25 Jan 2011
Previous Blogs
Not much new information here.. just restating from previous blogs. I just don’t see how services like Blippy are getting funded, and why issuers/banks continue to allow access to card data. What is Blippy?
A) The ultimate in sharing and social networking
B) A group of users that seeks the opposite of privacy (?publicity?)
Analysis
As I stated previously, a central challenge to all aggregation services is moving customers away from their bank to engage in activities such as budgeting and paying bills… and then transacting. In the US, MSFT, Mint.com and INTU had trouble getting customers engaged separate from their Banks. in 2009, Mint had over 400,000 customers and VERY high customer satisfaction, yet this did not translate into revenue (below $5M). This month will be a very big test for loyalty as Intuit attempts to move legacy MINT customers off of the Yodlee service and re-aggregate (enroll) all of their accounts in the Intuit service.. loosing most history.
There is a very poor history of services/software in financial planning, a dynamic which drove Microsoft out of financial planning software (MS Money). Why would Citi (bundle) or Blippy be getting into this business? Investment hypothesis must fit into one of the following “buckets”:
A) Customer feeder to core products, or “sales lead generator”
B) Advertising
C) Revenue generating service(s) for new customers (think advisory), or
D) Build in hope big name partner will take you out (Intuit)
My guess is A and D. Fortunately for banks, customer data shows that consumers prefer to go to their bank directly to perform financial services. This “Trust Pattern” is something banks should want to reinforce and was a key reason why banks invested in online infrastructure. WFC exemplifies the alternate approach within its online banking services, with integrated budgeting tools, which is a great service and provides solid customer retention.
With regard to aggregation and budgeting, they are great tools to build closer relationships to consumers. As a consumer, why would you want to go to bundle when the only products it recommends are those of Citi? Lets assume the Bundle signs up all of the major banks to also offer their “retirement services” products. This form of competition aligns with Citi’s new retail distribution strategy (reduced branches), but DOES NOT align with any of it’s product pricing competencies. Are Citi’s products capable of competing on price? How does this align with Citi’s current Affluent customer base and product mix? Citi has a tremendous brand, and in 2006/2007 Citi’s brand proved it was capable of competing online with a price driven product in Citi Direct growing $8B in deposits in 6months. However what Citi’s management team (at the time) also learned was that “most” of this growth in liabilities came from existing customers (read cannibalization). Outside of brokerage, few online channels have proven an ability to acquire (or cross sell) affluent customers. So is Bundle a mass market acquisition play? What products will they offer and at what price point?
In the UK, customers select their bank savings account through leading comparison sites like www.moneysupermarket.com. In the US, mass market retail customers select their bank based upon the proximity to their house. The business premise with Mint.com, Bundle, and Intuit 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. The UK online bank Egg was successful in online acquisition because is first started with the most competitive product, establishing trust, and then moved to deliver the best services to surround it.
Globally, the only success model for aggregation and comparison that I am aware of is Egg.com, which my team at 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. In other words, aggregation was part of a larger product value proposition. 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. For Bankers.. this is why the Egg model is so difficult to replicate (or acquire), it takes alignment of a value proposition across product, services and channels. A challenge which is even greater for an innovation team, hence Citi’s attempt to decouple the “idea” from the “business”.
Can these “social” sites like blippy deliver on a new value proposition?
How should Banks respond?
There are 2 central issues for banks to consider: Customer data and customer relationship. Having your customers manage their finances outside of your financial institution is a lost opportunity to add value to your existing relationship. Banks need to decide what services and tools their customers WANT through customer engagement and advocacy. Mint’s demographic seems to indicate that there is a minimal business case for bank investment here. Banks may want to consider “good enough” services for budgeting such as what Wells Fargo provides online (https://www.wellsfargo.com/wfonline/spending).
If consumer surveys point to need for a comprehensive view and portfolio management the vendors such as Yodlee and Cashedge offer these services to banks today. Of specific focus should be small business and wealth. Banks should carefully track trends in these segment as needs are greater (as is customer profitability).
Banks have substantial control over Mint/Intuit success by controlling access to data. Many leading financial institutions have altered there hands off approach to allowing 3rd parties ad-hoc access to customer account information. Banks should require formal agreements with Intuit over data access, and shift costs to Intuit for managing the activities associated with allowing this access. During my time as head of Online and Payment services with Wachovia, over 40% of all ‘Internet’ help desk calls were related to Quicken/Money and a further 30% were related to aggregation. Banks should strategically manage access to their data from a cost, privacy and consumer perspective