Versatility in the (Mobile) Bank

No one can dispute the upward trend in mobile banking, not just in North America and Europe, but also in Africa — where adoption rates have soared. The success stories are remarkable. Mobile banking’s best feature has proved to be its versatility. It has managed to succeed in a wide-range of places all with differing needs.

In Africa, where branches and ATMs aren’t readily accessible, mobile banking enables people to easily manage their finances. It can take days for customers to reach the nearest branch, time that would usually be spent working. To remedy this loss of productivity, employers formed partnerships with financial institutions (FIs) to help facilitate financial transactions with mobile phones. Now workers only need to visit a nearby mobile money agent, usually an existing store or shop, to receive their paycheck.

FIs win as well, as their customer base is expanded without costly infrastructure investments such as brick-and-mortar locations or additional ATMs. FIs don’t have to spend money training new agents either since agents are reputable, local business owners, who are used to handling money.

In North America and Europe, where branches and ATMs are more abundant, mobile banking serves other needs. Checking one’s balance, online bill-pay and account transfers are more commonly utilized. Mobile check deposit is becoming more popular since it saves a trip to a branch or ATM, and lowers the cost of check processing for the FI. Even if visiting a branch doesn’t mean a multi-day trek, who wants to spend their free time visiting a bank, especially when the same transactions can be accomplished with a mobile phone.

Security remains a concern anywhere in the world when dealing with money. FIs have taken this to task by providing a wide array of security measures such as PIN numbers, SMS authentication codes and individualized security questions – all designed to thwart criminals without sacrificing customer convenience. Even if the unthinkable happens and a handset is stolen or lost, the multi-layered security measures in place at most FIs should provide protection.

The world will never be without hackers, malware and thieves waiting to prey on ambivalent consumers. As long as customers and FIs remain diligent, “stuffing the mattress” will remain a much riskier option than banking, anywhere in the world. Mobile banking provides access for many to FIs, who otherwise would be unbanked. As smart phone and tablet adoption sky-rockets globally, so too will the usage of mobile banking. That is a fact you can bank on.

Consumer Trust: Still A Major Issue

Consumers have been regularly engaging in online transactions that involve personal finances for many years now—shouldn’t we be able to trust in the process by now?

Apparently not, if the report “2011 State of Online and Mobile Banking,” just out from comScore, is any indication. The report has many positive signs that should cheer the industry, but there are also some negative indicators that deserve attention.

The area commonly categorized as Personal Financial Management (PFM) is clearly an important one for most financial institutions—it enables each company to engage with their customers on a more personal level and subsequently derive more revenue. That’s why most FIs across the board offer a range of tools to help consumers do business online with speed, convenience and safety.

However, even with awareness of these options, adoption is undeniably low. Half the customers of Bank of America and Wells Fargo know that these banks offer a range of online PFM tools, but that hasn’t translated into usage—adoption hovers at only 12 percent and 6 percent respectively. With greater education regarding functionality and usage, there’s tremendous potential here for growth.

Going one level deeper into online bill pay, there’s definitely good news: nearly 66 percent of the customers surveyed use this capability, and the number is still growing. However, there was 19 percent year-over-year growth in 2010, but an anemic 2 percent rise last year. Consumer habits are also far from settled, with most using a variety of institutions—banks, third-party providers, credit card issuers. Given the value of these services in better engaging customers, there’s definitely scope for major enhancements.

In addition to sufficient awareness and adoption, security remains a core concern—in fact, it’s the single most important reason why more consumers don’t pay their bills online. More worryingly, these concerns are growing—the comScore report shows that consumer fears actually jumped by 14 percent over 2010.

Given the considerable resource most institutions have dedicated to building their defenses, the natural reaction is to dismiss these concerns as unfounded. However, it’s important to remember that even for the tech-savvy generation, security is a visceral issue. Consumers don’t generally turn to analyst reports to see which institutions have implemented the best firewalls or the most effective data encryption technologies—they respond to word-of-mouth, advertising, and media coverage of high-profile data breaches.

The comScore report also indicates that good education can be effective—nearly a quarter of the survey respondents reacted positively to good, accessible information provided by their FI about security measures.

There’s no question that each institution can gain a significant competitive advantage by effectively using an array of personal financial management tools to engage and build a lasting relationship with every customer. Those customers can in turn benefit from the speed, convenience and safety afforded by the tools available.

However, there’s clearly a gap between what’s doable and what’s being done. The only way we can bridge it is by getting the message out more effectively.


In Praise of the Mortgage Settlement

The best thing about the $26 billion mortgage settlement announced Thursday may be that it represents a case study in extremes. Basically, just about everyone supports it, but nobody really likes it—and again, that’s the best thing about it.

Consider the support: Along with the federal government, no less than 49 state attorneys general (Oklahoma’s AG is the only holdout) have signed on to the agreement. The Mortgage Bankers Association, which represents lenders, and the Center for Responsible Lending, which serves as an advocate for borrowers, are both on board. The five institutions involved—Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and Ally Financial—are also, by no coincidence, the biggest in the business, which means the deal will have significant ramifications throughout the industry, and particularly in pending negotiations with other banks. The $26 billion figure is surely some kind of record, and the sheer demographics are unquestionably broad—AGs from states like Iowa helped lead the negotiations, while the banking commissioner of North Carolina will manage enforcement, even as states like California put their own people forward to help drive the provisions outlined in the deal.

And yet. . .virtually no one seems to be a huge advocate of the settlement. Some say the figure is too high, others that it’s laughably low—one group is on record as saying that anything shy of $300 billion doesn’t count. Critics on the right see it as another case of federal overreach and bailouts to the undeserving, while many of the left believe it doesn’t go nearly far enough in helping homeowners who are underwater on a mortgage, or punishing the institutions that were so irresponsible.

And of course, the actual lending practices that form the core of the settlement seem particularly open to interpretation. Depending on who you listen to, the deal either introduces new regulations that threaten free market practices, or offer up the same rules that have long been in place, and long been ignored.

Here’s a slightly different way of looking at it. There are currently some 11 million underwater homeowners, and maybe 3.5 million more getting there. Their reasons for being is this predicament are all over the map. The idea that any single deal could cover every contingency, or help every individual, or take to task every financial institution guilty of wrongdoing, is ludicrous.

The fact that this settlement is backed by just about everyone and yet liked by almost no one means that it’s exactly the right first step. That’s a good thing. This settlement does nothing to prevent other deals; in fact, it’s a safe bet that there will be more investigations, more settlements, even some high-profile criminal cases. But it is absolutely vital for everyone—the mortgage industry as whole, specific institutions, federal and state prosecutors, individual homeowners—to start getting out of this mortgage mess.

The settlement serves exactly that purpose—it begins a painful but necessary journey. It’s even possible that with the settlement in place, other institutions will start making deals of their own, perhaps with borrowers, involving a reduction in principal. If that happens, everybody wins.

What We’re Reading: Digital Media Efforts, Venture Funding and PFM Tools

Below are interesting stories the staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

  • In Payments, Facebook Isn’t Friending Banks

American Banker

Facebook Inc. is known globally for taking the social media world by storm. What’s gotten far less attention is how its payments revenues have been growing gangbusters and how its digital currency could soon threaten banks as it moves into traditional channels. Facebook generated about $557 million, or roughly 15% of its revenues, from “payments and other fees” last year, according to the S-1 it filed Wednesday in advance of a planned initial public offering. That figure is a five-fold increase from its $106 million in payments revenues in 2010, which was itself up from the $13 million the year before.

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  • Dwolla Raises $5 Million in Venture Funding

American Banker

Alternative payments provider Dwolla Corp. has raised $5 million from a group of investors led by Union Square Ventures. Other investors for the Series B round of financing included Thrive Capital, Village Ventures, Marc Ecko and Paige Craig, the Business Insider reported on Tuesday. Albert Wenger, a managing partner at Union Square Ventures, will join the board, the website reported. Through Dwolla, users can send money to others via social networks and pay for items with their telephones. The company charges a flat fee of 25 cents per transaction and transactions of less than $10 are free.

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  • With 5.6 Million People and Counting, the ‘Move Your Money’ Campaign Worked

Good News

Back in October, in the thick of the Occupy Wall Street protests, we gave you step-by-step instructions for leaving your large predatory bank. Part of the impetus for the project was OWS, of course, but another factor was the establishment of “Bank Transfer Day,” which asked people to drop their big banks in favor of community banks or credit unions by November 5. Almost immediately, data showed that the transfer movement was working, with some credit unions reporting spikes in membership as large as 30 percent. Today, we have even more concrete numbers to show that the “move your money” movement was a success, to the tune of millions of people.

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  • Banks to Increase Digital Media Efforts

Few industries are experiencing the kind of negative push-back that consumers reserve for banks. If they’re not looking over their shoulder in fear of a general economic collapse, consumers are concerned that their own personal financial situation is threatened. Executives at banks of all sizes understand they need to improve their image and communicate a message of stability and optimism this year. Surveyed bankers acknowledge that they have detected growing consumer angst by listening to feedback via call center interactions, account closure data and formal customer surveys.

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  • Customers Show Little Love for Banks’ Money Management Tools

My Bank Tracker

Many of the nation’s banks already offer tools to help customers track and manage their money, but few customers actually use them — suggesting that these customers need to be educated on how to use these tools. Online personal financial management (PFM) tools have become ubiquitous following a financial crisis that steered American consumers toward smarter money habits. While tools such as and Quicken are among the biggest names in the game, consumers should know that there is a good chance that their bank offers in-house PFM tools. However, only small portions of customers use these tools while plenty of others don’t know about them.

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  • A New Coupon Source: Your Account Statement


Consumers typically scan their online checking and credit-card-account statements just to see what they’ve spent. But these days a closer look may turn up some great opportunities to save — or more enticements to shop. Banks have long arranged special deals and discounts for cardholders, delivered through emails, brochures and special online promo pages. But increasingly, customized offers based on consumers’ spending habits are appearing via links in online checking and credit-card statements.

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Banking on Facebook

We all know that the upcoming IPO for Facebook will be an exercise in minting money—just ask founder Mark Zuckerberg’s tax accountants, who have some busy days ahead. But could the company actually mint money in an even more literal sense? Could this young upstart, which has become essentially the currency of communication in the era of social networking, become actual currency?

It already is. It’s clearly more interesting to write about all the young millionaires the public offering will spawn, but a more consequential story is that of Facebook Credits. For many consumers, it will be a completely new way of doing business. For financial services institutions looking ahead, it’s a potential—and totally unexpected—rival. But looking even further ahead, it could be a major opportunity, at least for those willing to go for the new.

For the record, Facebook Credits are, according to the company, a virtual currency consumers can use to buy virtual goods in any games or apps of the Facebook platform that accept payments. Facebook Credits can be purchased directly from within an app using a credit card, PayPal, mobile phone and other local payment methods. While they’ve gone largely unnoticed in the public forum, the practice is getting new attention for its inclusion in the company’s public filing.

For the record, Facebook is still essentially a media company in the sense that it derives the bulk of its revenue from advertising. However, revenue from “payments and fees” spiked from $13 million in 2009 to $106 million in 2010—a growth spurt similar to the company’s own consumer adoption. That’s even before Facebook Credits became mandatory for nearly all game developers in July of last year.

A couple of related factoids: first, while the best-known Facebook game developer, Zynga (the force behind FarmVille) has separate deals with other financial services providers like Discover, Facebook gets up to 30 percent of the face value of user purchases in Zynga’s games on the Facebook Platform. Even more interesting, the company acknowledges in its filing that “payments on the Facebook Platform could be considered a financial product.” In other words, the company could be classified as a financial services institution.

Wall Street, meet your newest occupant? No, Facebook isn’t likely to go head-to-head with JP Morgan Chase and Goldman Sachs, or even your neighborhood credit union, anytime soon. But banks and other financial entities would still be wise to take heed and consider options in this evolving marketplace.

No one, not even its most fervent backers, could have predicted Facebook’s astonishing ascent, from a Harvard dorm room in 2004 to a sixth of the world’s population in barely six years. In the process, it has redefined the very notion of daily human interaction, demolished geographic boundaries and age/class/gender/ethnic barriers, obliterated many distinctions between corporate and consumer communications, and played a key role in aiding democratic revolutions. Is the idea that it could fundamentally transform financial transactions really so far-fetched?

So far, it’s an open question as to what more traditional financial services firms can do to compete, even if they’re so inclined. Some analysts have suggested partnerships to, for example, launch co-branded credit cards. But that’s thinking small, and old. Facebook demands big, and new.

There are billions (literally) of consumers out there spending all that time on a platform that’s still largely a distraction. There are massive, and numerous, opportunities to monetize that. It’s time to innovate.

Super Spending: The Super Bowl

Sure, the Super Bowl is big. But how big?

Try $11 billion. And that’s just for starters.

From tacos to TVs, $11 billion is how much consumers in this down economy will spend on activities related to the big game this Sunday, according to a survey sponsored by the National Retail Federation’s Retail Advertising and Marketing Association. And yet, that’s just the tip of the iceberg. In fact, this uniquely American event offers a fascinating glimpse into the intersection of consumer and corporate practices, public and private spending, and financial services and other industries, with huge chunks of money squarely in the middle.

First, consider the venue, Lucas Oil Stadium in Indianapolis, IN. As a recent Bloomberg story points out, the ongoing debate over public financing is exemplified in this case. The home team, the Indianapolis Colts, previously played in the league’s smallest venue, and a new stadium was critical in preventing a move to another city. Tortured legislative wrangling eventually led to higher taxes aimed mostly at tourists, but they inevitably affected Indianans too.

The Indiana Finance Authority subsequently set about borrowing more than $600 million to build the stadium, using auction-rate bonds, but credit markets started froze up not long after. Interest rates spiked and it didn’t help that insurer FGIC Corp lost its AAA rating. The bills began to climb, and that was even before concerns over operating costs (which weren’t covered by the legislation) turned out to be valid. The stadium opened in 2008; by 2009, the Capital Improvement Board (CIB) of Marion, IN, was predicting a deficit of $25 million, and close to double that the next year.

For the record, the CIB expects to lose about $800,000 on this weekend’s game, mainly due to maintenance, legal services, utilities and so on. Still, the state predicts a potential economic impact of $286 million from the Super Bowl, while a study from Ball State University in Muncie, IN, goes even further, with $365 million in economic activity. Yes, the Super Bowl is big.

But enough about state spending—what will all this do to the stock market?

MoneyMattersblog points out (tongue firmly in cheek) that the Dow Jones Industrial Average is supposed to go up for the year when the winner is from the original NFL (an NFC team, or an AFC team from before the 1970 merger), but falls when an original AFL or expansion team wins. Of course, this ‘Super Bowl indicator’ is about as accurate as a coin flip;  since 1998, it’s been right only half the time. Ironically, its biggest failure was after the 2008 matchup between the New England Patriots and the New York Giants. Guess who’s playing this Sunday.

So when you’re watching the game, along with some 171 million others, and want to know where you fit into the scheme of things, here’s one stat: your average fellow viewer will spend $63.87 on Super Bowl-related merchandise. How about you?

3 Reasons Customers May Break up With Your Bank and How to Avoid Them

*Guest post by Karen Licker, Social Banker & Content Contributor (Independent) at J.D. Power and Associates

Just like with couples, the relationship between retail banking customers and their financial institution is complex.   As with any relationship, a healthy connection between two parties is one that develops over time and is typically based on mutual respect, trust, honesty and support.

Most of us know that it takes effort for healthy relationships to work!  Whether we like it or not however, breakups do happen and in the case of bank customers, they get over them quickly and move on to another bank relationship.

The following are a few valuable insights about why retail bank customers may break up with you and how you can implement a few change initiatives to maintain a healthy connection with your customers….to avoid the bank break up.

Reason #1:  Callous Communication – Problems become a customer’s biggest problem

Problem prevention needs to be a high priority for all financial institutions, given the incidence of problems (22% of customers[1] indicate experiencing a problem) and the significant impact that problem incidence has on overall customer satisfaction.

Prevention Tips

  • Ensure customers understand fee structures, deal honestly with them and explain the fees right up front – it improves awareness of fees and minimizes complaints.
  • Engage new customers during account initiation to identify their needs and sell them the products that meet those needs … lowers the incidence of future problems if they are happy from the start.
  • Empower bank representatives (branch and call center) with the necessary authority, and provide proper training that will allow them to address any customer misunderstandings at the first point of contact.   It will eliminate confusion for future problems.

Reason #2 – Unmet Needs – You’re not giving them enough of what they want

To successfully manage customer expectations, it is critical to offer the product features and services that meet customers’ needs, such as direct deposit; electronic statements with check images; and overdraft protection. When customers are offered six or more features or services, satisfaction is 58 points higher than when customers are offered fewer than six features or services.

Prevention Tips

  • Show them some love, and offer customers the other innovative products and services that meet their needs at the time of account opening—more than the standard banking products (i.e., checking, savings).
  • Explain the benefits of the services associated with these products (i.e., overdraft protection), not just the features
  • Proactively contact customers.  They love personalized follow-up service, and it leads to greater product penetration and increased satisfaction.
  • Creatively communicate with your customers and use interactive channels —customers who cite communication via email, phone, or at the branch have a higher incidence of opening new accounts than those customers who are just contacted via mail.

Reason #3:  Feeling Underappreciated – In-branch or phone customer service is painful

It is key for financial institutions to focus on providing basic customer service elements in branch offices and on the phone.  From the moment a customer steps into the branch or calls on the phone, each point of the interaction shapes perception of the banking relationship as a whole.  The optimal in-branch or phone experience begins with a focused lobby management program designed around key elements of customer satisfaction is vital.

Prevention Tips

  • Show them you care and provide personal service during customer visits to the branch.  Some include activities such as: greeting, calling the customer by name; offering further assistance; and thanking them for their business after completion of the transaction.
  • Show them you care and provide personal service during call center calls.  Some include activities such as: greeting customers in a friendly manner; providing their own name to the customer; having the customer’s information available; handling any problems without transferring customers; and concluding with offering the customer further assistance and thanking them for their business.
  • Courtesy counts, so provide a level of service that shows patience, respect and empathy.   This not only increases satisfaction, loyalty, and retention but also has a significant impact on reducing future problems.
  • Ensure executive management and company-wide ownership of basic service elements and initiatives. Managers must regularly communicate to employees the bank’s priority on satisfaction.

[1] J.D. Power and Associates 2011 Retail Banking Satisfaction Study

What We’re Reading: The Real Bank Transfer Numbers, Financial Aid and a Banking App for Balances

  • CFPB Hears from Students About New Financial Aid Disclosure

American Banker

When weighing financial-aid offers, among students’ concerns are how much debt they will have at graduation and how much they will owe in loan payments each month. That was the feedback released Friday by the Consumer Financial Protection Bureau, which has asked students, parents and educators to comment on its proposal for a streamlined financial aid disclosure. The bureau released a prototype in October with the Department of Education for the so-called financial aid shopping sheet that a college would provide to prospective students about loan payments and other financial aid sources. In just a few days, the bureau said more than 22,000 people visited its website for more information.

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  • The Numbers Are In: Find Out Just How Many Americans Have Ditched Their Banks

Business Insider

Finally, we’ve got some cold, hard stats on how badly banks are hurting from November’s Bank Transfer Day movement. A new report by Javelin Strategy & Research estimates a staggering 5.6 million big bank customers have switched banks in the last 90 days. Of those, the research firm says a cool 610,000 cited Bank Transfer Day as their reason.

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  • Bank of America: The turnaround challenge of the century

CNN Money

Bank of America has set some lofty cost-cutting and revenue-enhancing goals, but it remains unclear how it is going to achieve them. The bank has yet to post any measurable declines in operating costs, despite it already entering the second phase of its self-induced cost-cutting bonanza. Meanwhile, the firm has seen its top line shrink quarter-after-quarter with no relief in sight. Brian Moynihan, Bank of America’s chief executive, will need to show investors some results quickly. Bank of America’s stock has rallied in the last month on optimism that the company can turn things around this year. Nevertheless, it is still trading below where it was in August when solvency rumors caused its shares to tank.

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  • Customer Experience Reading List For Senior Execs

Customer Experience Matters Blog

Temkin Group Research research shows that an increasing number of companies will focus on customer experience in 2012. So there will be a new cadre of senior executives beginning to learn about customer experience. As they gain interest, they’ll look for materials for getting up to speed. If you can get your senior executives to spend 60 minutes reading through this material, then they should have a much better understanding about what it takes to build a more customer-centric organization. If they show some interest, then sign them up for the monthly CX Journal so they can continue on their learning journey. The bottom line: An informed senior executive is a critical CX asset.

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  • Bank of America’s small business ambitions

Fierce Finance

Bank of America suffered some bad PR recently after reports it had altered the terms of some credit lines to small businesses. Bank of America asked some small business customers to pay off their credit line balances all at once instead of in monthly payments or agree to a new repayment plans with far higher interest rates than. Bank of America said the move affected a small number of customers and imposed standards that were somewhat conventional. Still, the “credit squeeze” obviously did not go over well with the public.

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  • Consumer protection bureau hits the ground running

Philadelphia Inquirer

If you’ve been watching the political cross fire, you know the new Consumer Financial Protection Bureau (CFPB) hasn’t had an easy ride into town, thanks to congressional Republicans who still strangely object to the idea of a little more marketplace law and order. First, they scared President Obama away from naming Harvard law professor Elizabeth Warren to head the new agency she initially proposed. (A success they may live to regret, since Warren is running for the Senate from Massachusetts and proving to be a forceful voice in national debates, anyway.) Then, GOP senators upped the ante: Led by Minority Leader Mitch McConnell, they demanded that Democrats agree to rewrite Dodd-Frank to weaken the new agency before they’d consider confirming anyone as its director – a maneuver they knew blocked the CFPB from fulfilling many of its new duties.

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  • Wanted: Banking App To Monitor Balances

New York Times

You haven’t been able to turn around in recent months without hearing about one or another bank adding fees to its checking accounts or making new rules for people who want to keep their free checking. Just 45 percent of checking accounts that don’t earn interest are free, according to the latest survey of the largest institutions in each big city. That’s down from 65 percent in 2010 and 76 percent the year before. Forget your outrage for the moment. On one hand, many of these institutions received federal bailout funds or other assistance.

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We’re Setting Standards: Get the Message?

Let’s set a standard. That’s a routine and fundamental rallying call among industry veterans of every stripe, and it’s certainly a good basis for new technologies to gain traction. More to the point, a robust standard with broad support is also the best defense against shady operators and nefarious practices.

That’s the thinking behind DMARC, or “Domain-based Message Authentication, Reporting & Conformance.” This is a technical specification backed by a group of organizations, and it’s designed to at least reduce the potential for email-based abuse by solving some long-standing operational, deployment, and reporting issues related to email authentication protocols.

No industry should be more interested in, and get more involved with, these developments than financial services. As we all know, there’s currently a huge array of email options available to every company and every consumer. That’s a good thing, and it’s partly why most of us have multiple e-mail addresses. On the flip side, email is relatively easy to spoof, and criminals use the practice with relish to exploit consumer trust, particularly with well-known brands. Factor in growing e-commerce and the rise of social media, and it’s essentially a ready-made recipe for compromising bank accounts, credit cards, etc.

That’s why, just this week, Bank of America, Fidelity Investments and PayPal all signed on with existing backers—including such industry heavyweights Google, Microsoft and Facebook—to get behind the standardization effort. Bits, the technology policy division of the US bank-backed Financial Services Roundtable, has also announced its support for this initiative.

DMARC standardizes the email recipients perform email authentication across such common platforms as AOL, Gmail, Hotmail and Yahoo! It enables a sender to indicate that their emails are protected by specific mechanisms such as SPF and/or DKIM, what to do when those methods flag the message, and easily report back to the sender about the problem.

Of course, as with any major standard, this is a work in progress. The DMARC working group has developed a draft specification that will be tested among group members before it is submitted to the Internet Engineering Task Force (IETF) for standardization.

As we’ve discussed in this forum recently, the implementation of a single standard isn’t always a panacea. But given the proliferation of email formats and data types, along with the security problems they introduce, an open standard that enhances protection without compromising innovation would be welcome.  It’s another good way to keep the money safe.