Bank Product Proliferation: Too Much of a Good Thing

When someone walks into your bank or credit union branch or visits online to open a new account, how many options are available to choose from? More importantly, how many different legacy products exist that are no longer offered, but still need customized maintenance, specialized communication and integration with your new digital offerings?

Has our desire to provide the best products for everyone resulted in product clutter, complexity, confusion, and additional costs? Now, there's new evidence that customers will reward us for reducing choice and for helping them move to the right product.

Beyond just reducing the current number of products we promote, it is also important to close the books on outdated product portfolios, consolidating legacy products into a more refined, less complex set of offerings. By doing so, your institution will reduce costs, generate new revenue, simplify your customers' lives and provide the foundation for future growth.

In a recent research paper from A.T. Kearney entitled, Reducing Complexity in Retail Banking: Simple Wins Every Time, it was found that the origin of banking's product proliferation challenge is the industry’s product-centric view and the lack of a traditional product lifecycle. By remaining siloed and focusing on the impact of individual products, there had been little internal incentive to reduce complexity for the customer’s benefit.

And unlike other industries, where customers are proactively shifted to the next generation of products when a new product is introduced and an old product is retired (i.e. Apple), A.T. Kearney found that most financial institutions maintain retired product portfolios forever, avoiding the risks and challenges of product migration. As a result, they found that some of their clients had more than 500 products, with two-thirds representing outdated offerings.

"One of our clients had more than 15 different savings products, with just three accounting for 90 percent of new product sales," states Torsten Eistert, partner at A.T. Kearney and co-author of the report. "Some products were being used by no more than 200 customers."

Beyond ongoing new product introduction, the product proliferation challenge is amplified by the impact of mergers, short duration specialty products, multiple branding, etc. This doesn't even take into account the impact of different behind-the-scene pricing algorithms or customer level customization (waivers, bonus rates, etc.) that is commonplace in banking.

As an industry, we can no longer equate variety of offerings with customer centricity. While customers say they want a variety of products and services, recent research by Filene Research Institute entitled, The Psychology of Choice Overload: Implications for Retail Financial Services found that the assumption that consumers always benefit from more options does not always hold, and in some cases, the consumers (and the bank) benefits from fewer, rather than more, options.

Simplicity Can Reduce Costs

Beyond the potential for improving sales, service and transparency with a simplified portfolio, reducing the number of legacy and current products can reduce costs. On the front line alone, broad product lines mean tellers and platform personnel need more training and time to understand (and explain to customers) a confusing array of alternatives. Each product has unique rules, regulations, rates, fees and transaction parameters that, even for a product no longer offered, may need to be referenced on an ongoing basis.

Imagine trying to know where to look for details about dozens or even hundreds of products on a moment's notice. Just because the technology supporting these products may be able to provide the answer in a relatively low cost doesn't mean the ultimate cost isn't significant.

According to the A.T. Kearney study, 75 percent of processing costs in branch-focused banks comes from the front office, where product confusion can also impact service and time available to sell. The cost that usually can't be calculated is the cost of a frustrated customer who expects flawless treatment. As mentioned in the Filene study, "When a vast array of confusing options are presented, a 'no decision' may be the sales outcome."

Obviously, complex product portfolios and legacy services also impact the back office, where maintaining an extensive portfolio for an undetermined period impacts personnel and IT costs. According to Eistert, "It is not uncommon for banks to keep certain legacy systems running because they host a large portfolio of legacy loans or deposits and they prefer not to have to contact clients in the event of system migration issues."

Simplicity Can Increase Revenues

As mentioned above, a simplified product line can positively impact the amount of time that can be dedicated to selling and can make it easier for a customer to make a decision. In addition, consumers often find it easier to deal with smaller assortments since they need to make fewer choices, leaving time to consider add-on services that may be valuable from a revenue perspective to the bank or credit union.

Interestingly, the revenue opportunity extends beyond current portfolio offerings into the vast legacy portfolio of products that have been mothballed but still held by the majority of an institution's customers. While a difficult endeavor, biting the bullet and migrating outdated product sets to a newer, narrower product line can increase sales, balances, share of wallet and customer satisfaction.

Several years ago, I was involved in a massive checking product migration project with CIBC in Canada. The goal of the project was to move every checking customer in the bank to a 'best fit' product line that included only 5 types of accounts. In other words, to proactively move more than 30 different legacy account types to 5 simpler options.

By evaluating historical balances, transaction volume, channel use and other behavioral data, the bank was able to determine the best product from the revised product line to place each customer. It was up to my firm to build the marketing plan to effectively communicate these changes to the customer with the least amount of disruption (as measured by negative branch impact and call center volume). 

The impact of the migration was far different than we anticipated at the time. Instead of a huge uptick in  call center volume with questions and complaints, the volume of calls remained relatively consistent with pre-conversion metrics. More interestingly, when measured over time, the balance in the accounts increased, ancillary product sales increased, revenue from both the new checking accounts and additional services opened increased and customer satisfaction scores improved. 

Over the years, the positive revenue impact of successful product line reduction efforts has been replicated by several institutions in the marketplace. A recent case study from Fifth Third Bank is included below.

Simplicity, Compliance, Risk and Transparency

New regulations require banks and credit unions to report on customer relationships at a much more granular level. The more types of products an institution has in their portfolio, the more variations that need to be included in risk management systems, CFPB reporting, etc. which impacts IT costs. In addition, with complaints being monitored more closely than ever by government units, a simplified product line can reduce the potential for compliance issues down the road.

Beyond regulatory issues, there is more and more focus on increasing the transparency of products to make them easier to understand and compare with competing services. Customers want uncomplicated offerings that can be compared and eventually used with no surprises. The focus on simplicity of offers can best be seen with new entrants such as Moven, Simple (naturally), Bluebird and GoBank that are mobile-first offerings with historically simple functionality.

Three Steps to Product Portfolio Simplification

Based on all of the reasons stated above (I am sure there are more), there is a greater need than ever to reduce the complexity of both legacy and current product portfolios. The three-step process recommended by A.T. Kearney includes:

1. Clean out the attic: Much like trying to cure a hoarder of bad habits, financial institutions need to analyze products in light of customers impacted, revenue potential and costs to serve. Make deep cuts until it hurts. According to A.T. Kearney, reductions of less than 30 percent aren't enough.
2. Build products like automakers build cars: Instead of each product being built from scratch, it is better to build with a modular design, where the platforms are similar, but the components can be assembled in a variety of ways to meet individual needs. This provides economies of scale, choice and potential for growth in the future. Examples of banks using this concept include Union Bank (Banking by Design) and BBVA Compass (ClearChoice Checking), where customers create an account that fits their needs, choosing only the features they want.
   
   
   
   
   
3. Match products with customer preferences: While few would argue against banking moving from a product-centric to a customer-centric view, it is easier said than done, especially for existing product portfolios. Beyond matching existing products to a new product set, the process of product migration needs to include revenue optimization modeling as well as a deep analysis of customer balance, transaction and channel use history. And since customer financial behavior changes over time, a future perspective of where the customer is going financially is needed to determine the best new product to move the customer to.

Case Study: Fifth Third Product Line Simplification

In a recent presentation at the ABA Marketing Conference entitled, Using Multichannel Engagement to Effectively Convert Customers, Bob Wojtowicz, vice president of 1:1 marketing for Fifth Third Bank illustrated the power of product line simplification. Saddled with a product line that included 25 checking accounts and 17 savings accounts, the bank's goals were to:

• Increase value across segments
• Increase the appeal of higher end products
• Reinforce the 5/3 brand and value proposition
• Grow total share of wallet

More specifically, the bank wanted to exit from Free Checking, which for years had been the backbone of aggressive acquisition efforts, become less reliant on overdraft and debit card interchange and provide incentives to customers for consolidated and expanded relationships.

From 42 to 8 Deposit Services

Rather than introducing a new set of products and 'grandfathering' the existing portfolio, Fifth Third migrated their entire customer base to a new checking and savings product line-up that reduced the number of checking accounts from 25 to 5 and the number of savings options from 17 to 3. As part of this migration, fee structures were simplified and made more transparent, making the entire conversion and future selling processes easier.

As with my CIBC example above, Fifth Third had the following concerns:

• What happens if customers don't like the new products and leave?
• Can the elimination of the traditional Free Checking create a PR problem?
• Could the changes provide an advantage to the competition?
• Are the revenue projections realistic?
• How do we position the changes as a benefit to the customers?

According to Wojtowicz, the key to success was a ton of pre-planning, listening to customer concerns, leveraging all possible communication channels (frequently), developing an effective customer migration mapping analysis and providing the customer multiple ways to engage with the bank.

Also stressed was the importance of top management support, strong conversion team leadership and extensive customer, intradepartmental and strategic partner communication. 

Multichannel Communication

To facilitate the product migration process, customer segments were established based on the depth and current value of the customer relationship. Each segment had a different contact strategy as well as messaging theme based on the account they were migrating from and the potential impact of the migration. More importantly, each individual household was mapped to determine the best post-migration product.

While the change in account structure would be 'business as usual' for some households, others would need more personalized engagement to understand the impact and potential opportunity of the new accounts available. The channels used by Fifth Third prior to the conversion included:

• Direct Mail: What's changing (and not changing), 'you have a choice' and how/when to respond (there were multiple direct mail touches with greater degrees of urgency as conversion approached)
• Email: Multi-touch reinforcement of each direct mail touch with the ability to download a copy of the original letter and take action electronically
• Online: Home page awareness banners and product page messaging with conversion landing page links to online wizard decisioning tools
• Internet Banking: Interrupt screens and integrated messaging served as reminders to online banking customers
• Social: Online monitoring of voice of customer (VOC) with active bank participation and response to negative sentiment
• Outbound Calls: The majority of the consumer bank base was called to set up 1:1 branch interactions to discuss changes in person
• ATM Messaging: Reminder communication on the screen, on facade banners and on receipts

Conversion Results

As a result of the exceptional pre-planning, effective mapping of household level communication, top management and employee support and ongoing monitoring of results on a daily basis, the impact of the massive conversion by Fifth Third was an unqualified success. Based on publicly shared results, the success of the product simplification process included:

• Increased revenue per household
• Increased cross-sell ratios
• Increase in average checking balance
• Increase in average savings balance
• Decrease in single service households
• Increase in new account generation

More specifically, Hendrix says Fifth Third has converted 2.1 million customers to its new products while, in the space of just one year, increasing deposits by almost $3 billion, and the cross-sell ratio to 5.2 products per-customer from 4.6.

For me, the most impressive numbers shared were that 40% of the customer base visited a branch office and sat down with a Fifth Third representative to discuss the best way to structure their bank relationship in the future. This provided the bank team the opportunity to not only make sure the customer was placed in the best product going forward, but also the opportunity to cross-sell additional services. In a conversation with Mark Hendrix, senior vice president and head of strategic marketing at Fifth Third, he says everything went so well, the branches want to find a way to connect with customers again.

When it comes to migrating new and existing product assortments, offering more variety is usually not the best option and may only perpetuate an historical paradox. Empirical research in the domain of retailing, consumer packaged goods and financial services shows that, in many cases, large assortments can lead to confusion, higher costs, lower revenue, lower purchase likelihood and a worse overall customer (and employee) experience. 

As we move quickly into the digital banking world, complexity is not rewarded. People want to make their live's easier and their financial institution choices will be based on which organizations serve their needs best. The best way for banks and credit unions to be prepared for this future is to clean out the product attic and move forward with a much cleaner slate. As in the case of Fifth Third Bank, this adjustment may also lead to more sales and an increased share of wallet.

Additional Resources

Reducing Complexity in Retail Banking: Simplicity Wins Every Time - A.T. Kearney (June 2013)

The Psychology of Choice Overload: Implications for Retail Financial Services - Filene Research Institute (2011)

Keep it Simple: How Banks Can Do Less and Deliver More - Booz (2009)

A New Dawn? Product Simplification: Winning Customers, Reducing Costs - Accenture (2012)

Simplification in Banking - KPMG (2012)

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From Free to Fee: Monetizing Mobile Deposits

Is your mobile banking channel a cost center or a profit center?

If your answer references that your mobile channel is 'saving you money' by diverting transactions from more costly channels, then I need to ask you how much you have reduced your CSR team, your teller staff and/or closed your branches as a result of mobile banking use?

You can generate revenue from your mobile channel, however, by building new pricing models that include fees for value-added services. As part of a new monthly series, 'From Free to Fee', I will be discussing revenue opportunities from several emerging financial services beginning with today's post on mobile deposits.

I am not the first to propose that banks and credit unions take a harder look at mobile banking from a revenue perspective. In fact, in May, 2011, Jim Bruene, publisher of the Online Banking Report and the NetBanker blog and founder of Finovate, proposed that new pricing models could propel online and mobile services to the next level in his Online Banking Report entitled, 'Creating Fee-Based Online Services'. He stated, "Unlike the $35 debit card overdraft fee, there are rational and understandable reasons for charging fees for value-added online and mobile services."

In his report, not only did Jim provide an historical perspective as to why and how banks and credit unions continually end up giving away their services, he provided 33 different services that could generate a fee and offered a perspective on the acceptance level by eight different customer segments.

In my post, I am going to try to tackle the opportunity for charging a fee for mobile deposits . . . even if your institution currently does not charge for the service. I will be referencing several research reports to provide rationale, especially a recently released pricing optimization study produced by Market Rates Insight entitled, Growth and Revenue Potential of Emerging Financial Services. This 168-page study covers 13 different emerging financial services, with insights into fee optimization, targeting, institutional differences and bundling options (I reviewed this study in a recent blog post).

I will also provide implementation and marketing recommendations based on my travels across the country and my work at New Control Direct and Digital. 

Note: A audio podcast of a 'Breaking Banks' interview by Brett King of Jim Marous and Dr. Dan Geller from Market Rates Insight around how and why banks should generate revenues from value added services is available for download here.

Moving From a Cost Savings to Revenue Generation Perspective

Many banks are under substantial pressure to reconsider the economics of retail banking, especially given the decline in net interest margins and the reduced income from sources such as debit interchange and overdraft fees. While there has been a slight rebound in deposit service fees lately, many fees are associated with services on the decline (mortgage refinancing).

Net Interest Margin for Banks with Assets > $10B

Aggregate Deposit Account Service Charges for Banks with Assets >$10B

There is no doubt that cost cutting has and will play a role in the effort to offset these reductions in income. But how much more can costs be cut without an impact on customer service or falling behind in the race for advancements in innovation and technology?

Another option is to have more customers pay for services that were previously 'free' like checking accounts. This strategy has been implemented by many banks over the past few years as evidenced by the decline in institutions offering free checking today (39 percent) compared to 2009 (76 percent) according to Bankrate, Inc. Many banks have also increased their overall service charge structure as well as the requirements to avoid fees.

The strategy of increasing fees on these basic services comes at a cost, however. According to the J.D. Power and Associates' 2012 U.S. Bank Customer Switching and Acquisition Study as well as a study conducted by the Deloitte Center for Financial Services, these types of fees lead to defections. 

A better option may be to build a new fee structure around emerging financial services that bring added value to the customer. Similar to options available when you purchase a car, these new fees could be singular line items and/or could be bundled into 'value packages' that the customer could select. The key is for financial institutions to no longer race to the 'free' finish line, but to assess a logical cost for benefits that bring a value to the consumer.

So, how big is the opportunity for generating additional revenue from mobile RDC?

Mobile Deposit Marketplace Potential

According to recent research by Mitek Systems, more than 12 million mobile users have made deposits exceeding $40 billion using their mobile device. In fact, four of the top banks in the country have reported extraordinary volumes of mobile deposits when considering the relative infancy of this service.

• Bank of America: 1M/Week
• JP Morgan Chase: >3M in May
• Wells Fargo: 1.4M in May
• PNC Bank: 450K/Month

The percentage of the largest financial institutions offering mobile remote deposit capture has almost tripled in the past two years, with 64 percent of the top 25 retail banks offering mobile deposit in 2013, up from 48 percent in 2012 and 22 percent in 2011, according to Javelin Strategy & Research. 

In addition, according to research from community bank mobile app provider, Malauzai Software, Inc., the usage of mobile deposit varies from organization to organization. Best-in-class financial institutions have approximately 20% of their active mobile banking end-users making deposits monthly and the average bank or credit union has 10% of active end-users making mobile deposits monthly. Average usage increases to 15%-17% of active end-users when looking at activity over a longer, 90-day period. 

The growth in mobile deposit use is not expected to subside any time soon either. In a June 2013 Celent survey of US internet active consumers, mobile deposit was the second most highly valued capability surveyed, with two-thirds of smartphone users ranking the capability “highly valuable” (6 or 7 on a 7-point scale). Among those surveyed, mRDC was more highly valued than person-to-person payments (54%) and the emerging capability to enroll a new bill payee using the phone’s camera (46%) which a handful of banks offer.

“Mobile deposit, the ability for consumers to quickly and easily deposit checks using their smartphone or tablet cameras has become a must have for banks as consumers increasingly adopt a mobile lifestyle,” said James DeBello, CEO of Mitek, San Diego.

Mobile Deposit Customer Profile

According to the Spring 2013 Raddon Financial Group National Consumer Research, mobile deposit is currently done by 7 percent of households, with 21 percent of Gen Y households using the service and 30 percent of higher income (>$50,000) Gen Y households using mobile deposit.

Indexing the age, income, balances and behavior of the mobile deposit user against all households (index=100), a mobile deposit user is younger (by 14 years), has a higher income and loan balance, has an average checking balance, and provides interchange income that is higher than the norm. Not shown is the fact that these households have average mortgage, equity and credit card balances.

  

Mobile deposit users, as expected, index significantly higher than the average household as to their likelihood of opening a new checking account online, and are more likely to use mobile payments, apply for a loan online, use a prepaid card and even make a payment through social media.

Bottom line, mobile deposit users are heavy users of all mobile services . . . or heavy users of mobile services and heavy mobile deposit users. The research also found that these customers use the branch at a rate that is 66 percent of the average customer.

Mobile Deposit Revenue Opportunity

One of the selling points of mobile banking has been the reduced costs of delivery of the channel. Estimated cost of in-person or call center delivery is quoted as roughly $4.00, with the cost of a mobile transaction being quoted as $.19. Even if we assume that these are accurate estimates of the fully loaded costs of each channel, an assumption that there is a 1:1 offset of transactions is definitely faulty.

Taking these assumptions one step further, if we assume one transaction per month, some quote a cost savings of close to $50 per mobile customer per year. This is highly unlikely (as presented by Bob Meara, senior analyst from Celent in a recent blog post).

While it is definitely easier to assume the cost savings above and to simply sell 'free', this leaves a great deal of potential revenue on the table based on recent research from Market Rates Insight. In the report, Growth and Revenue Potential of Emerging Financial Services, executive vice president and author of the report, Dr. Dan Geller, provides evidence of the willingness of consumers to accept 'value-added fees. In other words, while increasing fees on traditional services such as checking accounts will be seen as punitive and met with resistance (and potential defection), there is an opportunity to sell emerging financial services such as mobile deposit either singularly or as part of an enhanced service bundle.

In the study, both the importance of mobile deposit and perceived value of the service were measured. In the case of mobile deposit (13 emerging services were evaluated in the study), this evaluation was able to illustrate that more could be charged for a premium level of service (such as same day availability) while a lower fee could be charged for slower availability.

According to the study, 56 percent of consumers who did not already have the service found mobile deposit important to some degree. The average value consumers place on this service is $2.63 per month, while the 3.5 percent who found the service extremely important would pay $5.60 per month as shown below.

Mobile Deposit - Level of Importance (MRI, 2013)

Mobile Deposit - Distribution of Monthly Value (MRI, 2013)

The MRI Study also provided these distributions for different types of institutions (national, regional, local and credit unions).

Demographic Variances

From the perspective of demographics, it was interesting that the importance of mobile deposit was stronger for females (72.8%) than for males (64.9%) but that males were willing to pay significantly more on average for mobile deposit per month ($3.89) than their female counterparts ($1.82).

In addition, as would be expected based on the Raddon Financial Group research noted above, the importance of mobile deposit as well as the willingness to pay for the convenience decreased with age, while the importance and willingness to pay increased with income (specific details of these values are available in the report).

Potential for Bundling

Market Rates Insight (MRI) also developed revenue optimization scenarios for 26 different bundles of emerging financial services. Of the 26 bundles, four included mobile deposit as part of the service combination. These bundles included:

• Mobile Deposit with P2P Payments (optimal value of $8.38/mth)
• Mobile Deposit with Credit Score Reporting (optimal value of $8.57/mth)
• Mobile Deposit with Billpay, Low Balance Alerts and Prepaid (optimal value of $10.04/mth)
• Mobile Deposit with Payment Protection (optimal value of $9.23/mth)

While the development of optimal bundles would differ by customer composition, type of institution and competitive scenario, an analysis such as the one below combining mobile deposit with P2P payments illustrates how the analysis was performed for each bundle. As can be seen, while total revenue could increase with the addition of more services, the incremental revenue would actually decrease due to cost of offering and lower customer acceptance of an expanded bundle.

Overall Monthly Fees from Mobile Deposit/P2P Bundle + Add'l Services

Incremental Fees from Mobile Deposit/P2P Bundle + Add'l Services

"One of the most revealing and significant findings from our latest study on emerging financial services is that the principle of diminishing return applies to the bundling of financial services," states, Dr. Dan Geller, the author of the report.

Competitive Overview

Of the top five banks in the US, only U.S. Bank charges a fee ($.50) for each mobile deposit. Fees have been collected since 2010 by U.S. Bank, and while not currently supporting the Blackberry platform, mobile deposits are possible via an iPhone, iPad and Android devices. As with most programs, there are daily and weekly deposit limits.

Regions Bank is the other larger bank that currently charges for mobile deposits. Unlike the flat transaction fee charged by U.S. Bank, Regions has a sliding fee scale based on availability of funds. Immediate availability has a fee 1%-5% of the check amount with a minimum of $5. Overnight availability is $3 and 'standard processing' (two business days) is only $.50 per check. The 'standard' processing is actually faster than any of the 'neobanks' (Moven, Simple, GoBank) at this time. 

"Obviously, customers aren't going to be happy with any kind of cost you throw out there," stated Greg Melville, product owner of mobile products and payments for Regions Bank. "But if you offer a value-added service, such as immediate access to their funds, they have shown that it's something they are more than willing to accept." There was also some negative feedback initially, especially on social media, but very few of the complaints resulted in customers actually leaving the bank.


"FedEx pioneered the concept of higher fees for greater expediency and now consumers are expecting the same option from their financial institutions especially when it comes to mobile deposits," states Dr. Geller.

Jim Bruene, who was one of the first to write a study on the potential for fee revenue from mobile services applauded Regions Bank on their decision to charge a fee, but still believed it would have been better to include mobile deposit as part of a larger bundle with a monthly subscription fee. He also believed the fee structure is overly complicated.

Dave Kaminsky, a senior analyst at Mercator Advisory Group, a research firm focused on the payments industry, explained that users perceive mobile banking's offerings as worth the cost. "Customers tend to look at remote deposit capture or expedited processing as an additional value, so they're willing to pay for it—at least for now."

Many of the other large banks do not currently charge a fee, citing that the value of the mobile deposit customer is higher than average (as shown above), that they are less likely to leave the bank because of this 'sticky' service, that mobile deposits reduce their costs (somewhat debatable) and that there are more transactions that generate interchange income. While each of these arguments may be true to varying degrees, I still believe needed revenue is being left on the table.

The Process of Transitioning from Free to Fee

Despite all of the logic above around the why a  bank or credit union should charge for mobile deposits, the real challenge is in answering the how question without alienating your customers, frustrating your sales teams or negatively impacting the growth potential of mobile deposits. If there is a question around moving from a free to fee strategy, then research your customer base, competitive position, internal capabilities and institutional priorities. If there is not enough rationale around making this transition, maybe now is not the time.

According to James "Alex" Alexander, founder of Alexander Consulting, there are four options available when trying to implement fees when the market (or your current strategy) may be giving services away for free.

1. Don't Do It: With the potential challenges to moving to a fee-based structure, maybe it is better to wait until all impacted parties buy-in. Selling 'free' is easy. Selling 'fees' is hard.
2. Just Do It: This strategy is based on picking a date and letting customers and all employees know that there will be fees from the selected day forward. The upside is that this strategy is simple. The downside is that phones will ring and you need a very strong constitution to decipher the customer (or employee) threats from the reality. The key here is to not make exceptions, because exceptions quickly escalate into more and more fee waivers. If your entire team understands and believes the value proposition, they should be in a position to help stem attrition (there will be some).
3. Grandfather Existing Customers: Under this strategy, current customers who have used mobile deposit will not be charged, while any customers who use the service for the first time after the transition date will be charged a fee. The challenge is that customers (and employees) talk, potentially undermining this strategy.
4. Productize the Old and Sell the New: The challenge with any of the above strategies is that they can trigger a powerful, negative psychological response -- people don't like to have something taken away from them or to have differential treatment for a segment of the customer base. In this scenario, mobile deposit continues to be given away, but in a lower value manner. For the majority of organization, this approach is far superior to the others since the customer is given a choice of services and fee options.
• Productize the old: With 'basic' mobile deposit, this can be done by extending the period for funds to clear. Similar to what Regions Bank has done, change basic mobile deposit to a 7-10 day clearing period.
• Sell the new: For 'premier' mobile deposit, the clearing time can be reduced to 3 days or even shorter. When given the option, most customers will willingly opt for the faster clearing of deposit and will pay the fee. Another option is to include 'premier' mobile deposit in a bundle of mobile benefits as discussed above, with the option of charging an even higher fee.

Five Keys to Marketing a Fee-Based Mobile Deposit Program

To fully benefit from the a fee-based mobile deposit program, the solution must be marketed to customers. For those who have used the service, it is extremely simple and time saving. For those who haven't, it could be considered confusing and even scary from a perceived security and risk perspective. Similar to making a deposit at an ATM, until a customer tries the process and realizes it works, there can be barriers to acceptance and use. Here are five quick ideas to stimulate mobile deposit usage:

1. Free Trial: When you buy a new car, many come with satellite radio already installed and ready for use. In my case, I would never have taken this option at the time of sale, but would have most likely waited or never turned on the service. With the free trial (and very complete up-front training), I not only enjoyed the service . . . I now pay for it on a monthly basis. For mobile deposit, make a huge deal about this service an its benefits. Educate the customer up front and get them 'hooked' on the 'premium' mobile deposit service. After the trial, penetration of the service will be much greater and the opt-in rate for a faster clearing (and the fee) will be greater.
2. Incent Your Team: Don't compensate on sales volume alone, compensate on profitability (or at least reaching a minimum 'premium'/bundle penetration benchmark). By providing incentives, your front line will spend more time educating customers and will emphasize the benefits of your 'premium' mobile deposit service or bundle. Make sure your expectations are that all new customers will begin to use mobile deposit immediately.
3. Don't Accept Deposits: O.K., maybe a bit radical, but when a customer wants to deposit a check into their account in a branch, use this transaction as a customer education opportunity. Either arm your tellers with a tablet device used exclusively for mobile deposits (and other training) or use another available terminal in the office.
4. Build an Educational Video: a short educational video serves several purposes including being a landing page for online and mobile banking customers, providing a location for linking email communication, and providing a tool that can be used in the branch when a customer opens an account or wants to deposit a check.
5. Leverage Digital Communications: Don't be afraid to regularly email customers about the benefits of mobile depost. If you have implemented either a 'premier' or bundled mobile deposit product, each email will more than pay for itself. In addition, monitor customers who continue to deposit checks in your branches. Remind these customers (through email, direct mail, online banners, digital retargeting, mobile banners, etc.) that they can save time by taking advantage of mobile deposit.

The key to success in generating revenue from mobile deposit programs is to 1) communicate the value of the service, 2) provide customers the option of not having to pay (or use the service), 3) reinforce the importance of 100% acceptance of the process to all internal teams through education, mandate and incentives, 4) continuously market the service, 5) build a segmentation strategy and 6) measure results.

"Amid the growing proliferation of digital channels and rapidly evolving consumer behavior, retail banks can no longer afford to adopt a one-size-fits-all approach in devising and enhancing their mobile strategies," says Vin Malhotra, consulting partner for Banking and Financial Services with Cognizant Business Consulting, Cognizant's consulting practice. "Providing innovative and personalized mobile services based on consumer segmentation will enable banks to not only run better by maximizing their investments, but also run differently by strengthening customer engagement and driving greater adoption of mobile banking for competitive differentiation." 

If properly positioned, packaged, sold and reinforced, not only will your employees and customers understand the rational of moving from free to fee, but the service will serve as a retention tool as customers become more comfortable with the benefits and value the fee options. 

And mobile deposit will become one of several new revenue engines within your institution.

Coming Next Month: How to Generate Revenue from Mobile Bill Payments

Additional Resources 

Growth and Revenue Potential of Emerging Financial Services - Market Rates Insight (2013)

Study on Emerging Lifestyle Financial Services - Market Rates Insight (2012)

The Mobile RDC Cost-Savings Myth - Bob Meara on the Celent blog (August 2013)

The US Mobile App Landscape: An Annual Evaluation of Mobile Banking at Top US Banks: Celent (June 2013)

Leveraging an Omnichannel Approach to Drive $1.5B in Mobile Banking Cost Savings - Javelin Strategy and Research (July 2013)

Creating Fee-Based Online Services - Online Banking Report (May 2011)

Retail Bank Pricing: Resetting Customer Expectations - Deloitte (April, 2013)

Three Things You Need to Know About Mobile Deposit - The Raddon Report (August 2013)

The State of Consumer RDC 2011 - Celent (November 2011)

2011 Mobile Remote Deposit Capture: Creating a Compelling Business Case for Mobile Servicing - Javelin Strategy and Research (May 2011)

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

Mobile Deposit: Why Now . . . and How - Mitek Systems (2012)

Mobile RDC: Changing How Consumers Bank and Banks Compete - AlixPartners (October 2011)

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Today's Mobile Banking Apps: Table Stakes or Cutting Edge

There is no disputing that the U.S. mobile banking landscape is changing rapidly. Larger banks are setting the stage for broader market trends, while smaller banks (and even some regional players) play catch up in the development of new functionality.

What are some of the top U.S. banks doing that is innovative and what has quickly become table stakes in a game of mobile app one-upsmanship? And is mobile banking innovation becoming a value-added differentiator that can drive new revenues?

Over the past 18 months, mobile banking applications have evolved beyond the basics to include specialized functionalities, improved user experiences and an expansion of platforms supported. A year ago, mobile remote deposit capture (RDC) was live at only five of the top 13 banks. Today, it is a 'must have' banking application that has the potential to drive revenue. Similarly, P2P is now taking center stage at most banks despite some logistical hurdles, with five banks adding this functionality in the past 12 months.

How are banks keeping up with consumer demands? How are they keeping up with each other? What's next? In the third report in a series on the state of mobile banking released by the financial research and consulting firm Celent, a review of new application development is provided along with a glimpse into the future. 

In the 44-page report, The U.S. Mobile App Landscape: An Annual Evaluation of Mobile Banking at Top U.S. Banks, Celent found that larger banks tend to out-develop and out-adopt smaller institutions by a significant margin. “The channel is still relatively new, but leaders in the digital channel space are beginning to take offerings into the realm of value-added services that are context-sensitive, timely, and utilize big data", says Dan Latimore, senior vice president of Celent's Banking Group and coauthor of the report. "There’s a large disparity among digital offerings—industry leaders are light-years ahead of the laggards.”

Below is Celent's view of the mobile landscape as it continues to evolve. As can be seen, Emerging Capabilities include a more advanced stage of interaction with more knowledge-driven tools and analytics. While some of these may not be pursued by every organization, Celent believes most will be tomorrow's standard. Interestingly, some of the functionality in the Future Focus is already being implemented on a global basis (see previous post 'Banks Accelerate Mobile Banking Innovation', June 2013). 

While the future may be considered speculative, some components are beginning to appear at the more progressive institutions (U.S. Bank and BBVA Photo Bill Pay) and at some of the new players such as Moven, Simple, GoBank and BlueBird (see 'Challenger Brands & Disruptive Ideas: Learning From The NeoBanks', Financial Brand, August 2013).

Current Evolution of Mobile (Celent, June 2013)

Key Findings of the report include:

• Mobile, and more broadly digital channels, have become core parts of banking in 2013. Mobile devices are now just as much a tool to keep people out of branches as they are to facilitate interaction. Consumers are more eager to engage through a smartphone, and as nontraditional players rush in to fill gaps left by legacy financial institutions, CIOs are beginning to feel the pressure to build out digital capabilities.
• Digital channels are in a continuous process of evolution, proliferation, and adaption. While remote deposit capture was 'new' a year ago, it is now a basic functionality. Innovation in the mobile channels is ongoing with today's innovations quickly becoming tomorrow's table stakes. 
• Banks are moving forward in their evolution of digital channels, but it's a slow and sometimes confusing process. It’s no surprise that banks aren’t considered innovators: it’s difficult, expensive, and risky to innovate. Yet, banking is entering a time of customer-centricity, where each institution defines this concept differently.
• New functionality is on the horizon, but not yet front and center. This includes: 1) Speech recognition, 2) Social media integration, 3) Mobile PFM tools, 4) Easy access account balance, 5) Cardless cash withdrawal, 6) Debit card on/off switch, 7) Remote mobile bill pay, and 8) Biometric security.

How Are The Top Banks Doing?

Mobile is definitely moving beyond the replication of online banking services and into value-added features built to serve more specific use cases and even different segments of the bank (retail consumer, small business, wealth management, commercial, etc.). As shown above, the evolution is trending towards an environment where solutions are being 'bought' vs. 'built' and where engagement of the customer on a contextual level is beginning to be achieved. 

Using a features and functionality scoring sheet for each mobile platform (developed as part of the previous Celent research 'What's App, Doc: A Biannual Evaluation of Mobile Banking at Top U.S. Banks'), Celent evaluated apps for the Apple iOS, Android, Safari web browser and text banking. Scores were compiled for the top 13 banks in the U.S., with banks grouped into three categories based on the following criteria:

• How easy was it to find the desired function?
• How easy was the app to use?
• Was the information presented intuitive from a navigation perspective?
• Did the app take advantage of standard OS functionality to enhance familiarity?

A very in-depth evaluation was performed for the following functions on each mobile platform to determine breadth of offering. Each function was evaluated on a number of levels with values placed on each of the following capabilities: 

• Balance inquiry
• Recap of previous transactions
• Bill payments
• Moving money (RDC, A2A, P2P, etc.)
• Merchant-funded rewards
• PFM tools
• Social Media integration
• Geolocational tools
• Marketing and sales
• Security
• Customer support
• Personalization
• Alerts

Celent grouped the banks in this report into the following three categories: most improved, noticeable improvements, and minimal/ no changes.

1. The most improved apps include Bank of America and US Bank.
2. Apps with noticeable improvements are Capital One, Wells Fargo, and HSBC.
3. Banks with minimal or no changes to their mobile offerings include BB&T, Chase, Citibank, Fifth Third, PNC, Regions Bank, SunTrust and TD Bank.

According to Dan Latimore, "While Chase continues to build on their mobile excellence, some apps have been playing catch up." And while not making significant changes does not necessarily mean the mobile banking site was poor, standing still in today's mobile marketplace is not a solid long-term strategy.

Interestingly, in an unrelated research study conducted by Xtreme Labs for the period May 18 - June 1, 2013, entitled 'U.S. Banking Apps Report: Customer Reviews', a different set of 'winners' emerged based simply on the number of positive and negative customer ratings in both the Apple iTunes Store and Android Play Store. A minimum number of reviews were required for any app and an averaging of reviews was used for scaling. While significantly less scientific than the Celent research, the Xtreme Labs research provides a social media commentary on customer sentiment around mobile banking apps.

Of the largest banks reviewed by Xtreme Labs, RBS Citizens, had the highest score on the iOS platform (4.5 out of 5 and a 93% favorability rating) and one of the best scores on the Android platform (4.5 out of 5 and a 97% favorability rating). USAA, American Express, Wells, TD Bank, Chase, BB&T and Regions and U.S. Bank also scored well in this study.

Conversely, PNC (not virtual wallet), SunTrust, TD Bank, Fifth Third, Bank of America, Well Fargo and USAA also appeared on the negative side for the iOS platform in the Xtreme Lab study, indicating that the mobile apps were not considered the best for everyone.

Issues to Address in Future

Beyond the need to explore the development of additional functionality that makes engagement easier and leverages big data more effectively, Celent saw some trends they believed warrant attention in the near term.

Marketing and Cross-Selling

As was noted in my June 2013 blog post around Mapa Research's study of global mobile banking innovation, U.S. mobile banking apps still haven't leveraged some of the power of cross-selling from a mobile device. While the Celent research noted that many banks have attempted some form of 'product pushing' or advertising of services, there seems to be minimal leveraging of big data insights to drive contextual offers. "Splash screens and real estate crowding banner ads should be left to online banking", say Latimore. "Apps should move toward offering up product suggestions (without sacrificing user experience) as well as being able to facilitate the beginning of an enrollment process, which can be finished at the branch, over the phone or online".

Mapping

While it is understandable that many banks may be a bit skittish around using Apple Maps for branch and/or ATM directions given early flaws with the iOS application, using Google Maps from within the Safari browser was found to be slow and 'clunky' compared to the integrated option from Apple. Celent believes the risk may be worth it. Another option (used by both PNC Bank and U.S. Bank) may be the use of augmented reality for locational guides.

App Design and Platform Changes

Celent noticed that a number of apps in the study had little or no change from the previous report from Q4 2012. While this may not seem out of the ordinary if compared to bank website redesigns, and certainly falls in line with the industry's normal 'wait and see' approach, this speed of change is not acceptable to most mobile users who are used to constant and frequent enhancements to apps.

In addition, as tablets of all forms have exploded onto the marketplace, banks have done a terrible job of developing applications that take advantage of this very unique platform. Beyond the tactile and length of engagement differentiation of this platform, the demographics of the typical user (more affluent and more digitally astute) warrants a greater focus.

PFM on Mobile

There is no disputing that PFM on mobile has yet to gain any traction. Banks are struggling to define what PFM should be and what it should look like on different channels as well as platforms. The majority of consumers are not attracted to charts and graphs on mobile devices (there is a segment however). But PFM on mobile may provide promise if looked at in the perspective of improved receipts, budget updates and even gamification. Merchant-funded reward integration is also possible with geolocational capabilities providing the ability for immediate rewards through the mobile device.

While some banks are testing some of these capabilities (most notably the neobanks like Moven as covered here in my early 2013 blog post), there is quite a bit of debate on whether the investment in development can be recouped without a value-added pricing model.

According to Latimore, "Eventually, Celent imagines high-value advice on savings, alerts for overspending on a budget category, or GPS-enabled deals. The camera is another unique attribute to the mobile phone that can be used to provide a snapshot of spending."

The Long Road Ahead

Mobile banking has quickly evolved from being a more cost effective way to handle balance inquiries to a core component of every bank's delivery network. We have moved from a transaction focus to an engagement focus, with CIOs beginning to feel the pressure to build out mobile capabilities. 

With basic mobile transactions such as balance inquiry and moving money, simplicity is the 'new black'. With more sophisticated interactions, the use of 'big data' for insight dissemination and solution recommendations is the key to success. In all cases, Celent found a trend away from 'bolt-on modules' to more holistic approaches that will require significant investment.

While other industries have reached young adulthood in mobile integration, mobile banking is still in its infancy. With shrinking margins and more regulatory pressure, banks must determine if there is the potential for mobile services to generate revenue that can help offset development costs and replace lost fee income. Without fees from new value added services, what is the ROI of mobile banking? (see previous BMS post, 'The Revenue Power of Emerging Financial Solutions", August 2013)

According to Celent's Dan Latimore, "While mobile banking definitely expands a bank's ability to reach new and existing customers, and while there is significant movement by some organizations, there is still a long road ahead for others."

About the Report

The report reviewed is the third in Celent’s series on the state of mobile banking at top US financial institutions. The report examines mobile application offerings at the top 13 US banks in significant detail, beginning by looking at the state of the mobile market in the US. Celent graphically explains trends in mobile, and tries to make a case for what the future of mobile will look like. The report then dives deeply into the breadth of functionality and usability at each of these banks. Finally, each bank’s mobile application is profiled in depth, with accompanying screen shots to illustrate relevant points. This report is the best of its kind and is intended to serve as a guideline for conversations around how to strategically align mobile development with prevailing best practices.

A webinar on this study in conjunction with Kony, entitled, Tomorrow's Mobile Banking - Hear What Top U.S. Banks are Doing to Get a Glimpse Into the Crystal Ball is scheduled for September 11, 2013 at 2PM ET. 

Additional Resources

The U.S. Mobile App Landscape: An Annual Evaluation of Mobile Banking at Top U.S. Banks - Celent (June 2013)

Mobile Banker Vendor Solutions - Celent (April 2013)

What's App, Doc: An Updated Biannual Evaluation of Mobile Banking at Top U.S. Banks - Celent (January 2013)

U.S. Banking Apps Report: Customer Reviews - Xtreme Labs (July 2013)

Tomorrow's Mobile Banking - Hear What Top U.S. Banks are Doing to Get a Glimpse Into the Crystal Ball - American Banker Webinar sponsored by Kony (September 11, 2013)

Mobile in 2013: A Digital Digest Featuring Gartner Research - Kony (March 2013)

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