PFM, Banking Experience, Device Fraud

Below are interesting stories the staff has been reading over the past week

  • SunTrust Ranked First for Online Banking Experience from Javelin Strategy & Research – Market Watch
  • Banks Open Their Wallets Wide for Mobile Banking: Survey – American Banker
  • Next Gen PFM: Contextual Money Management – The Financial Brand
  • Global Banking is Being Reinvented on Mobile – Payment Week
  • Mobile Banking Keeps Catching On – WSJ
  • Device fraud – a serious threat to mobile banking? – Finextra

What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

Fintech Investment: Where Is It Going?

There’s always been intense competition to become the next Silicon Valley.

After all, the original is not much more than a collection of towns in northern California that just happen to be dedicated almost exclusively to the pursuit of information technology. The entire local infrastructure essentially supports this practice, and it draws the bulk of investment and other kind of resource. However, it’s not as if there’s some geographic underpinning to this hub of innovation. Many other industries, from energy to retail, require other natural assets; new technology doesn’t.

So if that’s the case, why can’t the model be replicated elsewhere? And with certain industries, aren’t other places eminently more suited to don this mantle? For example, should technology developed for financial services come more from the other side of the country, as in, the hometown of Wall Street?

This old question is gaining new traction thanks to a report from consulting giant Accenture and the Partnership for New York City, a powerful group of CEOs from 200 corporations headquartered in the Big Apple but with global reach. The organization exists specifically to invest in development projects throughout the city, and otherwise boost the area’s visibility.

The new report, which came out late in June, identifies significant opportunities in New York for the ‘fintech’ sector. In fact, deals in this market have been coming thick and fast—the venture sector focused on this area has been growing at twice the rate of Silicon Valley since 2008, and the trend continues to accelerate.

To be sure, Silicon Valley still draws more investment in fintech that its East Coast equivalent, but the gap is unquestionably shrinking.  The report notes that New York went from a third as many deals as Silicon Valley in 2011 to two-thirds as many in 2013 and almost the same in the first quarter of this year. The numbers matter in part because this is a big market: fintech investment tripled between 2008 and 2013 from $928 million to $2.97 billion, and should double again within the next four years.

Actually, the story behind the numbers is even more interesting. Think of what characterizes Silicon Valley as more than just a geographic entity. It’s a hub of global innovation. It displays small business entrepreneurship at its finest. Most new ventures exist independently of the government, not seeking nor receiving subsidies or other kinds of assistance. Indeed, the industry serves as a poster child for the free market in that, unlike most other verticals, the products regularly get better, faster and cheaper. But in reality, there’s even more to it.

First, the technology industry in Silicon Valley was the first to realize the game-changer that is Big Data. Jargon aside, this staggering wealth of information gives every entity the tools and opportunity to drill down into each demographic more than ever before. There are now hundreds of pieces of data available on each individual, and that feeds new kinds of marketing. On the flip side, the next generation—and every generation after it—will respond only to increasingly personalized appeals. That started with technology and now affects every industry.

Similarly, good technologies succeed not by anticipating needs and changes but by causing them. Some 10 or 15 years ago, no one was clamoring for mobile capabilities—whoever thought we could do more with the phone than just talk? Today, the millions of smartphone and tablet apps have drastically transformed consumer and professional habits.

That’s the kind of mindset that true competitors to Silicon Valley will have to emulate. Those areas that have successfully created technology hubs of their own—Research Triangle Park in North Carolina; wide swaths of Austin, Texas; Route 128 in Massachusetts; New York’s own Silicon Alley, among many others—have imported this kind of forward thinking more than a given set of best practices. And while they’ve grown, so has Silicon Valley.

So sure, there may be more fintech investment in New York, but that doesn’t mean it will be at the expense of Silicon Valley. It looks like the fintech market is set to keep growing, and as it does let’s hope New York gets more, Silicon Valley gets more, and other hubs emerge as well. This way everybody wins. . .especially the user.

Are Online Bankers More Profitable?

In this three part series, Digital Insight staff discusses how financial institutions, can increase their profitability through offerings and customer usage.

Correlation is defined as a mutual relationship or connection between two or more things. Causation is defined as the idea that something can cause another thing to happen or exist.  Recently, I and my team at Digital Insight have conducted thorough analysis on correlation and causality amongst different digital banking products and services. To measure causality, customer behavior was analyzed through a before, during, and after time period over the course of two years.

Digital Insight data showed that highly engaged customers that used multiple digital banking services are 51% more profitable than customers who do not actively utilize online or mobile banking. [1] In addition, customers who actively use digital banking services are correlated to having higher account ownership, balances, retention, and debit card purchases when compared to offline bankers. [2]  It is evident that those customers using multiple digital banking services become more “profitable” and engaged, when compared to the offline banking segment.  The question that remains is, “does online banking cause a more profitable customer?”

After analyzing several hundred thousand banking customers across dozens of financial institutions, We have quantitatively concluded that digital banking does indeed cause a customer to become more profitable to his/her financial institution.

Simply stated, when measured against customers who remained offline (non-digital banking) over two years, those customers who became engaged in digital banking increased their account ownership, total deposit/loan balances, and propensity to open additional accounts more heavily than offline bankers.

Internal study of 86 Digital Insight FI customers, July 2009 through March 2014; claim based on comparison to Digital Insight online versus offline customers. Internal study of 16 Digital Insight FI customers, July 2009 through March 2014; claim based on causal analysis of Digital Insight online and offline customers.

While all of the customers in the analysis maintained an open checking account with their financial institution during that two year period, the customers who eventually adopted online/mobile banking became more engaged with their bank or credit union. Some examples include migrated accounts over from other financial institutions, renewed lines of credit, or reached a point in their financial lifecycle that warranted opening of a retirement account.

So keeping this in mind, it’s interesting to further examine how specific digital banking applications increase engagement and profitability. In the next article in this series, we’ll look at remote deposit capture and loyalty rewards.

The data used for this article was analyzed by the following Digital Insight team members: Heather Youngo, business analyst, Jason Weinick, manager of analytics, Brenda Shimmons, manager of analytics and Russ Tarver, marketing manager.

[1] Internal study of 67 Digital Insight financial institution customers, July 2009 through March 2014; claim based on comparison to Digital Insight online versus offline customers.

[2] Internal study of 67 Digital Insight financial institution customers, July 2009 through March 2014; claim based on comparison to Digital Insight online versus offline customers.


This Week’s Reads: Real-Time Payments, Retail Banking, Digital

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.

Cause and Effect: If you build it, will they come?

This is an excerpt of an article original posted on Bank Systems & Technology.

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that customers who adopt digital banking and develop into active users also become more profitable.

Jason Weinick photo 2014Digital banking tools encourage customer behavioral changes that benefit banks. Offering remote deposit technology can allow financial institutions to create a more engaged experience for their customers and alter their banking behavior. For example, banks may find that customers that use Remote Deposit Capture (RDC) leads to increased deposits due to the convenience of the service and the fact that it incorporate familiar technology. A 2012 Javelin Strategy & Research study mentioned that more than one in four consumers found mobile deposit desirable or very desirable and about 80% of consumers who desired mobile RDC already actively used their mobile phones to take photos.

As customers rely on digital tools for one function, they are primed to move to another. Financial services can seize on this opportunity by actively cross-promoting their offerings to customers who might not be otherwise inclined to adopt new technologies.

Non-digital customers still matter—but the growth is clearly on the other side of the coin. Once a customer moves online, the more profitable they become. The opportunity then lies in keeping those customers engaged with a breadth and depth of online and mobile offerings supported by targeted marketing programs that drive adoption and active use.

For the full article on Bank Systems & Technology please click here.

Jason Weinick is Manager of Analytics with Digital Insight. In this role, he leads the initiative on client profitability analyses, providing banks and credit unions a valuable in-depth look into the value of the online channel. Jason’s background includes 15 years of experience within the financial services sector, focusing on consumer behavior, risk modeling, reporting and financial analysis.

Game On: The Chase for NFC-Enabled Mobile Payments

Banking is serious business for serious individuals and institutions. Financial services are for stable entities in thoughtful, analytical environments. This is real life for the real world. It’s not a video game.

But then again. . .

A couple of years ago, Nintendo earned praise for incorporating some new and exciting capabilities into its new Wii U platform, such as the GamePad, a new controller with a 6.2 inch touchscreen. But there was also something else. In fact, this was the first gaming platform to incorporate Near Field Communication, or NFC.

But that’s gaming. Here’s what it has to do with banking.

First, for the uninitiated, NFC comprises a set of standards for mobile and other devices to establish radio communication through touching or proximity, collectively encompassing a broad spectrum of communications protocols and data exchange formats. We already have quite a few applications taking advantage of these protocols, from contactless transactions to simplified Wi-Fi.

As the industry trade publication American Banker pointed out recently, financial services corporations have long sought to boost the use of NFC services for mobile payments. But as with many other aspects payments, success has been hard to come by. And that’s exactly why hose sober, solid and sensible banking industry types should look to industries such and video gaming—and more specifically companies like Nintendo—for pointers on what to do.

To be sure, there’s quite a bit of success to emulate. The original NFC technology in the Nintendo console didn’t seem to have much purpose, but the company recently that the reader will come to life through a series of NFC figurines that easily interact with many popular games.  Those figurines, incidentally are also sold as action figures; the character equivalents take life in the game, and can follow multiple storylines in accordance with the layers’ preferences.

Here’s one sign of the success. This represents another potentially lucrative channel for the creators and owners of these figurines, including Disney and Activision. The latter’s Skylanders was an original backer of this concept, and the franchise passed $2 billion in revenue earlier this year.

Here’s the point: Consumers can make mobile payments through a variety of channels right now, saving massive costs for the financial services institutions involved. But very few are doing it.  There might yet be large-scale adoption, and the numbers will surely keep growing, but the truth is that technology is a fickle business. We don’t really know why some advances take off immediately and others take time. So far, at least, this one hasn’t.

But we also know that the next generation—the one obsessively playing video games right now—will be opening back accounts soon enough. Those now-youngsters will have absolutely no understanding of a world without millions of mobile apps, and it will be completely comfortable with NFC.

Banking and multi-players games surely make for an odd hybrid, but there are precedents. Innovators such as American Express have been embedded in this market for years, specifically to wean an emerging generation of cardholders. Several telecom giants have also had some success with built-in NFC capabilities.

Today, it seems like a long leap from shoot-’em-up games to, say, mortgage banking. But that’s exactly what innovation requires—a leap in imagination and then practice. Those pesky kids playing games today will be opening bank accounts and making payments tomorrow. We need to find ways to reach them before that.

Ransomware: Now Aiming At Banking Apps

Ransomware: The very word is unpleasant, turning up the seamy underbelly to hardware and software. But it is a real thing, and it’s gotten immensely popular. And now, it’s crashing our party.

Of course, ransomware is still basically malware in that it restricts access to the system it infects. However, it goes further than rival strains by specifically demanding a ransom in order go away. Like other viruses its specific origins are dubious, but there’s no question that this bit of capitalist skullduggery initially gained traction in Russia. True to form, it didn’t stay there long—according to anti-virus vendor McAfee, it doubled in scope in one year to 250,000 unique samples in the first quarter of 2013.

Those with memories of Soviet-era paranoia and Cold War hysteria might remember that there were constant fears of Russian spies sabotaging the U.S. infrastructure. One supposed threat was that those sneaky Russkies would infiltrate the banking system and undermine it, bringing the economy to a screeching halt. Well, it’s a few decades later, and the latest ransomware may not be quite such a problem, but there’s a whiff of those old fears anyway.

So, meet Svpeng. Kaspersky Labs first shed a light on this nasty piece of work last year, when it was still in mother Russia. But in June, a particular breed arrived here in search of Android devices. More specifically, it takes direct aim at mobile banking apps running on those devices and uses them to shut down the phone or tablet. The ransomware then emerges to ask for money to unlock it.

All this is bad enough, but there’s another milestone of sorts here. By some accounts, this is the first major virus to systematically target mobile banking apps. And given that there are more than 100 million mobile banking users in the country, that’s potentially very bad news.

While these are early days and there will surely be other variants, here’s how the scenario currently plays out. Svpeng gets into the device through a coordinated social media campaign, then seeks out apps from a list of blue-chip vendors, such as American Express, Citigroup, Bank of America, Wells Fargo and JPMorgan Chase. And once it’s in there it’s almost impossible to scrub.

The ransomware takes the form of a fake FBI letter that asks for $200 in the form of to be paid through Green Dot MoneyPak cards. (It helpfully suggests outlets where those cards can be bought.) So far the malware doesn’t seem to be stealing bank credentials, but that’s what it did in Russia, so it will likely happen here soon enough.

That fact that malware has become so targeted and proficient is not a surprise, but it’s unfortunate nonetheless. The bigger worry may be that the financial services providers developing and distributing those for the public to use can’t really do much about it—they can perhaps exert some control over customers’ interactions with those apps, and that’s about it.

We’ve known all along that the unbelievable growth of mobile banking would give rise to a new generation of cyber criminals, and it’s happening now. There will be more such attacks not less, and we can’t put the genie back in the bottle, any more than we can take control of our customers’ phones.

There’s no magic bullet here. What we can do, over and over again, is urge our customers to practice greater caution in downloads and communication with strangers. Most consumers still fail to exercise basic security procedures, and a little goes a long way. Otherwise, we’ll all end up paying the ransom.

This Week’s Reads: Digital Channels, Cause & Effect, Millennials

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.

This Week’s Reads: Security, Mobile Banking Malware, ATMs

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.

Customer Service, Modern Style

There are always discussions in our industry about how best to build and maintain relationships with customers, and that’s a good thing. Too often, however, it comes down to forcing a choice between rethinking the branch approach and relying heavily on online and mobile technologies. That’s actually no choice at all—we have to make them work together.

First, let’s acknowledge that despite shrinking numbers, the branch isn’t exactly going away anytime soon. Sure, a whopping 80% of retail banking transactions are now conducted through self-service channels, admittedly including ATMs and voice-driven instructions. However, it also appears that a majority of retail customers now visit the branch at least once every six months.  Those face-to-face interactions are surely important for long-term relationships.

That‘s why, on this blog, we’ve often admired alternative approaches to branch banking. Some institutions have introduced innovations such as teller pods and community rooms, while others have become interchangeable with event spaces with cocktail lounges.  Odd as all this sounds, especially out of context, it’s exactly the sort of new thinking the industry needs to keep customers coming in.

There are plenty of other good ideas in this vein. For example, one institution getting positive interest is Umpqua Bank, which launched over 60 years ago in Portland, Ore., and has since spread quite wide. The concept behind its operation—it calls its outlets ‘stores,’ and goes very far in making the personal experience quite personal—has since been adopted by much larger corporations.

Here’s one sign of its success: Umpqua has gone from four branches in the mid-’90s to 400 ‘stores’ today. There are numerous stories of its commitment to customer service, and it hosts ‘business therapy’ sessions at its stores. (The jokes about the connection to the IFC network comedy show Portlandia virtually write themselves.) This is down-home banking with a billion-dollar payoff.

On the flip side of the equation—but not really, and that’s the point—is the relentless focus on digital tools that ease the banking experience for every customer, regardless of the complexity involved. For example, as mobile banking increasingly becomes the norm, there is ongoing debate about how to develop a mobile web presence to match the flurry of mobile apps. In particular, has the institution done its job if the mobile app links to a ‘traditional’ website, or should there a mobile-specific site option?

To many consumers, this is a discussion that belongs firmly in geek world. For financial services professionals, however, it could spell the difference between success and failure. One potential problem here is a factor that’s always been considered a luxury, the wealth of options. Google alone supports no less than three smartphone-optimized site configurations, and it’s unquestionably a critical differentiation. Add in the other complications: a broader range of forms factor and even operating systems than ever before, the staggering variety  of customized mobile apps (some heavily customized for specific technologies, others with only a mobile wrapping), and of course, the varying levels of technological sophistication involved.

It’s easy to assume that everyone has a smartphone, since everyone we know seems to have one. And yet, according to the Pew Internet Research Project, the reality is very different. As of January 2014, 90% of American adults have a cell phone, yet only 58% of have a smartphone. Yes, that’s not too far over half, which means that a great many consumers can’t get e-mails, receive promotional messages, download custom apps or conduct financial transactions via the phone.

And finally, there’s this. Just because we can do something doesn’t mean we will do it—as consumers we’re fickle, and so are our tastes and habits. We might be notified of a possibility via the phone, follow up later on the PC, ask someone about it at the branch because we’re in the vicinity, then complete the deal on the ATM. You might call it human behavior, but in our industry it’s come to be described as omnichannel banking.

It’s not about the branch or the app, per se. It’s about developing options for each customer-facing channel as it becomes available, then ensuring that they all work together seamlessly. That means it will be increasingly difficult at the back end, but it should be increasingly simple at the front end, for customers. That’s the only way to offer true service.