Random Thoughts

Banks that help educate customers stand a very good chance of building better relationships, and increasing wallet share. Today I’m left with an “apply” button on my brokerage tab for Wachovia, Citi, Chase, Wells.. the average customer doesn’t want to apply for an account until they understand how this “product” will serve them and gain insight into how BankX’s services compete.

7 June 2010

Rumor Mill

Paypal’s new virtual terminal may be just in time. Rumor is Visa is planning a slew of new product announcements in next month.. from NFC, to mobile coupons to bringing down the barriers of card acceptance. Perhaps this is the primary driver for the CYBS acquisition, there must have been a dependency given the multiple paid.

Thought for the day: What  is “banking innovation”?

How many times per day do you really want to check your bank balance? From how many different devices? Is comparing yourself to others innovation?

From my perspective a “killer” customer value proposition (in any market) is making “up market” premium services available to the masses. How would you like to be treated like a client of a private bank? Your bills are paid, your lawn is mowed and your dog is walked… You have a relationship with the banker, he is invited to your children’s wedding. He actually knows your name when you walk into the office or call him on the phone…. and he also consistently delivers superior market returns to your portfolio.

As a bank customer.. does your bank know who you are? your history with them? What your goals are? Is it any wonder that bank customers are rate driven? There is no relationship (or trust) in the average mass market portfolio of a large national bank. Why do customers select a bank today? (sorry for stale data)

Banks know that Customer Satisfaction strongly equates to profitability, and retention. Customer focused innovation starts with focusing on what your customers need… I’m surprised at the lack of effort here…. What would my top area be?  That’s easy.. financial education. Banks that help educate customers stand a very good chance of building better relationships, and increasing wallet share. Today I’m left with an “apply” button on my brokerage tab for Wachovia, Citi, Chase, Wells.. the average customer doesn’t want to apply for an account until they understand how this “product” will serve them and gain insight into how BankX’s services compete.

Who will take on financial education 301? I don’t really want banking to be “fun” (aka Virgin).. I want it to be serious and thoughtful.. US retail banking is just plain backward when it comes to innovative products (Foreign currency accounts, structured products, international equities, …). Perhaps there is a “catch 22” with our collective financial literacy.. or lack thereof.


The banks above have obviously invested time thinking about this, however my guess is that few current customers know about (or use) any of these services.

What would a private banker do for a new relationship? He would probably try to find out my risk tolerance and develop a plan to better manage cash (ex sweep account) and investments with consideration for taxes and personal plans. Why are banks outsourcing this to a CFP?  Of course the answer is that banks are product focused (as opposed to customer focused), there is great margin in that 0.25% CD that grandma buys.. also a great source of liquidity which drives Tier 1 capital and my bond rating (cost of capital).  All of this seems to point to great opportunities for small banks, particularly those that cater to affluent (Aquestabank and their 1.2% CD).

It seems that the ABA and OCC are frowning on deposit competition right now, a heavy price for consumers.. take a look at rates in the UK this week (http://www.moneysupermarket.com/savings/) . The incentives for the large banks is to act as a “late follower”… after all until balance run off occurs there is little incentive to change.. US branches (and their sales teams) continue to excel in generating margin.. with consumers poorly equipped to evaluate options.

Make no mistake, the consumer market will change..  Will banks that depend on customer illiteracy for success will have adapting? US banks are very fortunate that the average consumer is not a British replica… where  consumer “rate hopping” is at an extreme … perhaps Mint, bank rate, and money supermarket will get more traction and bring greater transparency..

Thoughts appreciated.

Customer Sat Survey Released

Change Sciences also released a new report this week ranking online banks by “online experience”, in this report Ally bank is ranked #1. The sites usability is just fantastic.. and sets a new bar for the big guys to follow.

18 Feb 2010

ACSI just published results of the customer satisfaction survey.  Wells/Wachovia is #1.. keeping them in the spot for last 5 years (job well done guys).

Wells Fargo has emerged from its acquisition of Wachovia stronger in terms of customer service, rising slightly by 1% to an ACSI score of 73, which is the top score among measured banks in 2009. Wells Fargo seems to have benefitted from Wachovia’s legacy of strong customer satisfaction; for many years, Wachovia was the industry leader. By contrast, JPMorgan Chase has not performed nearly as well following its acquisition of Washington Mutual. The subsequent reorganization has been slow, and many Washington Mutual branches were still not rebranded as of the fourth quarter of 2009. Customer satisfaction with the new, larger JPMorgan Chase dropped sharply by 7% to an ACSI score of 68. To some extent, the story is the same for Bank of America. Its acquisition of Merrill Lynch made it the world’s largest financial services company, but massive losses have led to layoffs and substantial cost-cutting. Bank of America’s ACSI score dropped even further than JPMorgan Chase, tumbling 8% to an industry low of 67.

In addition to ACSI’s overall customer satisfaction report (all bank services) Change Sciences also released a new report this week ranking online banks by “online experience”, in this report Ally bank is ranked #1. The sites usability is just fantastic.. and sets a new bar for the big guys to follow.  Ally (was GMAC) is based in Charlotte and run by the former BAC internet management team. They were able to take the best and brightest from both BAC and Wachovia and have assembled a “dream team” of designers that have taken their game to a new level..  Congrats guys!

Bloomberg: Citi and MSFT to compete w/ Mint.com

Citigroup, Microsoft Said to Plan Challenge to Intuit, Mint.com http://www.bloomberg.com/apps/news?pid=20601103&sid=ajESsHMx7eYU

Hmmm… I believe Brian found me from my Mint/Intuit note below. Hope I don’t come off as a radical. Citi must be successful.. US taxpayers are shareholders. Jeff is a great guy, and one of the most talented people I have ever worked with. I have no idea how Citi keeps hold of him. Perhaps it’s like joining the Army.

Citi/MSFT will obviously look to provide services to non customers and industry sources tell me that the account aggregation will be provided by Yodlee.  There is some amount of irony here, as Citi’s customer’s had access to Yodlee’s services until September 2005. During my time at Wachovia customers loved the Yodlee service, but we had to end it due to cost and risk issues. 

For Citi/MSFT a central challenge will be moving customers away from their bank to engage in activities such as budgeting and paying bills… and then transacting. (Remember Transpoint from MSFT…. it was close to the date when Gates said Banks were dinosaurs in 1994…) In the US, MSFT, Mint.com and INTU had trouble getting customers engaged seperate from their Banks. In the US, Mint had the fastest growth rate with a total of just over 400,000 customers. A figure not likely to strike fear in the heart of many banks, this combined with the Mint demographic seems to indicate that the customer base of “spenders” vs “savers” (hence the need for budgeting). This would seem to indicate a card focus for Citi.

Assuming a card focus, a short term need to generate revenue, offering customers a way to transact with Yodlee as a service provider.. I would see card based bill payment as a key service to be offered in this new Citi/MSFT venture. During my time at Wachovia we piloted the Yodlee biller direct service. The UI was fantastic… and that was 4 years ago. This service leveraged cards as the vehicle for bill payment through aggregation of the billers online payment interface. BAC also evaluated this service as a way to generate interchange revenue off of bill payment. 

Hence, I would assume that Citi’s business case for NewCo is based upon the following:

  1. Transacting. Both leveraging credit cards for a bill payment, and purchases. (interchange)
  2. Market customers based upon transactional data (marketing)
  3. Cross sell Citi products 

There are several organizational, brand issues and customer support isssues with Citi’s approach. Citi’s customer may get confused, is this a Citi service? How can Citi’s current card customers leverage it? How do they leverage it? For example, it is hard for me to remember the 3 separate log ins that I have today with Citi today: Card, banking, Obopay… now I need a forth? Who do I call when I have a problem?

Globally, the only success model for aggregation and comparison that I am aware of is Egg.com, which Citi acquired May 2007 for just over $1B.  If you sit down with Paul Gratton, Egg’s first CEO he will tell you that their success was driven by a complete focus on delivering value to the customer, both in product and online services. It is the coupling of product and service value that creates challenges for large companies to replicate, particularly with respect to cannibalization of existing products.

In the UK, customers select their bank savings account through leading comparison sites like www.moneysupermarket.com. In the US, customers select their bank based upon the proximity to their house. The business premise with Mint.com, Intuit and its competitors is that customers will start with budgeting, and then move to select financial products (no retention play as these are not necessarily Citi Customers) or transact. Egg was successful because is first started with the most competitive product, establishing trust, and then moved to deliver the best services to surround it.  

Fortunately for banks, customers prefer to go to their bank directly to perform financial services. This “Trust Pattern” is something banks should want to reinforce. WFC exemplifies the alternate approach within its online banking services, with integrated budgeting tools, which is a great service and provides solid customer retention. Banks hold enormous control over the success of any aggregator’s site. Yodlee possesses no contractual right to the data, and the collection of customer information by any third party can be managed. If Mint, lowermybills.com or Microsoft/Citi start to gain traction with mainstream profitable customers.. expect banks to start charging Yodlee for access to their customer data, or eliminate it outright.  


Delivering Value

I was in Orlando 2 years ago at what use to be retail banking seminal event: BAI. It wasn’t what it use to be… One speaker stood far above the crowd, it was Michael Porter the preeminent strategist from Harvard. For those not familiar with Porter, his books include “Competitive Strategy” the reference book which defines the subject. I was fortunate to hear him speak at the large forum, and at the round table following. His words have stuck with me for 2 years: ‘The time that you (bankers) spend trying to figure out how to make your products sticky, and increase your switching costs, is that much more time a competitor is going to develop a model that delivers value to your customers’.


Banks don’t spend enough time thinking about how to deliver value. Let me give another example of a “value” bank that probably has one of the better reputations in the US: ING Direct. I was with Arkadi Kullman (CEO ING Direct) in Oct 2004, he said his “model” wasn’t for everyone (customers or competitors). From a customer perspective according to Arkadi ‘if you want a relationship then go somewhere else, ING’s goal is to deliver value with minimal interaction’. Following this comment he continued ‘if you (customer) call me more the 3 times a year, I will cancel your account’. This is obviously not a customer centered message. Even banks known for delivering value are more focused internally (low cost in ING’s example) then on the customer. I believe that most successful large banks actually started with a strong customer focus; after all how can any company be successful without making customers happy?


Perhaps customer expectations of financial service providers has gotten so low that the industry needs a face lift. As the former CEO of Egg said to me (Egg has the highest customer satisfaction in the UK) “we are the best of the rats.. customers hate banks”. Most customers in the US choose their primary bank based upon its proximity to their home.


Is there another way? What are the keys to a successful financial services relationship? Lets explore this over the next few days.