Best Banking Reads of 2014

What a year it’s been for the banking industry! From threats from outside the industry by Apple and Wal-Mart, to questions on whether Colorado and Washington banks should work with legal marijuana businesses, to regulatory shenanigans at the New York Fed, 2014 has been memorable. As the holidays approach and I think back on the year that was, I thought I’d take a few minutes to share some of the banking-related stories I enjoyed in 2014.

Regulations

  • Banks given the go-ahead on working with marijuana businesses: Marijuana may be legal in some states, but that doesn’t mean banks are ready to work with marijuana businesses.
  • How to Punish a Bank: This is from National Public Radio’s Planet Money, so it’s more of a listen than a read, but delves into the problems of effectively punishing the big banks.
  • Bank of America Adds a Mortgage Settlement to Its Collection: Bloomberg’s Matt Levine (also cited in the NPR segment) provides the data on (at the time) Bank of America’s $68 billion in mortgage settlements, and asks how effective these penalties and fines are when they become business-as-usual.
  • Inside the Emerald City: Jack Milligan, editor of Bank Director, delved into the culture of the NY Fed following concerns that regulators got just a bit too cozy with the big banks they oversee.

NonBank Competition

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Meaningful CyberSafety Reform? Not Today.

VISAcard_MFPresident Obama today announced measures to ensure more secure transactions, which the White House has dubbed the BuySecure Initiative. The President endorsed chip and pin technology in a speech at the Consumer Financial Protection Bureau, saying that the UK saw a 70 percent reduction in credit card fraud after its adoption, and plans to apply the technology at the federal level to government credit cards and debit cards, and upgrade payment terminals at U.S. facilities to accept the new cards.

But the technology isn’t really new. Some form of chip technology has been used abroad for decades, while the U.S. continued to rely on magnetic stripe cards, which are easier to counterfeit. Chip cards store payment data within a microprocessor chip, and each transaction creates unique data which cannot be used for future transactions. They’re difficult to counterfeit, and definitely safer and more secure than what most Americans have been using–though as mobile payment options grow, you have to wonder how much longer chip and pin will be relevant.

So it looks like the Federal government is getting on board with more secure transactions. The White House also mentions that companies are joining this “national effort to improve transaction security” — stores like Target and Home Depot (both victims of data security breaches within the past year), as well as Wal-Mart and Walgreens. These retailers will roll out secure chip and pin card terminals in stores by January.

But these stores already committed to chip and pin, along with many major banks. After October 2015, the company that has the outdated magnetic stripe technology — the retailer or the bank — will be the one holding the bag if there’s a data breach. (I wrote about this in our 2nd quarter 2014 issue of Bank Director magazine, available here. Registration may be required.) Target stepped up its efforts after its infamous data breach late last year, and already planned a roughly $100 million investment in chip card readers at all its U.S. stores by the first quarter of 2015.

The White House also announced that “Citi, in partnership with FICO, will begin making credit scores available for free to its consumer card customers updated monthly online — joining the over 70 million Americans who already have access to this feature at other nationwide banks and card issuers.” (Emphasis my own). Again, no real news here: Credit scores are often included as checking account add-ons.

President Obama’s goal to protect Americans from identity and data theft is laudable. But I just don’t feel that much was accomplished today.

A Bank Director audience survey found that 91 percent of bank executives and directors are worried about competition from outsiders like Walmart, Google and PayPal. Bank Director Editor Jack Milligan addresses whether they really should be worried, or whether this is just a distraction from the bigger challenges plaguing the industry.

The Bank Spot

Walmart has announced that it is launching a money transfer service that will enable its customers to send funds from one store location to another at fees that are significantly less than many of its competitors. This is not the first time that Walmart has offered a money transfer capability – for the past 12 years it has provided a service with many more features through MoneyGram International – but now it is taking on more of a principal role.

Since 2011, Walmart has also teamed up with American Express to offer a prepaid card product called Bluebird that can be used in the same way as a debit card linked to a checking account, and provides its customers with a retail banking capability that does not come from a traditional bank. (American Express became a bank holding company during the financial crisis in 2008 so it could gain access…

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Walmart in the Mortgage Race?

pinewoodcarsI blogged here not too long ago about Walmart’s Bluebird. The response from one banker when I shared that post within a LinkedIn group? Bankers don’t need to worry about Walmart. It isn’t competition for us.

With the results of a recent survey by Carlisle & Gallagher Consulting Group showing that ⅓ of Americans would be willing to go to Walmart for a home mortgage, I wonder. You know there’s a team at Walmart right now evaluating how they could offer mortgages, and what partnerships to build to make it happen. Walmart does offer small business loans via Sam’s Club stores, so a Walmart mortgage isn’t that far-fetched.

But it’s not just Walmart. 80% of those surveyed would consider a mortgage with a non-bank, period. Why the dissatisfaction? What’s frustrating consumers?

Three of the big reasons given come down to one very simple thing: COMMUNICATION.

56% of consumers believe the mortgage process is too slow. Can your bank responsibly speed things up for the customer? If not – are loan officers communicating with the customer so they know the bank’s on top of things?

32% find it difficult to communicate with their lender, and – I feel this is related – 31% are unable to track the status of their mortgage application. Communication difficulties with a lender should, I feel, be rare – yet a third of those surveyed cited just that frustration.

And – ouch! – 26% don’t trust their lender’s advice.

As stated in Carlisle & Gallagher’s press release: “Consumer attitude is driven by three things, price, service and trust,” said Doug Hautop, Senior Manager and Lending Practice lead for CG.

Do I think Walmart as a lender is anymore trustworthy – or prone to be a better communicator – than a bank? No. But Walmart or no, if trust continues to diminishes in banking, it looks like 80% of consumers don’t feel a need to rely on banks.

Banks: Mobile Apps vs. Social Media

Video Banking: Folly or Foresight?

Bluebird of (Un)Happiness?

So, the big news last week: after years of attempts, Walmart finally got into the banking business.

For those of you catching up, big-box retailer Walmart has teamed with American Express to offer what essentially boils down to a really fancy prepaid debit card.

Daniel Eckert, VP of Financial Services for Walmart, states that customers are simply tired of fees, or at least the lack of transparency surrounding them, claiming that “Bluebird solves this problem and we believe it’s the best product on the market to help customers affordably manage their everyday finances.”

Are bankers concerned? They should be, since Walmart has a long track record of putting businesses out of business, and particularly if they want to reach that underbanked population that relies on products liked prepaid debit cards. And this isn’t your standard prepaid card, oh no. It’s gone mobile y’all.

So what does Bluebird offer that bankers can learn from?

Bluebird is easy for consumers to understand.
No minimum balance. No fees. No overdrafts – once you’ve spent what’s on the card, it’s gone. American Express plans to generate revenue from the card via processing fees.

Accessibility.
Customers can use the card wherever American Express is accepted, as well as at a network of 22,000 ATMs. It also includes a digital wallet with P2P payments via AMEX’s Serve platform. You can also use it for electronic bill payment.

Want to pass some money to the kids? Busy moms can control sub accounts for family members. Prepaid cards are growing in use among the young. Not only can parents use them to control a child’s spending, but the cards (particularly one that you can integrate with your phone, like Bluebird) appeal to tech-savvy youngsters.

Money can be added several ways. Aside from the expected direct deposit method, Bluebird’s mobile app offers RDC – or you can take cash to your local Walmart.

It’s more than just banking.
Everything that’s standard with an American Express card – fraud protection, roadside assistance, and more – is available with Bluebird.

Of course, Bluebird isn’t FDIC insured. But for the underbanked, that probably won’t matter.


Insights into the Prepaid Card Market from The Financial Brand.

Gauging consumer sentiment via social media – a chance for bank marketers to learn more about their customer.

Should the big banks be broken up?

Everyone else thinks housing is turning around – but not Citigroup.

Reaching the Unbanked

I’ve noticed a growing trend among bankers to capture the unbanked; just the other night Regions aired an ad for their new “Regions Now” banking program:

So who are the unbanked (and don’t forget the underbanked)? Per a 2009 FDIC survey, they’re the approximately 9 million households – 17 million adults – that just don’t bank in the traditional sense. According to the website Unbanked Trends, that number might be even higher – 106 million in the United States, a number which includes the underbanked.  Instead of going to a bank, this segment of the population utilizes check cashing services, prepaid credit cards, and the like. So why aren’t they with a bank? Per the article “Check Cashing 101” at Unbanked Trends (bold is my emphasis):

  1. Bad banking or credit history means banks won’t accept their account
  2. Don’t have social security number or other documentation required
  3. Dislike of undisclosed bank fees – whereas check cashers prominently post fees so consumers know what they are paying in advance
  4. Don’t trust banks
  5. Not enough money to open / maintain a bank account
  6. Fees for check cashing may work out to be cheaper than bank account when you factor in all the fees those accounts can trigger
  7. One stop service – many of these establishments offer check cashing, bill pay, prepaid cards, money orders, etc.  So consumers can do all their financial services at one location.
  8. Language barriers – non native English speakers often prefer to transact in their own language. While some banks are specifically targeting Hispanics or other demographics, it’s not always available.
  9. Can’t get to a bank during banking hours.  Check cashing establishments and grocery stores are often open extended hours and on weekends
  10. Immediate access to cash – no holds or other mysterious rules
  11. Can’t overspend/overdraw cash in a wallet

The reality for the unbanked, per a recent Forbes article, is that, due to their lack of any banking relationship, these potential clients are less likely to have savings, will have little or no credit, and are more exposed to theft and fraud. They’ll also spend around $1200 annually on fees from ‘Alternative Financial Services’. Makes Bank of America’s $5 checking fee look like a drop in the bucket, huh?

Obviously, bankers are working to reach these millions of Americans, and doing so in some interesting ways. Alabama-based Regions is doing so through their Regions Now program:

The program, called Now Banking, gives customers the ability to cash any check, perform money transfers and reload prepaid debit cards.

Customers also can secure short-term loans, more commonly called payday loans, directly through Regions in a program called Ready Advance.

“We found that our customers had to go to an alternative financial service provider to get those services, and that was an eye opener for us,” said John Owen, senior executive vice president and head of consumer services for Regions. “We are trying to reach a broader audience.”

BBVA Compass Bank, also based in the South, also offers a pre-paid Visa called SafeSpend to reach the unbanked. And watch out bankers – Walmart is a big recipient of this business, allowing consumers to cash checks, pay bills, and transfer money – and they’re in the prepaid debit business with their MoneyCard.

Another way for banks to reach the unbanked? Work with communities to reach – and educate – this population. That’s what BankOn does. BankOn works with financial institutions, local governments, and community organizations to provide free or low-cost bank accounts as well as access to financial education.

PNC Bank offers a second chance checking program, Foundations Checking. From the Bradenton Herald:

“Our goal is to help everybody be bankable,” said Annie Spain, branch manager at the Baltimore PNC branch where Pagan-Franco now banks.

PNC officials say the program is open to people who lack a strong credit history or who have a negative report on ChexSystems – as long as it doesn’t involve fraud.

Consumers must take a free money management class that teaches budgeting, saving, reducing debt, how to handle a checking account and how to avoid overdrafts. The classes are run by bank employees or staffers at nonprofits who have been trained by PNC.

After completing the class, participants get a provisional checking account for 90 days that costs $5 a month. They aren’t allowed to withdraw more than $100 a day from an ATM, and debit transactions can’t exceed $100 a day.

If consumers manage the account without overdrawing for three months, they graduate to a free regular checking account. Sixty percent of participants graduate, Spain said. Those who don’t get another 90-day trial, she said.

Big bad bankers offering a step up to those down on their luck – and gaining customers in the process? Sounds like a winning combination.