What do Mint, Wesabe, Yodlee, Buxfer and Geezeo have in common? If you answered “funny names” and “the biggest threat to my online banking channel”, you got it right. For those who aren’t familiar, theses are all Web 2.0, direct to consumer, personal financial management tools that are quickly catching on and growing rapidly. Think “free online version of Quicken and Microsoft Money.” You may be thinking, “Why do I care? It’s the folks at Intuit and Microsoft that should be worried”. Well, truth be told, they are. However these sites do more than just help a customer move their budgeting tools to the online environment, they steal valuable visits to your website and actively cross-sell your competitors products to your customer.
All five of the aforementioned sites offer varying degrees of features and functions to help consumers manage their finances. For the purposes of this article, I will focus on Mint. With over 1 million current users and 3,000 new users each day, they are the current leader in this space.
How it works
Customers go to Mint.com and create a user account. Accounts are fairly anonymous, requiring only an email, zip code and a password. Once you have an account setup, you choose from a list of financial institutions that you have accounts with. For each account, the customer supplies the login credentials they use to log in to that account. Within minutes, Mint logs in to each of the institution’s website, acting as a proxy for the customer, and downloads all the account information into a Mint database. The customer now has a total picture of their finances including checking, savings, investments, credit cards, etc. Now a customer has the ability to view analytics and spending reports, create and track budget categories and the like. A customer also has the ability to set up custom notifications such as low balance thresholds and budget spending warnings. You can even download the mobile version to your smart-phone and partake in all the features wherever and whenever you want.
Why is it bad for my institution?
There are several reasons why this is bad news for financial institutions. Let’s start at a high-level and work our way down.
First, the online channel is far too important to relinquish to a 3rd party. Online Banking is fast becoming the primary way customers interact with their financial institutions. With ATM’s on every corner, direct deposit, eStatements, electronic bill-pay, mobile payments, online loan applications and the like, many institutions are eliminating the need for a customer to ever visit a branch. This makes the online channel the de facto means for communicating with your customer base. That’s not such a bad thing if you consider that research has shown active online users are more profitable and have half the attrition rate of their online-adverse counterparts. With online banking projected to grow by 55% over the next 2 years, you can see why this channel is incredibly important to your institution. Every hit on your website is an opportunity for you to communicate with your customer, cross-sell your products and ultimately develop a more “sticky” relationship with them. What sites like Mint do is hijack those visits from your site. All the work your marketing team put in to the new product promotions and campaigns isn’t worth much if your own customers never even see them.
Second, how important is fee revenue to your institution? If you are like most, with loan defaults on the rise and interest rate spreads being thin, fees are very important to your bottom line. Well, Mint doesn’t really care, they are “fee adverse”. Since they offer their service for free, they have no problem pointing out to your customers all the fees you charge them. In fact, every time Mint recognizes a fee on the transactions they download, your customers get an e-mail stating “XXXX Bank just charged you a $XXX fee, We Hate Those!”. They point out to your customers just how much you charge them in fees and suggest to them that they could be doing better. In fact, they’ll even point them in the right direction.
Third, how would you like your customer’s financial data to be used by your competitors to take their business from you? Mint takes care of that as well. Like most services that are offered for free, there has to be a way to monetize their user base. Mint makes their money by advertising financial products to their customer base. However, unlike generic web banner ads, they have all the relevant information they need on your customers in order to present highly targeted marketing. For example, Mint knows you charge a $5 fee on your customer’s account, Mint can tell them of another financial institution where they can avoid that fee. What if you charge 12% to your customer for a credit card? Mint tells them where they can get a card for 8% and can help them quantify what the savings would be. The same goes for mortgages, auto loans, brokerage services…you get the picture. Oh and did I mention that a customer can also use Mint to access their credit scores? Mint knows where your customer’s spend their money, how much they are paying for financial services and their credit rating. This is valuable information to have and Mint’s advertising partners know it. These include institutions like Capital One, HSBC, Bank of America, etc.
What can I do about it?
As institutions have become aware of services like Mint, they have started taking steps to counter the assault. According to some message boards and blogs, Chase and Wachovia have begun charging customers a fee of $8-10 for customers that access their online banking via Mint. This is the same fee they charge for a customer to use Quicken or Money to download data. Others, like Wells Fargo, have started blocking access to customer accounts online based on “security concerns”. When customers try to log in to the Wells Fargo website directly from their home computer, they are notified that access has been blocked for security reasons. Since Wells uses IP address as part of their Multi-factor Authentication solution, the security alarms trip when they see the differing IP address locations for your home computer compared to Mint’s IP’s. While these are a few examples, I am amazed at how many institutions, especially community banks and credit unions, don’t even know about Mint much less research the amount of traffic that is coming from their servers. If you are one of those, I suggest asking your eBanking group to look into it.
The obvious negative to stonewalling services like Mint is that if your customers genuinely love the services, it may be enough for them to take their accounts to a “Mint-friendly” institution. The primary target market for Mint, which are the internet savvy Gen X and Y customers, probably won’t like you trying to stymie their efforts to better manage their finances, especially if you don’t offer any comparable services.
Ultimately, the best defense is a good offense. You need to recognize the demand for personal financial management solutions from your customer base. Most online banking solutions do not offer the tools these services provide, not to mention they look like something developed in the 90’s. Ask yourself, How well does my institution’s online banking solution compare to the Web 2.0 user experience that Gen X and Y have become accustomed to? If you are not placing a heavy emphasis on your online channel, you need to recognize it as the “battleground for your customers” that it is.
