Showing posts with label P2P. Show all posts
Showing posts with label P2P. Show all posts

Thursday, October 17, 2013

P2P Payment Simplicity Square'd

Some of the best mobile banking apps are those that make everyday tasks simpler. Two of my favorites are GoBank's Balance Bar, that lets you see your account balance without login, and Moven's real-time mobile purchase receipts and analysis.


Tuesday, Square, Inc. joined my growing list of über-simple mobile banking applications with their introduction of Square Cash, a new app that makes sending money person to person as simple as sending an email. In today's mobile world, simplicity is the 'new black'.


P2P applications are definitely not new. There are literally hundreds of bank and non-bank applications that allow you to send money digitally, including Google, PayPal and Venmo. Consumers also have the choice of simply writing a check as they have done for years. But, I believe Square has introduced the most streamlined app that may have the broadest mass market appeal. 

Imagine emailing money to another person, without a fee, directly from a debit card without a login or password. All that is needed is a debit card number, Zip Code and expiration date from the sender and recipient (only need to be entered the first time you use the service). After that, sending money is only an email address away.

Compare that process to most banks, that require mobile banking sign-in (don't get me started), a test transaction and potentially more steps, even though there is normally no fee for the service. PayPal's P2P app transfers money from a PayPal account to another PayPal account, with transferring funds to a bank account being an additional step (in addition to a one-time signing up for PayPal). Google's P2P service uses email like Square, but requires signing up for Google Wallet and transferring funds to a bank account. Venmo is a growing favorite of younger people who prefer to send money via a Facebook-like newsfeed. This service also requires an application sign-up.


Unlike Square Cash, most of the other P2P applications have fees attached as shown below. Square Cash, however, only supports debit cards at this time, with low weekly limits ($250) unless you provide a mobile phone number and Facebook account or verify your full name, the last four digits of your social security number and date of birth -- then the limit is raised to $2,500. If the Facebook option is selected, no information or messages are ever passed to the social channel. Square is simply using Facebook as part of authentication.

Source: My Bank Tracker, September 2013
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How Square Cash Works


I got introduced to Square Cash first thing yesterday morning with an email from fellow fintech geek, David Gerbino, who sent me $1 via email. To inform me of the 'gift', I received both an email from Dave that told me he was sending me money and an email from Square informing me of the same (shown below).


To transfer the funds into my account, I simply hit the 'deposit funds' link on my computer or cell phone, and enter my debit card number, the expiration date of my card and my Zip code as shown below. That's it (and I only need to do that once). 

Notice how spartan each step of the process is. While there is an animated background with color and theme changes over time, there is zero unneeded information, highlighting that there are no strings attached.


Upon making my deposit, I immediately received an email confirming my deposit was made and letting me know that I can now send money as well. As with the initial communication, my email and all processes are clearly optimized more for mobile than for a desktop.



The Square Cash mobile app (offered in both iOS and Android versions) is very simple, with a built in step-by-step tutorial and an FAQ component. I found the desktop and mobile versions to be equally concise even though it is clear that Square Cash was built as a mobile-first application.
With Square Cash, money is transferred from bank to bank with no funds ever being held in a Square account (like with PayPal). Square says that deposits will be made within 1-2 days, and I found it a bit ironic that it took me longer to log into my mobile banking account to confirm my deposit than it did to perform the entire transaction with Square.

According to Square, there are no plans for ads or fees on the service as it is offered today, yet it does plan to offer premium options (I would assume that a fee could be implemented for faster transfers much like some organizations do for mobile check deposits).

Pros and Cons of Square Cash


I believe the simplicity of Square Cash is the application's strongest benefit. While Square may not be known by everyone, it has a track record in the merchant arena and obviously plans to promote this service heavily. And unlike many of the competitors, if a payment is initiated with Square, the recipient can get their funds with minimal steps and can start using the app themselves immediately.

From early comments on both the Apple and Android app sites, early buzz is overwhelmingly positive. I am sure that since it is free it helps.

That said, there are still some drawbacks to Square Cash:

      • Debit Card Only: While the limitation to only MasterCard and Visa debit cards may be viewed as a negative by some, I believe the limitation is consistent with the streamlined nature of the service. No decisions are needed as to what card or account to link. Simply link a debit card.
      • Use of Email: Many of my Fintech friends debated on the merits of using email as opposed to SMS as the transfer media. Again, I believe this was a conscious decision by Square to appeal to the 'mass' market. While email is not used by Gen Y as much as texting, everyone has an email address and knows how to use it. The email-only decision may be adjusted over time. Again . . . simplicity.

        In addition, new Telephone Consumer Protection Act (TCPA) rules limit the ability to market via SMS without opt-in. Square can use email for subsequent marketing messages (such as for their wallet) or to promote the download of the Cash app like below.
      • Limited Options: There is also no way to see a history of your transactions (except by keeping track of your emails) and you can only link one email to one debit card at this time. Again, I believe Square made a conscious decision to keep the application simple as opposed to filling it with a number of options that may be geared to 'power' P2P users.
      • Transfer Limits: The limit on amount that can be sent ($250 a week unless additional personal information is provided and then the limit increases to $2,500) could be a drawback for some, but the service is not meant for large purchases.
      • Fraud Liability: Square makes no guarantees in case of fraud beyond what is available on a person's debit card today. While they will reverse the transaction, that may not be enough.
      • Funds Availability: While many fintech followers pointed to the 1-2 day funds availability stipulation as a negative, this is still faster than checks clear. However, the marketplace is definitely moving to real-time P2P so I expect Square to follow this trend over time (potentially with a 'premium' fee).
      • Clarity: In the mission to remain a very clear app, some clarifications are tough to find. For instance, what if I want to change the debit card I have linked? (A Google developer answered this question online by referring me to www.square.com/cash/settings. As expected, the process was quite easy (even when I forgot my password).

Convenience vs. Security


Getting the balance right between convenience and security is difficult at best and potentially a death blow if miscalculated. Square definitely broadens the reach of its new product by leveraging email as the funds transfer tool. Very straightforward . . . very simple. 

But, with 73 percent of consumers being concerned about their card details being stolen on the internet (according to Datamonitor's 2012 Financial Services Consumer Insight Survey) there is likely to be a concern by potential users that there is a lack of visible payment authentication.

This highlights the paradox of mobile payments that must be overcome. On one hand, consumers find current authentication processes as being overly complicated and time consuming. On the other hand, increased awareness of cybercrime makes consumers concerned about how their security and privacy are being protected.

With Square Cash, they hope they struck the right balance. If they are wrong, and a highly publicized security breach occurs, it is likely to damage Square's goal of becoming a trusted consumer payments brand.

The Epitome of Digital Innovation Today


More than just a very easy way to transfer money, Square Cash represents what mobile innovation means today. Instead of trying to solve all of the world's problems in one app, companies are developing ways to use mobile to make our lives easier . . . from the customer's perspective. 

Square could have followed the lead of many of their payments counterparts and integrated Square Cash into their mobile wallet product. While it may have met corporate product growth objectives, it would have been a worse customer experience with a cluttered user interface. They could have carried forward their $.50 fee from the beta version of the service, at the cost of acceptance.

It is clear that Square Cash is a mobile-first application. Look at all of the 'unused' space on the desktop version of the application. Square Cash is a killer app because they didn't fall into the trap of moving beyond simple elegance. When you use the application for the first time (much like the first time I used my Moven or GoBank account), the first impression is, "Wow, that was really easy".

"There's a tendency to think of innovation as coming up with the latest gadget, or adding new features onto existing applications. But the concept of breakthrough simplicity recognizes that today, the most powerful forms of innovation don't manifiest themselves in new bells and whistles. They take the form of better customer experiences (or patient experiences, citizen experiences, etc.). And one of the best ways to improve any experience is to simplify it -- remove complications, unnecessary layers, hassles or distractions, while focusing in on the essence of what people want and need in a particular situation."
What will be interesting to see is whether other payments players follow Square's lead toward a more simplified application. More importantly, it will be interesting to see if the banking and credit union industries will be able to focus on taking steps out of mobile and online processes for a better user experience.


Square Wins Best of the Web Award



Jim Bruene, publisher of the heavily followed Online Banking Report and Net Banker newsletter has a discerning eye for what is evolution and what represents evolution in digital financial services. As founder of Finovate, he has the opportunity to see banking innovation up close on a regular basis. This week, however, he awarded Square with a 'Best of the Web' award. In doing so, Jim said,
"It's been six months since he handed out an OBR Best of the Web award. Since then, there have been many new enabling technologies and promising applications. But with every passing year, it gets harder to raise the bar with a new digital financial product. Square did it this week. The company took P2P payments -- something PayPal commercialized in 1999, CashEdge/Fiserv bankified in 2009/2010, and Google simplified in May -- and distilled it down to its essence."
He sums it up best when he says, "It's hard to imagine P2P payments being any simpler. And Square is doing it all for free".

Square Cash Twitter Discussions

















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Monday, September 2, 2013

Six Years of Financial Services Innovation

Anticipation is building as FinovateFall 2013 is returning to Manhattan on September 10 and 11 for the seventh consecutive year. With more than 70 cutting edge firms doing 7 minute demos in front of a sellout crowd of more than 1,000 bankers, investors, analysts and the press, it is the premier showcase and networking event for what is new in the world of fintech.


While the overarching innovation theme remains the same, it is interesting to see the ebbs and flows of presenting categories and companies through the years. It is more interesting to realize how fast things have changed in the financial services industry.



Finovate 2007: When Mobile Was Young


The brainchild of the Online Banking Report and NetBanker blog publisher, Jim Bruene, the very first Finovate conference was held in New York City on October 2 of 2007, when 20 of the most innovative companies in the financial, banking and lending space gathered in front of a handful more than 200 banking executives, analysts, investors and the press to offer a glimpse of the future using the now familiar 7 minute demo format (no PowerPoint slides allowed!). The one-day event was quickly sold out, with overflow space provided for late registrants to view presentations via a video feed (see all 20 videos from the first Finovate conference here).

While only six years ago, a lot has changed in the financial marketplace. In 2007, mobile banking was in its infancy, with just a few hundred thousand users across three different platforms ('mobile website' was the most popular). Interestingly, the discussion at the time was whether mobile banking would be a standalone profit center or just another cost center for banks (still up for debate by many). And despite a lot of hype at the time, only one bank (Citibank) and one vendor (mFoundry) had launched a fully downloadable, custom mobile banking app.

The themes for the 2007 show and number of companies presenting were PFM (5), mobile banking (5), payments/billing(4), P2P Lending (2), online tools (2), mortgage lending (1) and security (1).


The presenter list included (in alphabetical order); Andera, Billeo, CheckFree (acquired by Fiserv), Clairmail, Firethorn (now Qualcomm Retail Solutions), Geezeo, Digital Insight (an Intuit company), Identity Theft 911, iPay Technologies, Jwaala, Lending Club, Metavante (acquired by FIS), mFoundry, Mint, Monitise, MortgageBot (now part of Davis + Henderson), MShift, Online Resources (acquired by ACI Worldwide), Prosper Marketplace and Yodlee.

The Best of Show winners of the first Finovate were a two-week old online personal finance start-up named Mint, a mortgage marketplace from MortgageBot named Marvel and the peer-to-peer lender Prosper. The biggest winner, however, may have been the financial community, since the success of Finovate 2007 was the foundation for a growing series of global Finovate events that now include an expanded 2-day FinovateFall event in Manhattan, a second two-day U.S. event, FinovateSpring in California, a one-day FinovateAsia (30+ firms) and the two-day FinovateEurope (60+ firms).

With technology always at the forefront, Finovate 2007 was the first financial services conference to proactively court the blogging community, with bloggers from four countries covering the 2007 event (live blogging and a ton of tweeting continues during all events). In addition, all of the presentations are streamed for later viewing for attendees and non-attendees on the Finovate web site.

FinovateStartup 2008 - The First West Coast Show


Only three months after the the success of the first Finovate show in NYC, Jim Bruene announced a slightly modified version of Finovate2007 called FinovateStartup to be held in San Francisco in late April of 2008. With a focus on showcasing the hottest financial technology start-ups, the format of 7-minute fast-paced demos remained the same as did the opportunity for the attendees and innovators to network.

With an original goal of securing 20 cutting edge fintech firms for the second Finovate conference, Jim and his team quickly surpassed their goal with a final lineup of 40 startups despite a tightening credit market and bigger financial industry storm clouds on the horizon. Included in this lineup were several firms using this event to introduce new products. (recap of presentations available thanks to Scott Loftesness of Glenbrook Partners with video archives of the presentations provided by Finovate)

Compared to the first event held 6 months prior, the second event's diversity and expansion of themes was apparent, with new savings/checking products, financial comparison tools and investing/asset management being new themes. In addition, while PFM tools still were prominent at the event, security services and investment/asset management firms had greater representation. As can be seen from the word cloud below, the industry still lacked significant mobile/payments discussions.

Riding The Storm Out: Finovate 2009 - 2011


There is not a banker alive who doesn't remember the financial crisis that started in 2007, 'peaked' in 2008, and is with us to a degree still today. Some of the many impacts of this period were that budgets were highly scrutinized and cut, investment in the future was scaled back and innovation at many financial organizations took a back seat . . . except at Finovate. 

While it would have been easy for Jim Bruene and his team to fold up the tent in late 2008 and restart the Finovate concept a few years down the road when times were better, Finovate continued to provide the premier forum for innovation. Despite the economic conditions (or because of it), companies wanting to showcase their new products increased, registrations multiplied and the trade and business press took notice. Maybe it was the ripple effect of the introduction of the first iPhone in 2007 and the rapid increase in acceptance of mobile apps, but interest in financial innovation increased during this difficult period.

During the shows from 2009-2011, innovation trends continued to be in flux (at least if measured by the products being showcased). Some interesting trends included:
      • Twelve companies at the 2009 FinovateStartup did demos on PFM solutions (representing close to 25 percent of presenters).
      • Small business solutions began to appear in early 2009 and have continued to be a steady category today.
      • Search and comparison tools were strong during the period.
      • Mobile solutions became the break-out category in late 2009 and early 2010. That trend continued in 2011, with the emergence of mobile photo bill pay and other tools.
      • Safety and security tools remained in the spotlight, reflecting the fiscal conservatism that prevailed and the need for safe havens for funds.
      • Alt-payments and alt-lending became a more popular category during this period.
      • The emergence of real-time information distribution.
      • Rewards platforms and savings tools emerged (and won Best of Show honors) beginning in 2011
As the presenting themes continued to grow and change, the interest in financial innovation continued as well. Finovate grew exponentially to meet this need. 
      • FinovateFall 2010 was the first two-day event, reflecting the extraordinary desire to both demo and participate in this unique forum. Despite (or possibly because of) this expanded forum, sold out events became the norm.
      • The number of demos at the FinovateSpring and FinovateFall events reached more than 60 per show.
      • Audiences multiplied from the first Finovate shows, surpassing 800 at FinovateSpring 2011 and reaching 1,000 in NYC for the FinovateFall 2011 show.
      • FinovateEurope was introduced, reflecting the worldwide scope of fintech innovation. While being held in London, presenters came from Europe, North America and Asia. The first show had 3 dozen presenters over 400 participants.
      • Coverage in both the financial and mainstream business press exploded during this period. In addition, Twitter became an excellent micro blog of highlights as they occurred.
      • All demos continued to be catalogued for future viewing on the Finovate site.

FinovateSpring and FinovateFall 2012


The Finovate events for 2012 were filled with familiar categories, new subcategories of previous themes, and categories that didn't even exist when Finovate began in 2007. FinovateSpring 2012 highlighted firms presenting payments and rewards platforms, new mobile solutions and the beginning of social media integration. In addition, solutions emerged in response to new government compliance needs as well as in response to the reduction of fee income.


It is amazing how much change can occur with innovation themes in six short months. Possibly because of rapid changes in the acceptance of mobile devices and related apps, the increased concern around authentication and security, the beginning of marketing's emergence from the financial crisis of 4-5 years prior, and the slow acceptance of certain innovations by the public and financial institutions, the word cloud of FinovateFall 2012 themes looks nothing like the themes of the Spring.

Not only have the themes continued to change, the subcategorization also illustrates the micro segmentation of new solutions.



My First Finovate: FinovateSpring 2013


FinovateSpring 2013 was the first Finovate that I attended in person (previously, I live vicariously through others by following the live blogging and twitter mentions). As has become the norm, the event was again sold out, and you could feel the energy upon entering the venue (see my recap 'Musings of a Finovate Virgin). It also had the feeling of a class reunion since, while presenters may come and go, those who attend the event try to make it every year.

As was true with the themes in 2012, the changes in key categories seemed to evolve based on consumer demand (security services, small business), new tools and visualizations (wealth management, investing and mobile applications), new segments (underbanked) and even some advanced applications (P2P lending and B2B payments). 

Most interestingly was the emergence of so many crowdfunding solutions compared to previous shows and the disappearance of PFM in the traditional sense. As could be expected, the categories of mobile, payments and security/authentication solutions remained strong.



FinovateFall 2013: Fintech Innovation is Alive and Well


With FinovateFall 2013 a week away, there is no doubt that innovation in financial services continues unabated. Finovate will have another sell out crowd in Manhattan on September 10-11, and there will be another exciting roster of 60+ companies ready to demo their solutions.

While some may have a strong business case and a pent up demand for their solution, others may be trying to 'make a market' for their innovation. Some are hoping that their demo will spur new funding for their innovation, while others are extending a product category by an established vendor.

As in the past, there will be more than 1,000 registrants who will cast their ballots for their favorite presentation, naming them 'Best of Show'. Some of the votes will be cast based on presentation style. Others will be cast based on the 'cool factor' (which doesn't always reflect a desire or need to buy). Still others will cast their ballot based on which solutions they believe have a valid chance in the marketplace.

The networking will be one of the primary side benefits with end of day cocktails and even the introduction of the Bank Innovators Council on the Monday evening before the FinovateFall 2013 kickoff.

No matter the outcome of the voting, the diversity of innovation is broad and the excitement in the industry is strong. Innovation is a differentiator in an industry that often feels 'me too'. It is a way to potentially grow market share, retain current customers, cut costs and/or increase revenue. 

Innovation is risky but necessary. It is exciting yet frustrating. It is not for the faint of heart, yet it builds corporate character. Fintech innovation is, by definition, the future. And based on the themes for FinovateFall 2013, innovation is as different from six months ago as it will be six months from now . . . and yet many of the themes sound familiar.

While mobile, security, small business, lending and payments remain strong themes, the underbanked category all but disappears. In addition, we see the somewhat surprising reemergence of PFM and loyalty/rewards (maybe there really is something new in these spaces) at the same time that mobile wallets and customer experience get zero love.


As Bradley Leimer stated upon returning from his first Finovate . . . It is the 'The Disneyland of Fintech'™. For those attending or joining the event through social media, Finovate is definitely an 'E-Ticket' ride to the future.


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Monday, July 29, 2013

The Revenue Power of Emerging Financial Services

With interest rates remaining low and traditional fee income impacted by recent government regulations, banks and credit unions are increasingly looking for new ways to make up the shortfall in revenues.


Despite continued pressure from consumers around 'fee anxiety' and our industry's habit of giving most services away for free, there are still opportunities to promote customer loyalty and generate new non-interest sources of income according to new research.


In the most comprehensive fee optimization study of its kind from Market Rates Insight, Inc. entitled, 'Growth and Revenue Potential of Emerging Financial Services', the importance and value of new financial services are evaluated to determine new revenue sources as well as ways to attract and retain customers. In the study, it was found that there is a willingness from consumers to accept 'value-added fees' for services that are viewed as valuable.

"For the foreseeable future, deposit rates will remain flat and loan demand will be soft, so financial institutions will need to rely on fee revenues for income growth," states Dan Geller, EVP of research at Market Rates Insight. "To convert services from 'free' to 'fee', banks and credit unions will have to identify new services that consumers want and are willing to pay for. The study shows organizations how to use service fees to expand profits and penetration with both new and existing customers."

The 150-page study (available here) examines 13 emerging financial services and includes a competitive survey of 10 financial institutions, assessing the importance and value of each service, segmenting banks and credit unions as well as demographic segments for variances. The highlights of the study include:

      • Financial institutions can sell four times the number of financial services they currently do by offering more 'leading edge' services consumers find valuable
      • Only 13.1 percent of consumers receive emerging financial services from their financial institution, yet 54.6 percent of consumers who don't have these services find them important
      • The highest potential from growth in revenue from emerging services is with larger organizations
      • The highest ranking services in terms of potential growth are credit score reporting (71.4%), identity theft alerts (70.8%), payment protection services (64.6%) and same-day bill pay (58.7%).
      • The value placed on emerging financial services is inversely correlated to the age segment of consumers, with younger consumers placing higher values on the new services evaluated
      • Consumers value and will pay a premium for specific bundles of services more than they value individual services, but there is a point of diminishing return for the revenue potential of bundles relative to the expense of additional services
      • The mid-range revenue potential for an optimal bundle of emerging services is $10.12 per month.

Growth Potential


The study found that financial institutions are underutilizing the potential for selling emerging financial services to consumers regardless of the institution size or type or consumer demographic segment. Overall, only 13.1 percent of consumers were found to use any of the emerging services reviewed, while 54.6 percent of the consumers surveyed indicated that they would be willing to pay a monthly fee for the service(s). 

While there is significant potential for growth with all sized organizations, the potential was correlated to the size of organization, with larger institutions having a greater opportunity than regional banks, credit unions or smaller financial institutions.

As can be seen from the chart below, there is significant variability between the current use and potential demand for emerging financial services. As could be expected, the use of overdraft protection was currently the highest (42.9%), followed by low balance alerts (23.3%). Interestingly, identity theft protection was the most popular emerging financial service, with 91.9 percent of households desiring this service overall, followed by overdraft services (86.3%) and low balance alerts (80%).


Services with the greatest growth potential in the future include credit score reporting (71.4%), identity theft alerts (70.8%), payment protection services (64.6%) and same-day bill payment (58.7%). In fact, virtually all of the services analyzed had significant upside potential.

"These findings are significant because they come at a time when banks and credit unions are experiencing a decline in fees on traditional services such as NSF and interchange fees due to new regulations and greater scrutiny by the CFPB," states Geller.

Importance and Value of Emerging Financial Services


The level of importance consumers place on various services has a strong and positive correlation to the perceived value of the services. Based on the findings in the report, the services desired supported three major functions in our evolving lifestyle:
      1. Concern for digital identity and security: reflected by identity theft alerts and credit score reporting services
      2. Increased mobility: reflected by mobile deposit and bill pay services
      3. Desire for Efficiency: reflected by the desire for same-day bill pay, person-to-person payments, payment protection and overdraft services 
By evaluating the level of desire for these services and testing different pricing points, banks and credit unions can develop an escalation model of service features. In other words, higher fees can be charged for a premium level of service (same day mobile deposit) with a lower fee charged for a slower level of service.

In the report from Market Rates Insight, each of the 13 emerging financial services were evaluated with regards to level of importance from consumers not already owning the service, with a dollar value placed on each level of importance. An average level of importance and average value was also assigned. Digging even deeper, the report also analyzed each of the 13 services with regard to type/size of institution.

Mobile Deposits

As an example, 46 percent of the consumers who do not currently use mobile deposit services find this service important to some degree, ranging from slightly important (17.5%) to extremely important (3.5%). Based on the study, the average value consumers place on this service is $2.63, with the value jumping to $5.60 for the consumers who find mobile deposit extremely important. The potential is higher for larger institutions, with customers of smaller organizations willing to pay a bit less. 

Mobile Deposit Distribution of Importance (all institutions)

Mobile Deposit Distribution of Value (all institutions)


This analysis is consistent with a separate mobile banking study conducted by ath Power Consulting where it was found that one in three consumers would be willing to pay for some mobile banking services. Remote deposit capture was the most sought after mobile banking feature according to the study.

"Retail customers are becoming less resistant to monthly fees for mobile, with a third saying they would be willing to pay for mobile banking," said Michael McEvoy, ath managing director. That is up from the one in five during last year's study, he said. 
Despite this demand and value placed on the service, banks and credit unions remain reluctant to charge for mobile deposits. While a few banks and credit unions are testing the waters like U.S. Bank and Regions Bank, all are charging substantially less than the price customers are willing to pay according to the research.

Beyond the revenue potential for remote deposit capture, institutions can save operating overhead as well. According to a new report from Javelin Strategy and Research, financial institutions can save $50 for every customer encouraged to use mobile deposits. Javelin estimates that it costs about $4.25 for each deposit made in person in a branch. The same transaction costs $0.10 when done using a remote deposit capture application.

Identity Theft Alerts

Another example of significant revenue potential is with identity theft alerts. Consistent with many recent mobile banking findings around concern for security and desire for more mobile alerts, the potential for generating additional fee income with identity theft alerts (as well as low balance alerts) should not be ignored.

As shown below, 40.8 percent of customers find the offering of identity theft alerts either 'very important' or 'extremely important'. Not only is the distribution of importance skewed positive, but so is the value placed on this emerging service. While those who do not find the service as attractive are willing to pay more for the service, the average monthly value placed on the service is still $2.71.


Identity Theft Alerts Distribution of Importance (all institutions)

IdentityTheft Alert Distribution of Value (all institutions)

In the MRI report, all 13 emerging services are analyzed the same as above for all institution sizes as well as for each financial institution type, providing a way for bank marketers and product managers to compare results for like institutions.


Demographic Perspectives on Emerging Financial Services


The overall average importance of each of the 13 emerging financial services analyzed is relatively similar when viewed based on gender. There are some differences, however, with females finding mobile deposit capture more important than males (72.8% vs. 65%) and male consumers finding prepaid loadable cards more important.

While the differences in importance of emerging financial services is close to identical from a gender perspective, there is a substantial difference in the value that each gender places on these services. In fact, males placed an average value ($4.16) that was close to twice that of their female counterparts ($2.44). 

From a demographic perspective, the MRI study found that the more mature the consumer, the lower the value placed on most emerging financial services. Possibly reflecting the need for more guidance in financial affairs, the younger demographic segments placed a very high value on security, credit reporting and identity theft services, while the Gen Y and Gen X consumer also placed a high value on eldercare services, possibly reflecting the need to care for elder family members.

Finally, as could be expected, there were significant differences in the importance and value of emerging financial services when viewed from an income perspective. 

Revenue Optimization of Emerging Financial Services


As opposed to offering each of these services as part of a menu of individual options a customer can select from, Market Rates Insight found that the bundling of multiple services into logical combinations increased the value potential for banks and credit unions. Obviously, there are many different combinations of services possible, but MRI found that the principle of diminishing returns applies to the bundling of financial services.

Dan Geller states, "The principle of diminishing returns states that demand for services is curved and that any additional consumption beyond the highest point in the curve produces less return. In the case of financial services, the recurring monthly fee consumers are willing to pay for a bundle of services usually begins to diminish after an average of about three combined services."

Interestingly, the optimal point of fee revenue typically occurred before the highest fee-revenue point on the curve.

As a point of illustration, one of the 26 bundles developed by MRI provided the highest fee revenue when low balance alerts, identity theft services, mobile photo bill payment, location-based couponing, eldercare services and payment protection were combined for a total monthly fee of $10.20. 

However, the optimal fee-revenue occurs after bundling only the first three services - low balance alerts, identity theft services and mobile bill payment - for an optimal monthly fee of $8.68. The incremental fee revenue beyond this point begins to diminish significantly, without enough revenue to cover the cost of providing the additional services.


Overall Monthly Fee Income From Bundled Service Package #26
Incremental and Optimal Fee Income From Bundled Service Package #26

Another argument in support of optimizing the service bundle combinations is that many consumers are willing to pay a higher overall monthly fee for the optimal bundle than they would for each service separately. 

For instance, in the above case, study respondents indicated they would pay an average of $2.71 for identity theft services, $2.53 for mobile photo bill pay and $2.43 for low balance alerts. The total fee for these services would be $7.67 individually, while the consumer would pay $8.68 for the optimized bundle - a premium of $1.01 or 13%.

The study provides strong support for the logic of service fee optimization. Twenty-six bundles are featured in the study, with each bundle consisting of an average of three services for an average fee revenue potential of $10.12 per month. When you take into account another finding in the study that 68% of consumers desire these services, an institution can generate an average of about $120 annually in recurring fees from two-thirds of its customer base.


Mission for Financial Marketers and Product Managers


As an industry, we have gotten gun shy around fees due to consumer backlash regarding checking account fees and related services over the past several years. MRI studied bundling this year because in 2012 they found that FIs were giving away too many services for free. According to Rick Barham, CEO and founder of Market Rates Insight, "Our experience told us that it’s very difficult to go from “free to fee” without adding value, and we believed that the best way make this leap was via bundling “free” with other services. Our Study indicates our assumptions were right, and consumers do place importance and value on bundles that support their lifestyles."

This timely study from MRI shows that banks and credit unions no longer need to cower when trying to increase non-interest income. In fact, there are many emerging financial services consumers are willing to pay for either individually or when associated with service bundles.

Conservatively speaking, the study illustrates that institutions who focus on providing valuable services to consumers can generate as much as $10 per month from up to two thirds of the customer base. The key is to use the study results to match data to individual customer segments and to place revenue generation high on the list of strategic priorities for 2013, 2014 and beyond.

Now is the time for financial marketers and product managers to work together to determine the best way to move away from being a utilitarian organization, offering all new services for free to a value focused organization that is willing to assess a fee for value added services.

Find Out More


There’s a lot more to the new 'Growth and Revenue Potential of Emerging Financial Services' study that can't be covered adequately in this blog such as the breakout of results by institution type, the 26 online optimization reports and the competitive analysis, which shows how top financial institutions are integrating these services. In total, there are more than 250 illustrations in the report with high levels of detail that would be valuable to financial marketers and product developers.

Feel free to access the report with the link below. The author of the report, Dan Geller, has also offered to answer questions from my readers about the report by email at dan.geller@marketratesinsight.com.



Additional Insights





Mobile Deposits Boom Means More Money For Banks - Market Rates Insight Blog (July 2013)

The 2013 ath Power Mobile Banking Study - ath Power Consulting (June 2013)

Fee Revenue Optimization Analysis - Market Rates Insight (July 2013)

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