Giving Away iPads Doesn't Solve PFM Challenges

In about 20 words, NetBanker takes a machete to PFM, cutting it down with three swipes:

  1. It’s hard to get started
  2. It’s a pain to keep up
  3. It’s disconcerting to view spending summaries

But, as NetBanker notes — and I agree with both the swipes and the rebuttal — there are “obvious benefits” to PFM use.

NetBanker goes on to say that “one way to tackle the first problem is to offer a sweepstakes or bonus to induce trial,” and highlights Truliant Federal Credit Union’s attempt to do just that by giving away iPads to members who sign up for using PFM.

My take: Truliant is wasting its money.

If you need to lose weight, you can: 1) Read up on which foods to eat; 2) Eat those foods; and 3) Exercise more. Doing only #1 — reading up on which foods to eat — will do little good in actually reducing your weight. Step #1, without #2 and #3, is a failed strategy.

This is analogous to what Truliant is doing: Trying to solve the three-pronged PFM problem by addressing just the first prong. 

PFM is the new New Year’s resolution. It used to be that when the new year came around, we resolved to lose weight and/or stop smoking. Now we resolve to get our financial lives in order. And just as we used to join a gym to realize our weight loss resolution, we sign up for a PFM to to realize our financial resolution. 

When March rolls around, we’re not going to the gym as often, and not long after we start using a PFM tool, our enthusiasm and commitment wanes, and we stop using it. 

Realizing the “obvious benefits” of PFM requires committed use of the tool over some period of time. Simply incenting people to sign up for using the tool does absolutely nothing to encourage or ensure continued use. 

In fact, if you read the fine print of Truliant’s contest, members don’t actually have to enroll in PFM to participate. (I’m tempted to enter the contest to see if they even really limit it to members). 

My prediction: A large percentage of Truliant’s online banking members will enter the contest and sign up for PFM. Truliant will then boast about their high PFM enrollment numbers. And then we’ll never hear again whether or not those members continued to use the tool and reaped the benefits. 

What should Truliant do?

Think Foursquare for PFM. 

Despite what a lot of people think, Foursquare isn’t about location awareness or the mobile channel. It’s about gamification. It’s about earning badges and becoming mayor. And if there are rewards for doing those things, great.

People like to play games. We like friendly competition, and we like to turn routine things into games to spice them up, and make them more interesting.

And that’s what banks and credit unions need to do with PFM — make a game out of it. Points for setting up a budget, points for categorizing your spending, even more points for keeping to your budget. Points for sharing tips and tricks regarding the management of one’s financial life with other PFM users.  And giving away iPads to the people who amass the most points.

In other words, incenting customers and members to deal with the “pain of keeping up” with the use of PFM.

If you can address challenge #2, challenge #1 takes care of itself. 

As for the disconcerting nature of seeing your spending patterns, I can’t help you. I’m a consultant — not a miracle worker.


P2P Lending — The Bank And Credit Union Way

I’ve often thought that banks could easily squash P2P “lenders” like Prosper and Lending Club by creating an online lending marketplace of their own. In addition to the organic traffic they could drive to the site, they could refer loans they decide to pass on themselves, and give the option to investors/savers looking for higher rates of return than they’d get with CDs to lend money in the marketplace.

Lending Club charges a processing fee ranging from 2.25% to 4.5% of the loan amount, and hits investors with a service charge of 1% of each payment received from a borrower. Seems to me that banks could easily underprice that.

But there’s another P2P lending opportunity for banks and credit unions to capitalize on.

Do you know how much money is lent between family, friends, and acquaintances? I doubt that you do, because, as far as I know, Aite Group is the only firm to have estimated the volume of P2P transactions that occur in the US.

We’ve estimated that US consumers borrow (and presumably, repay) nearly $75 billion from each other (and not from financial institutions or other types of businesses, legal or otherwise) each year. On average, every household in the US makes two loan payments to other people for money they’ve borrowed.

That last number is actually pretty useless, since a large percentage of households don’t make any P2P transactions for the purpose of repaying loans. But in our research on consumers who use alternative financial services (e.g.,  payday loans, check cashing services, etc.), borrowing from family and friends is the second most popular source of funds (after overdrawing on their checking accounts, which might not count).

In fact, of the alternative financial services customers that Aite Group surveyed, one in four borrowed from family or friends three or more times in 2010, and more than one-third did so more often in2010 than they did in 2009.

This is a huge P2P payment opportunity for banks. Note that I didn’t say it was a P2P lending opportunity.

How are these loans and agreements documented? I have no idea, but my bet is that in many cases they’re not documented at all. After all, among friends, verbal agreement is just fine, right?

But if there was a cheap (i.e., free) and convenient way to capture the details of that loan, and a way to actually transfer the money between participants — cheaply and conveniently — don’t you think a lot of people would use it?

The money in the P2P lending space for banks isn’t from loan processing fees or from taking a cut on the interest rates. The money is in the movement of funds.

To date, banks, as a whole, have floundered with their P2P payment offerings. CashEdge and Zashpay have gained some traction, but have hardly become household names. PayPal is a household name, but the vast majority of their business isn’t P2P.

Why haven’t P2P payments taken off?

Banks are marketing it all wrong. They’re pitching the “electronic” aspect. Big deal. People don’t care about channels and methods. They simply care about what’s the most convenient thing to do when they want to do it.

Instead, banks should be marketing convenient alternatives to transacting certain types of P2P payments — repaying loans to other people being one type.

Banks could provide an online capability for the parties to document the terms of the agreement, establish repayment parameters, and enable either the automatic or manual transfer of funds. All for the low fee of a P2P transaction, and not a cut on the loan. No future disagreements about the terms of the agreement, and proof of payment.

In addition to improve the way existing customers transact P2P loans between family/friends, this approach might help attract un- and under-banked consumers who could fund an account that could either be a savings account or take the form of a prepaid card account. 

The real winner, though, will be P2P payments. By driving trial of the service, consumers may find it convenient for other use cases. 

How To Differentiate Your Credit Union

On the CU Water Cooler site, William Azaroff wrote:

“When I look at many credit unions, I’m troubled by their blandness, their inoffensiveness. They used to stand for something, but now they’re moving away from differentiation and towards sameness. And many credit unions are doing this at the precise moment when differentiation is a necessity. The question is: do some people hate your brand? If some do, then I would say you’re doing something right. If not, then I’m guessing your organization is trying to be all things to all people, and should take a stand for something and embed that into your brand.”

My take: To quote former President Clinton: “I did not have sex…” No, wait, that’s the wrong quote. I meant this one: “I feel your pain.”

William is spot on that many credit unions aren’t differentiated in the marketplace. What William didn’t get into, however, is why few credit unions are effectively differentiated. There are (at least) three reasons why undifferentiated credit unions are that way:

  1. They don’t know how to differentiate themselves.
  2. They think they’re differentiated, but don’t know better.
  3. They don’t want to be differentiated.

The last reason might surprise you, or strike you as wrong. But after 25 years of being a consultant, I can’t even begin to count the number of times I’ve made a recommendation to a client to do something, only to be met with the following question: “Who else is doing that?” Risk adversity runs deep in the financial service business.

There are also a fair number of CU execs who think that their CU is differentiated. Almost to a man/woman they give the same description of what differentiates their CU: “Our service.” This is often — I’m inclined to say always — wishful thinking. Why? First, service may be what your firm does best, but it doesn’t mean your service is comparatively better. And second, because service means different things to different people.

The most prevalent reason why so many CUs are undifferentiated, however, is probably the first reason: They don’t know how to differentiate themselves. 

I’m not looking to pick a fight with William — I suspect he would agree with me here — but approaching the topic of differentiation from the perspective “what can we do to tick people off and be hated by some of them?” is not the right way to go about it. 

And with all due respect to my friends in the advertising business, the last thing a credit union should do is bring in the advertising people to help them figure out how to differentiate the CU. 

Why? Because there’s a prevalent — but misguided — mindset among advertising people that differentiation comes from “the story you tell.” (If you need proof, go read Seth Godin).

But the story you tell doesn’t differentiate you. What differentiates you is the story that your members tell. That they tell to themselves inside their head, and that they tell verbally to their family and friends. And those stories only come from their experiences with the credit union, not the advertising. 

Which means this: Differentiation comes from something you do

That “something” must be meaningful to members. And that something must be something that: 1) only you do; 2) you do measurably better than anyone else; or 3) you do measurably more often than anyone else.

Differentiation doesn’t come from standing for something, and it doesn’t come from your branding efforts (your differentiation drives your brand, not the other way around).

William’s credit union Vancity “stands” for community development and improvement.  So do plenty of other CUs. What differentiates Vancity is that — time and again — they do something about it. They can count the number of times they’ve done something about it, and they can measure the impact of what they’ve done.

Differentiating on service is tenuous. What does that mean? That you fix your mistakes better than anyone else? That the lines in your branch aren’t as long as they are in the mega-banks down the street? That Sally at one of your branches greets everyone by name and with a smile when they come in?

If you’re going to differentiate your credit union, you have to do something. Different, better, or more. None of those options is particularly easy to do. Technology initiatives intended to gain a competitive advantage — mobile banking, remote deposit capture, etc — are often easily (I didn’t say cheaply) copied. Better is hard to prove. And “more” requires strong commitment from the management team for an extended period of time.

This isn’t to say that aren’t opportunities for differentiation, just that they require commitment — and a lot of it.

So what can you do to differentiate your CU? I think it comes from committing to differentiate in one — and only one — of the following areas:

1. Advice. Managing our financial lives is tough and getting tougher. People need help making smart financial choices. But the advice available in the market tends to be focused on asset allocation and stock picking for the relatively affluent, or focused at the very lowest end of the income spectrum for people who need help with serious debt problems. What about everybody else in the middle? What about providing help with all those everyday/week/year decisions that have to be made? PFM holds the potential to provide and deliver this kind of advice, but the tools aren’t quite there yet. If this is the path you choose, you’re going to have to make some investments to develop them and get them to point where they can deliver on this promise.

2. Convenience. There’s one bank in the Boston marketplace that advertises itself  as the “most convenient” bank. Hooey. Having extended branch hours and free checking isn’t “convenience.” Making people’s financial lives easier — i.e. more convenient — to manage is a complex and difficult proposition. But when you’re really doing it, people know it. And you’ll be differentiated.

3. Performance. You might not be the easiest FI in the market for me to deal with, and you might not provide me with any advice (maybe because I don’t want any), but if the performance of my financial life — that is, the interest I earn, the fees I pay, and the rewards I get and earn, are superior to everyone else out there, than I will consider you to be differentiated in the marketplace.

I didn’t say differentiation is easy.

Banks: Don't Use Twitter For Fraud Notifications

From a Bank Technology News article titled Westpac, Other Banks Use Twitter to Warn of Fraud:

“When Westpac was recently targeted by web crooks, the Australian bank used another online venue to warn consumers, sending a Tweet warning consumers of the crime. The alert was part of a new trend—using social media to publicly expose online fraud attacks in real time—that Anti-Phishing Workgroup Chairman Dave Jevans says can be an effective way to spread security warnings, if it’s done right. Jevans says that if phishing and other attacks are corrupting trust in the email channel, it makes sense that banks would look to Twitter and other social media to alert their customers. By using Twitter, he says banks can warn customers instantaneously, without sending emails that could be construed as a malicious phishing attempt.”

Interestingly, Mr. Jevans is quoted later on in the article as saying that using Twitter “requires banks to be aware of how the Twitter, Facebook and other sites can be used by crooks themselves. Tweets could be used to spread false security alerts, similar to how email is used by fraudsters.” (I love that: “the” Twitter). 

My take: It makes little sense to use Twitter for fraud notifications.

It’s not so much a security issue as it is a numbers game. 

Pew Research Center reported in December 2010 that 8% of Americans use Twitter, and — more importantly — that just 2% of online adults used Twitter on an average day. 

I haven’t seen any studies on this, but I would bet that the average Twitter user sees less than 10% of the messages that come through their Twitter stream. 

More numbers: As reported on

“Less than one quarter-percent (0.021%) of all big bank customers follow their bank on Twitter. That translates to an average of 208 followers for every one million customers. BofA, the largest bank in the study, had 12,315 followers out of its 55 million customers. Wells Fargo averaged one follower for every 8,635 customers.”

For credit unions, “0.65% of members are connected to their credit union on Twitter. That’s one follower for every 155 members.”

Bottom line: Your response rate on direct mail credit card offers is probably higher than the hit rate of reaching customers on Twitter with important messages.

One potential solution to this could be a centralized Twitter account (maybe the CFPB could do something useful, here) that would be verified by Twitter. Banks could notify the CFPB who would then tweet the fraud notification. In this scenario, consumers would only have to follow one account, and would be assured of the legitimacy of the message.

Are Bankers Clueless Or Realistic?

Unless you’ve been living under a rock — which I’m not knocking — you’ve probably heard that consumer sentiment regarding banks isn’t particularly favorable these days. Pick your study, it doesn’t matter, the message is the same: People hate banks.

The credit union people jump all over these findings, and consider them self-validation of their customer service superiority. Industry pundits eat up these findings as evidence for why the industry must immediately undergo some transformational change fueled by _______ [fill in the blank with the technology, consulting approach, or book they’re selling].

But what do the bankers think of these findings?

American Banker asked its readers, in an online poll: “What is the long-term effect of big banks’ poor reputation among consumers?”

The problem in evaluating the answers, however, is that American Banker doesn’t show the number of respondents to the question, nor do we have any information about who responded. So, yes, I’m very aware that we might not be talking about a representative or meaningful sample here. But if it is a good sample, then the answers are very interesting:

6%     The banks will have a harder time attracting customers and building revenue

9%     They’ll lose market share to small banks

1%     They must spend more on advertising to rehabilitate their brands

39%  All of the above

44%  None of the above. Consumers always complain about big companies but keep using them

In effect, almost half of the respondents don’t think that poor reputation hurts big banks. The numbers are on their side. In a number of markets, the large banks’ share of deposits has increased from a few years ago. And the Q1 profitability numbers show a return to pre-crisis profitability levels.

But these are just short-term gains, no? In the long-run, a poor reputation can’t possibly be sustainable, right?

It is and isn’t.

The first thing to understand when looking at the poor reputation stats (often reported as low trust) is that people have little trust in “banks, in general” but report much higher levels of trust in their bank.

While there are a number of people who get really poor service from their bank, or feel that they’ve been cheated or shafted, that number is a minority. A much larger percentage of people are forming their opinion of poor reputation or low trust based on what they see in the news: Media reports on how large banks caused the crisis, or the example of how some large bank mistakenly foreclosed on someone’s house.

The second factor to consider is that as long as core banking products are seen as commodities, a poor reputation won’t be harmful to large banks. I don’t know about you, but when I go into a restaurant and pick up the salt shaker, I don’t ask the waiter if it’s Morton’s salt before shaking it on my fries. As a result, people just don’t care enough about their checking account to make a more considered decision. An apathetic customer couldn’t care less about a firm’s reputation.

A third factor at play here is control. When people perceive that they have little control over a situation, they will not think favorably of the party or person who does have control and wields that control. To a certain extent, people feel powerless in dealing with the “big evil” banks, and therefore say they have little trust in them when the researchers ask.

So, let’s ask again: Is having a poor reputation sustainable?

As long as consumers are apathetic about their financial lives and providers, then the answer is YES. This is why credit unions have been — for the most part — unable to move the needle on deposit share. They’re barketing up the wrong tree (I just made that up). Claims and demonstrations of superior customer service and advocacy don’t mean anything to someone who just doesn’t care.

But the numbers in the market mask changes that make a poor reputation unsustainable. More and more people care. The problem for the challengers (credit unions, community banks, upstarts) is that the people who care are predominantly Gen Yers who don’t have a lot of money (at the moment) for deposits and investments, and Gen Xers who aren’t a particularly large segment of the overall consumer base.

Bottom line: The sustainability of poor reputation is declining. Maybe the 44% of respondents who said “none of the above” in the American Banker survey don’t see this.

The important questions to ask about the future is: What can big banks do to improve their reputations? and What can the challengers do to get people to care?

Technology holds the key to the answer to those questions. Technology (I’m thinking of PFM-type tools here) can be at the center of the bank/customer relationship.

I saw a demo yesterday of what I would consider to be one of the best PFM tools I’ve seen. It doesn’t just give the customer a view into accounts and ability to budget. It integrates financial education, it provides peer comparison and analysis, it aggregates rewards program activity, and it enables customer/advisor collaboration.

What does this do for customers? It engages them in their financial lives, and — this is important — it makes them feel like they have more control over their financial lives. To a large extent, I think this is what underlies the hype — oops, I mean interest — in BankSimple.  It’s about giving control — oops, I mean the illusion of control — back to the customer. 

What does this do for banks? A million things. Not the least of which is improving their poor reputation or low trust levels.

If the big banks’ — or any bank’s or credit union’s — response to the Poor Reputation situation is increasing their advertising, or G*d forbid, investing to revamp branches, then they’ll fail to either improve trust or increase share. 

Measuring Social Media (What One Credit Union Should Have Done)

As I look at the title of this post, I’m painfully aware that I really don’t know if the credit union I’m going to mention did what I think it should have done or not. If it did it, then my apologies to the marketing folks there for implying that they didn’t. If the credit union didn’t do this, then they should keep reading.

The Credit Union Journal recently reported on the Facebook efforts of Fort Knox FCU. On Facebook for about a year now, the CU attracted 4,700 fans in the first three weeks of having a Facebook page. With more than 5,500 fans now, the CU claims to be the “most popular credit union on Facebook.” The article states:

“About 70% of those friends are members, not other credit unions or industry groupies. The CU isn’t able to provide metrics that prove its approach is attracting new members or increasing sales. But [marketing manager] Stapleton said she feels Facebook has helped Fort Knox FCU diversify the membership and reach a new target demographic.”

My take: Popularity is not the goal of your social media efforts. Business results is. If it hasn’t already done so, FKFCU should put some measurement approaches into place. Ideally, it would have done so right from the start.

After its initial three-week honeymoon with Facebook, FKFCU has averaged about 16 new fans per week. Is that good or bad? I don’t know. But after averaging 1,600 new fans in its first three weeks, fandom has only grown by 1% of that weekly average since then.

My bigger concern, however, is the statement that the CU “isn’t able to prove its approach is attracting new members or increasing sales.”

What the credit union should have done (if it hadn’t or hasn’t) is:

1. Profile the initial fan base. The first step the CU should have taken is determine who these new fans are. The CU did identify 70% of them as members, but that’s not enough. The CU should determine the average tenure of those fans with the CU, average number of product owned and average balances. The initial 4,700 fans — 3,300 members, 1,400 non-members  — could have become a control group for understanding the impact of Facebook interaction.

2. Develop an engagement tracking metric/measurement approach. A year later, can marketing at FKCFU tell management how often fans interact — not just on the FB page, but in other channels as well? It should be able to do that.

3. Track bottom line results for the control group. With steps #1 and #2 in place, a year later FKFCU would be able to say “here’s how engagement/average accounts owned/average balances for our Facebook fans compares to the changes in those metrics for non-Facebook fans. In fact, they’d be able to compare active FB participants to inactive participants to see if FB participation is correlated to bottom line results.

Can PFM Help Align Cost With Value?

I’ve argued many times that banks’ biggest retail-related problem is the disconnect between cost and value. That is, what customers pay for versus the value they receive from the relationship (if you want to call it that).

Until recently, a growing percentage of banks’ retail revenue came from penalties and fees. Overdraft fees, out-of-network ATM fees, etc. These fees have not only been out of line with the actual cost the bank incurred to provide the “service”, but customers, by and large, didn’t understand or perceive the value they were getting for these “services.”

And you wonder why trust in banks has been (is?) so low.

Over the past year, I’ve given a presentation on PFM probably 15 times to various audiences at various conferences, clients, and webinars. In each of them, without fail, someone has asked me “do you think banks can charge for PFM?” My answer, without fail, has been “you’re asking the wrong question.”

Determining whether or not to charge for PFM is a question that reflects the historical banking mindset: What fees can we get away with charging the customer without causing mass attrition?

The right question banks should be asking is: How do we align the costs (fees, rates) we charge customers with the value they — and we — get from the product/service?

Now along comes Unitus Community Credit Union out of Portland, OR who will charge its members $2 per month to use its newly-implemented Geezeo-powered PFM solution. On the NetBanker blog, Jim Bruene noted:

“While online/mobile access will remain relatively fee-free, we’ll begin to see more fees for optional value-add services such as advanced financial management. Congratulations to Unitus for taking the lead on this one.”

Taking the lead? By adding yet another fee on top of the relationship for a “service” that many of the members have no idea whether or not they want and whether or not they’ll get value from?

I’ve done the research, and I know that PFM users get a lot of value from the PFM platforms they use. But PFM users only represent about 20% of the population. And if you’re a credit union with an average member age that’s higher than the average age of the overall population, then the percentage of your member base that is already using PFM — or inclined to — is probably even lower than that 20%.

Any bank or credit union that implements PFM is going to see an initial rush of enrollees. Of consumers interested in, or already using, PFM, there’s a good percentage that want it from their bank or credit union.

But what are you going to do to convince the rest of the population? PFM — in its offline form (Quicken, Money) — has been around for a long time. There are reasons why 80% of the population isn’t using it for budgeting or other types of financial management: Too much work, too little value, just not interested, etc.

Slapping a $24/year fee on PFM will be accepted by the minority of the population who get what PFM is and can do for them. But it’s going to be a major deterrent for getting the rest of the customer base to adopt it.

And that’s a really, really bad thing.

Because PFM promises to deliver — and does according to current users — more value to the customer than they’re getting today from the relationship. In the past, the value was somewhat intangible — security (I know my money will still be there when I wake up in the morning) and money movement (when I write a check, I know the money will be sent to the person/entity I’m paying).

Today’s consumers want — and need — more value from the banking relationship. They need help managing their financial lives. That’s where the tangible value lies, and what PFM promises to provide.

What banks (and credit unions) are in danger of doing is perpetuating the model/mindset of: 1) charging for the intangible value and giving away the tangible value because they’re afraid of losing customers, or 2) charging for the intangible AND the tangible, and risk losing customers.

This isn’t a sustainable model/mindset. We need a pricing model that aligns cost (price) with value.

I think Unitus should charge for PFM. But it needs to do it in a way that demonstrates that the value being derived from the account relationship is coming from the use of the PFM tool. Not that the PFM tool is some “add-on” service. Unitus — and other credit unions and banks — should actually limit the ability of customers to enroll in PFM use.

The mindset should be: Active users of this tool get a lot of value from it, and if you’re not going to be an active user, diligent about managing your financial life, then we’re not even going to let you use it. And oh, by the way, to you active PFM users: We’re going to charge you for using PFM, but give you other services for free.