobile and otherwise. This represents an opportunity for banks to exploit new channels to add value and interact with customers. This could be through small apps (widgets) that provide specific functionality or larger apps that are more comprehensive. Expect to see a big increase in financial and banking apps in 2011.
4. Along the same lines of the app store, Smart Tablets have become an important bank and financial differentiator for companies. The iPad started the revolution and many new tablet devices are about to flood the market. The end result is new opportunity for smart tablet users looking to use the devices to run their financial lives. Being that company that provides unique and powerful solutions re-imagined for these devices will be a major advantage over competitors.
5. Context aware computing usage increases by banks and financial institutions. Context aware computing is the use of location, movement, orientation, environment and preferences to improve the customer experience. The start of this is ATM locators which pinpoint your location and show you on a map the ATM's closest to you. As smart phones have improved, the opportunity to create a much richer experience is here. We are seeing it first in the use of security with credit card companies by using the transaction and mobile phone geo-location as a fraud indicator. This could be done with ATM debit transactions as well and much more.
6. Mobile Remote Check Deposit becomes more mainstream. While remote deposit capture for banks is now widespread mobile capture from your smart phone has been limited. USAA was one of the first to deploy this technology and slowly other banks have been trickling out solutions. Recently we have seen Chase, State Farm Bank, PayPal. BOA and Conestoga Bank. FiServ, a major banking system provider is now offering the capability to it's clients through a partnership with Mitek which will allow more banks to deploy the technology easier. While making it easier for one off deposits this technology will eventually fade into the sunset as checks continue to disappear.
7. Social Banking Influence begins to take hold. We all know that banks are slow to adapt and social networking is no exception. We are however beginning to see more banks blogging, although few with anything interesting. An encouraging sign is the higher adoption of Twitter by banks which are using it to monitor what is being said about them in the Twitterverse and respond to it proactively. Some banks are also using it for customer service. Look for this adoption to accelerate as more banks start to catch on some more effectively than others. Along with this line, we are also starting to see the adoption of Twitter for making payments and performing transactions. Groundbreaker Vantage Credit Union has become the first to allow customers to transfer money between accounts using Twitter as well as receive balances.
8. More Services offered for un and underbanked in America. In my previous post on the un and underbanked in America I discussed new products coming to market to help the situation. In 2011, a new FDIC pilot program will begin to offer services for the underbanked based on prepaid debit cards. I am hoping this starts a trend to serve this market and help the poverty level in the United States. Find out more about the efforts of the FDIC pilot program.
Make it a great 2011, look forward to your comments.
Friday, December 31, 2010
Thursday, December 16, 2010
Free Checking continues to disappear as Chase adds fees
JP Morgan Chase has started notifying checking account customers this month of new service fees depending on the checking account from $6 to $12 a month. The fees will be waived if their is a direct deposit of at least $500 month or make at least 5 debit card purchases a month.
This is another step in the direction by big banks away from free checking in response to new legislation passed limiting overdraft and other fees. Those fees were bringing in big revenue for the banks so they are scrambling to replace the revenue.
This trend has several effects on bank customers. First, most will not be affected since $500 direct deposit is not a lot or 5 small debit purchases can be easily met however for some on social security or collecting unemployment this could be a problem. It could potentially push more people toward becoming unbanked or underbanked. (See previous blog on the un and underbanked in America).
The service model does help increase transparency some however as it is more strait forward. You pay a monthly service fee monthly to have a checking account and you know what it is. This is an improvement for the many who were hit with numerous overdraft fees for each and every check they bounced in a cascading effect.
Bank of America has an interesting approach by offering an eBanking checking. It has no checking fees if you stay in the self service world of online banking and ATM's. If you end up going outside of this service level you pay a fee of $8.95 for that month.
Of course you still need to be careful because there are always other fees such as using an ATM outside of your banks network, Overdraft protection transfer fee, Deposit Item Return Fee, Stop Payment Fee ($34 for Chase, $30 for BOA), Wire Transfer Fee, Counter Check Fee and more.
The free checking account was never really free for most since fees were easily encountered for just about any other service or action taken and this still has not changed. Bottom line is that just like the airline industry you should make sure you are aware of all fees and manage your account and behaviors carefully. Also don't forget there are small banks and credit unions that have better deals on checking and smaller fees.
This is another step in the direction by big banks away from free checking in response to new legislation passed limiting overdraft and other fees. Those fees were bringing in big revenue for the banks so they are scrambling to replace the revenue.
This trend has several effects on bank customers. First, most will not be affected since $500 direct deposit is not a lot or 5 small debit purchases can be easily met however for some on social security or collecting unemployment this could be a problem. It could potentially push more people toward becoming unbanked or underbanked. (See previous blog on the un and underbanked in America).
The service model does help increase transparency some however as it is more strait forward. You pay a monthly service fee monthly to have a checking account and you know what it is. This is an improvement for the many who were hit with numerous overdraft fees for each and every check they bounced in a cascading effect.
Bank of America has an interesting approach by offering an eBanking checking. It has no checking fees if you stay in the self service world of online banking and ATM's. If you end up going outside of this service level you pay a fee of $8.95 for that month.
Of course you still need to be careful because there are always other fees such as using an ATM outside of your banks network, Overdraft protection transfer fee, Deposit Item Return Fee, Stop Payment Fee ($34 for Chase, $30 for BOA), Wire Transfer Fee, Counter Check Fee and more.
The free checking account was never really free for most since fees were easily encountered for just about any other service or action taken and this still has not changed. Bottom line is that just like the airline industry you should make sure you are aware of all fees and manage your account and behaviors carefully. Also don't forget there are small banks and credit unions that have better deals on checking and smaller fees.
Tuesday, December 7, 2010
The Unbanked and UnderBanked In America
There has been a lot of recent awareness and effort toward helping the unbanked across the world. As many as half the worlds population have little or no access to basic banking services. It is important since the ability to make payments, save money or small amounts of credit can make a huge difference in the poverty level. So important that the Bill and Melinda Gates Foundation has dedicated $500 million to help solve this problem and improve the global poverty rate and quality of life.
What is surprising to me is the level of unbanked and underbanked in the United States. The FDIC released statistics from a Jan 2009 study that estimates more than one quarter (10 million) of US households are underserved. Minorities and lower income earners are more likely to be underserved with about 20% of all black and hispanic households or those earning less than 30k a year being underserved.
Just to be sure everyone understands what this means, Unbanked is defined as not having access to any bank accounts and Underbanked is the use of alternative services such as payday loans, pawn shops, auto title lending, rent to own or other services.
Why should this matter to you if you are not one of the 1 in 4 in the US? First of all, with near 10% unemployment in the US in this economy more people are experiencing the pain, so it could affect you, your friends or family.
More importantly as you will read, falling into this category can make life much more difficult by increasing fees, denying credit and making it harder to even make simple payments or cash checks. This makes it harder to get out of the poverty cycle and get back to financial health. Not good for America.
I talked with one underbanked person who we will call Tom to gain some insight on why no bank account and what life is like. Tom explained "When you live paycheck to paycheck or even less the bank fees can drag you under. Eventually you are faced with paying the bank fees or your rent, electric bill or car. Then the banks shut you off and you can't get an account anymore. Then it's on to check cashing, money orders, prepaid debit cards and long lines."
Tom went on to tell me how he had received two pay checks (one a bonus check) from a large well known restaurant corporation. He went to deposit his checks in his recently new account at Bank of America at a branch where they encouraged him to make the deposit at the ATM outside. After doing so, he quickly discovered that all but $100 dollars out of $2380 was put on hold for 10 days. This put him in a financial bind as he would not only be late paying his rent and gas bill but bounced checks for rent, gas, dry cleaners ($31) and a 7Eleven (4$) store. Each bounce was a $35 fee making the $4 dollar transaction $39 dollars for example. The $100 dollars available quickly became -$40 dollars.
When trying to discuss with BOA he was simply told that it was bank policy and nothing could be done. This pattern and others lead to some of the main reasons that many avoid banks. Many are burned by fees and policies that turn them away. Others simply do not trust banks, don't feel welcomed or comfortable or face language barriers. Many are unable to open accounts because of bad credit or bounced checks like Tom.
This places them in the underbanked and underserved market using paycheck cashing services, prepaid debit cards, money orders and carrying cash. The high fees don't stop when the banks are out of the picture.
Check cashing fees vary greatly from state to state with percentages as high as 5%! Fees to load prepaid debit cards with money can cost $5 per load. That could be 10% for $50 dollars. Even using a prepaid debit card at an ATM or POS can cost money. Often the people who are in this category are not good at managing what little money there is and not having a savings account compounds the issue.
And forget about traveling easily. Trying to rent a car or a hotel room with a debit card is painful. They will hold significant amounts of money for long periods of time. And occasionally it can take many calls and complaints to get a hold removed even after 10 days.
The question is: Why don't banks offer more assistance for this category of people despite the fact that it represents 25% of the US population?
Profit and risk. Most banks are geared for high network individuals and higher profits and are concerned increasingly with risk. They simply do not believe that there is profit in services for the underbanked.
Banks of course cannot completely escape the underserved entirely because the Community Reinvestment Act (CRA) mandates that they provide some services to lower income areas and the community. This is not enough to make a difference in the numbers of the underserved and is usually accomplished on the loan side or education areas.
But there may be some help on the way from both the FDIC and other private businesses who believe they can provide services for the underbanked using different risk models without gouging them.
The FDIC is starting a program in Jan of 2011, working with 9 different banks using a 1 year pilot program. The pilot banks will offer products that closely reflect the needs of the underserved. The bank products will offer features specified by FDIC guidelines such as:
* Mostly or all electronic to limit costs to the bank
* FDIC insured, reasonable rates and fees and have regulatory protections
* Checkless transactional accounts using only ATM, POS, ACH or other electronic means
* No overdraft or non-sufficient funds fees (presumably because these transactions would be denied)
The features of the products can differ and have other services tied to more traditional products and may serve as a gateway to mainstream banking eventually in some cases. We will have to wait and see what the services offered will be.
While this is a positive step forward, it may not be for everyone. Other private providers are also stepping in to help.
These services are mainly built around prepaid debit cards and related services such as MoneyPak. MoneyPak allows a person for a one time fee of $4.95 to load cash onto prepaid debit cards. Used in conjunction with the some of the service providers discussed below and others it allows you to avoid having a bank account or credit card to store money and make payments.
MoneyPak is widely available at places like WalMart, KMart, WalGreens 7-Eleven and many other retailers. There are limits to how much cash you can add depending on the solution and the information you are willing to provide. This is due to money laundering and terrorism concerns of course.
Mango Money in Texas is using the YAP network for text message based (SMS) mobile money transfers. Both parties must join Mango Money to facilitate the transfer. What is beneficial about Mango Money is that they are offering a prepaid debit card with no fees for sign up, activation and no transaction fees (signature or PIN, exclusive of banks fee for ATM). There is a $5 monthly fee which is waived if you load at least $500 the prior month. There is a .50 cent fee to send money via SMS domestically by SMS and no fee to receive money. They also offer a savings account with direct deposit that pays around 5% on the first 5,000 dollars. The drawback is that there is a fee to withdraw money from an ATM ($2 domestic, plus bank's ATM fee) which can be pricey. They also charge .50 to check your balance by an ATM.
Another provider named Bill Float is an interesting concept. It helps people extend bills by providing small loans up to 1,000. This can make a big difference for those living payment to payment. Bill Float has a power scoring system that reduces the fees as you pay back responsibly. The two drawbacks are that loans while small can be at 36% interest. Secondly you must have a bank account to link to, although it appears it can be just a savings account.
So it is clear that US Banks are not meeting the needs of all America but there are options and those options are improving. These services when offered in other countries are making a big difference in helping the poverty level. While the needs may be different somewhat in the US it can make a difference here too.
More Info:
http://www.fdic.gov/consumers/template/background/
http://www.fdic.gov/consumers/template/comments.html
http://www.moneypak.com
http://www.mangomoney.com
http://www.obopay.com
http://www.paypal.com
http://www.billfloat.com
What is surprising to me is the level of unbanked and underbanked in the United States. The FDIC released statistics from a Jan 2009 study that estimates more than one quarter (10 million) of US households are underserved. Minorities and lower income earners are more likely to be underserved with about 20% of all black and hispanic households or those earning less than 30k a year being underserved.
Just to be sure everyone understands what this means, Unbanked is defined as not having access to any bank accounts and Underbanked is the use of alternative services such as payday loans, pawn shops, auto title lending, rent to own or other services.
Why should this matter to you if you are not one of the 1 in 4 in the US? First of all, with near 10% unemployment in the US in this economy more people are experiencing the pain, so it could affect you, your friends or family.
More importantly as you will read, falling into this category can make life much more difficult by increasing fees, denying credit and making it harder to even make simple payments or cash checks. This makes it harder to get out of the poverty cycle and get back to financial health. Not good for America.
I talked with one underbanked person who we will call Tom to gain some insight on why no bank account and what life is like. Tom explained "When you live paycheck to paycheck or even less the bank fees can drag you under. Eventually you are faced with paying the bank fees or your rent, electric bill or car. Then the banks shut you off and you can't get an account anymore. Then it's on to check cashing, money orders, prepaid debit cards and long lines."
Tom went on to tell me how he had received two pay checks (one a bonus check) from a large well known restaurant corporation. He went to deposit his checks in his recently new account at Bank of America at a branch where they encouraged him to make the deposit at the ATM outside. After doing so, he quickly discovered that all but $100 dollars out of $2380 was put on hold for 10 days. This put him in a financial bind as he would not only be late paying his rent and gas bill but bounced checks for rent, gas, dry cleaners ($31) and a 7Eleven (4$) store. Each bounce was a $35 fee making the $4 dollar transaction $39 dollars for example. The $100 dollars available quickly became -$40 dollars.
When trying to discuss with BOA he was simply told that it was bank policy and nothing could be done. This pattern and others lead to some of the main reasons that many avoid banks. Many are burned by fees and policies that turn them away. Others simply do not trust banks, don't feel welcomed or comfortable or face language barriers. Many are unable to open accounts because of bad credit or bounced checks like Tom.
This places them in the underbanked and underserved market using paycheck cashing services, prepaid debit cards, money orders and carrying cash. The high fees don't stop when the banks are out of the picture.
Check cashing fees vary greatly from state to state with percentages as high as 5%! Fees to load prepaid debit cards with money can cost $5 per load. That could be 10% for $50 dollars. Even using a prepaid debit card at an ATM or POS can cost money. Often the people who are in this category are not good at managing what little money there is and not having a savings account compounds the issue.
And forget about traveling easily. Trying to rent a car or a hotel room with a debit card is painful. They will hold significant amounts of money for long periods of time. And occasionally it can take many calls and complaints to get a hold removed even after 10 days.
The question is: Why don't banks offer more assistance for this category of people despite the fact that it represents 25% of the US population?
Profit and risk. Most banks are geared for high network individuals and higher profits and are concerned increasingly with risk. They simply do not believe that there is profit in services for the underbanked.
Banks of course cannot completely escape the underserved entirely because the Community Reinvestment Act (CRA) mandates that they provide some services to lower income areas and the community. This is not enough to make a difference in the numbers of the underserved and is usually accomplished on the loan side or education areas.
But there may be some help on the way from both the FDIC and other private businesses who believe they can provide services for the underbanked using different risk models without gouging them.
The FDIC is starting a program in Jan of 2011, working with 9 different banks using a 1 year pilot program. The pilot banks will offer products that closely reflect the needs of the underserved. The bank products will offer features specified by FDIC guidelines such as:
* Mostly or all electronic to limit costs to the bank
* FDIC insured, reasonable rates and fees and have regulatory protections
* Checkless transactional accounts using only ATM, POS, ACH or other electronic means
* No overdraft or non-sufficient funds fees (presumably because these transactions would be denied)
The features of the products can differ and have other services tied to more traditional products and may serve as a gateway to mainstream banking eventually in some cases. We will have to wait and see what the services offered will be.
While this is a positive step forward, it may not be for everyone. Other private providers are also stepping in to help.
These services are mainly built around prepaid debit cards and related services such as MoneyPak. MoneyPak allows a person for a one time fee of $4.95 to load cash onto prepaid debit cards. Used in conjunction with the some of the service providers discussed below and others it allows you to avoid having a bank account or credit card to store money and make payments.
MoneyPak is widely available at places like WalMart, KMart, WalGreens 7-Eleven and many other retailers. There are limits to how much cash you can add depending on the solution and the information you are willing to provide. This is due to money laundering and terrorism concerns of course.
While there are many others, we must start off with PayPal. Well known with a great reputation, using PayPal a person can avoid using bank accounts up to certain limits. As with other providers this is accomplished with a PayPal account and linked debit card loaded through MoneyPak. The catch is you can only load $250 a year unless you provide PayPail with name, address, Date of birth and social. The information is not used for credit checks or marketing purposes.
Another service is Obopay. Obopay is like PayPal for mobile which allows you to send money to anyone who has a mobile phone using SMS. Of course, they will have to sign up with Obopay to receive the money as well. There is also an option of tying the payment to a prepaid MasterCard. There is a .10 cent charge for sending money and a 1.5% charge for adding money to your account with the prepaid card.
Mango Money in Texas is using the YAP network for text message based (SMS) mobile money transfers. Both parties must join Mango Money to facilitate the transfer. What is beneficial about Mango Money is that they are offering a prepaid debit card with no fees for sign up, activation and no transaction fees (signature or PIN, exclusive of banks fee for ATM). There is a $5 monthly fee which is waived if you load at least $500 the prior month. There is a .50 cent fee to send money via SMS domestically by SMS and no fee to receive money. They also offer a savings account with direct deposit that pays around 5% on the first 5,000 dollars. The drawback is that there is a fee to withdraw money from an ATM ($2 domestic, plus bank's ATM fee) which can be pricey. They also charge .50 to check your balance by an ATM.
Another provider named Bill Float is an interesting concept. It helps people extend bills by providing small loans up to 1,000. This can make a big difference for those living payment to payment. Bill Float has a power scoring system that reduces the fees as you pay back responsibly. The two drawbacks are that loans while small can be at 36% interest. Secondly you must have a bank account to link to, although it appears it can be just a savings account.
So it is clear that US Banks are not meeting the needs of all America but there are options and those options are improving. These services when offered in other countries are making a big difference in helping the poverty level. While the needs may be different somewhat in the US it can make a difference here too.
More Info:
http://www.fdic.gov/consumers/template/background/
http://www.fdic.gov/consumers/template/comments.html
http://www.moneypak.com
http://www.mangomoney.com
http://www.obopay.com
http://www.paypal.com
http://www.billfloat.com
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