/blog/image.axd?picture=/Photos/GettyImages-879044876.jpg

Why use a credit card when your PAL will Pay?

Credit cards are important to banks, right?  Important enough, it appears, that some banks will – at least allegedly – risk bending some of the rules. As the American Banker pointed out this past August in an article on the topic, “one particular firm that drew the regulators’ attention,” says the article, “was Bank of America. Between 2016 and 2018, Bank of America was among nearly 50 large and midsize banks that underwent a special regulatory exam, which focused on sales practices, by the Office of the Comptroller of the Currency.”  The bank was also singled out for close review by the Consumer Financial Protection Bureau, which launched an investigation into whether the bank had opened credit card accounts without customers’ authorization, as Wells Fargo had done back in 2016.  So, yes, credit cards are important to a bank’s bottom line. Bending the rules, however, is not an option. How, then, can banks hold onto this extremely valuable revenue stream?

The Financial Brand alluded to the battle for credit card users and “payments disruption” in their recent blog entitled, 7 Major Trends that will Shake Up Banking in the Year Ahead. The FB cites an Accenture study that “points to credit cards as the payments segment with the highest susceptibility to disruption. The primary cause: Point-of-sale lending, also known as buy now pay later (BNPL). These solutions, pioneered by fin-techs such as Affirm, Klarna and Afterpay, enable consumers to select a credit card or installment plan either at the time of purchase or after their purchase, and typically charge only a flat fee. Research by The Ascent, a personal finance service, describes how and why Americans are taking advantage of BNPL. “Over a third (37%) of U.S. consumers between 18 and 54 have used a BNPL service,” states the report. The reasons for the switch are simple: 39% say to avoid paying credit card interest while 38% use it to make purchases that fall outside of their normal budget. The most popular BNPL at the moment? Bill Me Later/PayPal Credit.

Then there’s the digital wallet options: PayPal Wallet, Apple Pay, and Google Pay, to name a few. These companies offer their own versions of ways to pay, some of which, like banks, even offer their own cash-back cards with rewards. The Apple Card, for example, is one. The card offers daily cash back and is accessed through a convenient-to-use app. A survey by Deloitte shows that the share of shoppers making a purchase on mobile phones has doubled in the past five years. In addition, according to the survey, this year will mark the first time that more than half of those surveyed plan to use their smartphone, in some capacity, for holiday shopping online.

In order to keep their share of wallet, credit card issuers seem to be continuing to merchandise their cards with low promotional rates and rewards. Deloitte’s U.S. Payments Leader Zach Aron says “the stakes are high for banks when it comes to credit cards. It’s one of the relative bright spots for banks in payments and the top payments revenue driver, with a compound annual growth rate of between 8% and 9%.” Mobile, he says, is “far and away” how people want to pay going forward, which puts pressure on banks to become the top credit card or payment method in a person’s actual mobile wallet.  How do banks become that top digital wallet payment and can credit cards continue to be one of their “relative bright spots?”  We’ll see.

About Bank Marketing Center

Here at BankMarketingCenter.com, our goal is to help you with that vital, topical, and compelling communication with customers; messaging that will help you build trust, relationships, and with them, your brand.

To view our marketing creative, both print and digital – ranging from product and brand ads to in-branch brochures and signage – visit bankmarketingcenter.com.  Or, you can contact me directly by phone at 678-528-6688 or email at nreynolds@bankmarketingcenter.com.  As always, I would love to hear your thoughts on this subject.

/blog/image.axd?picture=/Photos/GettyImages-514992766.jpg

Let’s not take Community out of Community Banks.

The CEO of Chime, the U.S. technology neobank company that provides fee-free financial services through a mobile app, just a week or so ago had this to say about traditional banks in an article on cnbc.com: “COVID-19 and the pandemic have just accelerated the trend that was already in motion. There’s an increasing willingness to provide and manage your finances through a mobile app. Particularly for the younger generation, the notion of going in to fill out forms, to get basic financial services is really becoming a relic of the past.”

Which begs the question, if you’re a community bank, what will your community look like in the not-too-distant future?

 By that I mean, is the online community all that’s left for banks? Individuals who seem willing to trade personal data for convenience? Those who would prefer to never consult with a human being, an expert, when it comes to managing one of the most important and difficult areas of their lives? Their finances?

Personally, I believe there is still a place for that “off-line” community… the one surrounding your branch locations, the one that consists of individuals and local businesses who are connected with each other and value that connection.

But, hey, what do I know?  Seems like every time you open a news page in your browser there’s some article about digital transformation, monetizing data, turning branch banks into internet cafes… is that really where we’re headed?  And, should we?

Granted, I wholeheartedly agree with Mr. Britt, Chine CEO, that “the pandemic has just accelerated the trend that was already in motion.”  This finextra article from just the other day included this proclamation from Paul Walker, GM of Q2 BaaS. “Now any bank can have its own Marcus or Chime in a matter of a few weeks.”  Wow, the race to trade one community for the other is really is running full steam ahead.

Further proof is a recent Financial Brand blog about digital banking insights that can be learned from China’s We Bank. The Shenzen-based, digital-only bank has experienced exponential growth since its inception in 2015. How? The cynic might ask this question: Could it be that they are raking in cash not because of a digital banking model worth emulating but, instead, a model that allows them to monetize data and loan money to high-risk individuals without fear of running afoul of regulatory agencies?

Case in point. We Bank has built a business of over 200 million customers by opening accounts with an average revenue per user of around $10 USD.  Their per-account operation cost is only 3.6 RMB, or roughly $.50 USD. And, they can process a loan application in just 5 seconds.  5 seconds!  How is that possible?  Henry Ma, CIO explains it so: “We work with a lot of internet platforms. Essentially, we embed our financial products into our partner platforms. And we also work with our partner platforms and leverage the data and the user base that they have and do a lot of pre-underwriting on the users. When we work with a particular platform, the user will get pre-underwritten and receive an invitation from us. Once the user accepts the invitation, we have already gotten some idea of what kind of a credit worthiness this user deserves.”

“We leverage the data and the user base and do a lot of pre-underwriting…”  Hmmm.  Where does this data to which Mr. Ma refers come from?  Sounds to me a like it might be Big Brother Banking, where your bank, in bed with Big Data Bad Boy, knows everything about you and then uses that information to sell their products (which of course, are products that create the revenue they didn’t generate when they sucked you in with a bait-and-switch offer.)

If this sounds a bit skeptical and cynical that’s because, frankly, it is.

Back to the original point here.  What “community” are digital banks serving and do our true, traditional, local community banks want to go there? The pandemic may have accelerated the digital banking trend, but that doesn’t necessarily signal progress or a direction in which banks need to necessarily go. People need community and connections. Yes, they want convenience, but once this pandemic is behind us, will those digital customers still feel the same way? Perhaps, but perhaps not. I could see the pendulum swinging back the other way with a re-birth of the branch bank. 

And why not?  E-tailers are doing it.  In “Why are Online Retailers adding Brick and Mortar Stores?” DeFi Nucleus Vision says, “Online shopping lacks human interactions. Customers don’t get a chance to ask in-store stylists for advice, it’s a solitary experience and customizations aren’t as easy to organize. Having a salesperson who greets you, tells you what looks good on you, gives you the right size, and offers a better color scheme can help brands build a deeper connection with the customer.”  A “deeper connection.” That sounds a lot like community banking to me.

About Bank Marketing Center

Here at BankMarketingCenter.com, our goal is to help you with that vital, topical, and compelling communication with customers; messaging that will help you build trust, relationships, and with them, your brand.

To view our marketing creative, both print and digital – ranging from product and brand ads to in-branch brochures and signage, visit bankmarketingcenter.com.  Or, you can contact me directly by phone at 678-528-6688 or email at nreynolds@bankmarketingcenter.com.  As always, I would love to hear your thoughts on this subject.

/blog/image.axd?picture=/GettyImages-1183111070.jpg

Are you expecting? Maybe your bank knows.

It was just less than a year ago (although the last six months have seemed more like six years) that The Financial Brand had this to say about banking and privacy. They pointed to an Accenture survey that found that “20% of banks monetize transaction data by delivering actionable insights and that 75% aspire to do so in the next three years. The consulting firm, which encourages financial institutions to pursue this strategy, also notes that monetizing consumer data is difficult to do well while also protecting consumers’ information.” The survey, according to the FB, also went on to predict that as banks explored this uncharted territory, they must tread lightly to protect the integrity of customer relationships.

How true that is. 

I think it might have been one of those satirical commercials done by Saturday Night Live a while back, I’m not sure, but what I do remember was their lampooning of banks using personal data for marketing purposes.  At one point in the faux commercial, which featured a young couple, the young man receives a series of SMS messages from their bank.  The messages are fairly innocuous at the start but become progressively more disconcerting.  The first text seems ordinary enough: “We hope you’re enjoying the new truck you purchased with one of our auto loans.”  When it’s followed shortly afterward by, “we’ve noticed that you made a large purchase at the grocery store just the other day… having a party?” the couple gets a bit concerned. By the last, they’re totally creeped out: “We have the loan you need when you’re ready to decorate that baby room. Congratulations.” The gag, of course, is that the couple doesn’t know they’re pregnant, yet their bank somehow does.

Granted, this is a bit of hyperbole, but it does point to the fact that monetizing consumer data can pretty quickly run afoul of the consumer’s desire for privacy. Consumers want the convenience of products and services being brought to their attention based on their “buyer journey” and purchasing habits, but they’re definitely conflicted about how much of their personal information is needed to make that happen. 

That’s challenge number one. The other is that Congress is not helping the matter. In the ABA Banking Journal blog, “How will increased privacy regulation affect bank marketing? author Karen Hoffman talks to the challenges that the industry faces in the area of privacy.  “Consumers complain,” Hoffman says, “that their personal privacy is not respected, but often freely share sensitive information when it suits them, especially in the interest of receiving more personalized products, services or marketing. Hence, financial marketers find themselves in a pointed Catch-22 in marketing: hoping to connect in a personal way with customers or prospects, but unable to overstep certain boundaries that would transgress emerging privacy regulations.”

The challenge for banks is twofold.  One, how do they walk the privacy tightrope, using just enough personal data to market products without frightening customers and two, how do they navigate a hodge-podge of regulations?  As Hoffman points out, “the big challenge is the emerging patchwork of state-by-state privacy regulations and enforcement. While many are similar in nature, each has its own definitions of personal data, rights under the law for consumers and operational impact. An institution that operates across 20 states may be looking at 20 different frameworks and bills applying to them and their accounts, some of which are potentially in a state of revision.” Also, while many state-by-state privacy regulations and enforcement are similar, each has its own definitions of personal data and rights under the law for consumers.

As banks continue to move their services online, the issue of privacy will continue to receive greater attention. How big an issue is it?  Opinions vary from “proceed with caution” to “don’t worry, consumers will give you whatever you want if you give them what they need.” While there seems to be differing opinions on the scope of the challenge, and with that a bit of uncertainty on how to proceed, one thing is for certain; your bank shouldn’t be the one to tell you that you’re expecting!

About Bank Marketing Center

Here at BankMarketingCenter.com, our goal is to help you with that vital, topical, and compelling communication with customers; messaging that will help you build trust, relationships, and with them, your brand.

To view our marketing creative, both print and digital, ranging from product and brand ads to in-branch brochures and signage, visit bankmarketingcenter.com.  Or, you can contact me directly by phone at 678-528-6688 or email at nreynolds@bankmarketingcenter.com.  As always, I would love to hear your thoughts on this subject.