The CU Water Cooler Symposium 2011

If you’re a financial services professional trying to choose a conference to go to, you can flip a coin to make your choice.

Heads, you go to some large industry-wide boondoggle in Las Vegas with a thousand other attendees and see Sully (oops, I mean CAPTAIN Sullenberger) in the 43rd minute of his 15 minutes of fame. Tails, you go to a smaller functionally-focused conference with 150 other attendees and see your colleagues talk about what their firms are doing (if you can stay awake through their entire presentation, that is).

If you’re lucky, however, the coin will land on its edge. And then you can decide between Finovate and the CU Water Cooler Symposium.

I wasn’t able to attend Finovate last week, but I did get to go to the CU Water Cooler conference. Even better, I got to present there.

When Tim McAlpine told me a few months ago that he was selecting me to speak, I asked him what he wanted me talk about. He said “I don’t know. I like the way you bring humor to your blog, and want you to bring that to the Symposium.” I told Tim that I don’t do stand-up comedy, so he said “Do what you want.”

I chose to speak on Quantipulation, and tried to debunk a few marketing myths. CU Times wrote that I have a “simple message for credit unions, ‘Don’t believe any numbers without question.’”

Not to make a mountain out of a molehill here, but that’s not quite accurate. Instead, I told the conference attendees not to believe any number they heard over the course of the conference without questioning the number’s assumptions.  But I’m quibbling here.

With no intended disrepect to the speakers I’m not mentioning below (I didn’t actually get to hear all of the presentations), here are the three highlights for me, in no particular order:

1. Demystifying Creativity. Someday Charlie Trotter (the one living in Foat Wuth Texas, not the restaurant owner) is going to be well known, and I’m going to get to say “yeah, I know Charlie.” It’s OK if he doesn’t admit to knowing me. Charlie talked about what creativity really is. Charlie helped me (and I hope everyone else) to better see how creativity is not synonymous with imagination. Imagination is the ability to imagine. Creativity is about DOING something. According to Charlie, you aren’t creative until you’ve actually created something. The third concept Charlie hit upon was talent. Talent + Imagination + Creativity = Success. Charlie didn’t actually say that, I’m just quantipulating.

2. Boomification of Credit Unions. Damn, that Denise Wymore is a good speaker. I truly wish that I had her ability to connect with an audience. On the other hand, I’m glad that I’m not wrong about stuff like she is. Denise’s presentation truly was excellent — engaging and compelling. Problem is, her ideas are just simply wrong. Ideas like getting rid of FICO, and judging loan applicants based on their “character.” They have a name for that, Denise: Discrimination. And it’s illegal. Or the idea that profit-driven is somehow the antithesis of people-driven. A false dichotomy, Denise. Denise’s cumbaya makes for a great presentation, but cumbaya won’t sustain a credit union, nor the credit union industry.

3. Future of Payments. As I listened to Jeff Russell, CEO of The Members Group, a little voice inside my head was screaming “ARE YOU LISTENING TO THIS, PEOPLE?!” My perhaps skewed perspective on the things I hear from credit union professionals lead me to believe that too much of the conversation is about lending. Jeff’s message, if I’m interpreting it correctly, is that payments is where the focus should be. If I’m getting him right, I couldn’t agree more. There’s no better way to help a credit union member best manage his/her financial life than to help them make smart everyday spending decisions. You simply can’t do that if their primary spending account is a checking account or credit card held at some other financial institution. On top of that, the future of cross-sell marketing for banks and credit unions will come from payments-related and payments-triggered transactions. If your credit union is a payments laggard, good luck. You’re not going to make it up on car loans.

I do wish, though, that Jeff hadn’t said two things that he did. The first being that mobile payments will be the dominant form of payments in five years. I’m willing to bet a LOT OF MONEY that that won’t be the case. In the past 15 years, I’ve NEVER been wrong underestimating the rate of technology adoption.

Second, I’d argue with Jeff regarding his view that free checking is dead. Free checking isn’t — or shouldn’t be — dead, and for two reasons. First of all, unlike Jeff said, debit interchange doesn’t fund free checking accounts. Free checking accounts have been around for a lot longer than the increase in debit card activity.

The advent of free checking was born out of the the belief that getting someone’s checking account was the steppingstone to getting more of their financial accounts. If that belief is true — and it’s certainly a discussion for argument, since so few financial institutions have done a good job of successfully cross-selling — then a cut in debit interchange shouldn’t portend the complete death of free checking.

The other reason why is free checking isn’t dead is because it never really was alive. When we say “free checking” what we’re really saying is “no monthly fee” checking. Tell the people who don’t pay a monthly fee, but pay out hundreds of dollars in overdraft, foreign ATM, and safety deposit box fees that their checking account is “free.” I hope you don’t get punched in the face.

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Beyond the presentations themselves, the other thing that makes this conference top-notch is the attendees.

I wonder how it felt for first-time attendees who aren’t tied in to the credit union twittersphere. I wonder if they felt like this was some party they were crashing. I certainly hope not. But the conference really is a gathering for a lot of credit union professionals who actively engage with each other on a daily basis. And of course, some of the attendees have known each other for a long time. Denise Wymore and Janine McBee told me they’ve known each other for….

Oh, hey, did I tell you that I finally met Jimmy Marks in person? I’ve never hugged a man the first time I met him. But I gave Jimmy Marks a hug when I “met” him. (It’s OK, it was one of those male “shoulder bump” hugs). Although I had never met him in person before this week, I’ve been tweeting with him for at least two years. And I “know” him better than I know a lot of my colleagues at work.

It was also a treat to see Rob Rutkowski and Jeff Hardin at the conference. For two reasons: The first, because I had met the both of them at the Forum Symposium in 2007, and hadn’t seen either of them since; and second, because the two of them make me feel like I’m not the only “old” guy at the conference (even though both of them are younger than I am).

Bottom line: Love this conference. Thanks to the CU Water Cooler editors — Carla, Matt, Kelley, William, Gene, Doug, Brent, Christopher — for their time, effort, and brainpower on doing what they do. And huge thanks from me to Tim McAlpine for giving me the opportunity to present and attend the conference.

Why Google Won't Become A Bank

Search Engine Watch published an article titled Why Would Google Become A Bank? and basically answered the question in the first paragraph by saying “Because that’s where the money is.” The article goes on to list a more specific set of reasons including:

  1. Increased value for AdWords ads.
  2. The power of the coupon just got better.
  3. Further diversification of revenue streams.
  4. Data.
  5. Android and Chrome usage increases.

My take: Don’t hold your breath waiting for Google to become (or launch) a bank. It isn’t going to happen. Here’s why:

1. It’s not where the money is. The prospects for mobile payments is certainly bright. But the question that remains to be answered is: Who’s going to make money from these payments? If you, your bank, or anyone else thinks that consumers will pay a fee or a premium for the “privilege” to make a mobile payment, you (and they) are sorely mistaken. Banks’ ability to make money from transactions — mobile or not — has seen its ups and down in the past few years (up on credit cards, then down on credit cards, up on debit cards, then down on debit cards). Retail banking is simply NOT “where the money is.”

2. Nobody in their right mind wants to be regulated to the extent that banks are. For the past few years, regulatory changes have hacked away at banks’ ability to make money. The Card Act, Regulation E, Durbin’s Folly, the list goes on. From a new entrant standpoint, it’s simply too risky and unpredictable to enter the industry. Firms like BankSimple and Movenbank are getting into the industry by either leveraging other firms’ bank charters or by avoiding the need for one altogether.

3. They don’t have the support infrastructure. Google isn’t a B2C company, it’s a B2B company. It has no competency — let alone capability — to provide transactional customer support. So I hear you say,”but they’ll outsource that.” No, they won’t. Outsourcing a critical business function doesn’t absolve you of the need to know how to manage and integrate that function into your business

4. It doesn’t fit with the firm’s business model. Even if you argue my three previous points away, the most important reason why Google won’t become a bank is that it just doesn’t fit with its strategy and business model. Google’s strategy and business model is unique and ambitious: It aims to be the center of the universe in INFLUENCE.

Why did Google acquired Zagat? To influence your choice of restaurants. Why did Google launched Google Advisor? To influence your choice of banks.

Google doesn’t want to process mobile transactions, open bank accounts, and deal with your stupid little banking questions.Google wants to influence who you do business with. And not just in banking and financial services, but everywhere.

When Google is influencing all of your day to day decisions, then every provider in the world will be kissing Google’s shiny black boots looking to participate. And THAT’S how Google will make money. Not by becoming a bank.

Improving Bank Customer Retention

Market research firm Yoosless Phuqing Research released the results of a study today, revealing important insights into improving bank customer retention.

According to the study, bank customers who turn right into parking spots in a bank’s parking lot have a 7% higher retention rate than left-turning customers. According to the firm’s founder and CEO, Aimso Yoosless:

“Just 18% of right-turning customers switched banks last year. In contrast, 23% of left-turning customers switched. Clearly, a quality parking experience creates greater customer retention than quality online banking or direct deposit services.”

First National Bank of Boar Tush (Alabama) has already acted on these findings by closing off left-side parking spots:

According to the banks’s SVP of Revenue, William Dumass: “By closing off half the parking lot, we expect to increase our overall retention rate by 2.5%, which translates to roughly $500,000 in annual profits. The ROI on this effort is huge.”

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If you’re wondering what motivated this blog post, it was an article titled Banks Ignore Customers, Waver on Mobile Engagement that reported the following:

“While only 13% of banking customers currently use mobile engagement, a recent survey of revealed that a quality mobile banking experience creates greater customer retention than quality online banking or direct deposit services. A financial services strategy consulting and research firm conducted a recent study showing that only 5% of [consumers] using mobile banking and payment services switched bands in the previous year. With no true standout bank in the mobile banking arena, the bank that drives innovation in the mobile field stands to gain a large advantage.”

[Note: The above is a cut and paste with some rearranging going on. I’ll assume the author meant “bank” and not “band.”]

It would be easy to chalk this up to a misunderstanding of causation versus correlation. But that doesn’t capture it in every case.

On the contrary, in a number of–if not many–cases, it’s a factor of the author’s desire to make a statement about innovation, technology, or maybe to be seen as a thought leader. The research simply gives the author the opportunity to reiterate something that they already believed.

Ironically, I’m  a big believer that the mobile channel will be a strong differentiator. But the business case won’t be justified by some simplistic impact on customer retention.

The retention argument has been used with every online technology that’s been introduced over the past 15 years: online banking, online bill pay, eStatements, PFM, etc.

At this point in the development of online banking technology, banks’ retention rate should be approaching 800%.

Tectonic Shifts In Banking Channel Preferences

The American Bankers Association (ABA) released the results of its 2011 survey of US consumers’ preferences of banking channels. The survey of more than 2,000 U.S. adults found that:

62% of adults prefer to use the online channel to do their banking — up from 36 percent in last year’s survey. And for the first time, the majority (57%) of customers 55 and older say they opt to do their banking online, a significant increase from 20% in 2010. The popularity of all other banking methods has declined since last year’s survey, with preference for branches dropping from 25% to 20% and preference for ATMs dropping from 15%to 8%. The least preferred method of banking was the mobile channel, which dropped from 3% in 2011 to 1% this year.

My take: I have three reactions to these findings:

1.  The shift is too dramatic. I’ve been doing consumer research in the financial services industry for most of the past 12 years — looking at the adoption of online banking, online bill pay, account aggregation, eStatements, PFM, etc. — and I have never seen, year over the year, the kind of change reported by the ABA. 

From 2010 to 2011, the percentage of 55+ year-old consumers that prefer to bank online nearly tripled from 20% to 57%. Why? What the hell happened between last year and this year that suddenly made Boomers wake up to the benefits of online banking?

Even the shift among all adults — from26% to 62% — is huge, but it’s hard to tell how much of that shift is being influenced by the 55+ segment (it shouldn’t be too much if the sample is representative). Did Gen Yers wake up one morning and discover online banking? And are you trying to tell me that a significant percentage of them shifted their preference from the branch and ATM? No way.  

2. We need to ask more specific questions. Whatever the reason for the tectonic shifts in preferences, the results of the study convince me that we researchers need to get a little more specific when asking about channel preferences. Specifically, we need to ask about channel preferences for specific types of interactions and transactions. Eight percent of consumers might say that they prefer to bank by ATM, but the reality is that they can’t do everything they need to (potentially) do with a bank through the ATM. 

3. The mobile number is out of whack. If asked, before I saw the results, to guess what percentage preferred the mobile channel, my guess would have been a lot higher than 1%. I would have guessed that it would have doubled from 3% to 6%. That number might seem to low to you, but keep in mind that only about 15% of US adults are using mobile banking. So 6% of 15% would mean that 4 out of 10 mobile bankers prefer the mobile channel to all others.  But the percentage didn’t double — in fact, it dropped. Very counter-intuitive.

The Imaginary War Between Movenbank and Banksimple

A bank exec jokingly tweeted the following recently:

@rshevlin @brettking Just wait til the MovenBank / BankSimple wars…

Although the tweeter was joking, there may very well be folks within the financial services industry who believe that Movenbank and Banksimple really are “at war.” They shouldn’t believe it.

Movenbank was founded by Brett King (author of Bank 2.0) last summer, and is planning a soft launch in July 2012. Stealing (shamelessly, but with citation) from NetBanker, Movenbank will be:

“Mobile only, with no paper or plastic. NFC-enabled app. Incorporates “gamification” in UX. According to Startuply, “reinventing credit scores and more with an open, social transparent, and viral model” (sounds P2P lending-esque). Bottom line: MoveNbank is looking to leapfrog the competition by removing all vestiges of old-school banking. No branches (of course). No paper (no surprise). And no plastic (what?).”

For those not familiar with Banksimple (and if you’re not, then what rock have you been living under?), here’s what Mashable had to say about it last summer:

“Banksimple doesn’t hold its own bank charter; instead it works with FDIC insured banks that serve as the financial backbone for the platform. Customers, however, will have an entirely Banksimple-branded experience from the time they login and make their first deposit to each and every cash withdrawal they make at ATMs. With Banksimple, customers will have one account and one debit card. The signup process will be relatively painless and require the user to make an initial transfer of money to setup their Banksimple account. From there on, Banksimple seeks to provide an automated banking experience with a flair for the unconventional, but the comfort of traditional serves like automatic deposits and bill payments.”

My take: One day Movenbank and Banksimple may very well be rivals at “war.” But for now, the two firms are better off collaborating than fighting. I come to this conclusion based on a lesson I learned from Coke and Pepsi, which are (arguably) two of the fiercest head-to-head competitors in any industry.

In a previous life, I worked on a consulting project for a Pepsi bottler who was building new plants in Argentina and Brazil.

On my trips to South America, I was surprised to find that representatives from Coke and Pepsi would meet to discuss the market and the opportunity it held. My first impression was that this was some kind of nefarious, illegal collusion.

At the time, the regions of South America that Pepsi was looking to expand into were greenfield territory for the soft drink providers. As a result, Coke and Pepsi were collaborating to help develop the market. They knew that if they didn’t first get people to like their products — and make it a staple of their diet — then they would just be pummeling the crap out of each other for a market that wasn’t even worth fighting for.

The Movenbank/Banksimple situation is analogous. The two firms have to educate consumers on what a new type of bank is, will be, or could be.They have to build demand for the new type of bank they’re building. Which is, of course, no easy feat.

There’s no rivalry between Movenbank and Banksimple today. But I have to admit that it’s not a bad tactic on the part of existing bank executives to try to play the two startups off against each other. 

Toilet Paper And Online Banking

Bank Innovation Monitor released a study recently which proclaimed that “consumers show deep ‘love’ for online banking.” The study found that:

“Only 3.8% of Americans over the age of 18 are not aware of online banking. However, it is not just that the vast majority of consumers are aware of online banking or using many online banking functions; consumers “love” online banking. Which online banking service is most “loved” by consumers? That would be online bill pay, the stickiest and most-killer of all banking features.”

My take: Americans “love” online banking no more than they do toilet paper.

Let’s compare the data:

  • 96% of Americans are aware of online banking (source: Bank Innovation Monitor). 96% of Americans are aware of toilet paper (source: my unscientific estimate, based neither on surveys nor personal observations).
  • 100% of Americans who bank online can’t live without it (source: OK, I made it up). 100% of Americans who use toilet paper can’t live without it (source: yep, made that up, too).

Now, let me ask you this: Although you might be fiercely loyal to a particular brand of toilet paper (the reasons for which I will not now, nor ever, ask you about), do you “love” your toilet paper?

If the answer to that question is YES, click here.

If the answer to that question is NO, keep reading. 

Bank marketers need to be careful to not confuse usage/dependency with an emotional attachment.

If consumers “loved” online banking so much, then wouldn’t it hold that they would “love” the providers of that service, i.e., the banks?

But, as we all know, consumers don’t love their banks. Nor do they love online banking. It’s simply a convenience that many of us have grown to rely on, and would be unwilling to give up. But that attachment is far from something we would call “love.”

Consumers don’t love online banking. In fact, most don’t really care about financial services or financial services providers very much at all. I would venture to guess that average Americans spend more time figuring out what restaurant to eat out at on a Saturday night than they do figuring out which bank to do business with.

If consumers truly loved online banking, than providing a measurably better online banking experience should get many of them to switch banks, right?

Good luck pursuing that path.

Toilet paper advertising is probably a good role model for bank advertising.

What does toilet paper advertising try to do? It tries to get people to care about their decision. It tries to get people to see that the choice in toilet paper is important. And if it’s successful in doing that, then the advertising can persuade consumers that one brand is superior to another.

Final point: I hope the people who clicked on the link above came back to read the rest of the post.

Do Bank Branches Matter? Why The Fed Is Wrong

In a recent Economic Commentary titled Do Bank Branches Matter Anymore?, the Federal Reserve Bank of Cleveland wrote that bank branches matter because a local presence in a market — i.e., bank branches — enables a bank to gather better data about local conditions and make better lending decisions. The authors wrote:

“Bank-customer relationships can overcome [adverse selection in lending decisions]. For banks, interactions with customers allow them to gather information on a customer, so-called soft information, which is not easily captured in a credit score. Banks operating in a local market are also more likely to have information on the local economy, giving them a context from which they can evaluate the future prospects of a borrower that is not readily available to an out-of-market lender. 

Because the gathering of soft information is difficult to do without a physical presence in a local market, the closing of a bank branch is different from the closing of a grocery store. One can still buy oranges, perhaps at a higher cost, by traveling farther to a different grocery store. But one cannot always get a loan by traveling to a distant lender.

We find that low-income homebuyers who obtain their mortgages from banks with branches in their neighborhoods are less likely to default than homebuyers who use banks without a branch in the area or mortgage brokers. These findings suggest that a physical presence gives banks the opportunity to get to know distressed areas better and channel resources to people who can manage them best.”

My take: The Fed is wrong about:

1) Knowing a market. “Knowing” a market doesn’t come from having physical offices (or branches) in a particular market. “Knowing” a market comes from developing a systemic business capability that captures data about a market, and on the impact and results of business decisions made in that market over a period of time.

The “soft” information that the authors refer to — information about spending habits of individual borrowers — is no more accessible to a bank with a physical presence in a market than to a bank without a physical presence.

In fact, I would argue that an Internet-only bank whose customers are heavy users of debit cards actually have better “soft” data regarding their customers financial lives than a branch-oriented bank who customers still rely heavily on cash and checks. Why? Banks’ ability to categorize debit card transactions is more advanced than their ability to analyze check transactions.

2. Correlation and causation. The Fed is confusing correlation with causation. Iit might be true that “low-income homebuyers who obtain mortgages from banks with branches in their neighborhoods are less likely to default than homebuyers who use banks without a branch in the area or mortgage brokers.”

But the only way that the absence of bank branches would be the cause of the default is if applicants applied to both brick-and-mortar and Internet-only banks, and were turned down by the b&m banks and accepted by the branchless ones. This doesn’t seem very likely. 

It’s hard for me to tell from the article, but it appears that the authors looked at data from a selected number of counties in Ohio, comparing 2002 to 2010. Had they looked at California, Florida, or Texas, my bet is that they would have found very different results. In addition, as the authors note, bank branches “have been disappearing in some major metropolitan areas.”

With the economic conditions that existed between 2008 and 2010, it’s hard to conclude that the increase in loan defaults is caused by branch disappearances.

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If the purpose of the article is to convince banks that in order to improve their lending business they need to expand their branch presence, I have to disagree. 

Looking ahead, the opportunity for banks to gather “soft” information about customers and markets will not come from a branch presence. Instead, it will come from the growth in the use of mobile technology — specifically for mobile banking and mobile payments will give the banks much greater insight into spending habits and trends in the markets they do business in. 

So do — or should I say — will bank branches matter? If banks use branches to distribute smartphones to their customers, then the answer is yes.