Author: Jim Bruene

Should Your Bank’s Chatbot Have a Name?

Should Your Bank’s Chatbot Have a Name?
By Jim Bruene Posted on
Categories: Bank of America, Service

When Bank of America introduced its chatbot in March it decided to name it Erica (not coincidently, pretty similar to Amazon’s Alexa). I’m a big fan of self-service and pleased that banks are using AI/ML/DL, and common sense, to solve my problems without talking to a human. But do I really want to converse with a robot, or do I just want to have my problems solved?

I’m comfortable talking to Siri or Alexa, but they sit in a different space than a bank’s voice interface. Alex needs to be awakened to do its job. But if you are already on BofA’s mobile app, there isn’t the same need to announce your arrival (see note 1). It’s a good UX improvement to give users the option to make a voice or chat query. But I don’t see the benefit of “naming” the voice response unit. It reminds of Microsoft Clippy, an automatic windows popup “helper” used from 1997 to 2001. I thought it was cute at the time, but people don’t want cute getting in the way of their task accomplishment, they want speed and accuracy. Anything that takes away from efficiency is potentially annoying.

In such a new area, there isn’t a body of research to fall back on when making a decision. But I did find an interesting post from an exec at Intercom, a digital messaging company. Originally, they named their bot, but they found that is was intimidating to users. It wasn’t until they eliminated the name that users began to appreciate the self-service tools.

What we found was surprising. People hated this bot — found it off-putting and annoying. It was interrupting them, getting in the way of what they wanted (to talk to a real person), even though its interactions were very lightweight. We tried different things: alternate voices, so that the bot was sometimes friendly and sometimes reserved and functional. But we didn’t see much change. It was only when we removed the bot name, took away the first person pronoun, and the introduction, that things started to improve. The bot name, more than any other factor, caused friction.

Intercom concluded they needed to make the chatbot invisible so that it didn’t get in the way of the interaction.

Making technology disappear so that it becomes a true tool for humans— like a hammer, or a nail, or a pencil — that’s the true measure of success for today’s designers. And making tools quieter to use, so we can use them more intuitively— that’s the true measure of success for a designer who deals in words.

Moving forward:
You absolutely should be investing in making your banking app and customer service run without human interaction, whether by voice commands, typing or touch controls. Customers want to get their banking done as fast as possible, so the UX improvement and cost savings potential are significant. But put your money into an efficient UX, not a cutesy name (see note 2).

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Author: Jim Bruene (@netbanker) is Founder & Advisor at Finovate as well as Principal of Fintech Labs, developers of the financial services user-experience standard, BUX Certified. 

Notes:
1. I’m not talking about Alexa skills here. “Alexa, what’s my Bank of America balance” is a great use of voice technology. But, saying “Alex, ask Erica what my bank balance” is redundant and a bit silly.
2. Bank of America downplays the Erica name in its mobile app. Other than the awkward introduction to Erica when you first start using it, the bank avoids using the name and simply posts a BofA logo in the lower right of each screen (see screenshot right). Pressing it opens up the chatbox interface where you can type or speak your question. That’s great customer service. But I bet they’d get better takeup if they stopped “introducing” you to a robot the first time.

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First Look: Honeycomb Credit

First Look: Honeycomb Credit
By Jim Bruene Posted on
Categories: accelerator, Accelerator Showcase, Crowdfunding, Loans & Credit

Last fall Finovate added an Accelerator Showcase where pre-seed startups from fintech accelerators pitch on stage for three minutes. That’s where I first heard George Cook, founder of Honeycomb Credit, one of two startups selected to pitch at FinovateSpring by accelerator AlphaLab.

The Pittsburgh-based company got its start as a class project at Dartmouth’s graduate school of business. But co-founder Cook and his classmate Ken Martin received so much positive feedback from the idea they decided to make it a real company in 2017.

The company is joining what was expected to be a crowded space of SMB crowdfunding. But the lengthy implementation of the U.S. crowdfunding framework has caused many of the 38 startups in the space to give up leaving room for new companies such as Honeycomb. The notable exception is Funding Circle which has raised $375M (note 1). Other active platforms include Finovate alums P2Binvestor (raised $9.2 million) and SeedInvest (raised $8.2 million) along with Crowdfunder (raised $6M), Fundable (acquired by Startups.co) and Wefunder (raised $2.3 million). Indiegogo (raised $56 million) is also now involved in equity crowdfunding, although it is currently a small piece of its overall rewards-based funding platform.

Honeycomb is a debt crowdfunder where investors loan money at bank-like rates to SMBs currently unqualified for bank funding. In addition, like Kickstarter or Indiegogo, non-monetary gifts and experiences are offered to incent action on the part of would-be-lenders. For example, Pittsburgh Pickle offered t-shirts to the first 20 investors in its $10,000 to $50,000 crowdfunding campaign (see screenshot at top). It also invited anyone who kicked in at least $1,000 to an exclusive event at the pickling facility.

The idea is to enable small businesses to tap their local community for debt capital on better terms than higher-rate alt-lenders such as Kabbage or OnDeck. According to Cook, its SMB customers are “near bank quality” but lack one or two of the typical prerequisites such as 3 years of tax returns. But at least one of their beta customers used Honeycomb not because they couldn’t get bank financing, but because they’d been burned in the past and preferred a non-bank alternative.

The loans are funded by individual investors on the platform, using the same model as Lending Club, Prosper, or Zopa. Thanks to the provisions of the crowdfunding act (specifically Reg CF), investors need not be accredited, an important aspect of the Honeycomb business model, which relies on the borrower’s friends, family and customers to fund the loan. Eventually as the business scales, HoneyComb expects to attract institutional and high net worth funds seeking yields from alternative assets.

Honeycomb’s special sauce is community and collateralization. It lends to existing businesses looking to expand expand their share of wallet within their predefined market. For example, it recently ran a successful campaign for an ice cream shop to buy a truck for mobile sales. And whenever possible, HoneyComb takes equipment as collateral on the loans.

Pricing
Borrowers typically pay platform lenders 8% to 12% interest on 3- to 5-year installment loans. At the conclusion of a successful money-raising campaign, Honeycomb charges borrowers an 8% fee and investors 2.85%. Honeycomb doesn’t hold loans on its balance sheet, so all credit risk is pushed to investor/lenders.

Go-to-Market Strategy
The startup has begun rolling out the platform having ran two successful campaigns, raising $50,000 for an ice cream truck and $25,000 for several new greenhouses. There are currently two more in process, one of which has already surpassing its minimum raise amount.

To expand, Honeycomb is currently raising a seed round. They have received good publicity in their local market, but to make that scale to other markets Honeycomb may need to find local partners such as local development groups, governments, and financial institutions. However, Honeycomb believes that the public nature of crowdfunding campaigns will drive a large number of new customers to its platform keeping customer acquisition rates low.

To reach profitability Honeycomb needs to expand beyond its Western Pennsylvania home market. That’s going to be a challenge without compromising quality. The company hopes to attract revenue from ancillary services and balance sheet lending down the road, but that’s much easier said than done in the fickle SMB sector.

Bottom Line
As with many businesses, it’s all about scale and efficiency. Honeycomb will need to automate its processes while simultaneously increasing loan size. But as loan sizes increase, they will begin to run up against a raft of competitors, including banks and credit unions. But I also think there is a good opportunity to license the Honeycomb platform to banks and credit unions wanting to add crowdfunding to their SMB services.

Author: Jim Bruene (@netbanker) is Founder & Advisor at Finovate as well as Principal of BUX Certified, a financial services user-experience standard. 

Notes:
1. Also in the UK there are 4 other platforms with good traction: Crowdcube (£21.2M raised for itself) Seedrs (£13.7M raised), SyndicateRoom (£8.7M raised) and Venturefounders (£6.8M raised).

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What’s the Fuss? Amazon Already Offers Full Suite of Banking Services [Updated]

What’s the Fuss? Amazon Already Offers Full Suite of Banking Services [Updated]
By Jim Bruene Posted on
Categories: Amazon.com, Capital One, Chase Bank, Credit/Debit Cards, Deposits, Checking, Savings, CDs

Amazon made headlines around the banking/fintech world this week following a WSJ story Monday about a rumored collaboration with Chase Bank and/or Capital One. The click-bait title, Next Up for Amazon: Checking Accounts (apparently revised from the title embedded in the hyperlink, “Are You Ready for an Amazon-branded Checking”) made it go viral in the United States, at least with news organizations.

The facts were less exciting than the headline. Apparently the ecommerce giant issued an RFP last year seeking suppliers of a “hybrid” checking account aimed at younger and unbanked customers (it’s unclear whether that is a single segment “young and underbanked” or two segments, “young” and/or “underbanked”). And there was no indication that any new product was coming now, or ever.

There is one thing missing in the 100+ stories that appeared in the wake of the WSJ piece:

Amazon already is a bank in everything but the name

Here’s a list of its current financial and payment offerings:

  • Amazon Pay: Used by 33 million to pay for goods at non-Amazon sites
  • Amazon Gift Cards: Available at brick & mortar retailers all over the country (I’ve bought more of those than all other gift cards combined)
  • Amazon Store Card, with financing option on qualified purchases: Issued by Synchrony Bank
  • Amazon Cash, a virtual debit card which allows cash deposits to the Amazon Pay wallet
  • Amazon Rewards Visa Signature Card, an affinity card issued by Chase Bank (also Amazon Prime Rewards card; see also March 13 update below)
  • Amazon Prime Reload, which pays a 2% bonus for cash deposits into Amazon Pay
  • Amazon.com Corporate Credit Line: A way for businesses to pay for Amazon purchases via monthly consolidated billing, underwritten by Synchrony Bank
  • Amazon Lending: Which has originated $3B to smaller merchants since 2011 (cited by Bloomberg, sourced to CB Insights)
  • Credit Card Marketplace: Hadn’t seen that before, includes Amazon co-branded cards along with Discover and American Express
  • Gift Card marketplace: Hundreds of prepaid gift cards from other retailers along with restaurants, travel, and entertainment providers
  • Amazon Currency Converter: For purchasing on Amazon.com in local currency
  • Amazon Allowance: Tool for parents to enable their kids to pay directly (link was broken so not sure the status)
  • Shop with Points: A number of major banking rewards programs can shop directly at Amazon with their bank-provided points including Citibank, American Express, Chase and Discover
  • Alexa: Supports banking and payments info (aka skills) from a number of financial institutions including Capital One, US Bank, and American Express
  • Teen accounts: Amazon allows teens to set up separate logins and make purchases from an allowance amount and/or request approval directly from parents (Source: Business Intelligence).
    (Update 29 March 2018) Recent news reports imply that Amazon may be looking at creating additional teen payment options, potentially in partnership with banks

The only major retail banking service missing, a stand-alone debit card (although you can already link a debit card to your Amazon account). Which I’m guessing is the core of the RFP mentioned by the Wall Street Journal.

Update (13 Mar 2018): Bloomberg reports that Amazon is planning on launching a small business co-branded card with Chase, the issuer of Amazon’s consumer card.

Bottom line: Amazon is already deeply involved in banking and payments, as are most major retailers. Gift cards, co-branded credit cards, and SMB credit products are already being used by millions of consumers. Adding a debit card and/or “hybrid checking account” isn’t going to make them any more menacing as a competitor. The prime concern for banks is whether Amazon can move payment volume from bank-issued credit cards, where the industry enjoys healthy profit margins, to debit/ACH with narrow-to-non-existent margins.

Author: Jim Bruene (@netbanker) is Founder & Advisor at Finovate as well as Principal of BUX Certified, a financial services user-experience accreditation program. 

 

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Startup Challenger Banks with Small Business Focus

Startup Challenger Banks with Small Business Focus
By Jim Bruene Posted on
Categories: Bento for Business, Holvi, Small Business
UK challenger, OakNorth become a financial services “unicorn” in its Nov. 2017 funding round

In the digital age, few startup banks have gained meaningful market share in what matters, revenue and profits. In the United States, only two large bank-like companies (see note 1) have emerged from 20 years of digital disruption: PayPal and Square.  There are also a handful of new online lenders that have amassed significant scale (SoFi, Lending Club, Prosper, Kabbage, Avant, On Deck).

There are still zero consumer banks started in the past 20 years that have broken the top-100 list. The possible exception was ING Direct. But as part of a large bank, it’s a stretch to call it a startup (see note 2). BofI Holdings, the public company that owns Bank of Internet, is the largest pure digital bank with $8B in assets and ranking 151 in this list posted by MX.

Why so few successes? It’s difficult for a startup bank to gain scale. First, the market is absolutely saturated. Every bankable consumer in the USA can choose from: (1) big trusted brands with a large branch networks and sophisticated digital services; (2) small community banks with deep ties to their communities (and serviceable digital banking); (3) or equally small non-profit credit unions providing bargain priced loans and deposits (and often with above average digital banking).

Second, to be successful, startups must solve a problem much better than the incumbents. For most consumers banking digitally simply is not a problem. The exceptions were in remote payments, which PayPal solved, and micro-businesses merchant accounts, which Square solved. That’s why it will likely continue to be tough for new deposit-focused banks to become big players, at least in the United States.

But there are many niches for banking startups to mine and one of the most promising is small business banking. A startup bank that solves bookkeeping and financial management problems for small businesses can be the next Square.

Here are some of the bigger efforts around the world (note 3):

UK

USA

Germany

Rest of world

  • Holvi – Finland, acquired by BBVA March 2016, Finovate alum
  • Tochka – Russia

Author: Jim Bruene (@netbanker) is Founder & Advisor at Finovate as well as Principal of BUX Certified, a financial services user-experience accreditation program. 

Notes:

  1. You can argue they are not banks, but they provide key consumer banking services, payments and credit, so I’m going to call them banks for the purposes of this post. I’m also excluding the crypto market, since it’s too soon to call the major players “bank like” though I think they are well on that path.
  2. I would probably add ING Direct to this list. Although they were technically not a startup, they built a significant deposit business from scratch, eventually selling for $9B to Capital One during the Great Recession.
  3. To make this list, the startup bank must be solely focused on small businesses and must offer, or plan to offer, a debit card to access funds held on deposit at the startup.

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Feature Friday: Getting Phygital with Fintech Startup Root Banking

Feature Friday: Getting Phygital with Fintech Startup Root Banking
By Jim Bruene Posted on
Categories: Feature Friday, Mobile Banking

Phygital may not be heading for inclusion in the Oxford Dictionary anytime soon. But it does attract attention to your fintech startup, especially when you are specializing in integrating digital and physical channels.

Enter Root Banking, a San Francisco-based startup from industry veteran Matt Krogstad (see note 1). I met Matt when he was at mobile banking pioneer M-Com (acquired by Fiserv in 2011). Fast forward six years, and after stints at Bank of the West and First Republic, Matt is back in the fintech startup world, with a service designed to bring Starbucks-level channel integration to banking.

Root Banking’s service connects mobile customers to their branch to order ahead. For example, last Friday I needed a money order to pay a local tax bill when my ACH was inadvertently returned. This was double frustrating. First, my bank fumbles the electronic transaction, then I had to make a trip to the branch and wait in line, then wait at the teller station while they printed up a money order. Had I been able to order it in advance, and just picked it up, the whole thing would have been less unpleasant.

The other primary use cast for Root Banking is mobile delivery. Imagine if my bank would have dropped the money order off at my home (or better yet, mailed it to the City of Seattle treasurer). I probably would have opted to avoid a delivery fee, but it would be nice to have the option.

The startup hopes to integrate their phygital services into the FI’s existing mobile app. But Root will make a standalone app available if necessary. Several banks are piloting the service and are not yet integrating the requests into branch systems, instead simply delivering the requests through secure digital channels.

Bottom line: To me, the order ahead use case is most interesting. Most times I’ve needed to visit the branch (usually for small business matters), there is paperwork that could have been uploaded in advance to reduce my time at the branch by an order of magnitude. Not only is that good for customers, it potentially drives costs out of the system at the branch level. A win-win.

Contributor: Jim Bruene (@netbanker) is Founder & Advisor at Finovate as well as Principal of BUX Certified, a financial services user-experience accreditation program. 

Note:
1. For reference, see Penny Crosman’s 10 January article in American Banker 

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Should Podcasting Be Part of Your Bank Marketing Mix?

Should Podcasting Be Part of Your Bank Marketing Mix?
By Jim Bruene Posted on
Categories: Blogs

Thanks to prodding from my sons, both long-time podcast listeners, I finally gave them a serious trial during the past month. Despite my skepticism, I’ve become a huge fan as well. And I figured out why I hadn’t embraced the medium; I was consuming on my laptop. Podcasts are clearly a mobile medium. To fully engage, I found that you need to be plugged into headphones and more importantly, away from the distractions of your desktop browser. Finally, I found the “speed-up” button and much prefer 1.5x speed which keeps my mind from wandering.

Podcasts are having a bit of a moment. According to Pew Research, the number of Americans listening to a podcast in the past month has doubled in the past four years to 24% (and 40% have ever listened). This is small compared to the 90+% tuned into conventional radio, TV, or the Internet. However, the podcasting audience is the fastest growing media segment and there are solid opportunities for financial institutions, primarily in the B2B area with content geared to local small business owners.

Although, you won’t find them on the iTunes top-100 (except Goldman’s effort, see Table 1, below), many major banks are actively podcasting. Most are aimed at investors or small businesses and are tucked away in the far reaches of their websites. Often, the only way to find them is through a Google search. Even the bank’s own search function, didn’t always locate them. However, Umpqua Bank is an exception with its consumer-focused podcast consistently featured on its homepage (see screenshot above).

Bottom line: Unless you want to make a statement, ala Umpqua, or you have a budding podcaster in-house (quite possible), producing an ongoing interesting podcast is probably not cost effective for most smaller banks. But anyone big enough to be producing custom content for their customers/members/clients, should consider adding podcasts to their communications mix.

Author: Jim Bruene (@netbanker) is Founder & Senior Advisor at Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 

Table 1: Selected financial institution podcasts

  • Bank of America: Small Business: Small business management topics. Latest episode: “Women’s Business Owners Spotlight”
  • BBVA Research, U.S. Weekly Podcast: Touches on home prices, GDP and other economic topics
  • Fidelity: Fidelity has three series: Rethinking Time, The Future According to Now, and Market Insights. All are geared to investors and look at industries, innovations, as well as general investing topics.
  • Exchanges at Goldman Sachs: Covers industry and investing themes. The podcast currently ranks #54 in the Business category on iTunes.
  • JP Morgan Asset Management: Insights Podcast: Market news and insights.
  • PNC Bank, Business Webinars & Podcasts: Wide variety of business management topics geared at small business. Most are in webinar format.
  • Umpqua Bank: Open Account Podcast: The podcast is located in the “Society & Culture” section and covers much ground. The host is former MTV personality, Suchin Pak and the tagline is “A show about making, losing and living with money.” Latest episode: “Getting Back in the Race” which is an interview of a former Olympic athlete Bryan Clay (see screenshot at top).
  • US Bank, Power of Possible: Consumer oriented podcasts exploring financial education and other topics. Latest episode: “From iOT to Blockchain: The intersections of banking and retail”
  • Wells Fargo, Conversations: Variety of topics aimed at consumers. Latest episode: “Make Your Giving More Impactful”

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Friday Fun: Searching for “Mobile Banks”

Friday Fun: Searching for “Mobile Banks”
By Jim Bruene Posted on
Categories: Mobile Banking, Search Engine Marketing

If you could choose one banking term to dominate in Google searches, “mobile bank” would be near the top of your list. In the past two months, Google has served 1 million searches for the term (see chart above). And not surprisingly, 75% were conducted from mobile devices.

So who’s on the first page today? When searching “mobile bank” from my Seattle IP address I expected to see the usual mega-banks. And yes, they were there. Among organic results (see desktop screenshot below, mobile search results were similar), US Bank was #2, BofA was #3 & #4, PNC was #5 (despite no branch network in Washington state), Citizen’s Bank was #7 (also with no branches here) with Key Bank, Union Bank, and TCF finishing off the first page.

Nothing too surprising there, other than perhaps the omission of Chase and Wells, which evidently need to boost SEO efforts. But what did surprise me was who finished #1 AND #6, BankMobile from Customers Bank. Next year, the mobile bank is expected to be spun-off in a $110 million merger with Flagship Community Bank, which is wisely keeping the BankMobile name.

Bottom line: Thinking about it, I shouldn’t have been surprised by the results. BankMobile has 1.8 million mobile accounts, ranking it among the 10 largest U.S. mobile banks (after BofA, Chase, Wells, US Bank, Capital One, Discover, Amex and perhaps Barclays and/or TD Bank), I guess Google had it right after all. Enjoy your weekend!

Author: Jim Bruene (@netbanker) is Founder & Senior Advisor at Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 

Google search results for mobile bank (17 Nov 2017, Seattle IP address)

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Turning the Tables: AI Will Help Consumers Fight Bank Fees & Penalties

Turning the Tables: AI Will Help Consumers Fight Bank Fees & Penalties
By Jim Bruene Posted on
Categories: A.I., Legal, Service

There’s an interesting article in today’s WSJ about DoNotPay, a free AI-powered chat-based service that was built to help London residents automatically fight parking tickets.  That service has now assisted 400,000 consumers fight off $11 million in fines (more background at TechCrunch).

It’s the brainchild of then 17-year old Joshua Browder (who is now 19, and of course, studying CS at Stanford). But Browder is not content beating the meter reader. He is now gearing up to equip everyone with free AI-powered law tools to take on bigger injustices and issues (see DoNotPay overview video above). His latest work, a tool to make it easy to process a no-fault divorce, something that typically can cost $10,000.

The article mentioned a few more areas ripe for this type of tool: airline restitution for delays and lost luggage and battling telemarketers and landlords.

But one area that’s sure to attract multiple consumer AI startups: bank fees, penalties, credit decisions, and more. What are you going to do when you start receiving hundreds, if not thousands, of cease & desist letters challenging NSF charges, late payment fees, and so on? Or worse, suing you in small claims court or threatening arbitration (see the current default “problem” at DoNotPay, how to sue Equifax for $25,000, inset).

You are not going to be able to afford the legal expense to fight for a $35 NSF fee. Eventually, you’ll have your own AI to fight their AI, but that’s a ways away (though if you saw Tim Huber’s AI talk at FF, it may be closer than we think).

An even bigger issue are all those sketchy charges on bank credit and debit card. It’s not a stretch to imaging the consumer’s AI routinely filing disputes and following up over and over again until you and/or the merchant capitulate.

Bottom line: Make sure your penalty fees are appropriate, well communicated, and understood by customers. And you might want to pay a bit more attention to new technologies available to answer customer queries, and even legal threats, in a semi-automated fashion.

Author: Jim Bruene (@netbanker) is Founder & Senior Advisor to Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 

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Educating Customers About Breaches: Equifax Edition

Educating Customers About Breaches: Equifax Edition
By Jim Bruene Posted on
Categories: Security & Privacy

Mistakes happen. Ultimately, it’s how you respond that makes or breaks you. Clearly, Equifax could have done better. But this isn’t about them it’s about you.

Banks and credit unions have an opportunity, even a responsibility, to advise customers on important financial matters. And I think this qualifies as one. So what do you tell them about the latest breach?

Other than Wells Fargo (see screenshots 1 & 2 below), it’s mostly silence from the top-10 US banks who are understandably conflicted here. Where did Equifax get information leaked in the hack? Financial institutions are feeding millions of records every week into the credit bureaus, and using the pooled information to fuel massive loan programs.

CU Examples
But I did find some credit unions helping their members sort things out. The first one I ran across (and the inspiration for this post) was at BECU, the sixth largest credit union in the United States. Last week, BECU had a warning notice running in the lower part of its homepage (see screenshot #3 below; which was taken down over the weekend). The warning led to a full page (posted Sep 8th), discussing the breach and how to protect your accounts at BECU and elsewhere. NASA FCU has a more prominent notice, running in the main part of its homepage, in rotation with seven other items.

Bottom line: It’s no fun communicating negative information especially when you are part of the industry that created the problem to begin with. And I think all 3 of the explanations show below create more questions than they answer. But your customers need help. And it’s so hard to find the truth about data breaches and financial information in general amidst the sea of detritus that is the modern Internet. You should be the trusted place to turn to in times of financial concerns. That should be part of the definition of “primary financial institution.”

Author: Jim Bruene (@netbanker) is Founder & Senior Advisor to Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 

1. Wells Fargo homepage (2 Oct 2017)

 

2. Wells Fargo landing page (link)


3. BECU homepage (29 Sep 2017)

4. BECU landing page (link)

 

5. NASA FCU homepage (2 Oct 2017)

NASA FCU landing page (link)

Note: Top graphic from Gemalto’s BreachLevelIndex.com

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Feature Friday: Sweep Accounts for the Mass Market

Feature Friday: Sweep Accounts for the Mass Market
By Jim Bruene Posted on
Categories: Feature Friday, Kasasa, Loans & Credit

Does anyone remember when sweep accounts were all the rage? They were disruptive technology in the 1980s. The idea was to automatically sweep idle cash from non-interest bearing accounts to savings or investment accounts with higher yields. It’s still a core feature in treasury management accounts for large businesses, but you don’t hear much about it these days on the retail side.

Why? The small differential between checking and savings or money markets hardly justifies the trouble. If the average annual amount swept to savings was $2,500, it would only net an extra $1 or $2 annually (after tax) from a typical large U.S. bank, or up to $10 in a “high interest” account from a community bank or credit union.

But if instead of sweeping idle cash into savings, what if you could use it to pay down, even temporarily, a personal loan or revolving credit balance? All of a sudden, that $2,500 cushion is worth $300 or more annually (assuming 12% APR), 150x the return of sweeping to a bank savings account. That’s enough to get your customers’ attention.

Some overdraft credit lines work this way. You can freely transfer money between credit line and checking to minimize interest charges. I had the feature at US Bank years ago. During cash-strapped times, I would keep $0 in checking and every time I wrote a check it would trigger an automatic (and fee-free) credit line advance. It was a great system, but when the bank started charging fees on each automatic transfer, I abandoned my “sweep account” hack.

Fast-forward 10 years and Kasasa has reinvented the credit-line sweep with its hybrid loan product launched today. Kasasa loans offer a “take back” feature which allows consumers to pay down their loan balance at any time, and then get those extra funds back at any time in the future free of charge. Basically, in banking jargon, it’s a fixed-rate installment loan (with a repayment schedule), married to a credit line that allows you to move money in and out up to the extra amount you’ve paid in (see note 1). One sees this in the home equity space, but not in the personal loan arena.

A key part of the account’s appeal is the Loan Management Dashboard. Without the dashboard, the changing balances and available “excess” would be a customer services nightmare to explain and track. The dashboard makes it (relatively) simple to move money back and forth. There will be some customer service questions, but they should primarily be one-time only.

Bottom line: Kasasa’s hybrid loan is a winning concept, especially for its community bank and credit union clients looking to differentiate themselves from the big banks and online lenders. It’s a user-friendly approach that should play well with their loyal customer/member bases. The laon does have the downside of cannibalizing deposits while lowering loan balances. But with proper marketing, a Kasasa speciality, the incremental loan balances (and customers) should far outweigh the lower deposit totals.

Author: Jim Bruene (@netbanker) is Founder & Senior Advisor to Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 

Note:
(1) Unlike a credit line where you can always borrow to the maximum credit line, in the Kasasa Loan, you can only borrow back your excess contributions. This is a benefit for consumers who prefer the discipline of a fixed repayment period rather than an open-ended credit line.

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Voice Banking: What’s Old is New Again

Voice Banking: What’s Old is New Again
By Jim Bruene Posted on
Categories: Voice Commerce
Capital One was the first U.S. bank to integrate with Amazon’s Alexa platform.

I am as excited about Alexa/Cortana/Siri/Google as the next geek (except maybe for this guy) and look forward to seeing many examples at Finovate in 2 weeks. We already own a pair of Amazon Echos and we’ll probably get more. Our biggest uses: music, the grocery shopping list (which still requires a visual to use when shopping), and as a kitchen timer. We love it. But is it a great interface for financial services? I’m not sure.

1987 AT&T advertisement

Roll back the clock three decades. Voice banking was the newest thing. It offered 24/7 access to bank balances and transactions. No more waiting for a paper statement, queuing up at an ATM or even going to a branch.

However, when the Internet arrived in the late 1990s, routine automated queries began migrating from the phone, where it was tedious and time consuming to “listen” to data, to the wonderful new visual medium. Users could comprehend a series of numbers much, much faster visually than orally.

So when I see the hype around voice banking, it’s hard not to think that we’ve just gone backwards in UX by two decades. I don’t think the current crop of voice products are all that compelling for day-to-day banking. Sure, “Alexa, what’s my balance?” is easier and faster than calling a toll-free number or even logging in to mobile banking. But most customers looking for their balance also need to understand the transactions that created it. And for that a visual aid is much better than a recital of a bunch of figures.

To add value, voice interfaces must handle requests AND deliver results that are not better served with visuals. (Note: We are not talking about voice commands for mobile or desktop banking which do add value for almost any task.) What might those use cases be?

  • Annotating transactions:
    Trigger: “Alexa ask me what my recent purchases were for?”
    Alexa: “$12.77 at Pizza Press yesterday?”
    User: “Lunch with Charlie at school”
    Alexa: “$64.12 at Office Depot on Monday?”
    User: “Business expense for office supplies”
  • Second factor for online/mobile banking
  • Alerts (assuming Alex could proactively start a conversation with you)
  • Routine customer service questions (such as Capital One example above)

Bottom line: For marketing and convenience reasons, financial institutions will Alexa-enable a wide variety of tasks such as transaction queries, transferring funds, authorizing payments, and so on. But few of those tasks are handled more effectively by two-way voice communications. Sometimes, it may prove more convenient (e.g., think of a busy parent trying to avoid an overdraft while making dinner for their 3-year old). But even if they can use Alexa, I think most people will pull out their mobile phone for the majority of banking tasks, very likely using voice commands to simplify the input process.

Author: Jim Bruene (@netbanker) is Founder & Senior Advisor to Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 

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