Citi is out of Obopay

Just recieved notice today that the Citi/Obopay “pilot” is over… am I suprised? No, at least not with the service termination. From a Citi perspective, this was a 3+ year pilot without a business owner or business case and only 2,000 cusotmers (this is not a typo.. I’m not missing any 0’s). The original plan was to gain customer insight. Once Citi invested…. the pilot dragged.. as Citi’s participation provided “value” to Obopay. Key learnings for banks:

Nov 2, 2009

See previous post http://tomnoyes.wordpress.com/2009/10/13/nokia-moneyobopay/

Also See post on 11/12 Obopay India – Another Failure?

Just recieved notice today that the Citi/Obopay “pilot” is over… am I suprised? No, at least not with the service termination.  From a Citi perspective, this was a 3+ year pilot without a business owner or business case and only 2,000 cusotmers (this is not a typo.. I’m not missing any 0’s). The original plan was to gain customer insight.  Once Citi invested…. the pilot dragged.. as Citi’s participation provided “value” to Obopay. Key learnings for banks:

  • do this “payments stuff” in your own environment, or manage pilots with a very well defined end date (less then 6 months).
  • Once capital investment is made, heavily involve the supporting Line of business  (note to innovation teams)
  • Set clear metrics for success, and don’t be afraid to pull the plug
  • Ensure customers are aware that service is a  “pilot”. Take a look at this notice below.. move your money out of here in next 2 months. 4 years… not much customer communication on this one.
  • Re: Payments. Banks should think long and hard before they enable the next Visa/MC. Do you really want to outsource payments? (Next week’s paypal conference will lead to some very disruptive stuff.)
  • Fat clients on mobile phones have been a global bust over last 6 years. Sorry Apple (See Apple’s Payment Patent Here).  This fat client failure has extended from mobile payment (Obopay) to mobile banking (see Firethorn is dead). iPhone is potential as a game changer, but Apple (the manufacturer) is trying to create a closed system without banks (Perhaps their brand is strong enough to make everyone ditch their exsting relationships… naa). The best hope for rich applications (FAT CLIENTS) may be NFC, but the MNOs and handset manufacturers are strategically delaying (subject of a future post).

So while the Citi-Obopay service termination is not a suprise, the ability for Obopay to attract new capital (without customers or much due dilligence) is amazing. Carol must be capable of selling sand in the desert. Given my interaction with “some very large” MNO/FSI mbanking heads in US, India, Asia, EMEA, … Obopay’s focus and “success” is much of a mystery (and not much concern). On the positive side they have an excellent marketing/alliance team.

Citi Obopay Service Terminiation

Citi Obopay Fee Schedule

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.  

http://tomnoyes.wordpress.com/2009/09/15/intuit-mint/

BlingNation Review – Updated 11/2

Was on the phone w/ the CEO of Bling Nation recently. The company’s advisory board includes John Reed, a former chairman of Citibank and of the New York Stock Exchange and Jeff Stiefler, a former chairman of Digital Insight and a former president of American Express. I was very impressed with the focused value proposition and team they have put together.
 
Overview
Stick RFID tags on phones, establish NEW RAILS, NEW SWITCH and provide merchants POS terminals. Focus is “on us” payments within community banks.
 
Key items that should give Visa/MC and the big banks pause:
NEW RAILS. They have direct integration w/ core deposit systems (think JackHenry)
NEW SWITCH. They are the switch between DDA and POS, completely new Auth system
REPLACE CASH.
Consumer Adoption. They have 10 community bank pilots going on now. 25% of all DDA volume is going through them within 4 months. John Reed said “if this consumer behavior is true.. it would be the fastest consumer adoption [of a new Payment method] in banking”
Value Prop is FOCUSED.
    Merchant:             Small merchants.. 50% reduction in interchange
    Community Bank: Replace Cash, Interchange revenue, customer retention (loyalty program), minimal
                               IT work for bank. Core deposit system “plug in”, hosted services
    Consumer.           Use your phone as a payment device, get rewards and account status. Keep your money with local banks
 
USABILITY. Instant activation.. get the tag in the mail, call up your bank and give them the number
Board of Advisors. John Reed is a visionary.. how often have you seen his name on anything? These guys will be successful
 
 
Challenges
– Private networks have typically faced regulatory and compliance scrutiny. How advanced are the operating rules and agreements? Think ACH return… 🙂
– Long term consumer adoption.. is it just a flash in the pan.. or could this be an enabler for repacing cash for “community POS” payments (thing barber and soda shop) and move upstream from community to micro payments.. Something like this help small banks take back customers from the big guys?
– Fraud. Fraud doesn’t attack a system until there is sufficient volume to warrant investment.  If Cash replacement focus, then system should be air tight as it will be tough to commit investigative services to $0.50 transactions.
 
 
 
 
 
 

Googlization of Financial Services

For FSIs today the top issues in delivering new value propositions are: where is the short term revenue, what can be created that leverages current assets, what provides “true” customer value, how do I stop non-banks from creating value in my ecosystem and who internally can execute?

A managing partner at KPCB reminded me that when Google first started, it had no plan on how to generate revenue. It was great technology, and investors figured that the bright young founders would “figure it out”. My how they have, with 2Q09 revenues topping $5.5B.  Harvard Business Review put out a very thought provoking article in April 2009.

What’s Your Google Strategy? by Andrei Hagiu, David B. Yoffie

This brought about a little déjà vu relating to channel strategy for banks. The focus of the HBR article seems to be intermediaries and the value that platforms/MSPs provide. Another aspect to consider in Google’s success is how to use information to add value, and how to develop leaders capable of realizing it. For FSIs today the top issues in delivering new value propositions are: where is the short term revenue, what can be created that leverages current assets, what provides “true” customer value, how do I stop non-banks from creating value in my ecosystem and who internally can execute?

Since I’m not writing a comprehensive book on the subject.. lets follow the Google vein. Banks have tremendous customer information that goes un-used, including:  location, buying habits, credit worthiness,  brand preferences and even family/life “events”. Of course most FSIs don’t use this information because of challenges faced in regulatory compliance such as Reg E, FCRA, 2009 CCA. …etc.Anyone within a bank today knows the challenges of working across the organization to develop something truly new and innovative. Each new team that is brought in brings about an n2 problem in coordination. Developing a new customer value proposition that uses customer data is a mine field that is difficult to navigate.. but it could also be a gold mine.

Here is a thought provoking example which I discussed with the innovation team in my previous life. I’ve also discussed this same example w/ JPMC, BAC, Visa and a number of other FSIs.

Summary: Bank mines customer transactional information (card) and sends targeted advertisements to customers

Customer Value

  • Get free phone or payment chip
  • Preferred rates on card/or accounts
  • Targeted discounts/coupons at selected merchants
  • Accelerated rewards

Customer Requirement

  • Agree to Disclosure allowing use of your transactional information
  • Agree to Disclosure for bank to send marketing advertisements to your mobile phone number
  • Minimum card used
  • Maximum of x ADs per month

Bank Value

  • Generate new revenue Stream from targeted advertising
  • Increase revenue (transactions/interchange)

Bank Requirement

  • Technology. Mine data, manage advertisements, coupons and rebates
  • Develop merchant relationships (advertisements), or develop relationships w/ 3rd parties
  • New business line
  • Develop product incentives

Merchant Value

  • Finally a bank brings in customers.. as opposed to taking interchange

Example “Network” Pilot Overview – A high level directional overview

  1. Customer registers credit card for mobile ADs. Allows SMS AD x times per month
  2. Clairmail acts as agency, coordinating merchants, promos and marketing spend
  • Merchants pre-pay for campaign
  • Develop target promo and bid criteria: customer location, demographic, event transaction, …
  • Claimail server Sits at “Network”, listens to transaction traffic
  • Card transaction events are triggered based upon card registration status
  • Event gets sent to campaign engine. SMS AD triggered based upon criteria
  1. Customer gets SMS notification
  2. Example. Shop at EXAMPLESTORE in next 5 hours and get 10% back
  3. Clairmail server monitors transactions at “Network”.
  • If Card transaction is for registered card it is sorted
  • Campaign engine finds that it Ad was sent to it, determines if transaction at EXAMPLESTORE meets threshold
  • If it is met, Campaign engine kicks transaction to MerchantAdvert service which bills merchant for AD and debits account for 10% credit plus fee.
  • Engine issues 10% credit to customer’s card account
  • Engine debits merchant account
  • Notification message sent to customer that their card account has been credited for purchase and 10% discount.

Good news for merchants is that they pay only for purchases. Great CPA here. Bad news for banks is that someone is already creating a model to benefit from your transactions with your customer.

Banks must identify and incent leaders capable of working across their internal organizations to develop new models which deliver value to the customer. The challenge of delivering value in new ways cannot be delegated to the technology or internet teams.. it requires business leadership from seasoned executives well established in the organization. When GE looked to establish a new business line.. it didn’t hire an outsider with no tie to the existing business.  The same approach should be taken by leading FSIs.

The innovation team may be able to create the idea.. but you need to pull a star out of your stable to go run with it. The other option would be for Banks to start acting like VCs and give a few years for smart people to “figure it out”. However this is loose approach would be challenging for a bank, particularly for innovation surrounding existing customers and an existing business. Only leaders that are respected across business units can pull off coordination between them, particulalry when complex regulatory issues must be addressed.

Other reading

http://www.theinnovatorssolution.com/

Citi – Bank of the Future?

Even by Citi standards it is very strange to have 2 people with no retail bank experience driving a retail bank strategy. Liza came from the card group under David Simon in Customer Experience. Liza took over from one of Citi’s best internet leaders Rob Rosenblatt (now at Chase Cards).

September 2009

Travelocity CEO Michelle Peluso was hired by Teri Dial to run “Citi Forward”, with Liza Landsman running the mobile and internet team…

http://www.bloomberg.com/apps/news?pid=20601109&sid=alIEXQt0mqFQ

Citi has proven the ability to get deposits as Citi’s US Direct Bank under Direct CEO Steve Kietz was the fastest growing bank (not just online bank) in the history of the US, collecting over $8B in 6 months. Steve’s marketing genius was not enough to overcome the lack of investment. The fact remains that building a deposit book requires investment, (a 20 month payback at best).  You either build a book or milk it.. (take a look at the balance run off in CitiDirect since the dropped the rate from 2.75%.. )
http://seekingalpha.com/article/18843-citigroup-q3-2006-earnings-call-transcript.

Even by Citi standards it is very strange to have 2 people with no retail bank experience driving a retail bank strategy. Liza came from the card group under David Simon in Customer Experience. Liza took over from one of Citi’s best internet leaders Rob Rosenblatt (now at Chase Cards).

Issue for “bank of the future” is not collecting deposits.. it’s determining how you acquire and retain customers separate from a rate driven product play. The key “Strategy nut to crack” is how to build a profitable retail bank business in the US without branches. Chase, Wells and BAC have all done extensive studies that show customers select a bank based upon the proximity of the nearest branch to home/office.

Internationally, employee direct deposit (aka salary domiciliation) has been the most effective way to gain deposit customers with a minimal branch footprint.

Citi senior management continues to fuel the churn of executives here… lessons are learned and relearned in each new management appointment and each country. Understand that Michelle has very little appetite for the job…. perhaps she’ll gain perspective after her 4 month leave starts next month.