Lessons in Marketing by Barney Frank

February 27, 2009

I really try hard not to throw around my opinions about the current economic problems.  There are already plenty of people, most of them much smarter than me, who do enough pontificating without adding my opinion to the mix.  David Brooks writes “I worry that we’re operating far beyond our economic knowledge. Every time the administration releases an initiative, I read 20 different economists with 20 different opinions.” How can I possibly even have an opinion if some of the most respected economist in the world can’t even agree on the correct course of action?

It turns out I do have a few opinions.  At first glance, I didn’t pay too much attention to the NY Times article about Barney Frank’s comments concerning Citi’s naming rights for the new Mets’ stadium.  I know Barney is somewhat controversial, and there are a lot of people who feel he should share the blame for our current problems. I don’t have a strong opinion about him one way or the other.  However, after I digested his quotes about the naming rights to the new stadium, I extrapolated some alarming implications.

Here are a few of Barney’s opinions about stadium naming rights:

“Marketing expenses should be for real marketing, not ego boosts, which is what I think naming rights are,”

“Important men, in particular, like to hang out and ingratiate themselves with sports figures, and after the fact try to figure out how to make sense of the sponsorships as marketing or economic development.”

“I don’t think anybody has ever opened a bank account or decided to buy a CD because a bank’s name is on the stadium,”

I don’t know if any of his assertions are right or wrong.  But then again, Barney himself does not know if any of his assertions are right or wrong.

It’s not his opinion that worries me, but the idea that his opinion could actually mean something. His opinion might actually influence marketing decisions at Citi, and in my opinion, that is definitely wrong.

Barney is not a marketing executive.  He has been a politician for the past 37 years.  There is nothing in his training that suggests he would know what type of marketing works and what doesn’t work.   By the way, government has never shown a great propensity for making terrific business decisions. Lest we forget, our government has been taking giant sized risks with our money for a long time now.   In fact, the government’s share of Citi, the same share that has empowered Barney’s opinion, is at least partially funded by a communist country’s willingness to purchase US bonds.  Seems pretty risky doesn’t it?

I don’t have a problem with government oversight and regulation.  What scares me is regulation that advances to a point where there is hardly a distinction between private enterprise and property of the state.


How Safe is Mint?

February 26, 2009

mintlogoMint owes much of their success to the ease in which  they allow you to setup access to your various bank accounts. The technology behind Mint – normally referred to as account aggregation – is not new. Earlier this decade, account aggregation was the next big thing in internet banking.

Many banks and service providers rushed to add aggregation to their internet banking offerings. The problem was that customers were never too keen on account integration.  One of the main adoption inhibitors was customers’ reluctance to supply their usernames and passwords for their other financial institutions. Adoption remained low, and many banks dropped aggregation features all together.

Apparently Mint is the pill that helps people overcome their password sharing inhibitions.  Mint’s concoction of PFM tools and account aggregation is so useful that close 700,000 people are willing to trust them with their internet banking credentials for their various accounts.  Technically, Mint does not store user credentials.   Here is the explanation they give.

“We connect securely to your financial institutions using one or more online financial service providers. Your online banking credentials are stored only with these institutions enabling Mint to automatically and securely update your transactions and saving you from updating, syncing or uploading financial information manually.”

Mint offloads your user credentials to one or some of their partners. Mint lists some very impressive data and data center security features.  The problem is the listed security features apply to Mint’s datacenter; not their partners data center.

yodleelogo1Mint does not advertise the identity of their account aggregation partner, but Yodlee, a well known account aggregation company, lists Mint as one of their customers. I think it’s pretty safe to assume that Yodlee provides some of the account aggregation features for Mint. Thus, there is a good chance that Yodlee is storing your username and password. That’s not necessarily bad. After all, Yodlee is a trusted partner of many large financial institutions.  However, there is a strong possibility that the way Yodlee stores your passwords is not as safe as the way your internet banking site stores your passwords.

Your internet banking site probably stores a hashed version of your password.  A password hash is a one way encryption technique. The main benefit to hashed passwords is that even if a hacker cracks/discovers the encryption scheme and steals your encrypted password from your banks database, they will not be able to unscramble your password.  Your password is pretty safe.

The nature of account aggregation prevents Yodlee from storing hashed passwords.  They probably encrypt your passwords in their database, but if a hacker ever got a hold of their encyption scheme and their database content, they could get your internet banking passwords.

Is the difference in password encryption and storage significant?  Probably not. I track five accounts in Mint, and I don’t worry too much about my login credentials being stolen. The possibility of a key logger virus being placed on my computer is probably much greater than the possibility of a Mint/Yodlee datacenter breach.

I feel comfortable supplying Mint/Yodlee with my passwords for my various banks because I know that, in the event of a databreach, they have more to lose than I do.   Where as I might have to go through the hassle of changing passwords and canceling cards, Mint and Yodlee would have to go through the hassle of closing up shop and hiring good bankcruptcy lawyers.

RFID: Share Your Personal Data with the World!

February 24, 2009

compass_card_fareboxA few weeks ago I wrote that contactless payments will help drive mobile banking adoption. What I didn’t say is that you can also use RFID to broadcast your personal information to the world.  Yes, RFID enabled passports can double as your personal radio station that keeps playing your same personal info over and over again.  The good news is it has never been more affordable to have your own radio broadcast.  The bad news is, it is apparently pretty easy to put together the equipment that will tune into your channel.

RFID  (Radio Frequency Identification) is not a new technology. The origins of RFID trace back to WWII and the first RFID related patent was issued in 1973. From supply chain management to toll tags, RFID is certainly useful in a variety of applications.  Still, RFID is not inherently secure.  The potential problems are apparent in the latest RFID enabled US passports. The US includes a metal sleeve and Basic Access Code with new passports to try and keep thieves from stealing your personal information as you walk by.

NFC technology extends the RFID specification. NFC enabled devices must be in very close proximity in order to communicate.  Thus, proponents assert that NFC is inherently more secure than plain old RFID.  Still, not everyone is ready to start replacing cash with wireless payment systems.  Despite an improved security profile, NFC enabled devices are vulnerable to a variety of attacks.

fastrak_transponderWhy does all this matter to financial institutions?  More now than ever, financial instituions must prove that they are safe.  The general perception of a bank’s commitment to cyber security can change very rapidly.

I believe NFC enabled payment devices will eventually become very popular. There is a signficant amount of utility in a phone that will consolidate my rapid transit passes, affinity and rewards cards, coupons, and payment cards.  However, this will only happen if mobile payments and the devices that make them possible are perceived to be secure.  A recent survey found that security concerns is the number one deterent to mobile banking adoption.

Most of the mobile payment news I read focuses on convenience and new delivery technologies. Mobile technology companies mention security but they certainly don’t focus on it.

So to complete my answer to the question above, mobile payments represent a significant opportunity for financial institutions.  However, unless the industry begins to promote security with technology improvements and additional marketing, it might be a while before NFC payments move past the focus group stage.  Even worse, the big event that finally introduces NFC payments to masses might be news of a major NFC related fraud rather than a human interest story on NPR about how mobile banking is spurring commerce in Africa.

Mint’s Controversy, Mobile Loyalty Rewards, Opportunities for Mobile Advertising

February 20, 2009

It seems like Mint is in the news just about ever day now.

Javelin posted an article today titled “Will Mint’s latest upgrades leave an unsavory aftertaste?” The author addresses something that I have wondered for quite a while: does Mint really offer unbiased advice? They obviously are not afraid to rank products according to how much they could save you. However, the author points out that it seems like all of the credit card products that Mint recommends are sponsored products (Mint makes money by offering customers products from their sponsors). He also points out that the new real estate evaluation tools might not be that great of an idea. Mint’s valuation of my house is 16% lower than Zillow’s valuation. These types of estimates are never very accurate and could end up frustrating users.

TechCrunch reports that Mint has riled the mighty Inuit.  Intuit doesn’t believe Mint’s self reported user numbers so they sent Mint a letter demanding information that backs up Mint’s claims.  Mint complied and revealed that their user base is growing by at least 4,000 users per day.  They have a pretty liberal definition of user (anyone who has provided an email address, password, and zipcode), but 680,000 of their 934,000 users have added at least one bank account to Mint.  They did not mention how many of those users are active users (I would guess that about 340,000 of their users log in at least every couple of months).  The link above includes copies of the letters sent by Inuit and the response sent by Mint.

Aneace Haddad’s Taggo adds convenience and one step enrollment to loyalty programs

Taggo consolidates all of your loyalty rewards cards onto your mobile device. Actually, it consolidates them onto a small Taggo sticker that you can attach to your device. You register the sticker on the Taggo website and then tap it at NFC equipped retail pos devices. The divice sends a message to Taggo and Taggo responds with the unique rewards ID for that sticker/store combination. If the customer is not a current rewards member, they are sent a text message, and can apply for the rewards card by responding to the text. I think this is very clever idea with lots of potential. There just a couple of potential roadblocks. 1) The realive scarcity of NFC enabled POS terminals in the US. 2) Customers must pay $10.00 to get the Taggo sticker to put on their phone.

Economic Downturn Will Create Opportunities for Mobile Advertising, Says Analysys Mason

BARCELONA, Spain–(BUSINESS WIRE)–Prospects for mobile advertising in 2009 are promising despite the economic downturn, but realism is called for, says Analysys Mason, the global telecoms adviser during Mobile World Conference.

Delicious MoneyMashup: Walmart, Nationalization, Craig Newmark…

February 19, 2009
  1. The transformation to a bottom-up culture needs help from the top – organization leaders need to enthusiastically embrace web2.0 applications to encourage bottom up participation;
  2. The best uses come from users—but they require help to scale – Web2.0 applications often end up being more useful in areas that fall outside the original goal of the application;
  3. What’s in the workflow is what gets used – web2.0 programs have the highest likelihood of success when they are incorporated into everyday activities;
  4. Appeal to the participants’ egos and needs—not just their wallets – creatively reward participation;
  5. The right solution comes from the right participants – target an audience to champion the program;
  6. Balance the top-down and self-management of risk – don’t overly regulate, but don’t let anarchy rule either;
Another interesting point made is that web2.0 implementation could have far more impact than ERP and CRM programs implemented in the 90’s.
  • Analyst: “Nationalization” of Citi and BofA possible in ’09
    Chris Whalen of Institutional Risk Analytics says that Receivership (he does not think Nationalization is the best way to describe it), similar to what the FDIC did with WaMu, is something that should happen to Citi and BofA.  He acknowledges issues around bond holder losses, but argues that the bigger risk is surprise insolvencies. If we lay out clear plans, systematic risk will be minimized.  The losses in these banks are so big, that there is no alternative other than bond holders loosing money.  The loss to CITI bond holders could be almost 100%.  One big problem with that is that the majority of bank bond holders is other banks.  However, Whalen believes the market has already accounted for the nationalization scenarios and would not be overly surprised by it.
  • Melbourne NFC trial successful
    Visa, mobile phone provider Telstra, and National Australia bank conducted A contactless mobile payment trial. The response was overwhelmingly positive and most participants indicated that they would like to continue using the service.
  • Walmart MoneyCard lowers purchase price to $3
    It seems like Walmart is really marketing this card to those who do not already have a checking account, and might not have any credit. Loading your payroll or government check on to the MoneyCard is free (after you pay the check cashing fee). There is a $3.00 monthly fee, and a $2.00 ATM withdrawal fee. The advantage, for those without a checking account, is that it is a Visa card. So it is safer than carrying cash, and you can use it to purchase products on the Internet and rent cars. It also supports deposits from Green Dot locations.
  • Gist
    Contact management application that pulls in all relevant information about all your contacts. This includes attachments and blogs. It integrates with various contact sources such as gmail, outlook, and Facebook.
  • Turn Your Business Card Collection into a Valuable Online Database
    CloudContacts lets you send them your business cards. They scans them, and then let you access them via an online downloadable database. They also allow you send one card at a time by taking a picture of it with you camera phone.
  • Mobile Banking Safe…at least for now
    A CNET author claims that 30 million people use mobile banking, but many potential users are reticent to adopt mobile banking out of security fears.
  • The True Cost of Credit | What does your card cost?
    Type in the BIN number on your credit card (first six digits) and get a breakdown of how much merchants are charged for your various purchases. This is an excellent site. It makes interchange pretty easy to understand, and it tells you how the interchange associated with your card stack up against other types of cards.
  • Customers Want Help, Feel Banks Don’t Get it
    18 Months ago, 67.89 percent of survey participants rated their trust in their financial institution as a 6 out of 10. Today, 41 percent of those customers say their trust has weakened. 39.2 Percent of respondents do not believe rhat their financial institution looks out for their best interests. Matt Wolfrom, head of corporate practice at Cohn & Wolfe, suggests that banks be transparent and engage their customers.
  • Glenbrook Partners – Glenbrook Payments Glossary
    Payments glossary that provides definitions for common payment and banking terms.
  • Will Coupons Kickstart Mobile Revenue?
    Although mobile banking usage is on the rise, Banks are still not sure how they will turn the mobile channel into a profit center. One idea might be found in the partnership between Chase, Visa, and Clairmail. Clairmail texts coupons to Chase/Visa customers. When a corresponding purchase is made, Clairmail recognizes it as a “Coupon” purchase, and the coupon value is credited to the Visa balance. This could be promising, especially in today’s economic environment.
  • The Alternative Online Payment and Shopping Cart Platform for Merchants
    TrialPay is an online payment option that lets shoppers purchase their product completing one advertising offer. The premise is that consumers are more willing to pay for physical products than digital products. So, instead of paying for clicks, advertisers actually pay (or help pay) for  product purchases. For example, WinZip currently asks customers to pay $29.95 at its online store to download one of its file readers. But those who balk at paying can get the software for free by using TrialPay’s system to chose from over 150 alternative transactions from a range of companies. They might, for instance, spend $50 on clothes at Gap.com, or sign up for an American Express credit card.
  • ViVOtech Awarded Key Patent for Over the Air Provisioning of Payment Cards to NFC Mobile Phones
    ViVOtech, provider for Contactless and Near Field Communication (NFC) mobile payments and promotions, announced today that it has an NFC related patent. The patent covers real time provisioning of credit, debit, prepaid, loyalty and other payment or non-payment cards into NFC mobiles.
  • Intuit: Creating an Online Financial Institution Hub for Small Businesses

    Intuit has combined its small business financial software with the Digital Insight online banking platform to provide an application that appeals to a wider range of small businesses. It won the Barlow Research Inc. Monarch Innovation award for the most innovated business banking solution
  • NACHA Reports US 4Q08 ACH Volume Up 4.5%
    Internet initiated ACH payments (also known as “WEB” entries) experienced the highest rate of growth. WEB entry ACH payments increased 16.5% in the fourth quarter. This seems to coincide with an abundance of alternative payment options that utilize the ACH network. I expect this number to continue to climb.
  • Proposal: Virtual Currency API – OpenSocial and Gadgets Specification Discussion | Google Groups
    Google is proposing a platform for developers that facilitates the exchange of virtual money. Users purchase virtual money via a container and exchange the virtual money for virtual purchases, vip status, or advanced features.
  • Consumers turn to online banking for increased control on personal finances
    More consumers are turning to online banking applications to help them manage their finances. A survey indicates that 71% of respondents are monitoring their finances more closely than they were a year ago. 75% say they use online banking to ensure they are spending within their budget.
  • Craig Newmark’s Keynote Unlocks the Secrets to Building a Community – ReadWriteWeb
    Craig Newmark of Craigs List discusses secrets to building an online community. He highlights three points: Recognize the Importance of a Feedback Loop, Get Out of the Way, Understand we Live in a Culture of Participation. The next step in Online Banking is transforming the online banking experience into a community experience. This doesn’t necessarily mean that every bank needs their own facebook site, but it does mean that banks should use their Online Banking platform to garner more feedback, get out of the way (let the users interact with eachother), and encourage participation that helps improve the site.
  • Internet Banking high among online youth segment
    80 percent of active internet using adults adults aged 18 and over use online banking. The number one impediment to adoption remains security. The adoption rate climbs to 89 percent if you limit the age range to 18 to 34 year olds. 71% of internet users over 55 use online banking.
  • Do We Need a New Internet? – (John Markoff/New York Times)
    Researchers compare the current internet to Pearl Harbor with the Japenese fleet sailing towards it. They claim the Internet is ripe for attack and assert that the only way to fix it is to start over. The current internet was originally constructed as a communication platform and little thought was given to security. The “New Internet” would be built with security in mind.
  • Looks Like Facebook Just Took The Top Spot Among Social Media Sites
    Facebook overtakes MySpace for total site visits. This is not saying that Facebook has the most unique visitors, they don’t. In fact, they probably will not overtake Myspace for unique monthly visitors until 2010. However, Facebook must be receiving more frequent visitors to get the total traffic numbers above Myspace numbers.

How Many US Consumers Use Mobile Banking?

February 18, 2009


A) 30,000,000 US Consumers Do Mobile Banking

B) A fraction of the 30 million potential mobile banking customers have signed up for the service

C) 10% of all online banking U.S. households used mobile banking by the end of 2008 (about 46 million households currently bank online).

D) 3.1 million

E) All of the above.

It turns out that this is not an easy question to answer. As I mentioned previously on MoneyMashup, Bank of America claims that about 1.9 million of their customers use mobile banking.  However, Celent asserts that there were only 400,000 mobile bankers in the US at the end of 2007.  As for the total number of US mobile bankers in 2008, there is a very wide range of estimates.

  • In its banking safety scorecard compiled in November, Javelin found that just a fraction of the 30 million potential mobile banking customers have signed up for the service.
  • Yet this month a CNET article quoted Javelin and said that “an estimated 30 million consumers in the U.S. do mobile banking.”
  • The January 2009 Mobile Marketing Overview quotes Celent and asserts that “10% of all online banking U.S. households will use mobile banking by the end of 2008”.  The company said that about 46 million households currently bank online.  I am not a math major, in fact I even forgot how to do long division the other day, but I believe that means Celent is saying that there are 4.6 million mobile banking households.
  • The Wall Street Journal quotes ABI research and says that the number of mobile bankers in the US climbed to 3.1 million in 2008.

To sum it all up, we have three different research and four wildly different estimates (two different estimates by Javelin) that range from 3.1 million to 30 million. So, if you answered “E) all of the above,” you get a cookie.

Apparently determining how many US consumers use mobile banking is more of an art than a science. Some of the disparity might be explained away by how the different research reports are defining mobile banking. Perhaps some reports include any money related function – including applications not provided by traditional banks.  Even so, I am not sure semantic differences can explain the whole gap.  Bank of America only has 29 million online banking users.  In order for Celent’s estimate to match Javelin’s, we would have to assume that each mobile banking household is made up of a little over 7 mobile banking customers. To confuse you even more, Tower Group estimates that 4.6 million consumers – not households – used mobile banking in 2008.

Does anyone have any insight into why these numbers are so far apart?

Facebook Banking?

February 16, 2009

Over on the BankInnovation.net website, we are discussing whether or not there is a future for banking applications on Facebook.  Some argue that Facebook is just a social app and does not lend itself to more serious activities such as banking.

facebook_logoMy rebuttal is that I don’t see a clear line between banking and social activities. I think banking can be a social activity. There are some clear and fairly popular examples of increased interest in the social aspects of banking. So, if you can add social features to banking sites, why not add banking features to a social site? I am not sure if Facebook will ever replace dedicated online banking sites, but I do think some banking features could be become popular on Facebook.

There are some financial institutions that have “widgets” that you can place on your iGoogle page or Yahoo page. If you spend more time on Facebook than iGoogle, why wouldn’t you want to place that same widget on your Facebook page? If you are willing to send your friends money with PayPal, I’m not sure it would be a big stretch to send money to your Facebook friends with a similar service.

I think Facebook has a particularly special opportunity to be a P2P payment network. There are two main roadblocks to p2p payments. One, you are normally required to join some type of network (e.g. paypal) before you can exchange funds. Or you have to get your friends to give you some of their financial information (routing number, account number …etc) in order to send them money. Facebook solves the first problem because it is a site where millions of people already hang out , and you identify your friends (Facebook just overtook Blogger for the top unique visitor social media site) . The problem with Facebook is getting people to trust them or third party Facebook developers with financial information.

facebook_welcome_page_mapBanks could help fill the trust void by building financial “Vault” applications for Facebook. If I have an account with Wells Fargo, I could add the Wells Fargo vault application to my profile. The vault would store my account information. Then if one of my friends wanted to send money, they could just use the Facebook “Money Transfer” service to send it to me – without knowing any of my account information.  Facebook would simply connect my vault ID to my friends vault ID and our respective banks would handle the actual transfer of funds via the ACH network.

It is not a stretch to imagine a Facebook payments platform.  Facebook already allows people to post items for sale in their Marketplace and purchase virtual gifts. Their Spare Change program allows third party developers to collect fees for their programs via PayPal. In December 2007 Facebook announced that it was developing the next generation payments platform.  However, one year later Facebook suspended development on their payment platform without explanation.

There are third party applications that allow Facebook friends to tranfer money. Obopay, and Buxfer both have Facebook applications that allow users to send money to any other person.  However, niether of them use Facebook to faciliate connections between the sender and receiver of funds.  Both applications require that the user sign up with their particular service in order to receive funds.

Facebook certainly has a lot of financial services potential , but it also has a long way to go before it can be considered a reliable banking community. Unless they start paying more attention to security and customer support, the Facebook payment platform might go from suspended to expelled.