Archive for June, 2012
In case you haven’t heard, Apple announced its upcoming mobile wallet service. It will be introduced through an app called Passbook with the release of its next iPhone. The app will allow users to store loyalty cards, event tickets, and coupons in the app. The company’s intentions are somewhat unclear, but experts seem to think this positions Apple to move into mobile payments mainly because it’s not a huge leap from storing loyalty cards to storing credit cards. And consumers already trust Apple – the company has 400 million credit cards on file through iTunes, so the transition could be relatively seamless.
Apple will enter an already crowded space. Google, of course, has been offering Google Wallet for a year now. The offering is limited by the fact that it works only with Sprint on a handful of phones, with one payment card – the Citi Mastercard – and can only be used where Mastercard’s PayPass system is used. Sprint has announced its intention to introduce its own mobile wallet, and it’s unclear how that will affect the mobile relationship. Isis has been in development for almost a year, and is a partnership between T-Mobile, Verizon, and AT&T. American Express cardholders will be able to use the Isis mobile wallet, along with Chase, Capital One and Barclay cardholders. The service is scheduled to begin testing this summer in Salt Lake City and Austin, TX.
And then there’s Facebook. It’s hard to imagine that the company would actually move into the mobile wallet space. However, the company does seem to want a piece of the action, although probably most likely in the form of processing payments, rather than creating mobile wallet products for consumers. It recently moved away from its virtual currency to real money – something that the experts think is an indication of the company’s intentions to move into the payment space. And in a survey – this one by Cisco – 30% of consumers surveyed said they might one day use Facebook for banking services if they were offered. In terms of specific types of banking products, 14% said they would use a Facebook prepaid account they could reload, 8% would consider using a Facebook checking account or debit card, and 5% would consider a savings account or online bill-payment service. Despite the Cisco survey, there’s no indication that the company plans to provide traditional banking services. The company has also obtained money transmitter licenses in 15 states which are required for companies that keep, retrieve or transfer money. Additionally, any eWallet service would require a money transmitter license. The general consensus is that the licenses are an indication that Facebook plans to create a wider payment system, but guesses on the specifics vary widely.
Despite a large number of surveys done on the subject, it’s somewhat unclear how consumers feel about mobile payments. Starbucks is certainly a success story that no other retailer has been able to match. The app launched in January, 2011 and by the beginning of December 2012 the company stated that there had been 26 million transactions using the app. According to a study by the Carlisle & Gallagher Consulting group, which surveyed 600 consumers, 48% were “interested” in mobile wallets. Of those, 53% said they would prefer an alternate provider over their primary bank. But according to a survey by IDC, of consumers who have a phone enabled with Near Field Communications, only 2% are expected to use them for purchases in 2012.
The technology landscape is certainly littered with product failures. Some because of bad marketing approaches, some had fatal design flaws, and some because consumers just weren’t ready. But sometimes these product failures pave the way for the future. Remember Apple’s Newton? It was a complete flop, but in retrospect provided valuable information to make the iPad the huge success that it is. When Apple announced the release of the iPad, many naysayers talked about the failed Newton. Many of today’s mobile wallet players most likely won’t be around in the future. But most of them will probably provide valuable information on how to construct and offer a mobile wallet to consumers. Despite less than enthusiastic consumer sentiment, the mobile wallet is destined to happen sooner rather than later.
While driving (just sitting really) in Chicago rush-hour traffic, I heard an ad on the radio that truly caught my attention and zapped my level of awareness back up from the drudgery of the view of the back of the enormous SUV in front of me. It was for a brand of lawn mower and the ad explicitly tells you that, “the most important thing is the engine.” It’s a refreshingly honest and direct concept that all but forces you to think about the product in a certain way. It occurred to me that the life insurance marketing I look at all day on Comperemedia is usually nowhere near that direct.
When you sell products that have multiple features, options, and capabilities, it’s easier to just explain everything in sequence and let the buyer or the seller decide what’s most important. With life insurance though, I think it’s way, way too easy to get lost in the weeds. Although to be fair, it’s because life insurers have planted an awful lot of weeds to get lost in. The products are often complicated and constructed to be more ideal in certain scenarios than others, so you get a lot of moving parts and options that muck up any efforts at a clear sales message. As a result, it’s difficult (or maybe just uncomfortable) to list just a single reason to buy, or identify one part of the insurance product that’s most important.
I scoured the Comperemedia database and only found a few examples from within the last five years where an insurer or marketing organization had been direct enough to say “the most important thing is,” and then tell me something short and specific about the product or gave me a blunt and simple reason for buying it. More general concepts such as, “the most important thing is to get the coverage,” and “apply today, it could be the most important thing you do all year,” were the most common ways to see that phrase being used.
In life insurance marketing you often see how family protection is the most important thing, which hits on motivation and the reason for buying the product, but not about the product itself. But if it’s that important, why not be more direct about it? I suppose there is the mindset with life insurance that the most important thing is the death benefit – always has, always will be – and that’s a given, so all the other aspects are secondary. I’m not sure I’d agree with that. If it were true, than you wouldn’t have all the cash value components, and living benefit riders as integral parts of the policies. Those additional facets are important, but which is most important?
Too often with life insurance marketing, all the parts are explained equally without giving weight to any in particular. No wonder the products seem so complicated sometimes. There’s little for the average consumer to latch on to drive the context for more in-depth explanations. It would be nice to see more life insurance marketing that gave blunt and realistic reasons for buying it, and highlighted some aspect in a clear, direct, and memorable way. With the lawnmower ad, you could make the argument that other parts are more important, after all, a mower can’t mow without a blade, but they chose one part and argued the point. Now all I need is a lawn.
How do banks need to position their mortgage products differently as we anticipate a shift back to a purchase environment from a refinance environment?
I think banks are taking the right approach with the relationship banking strategy. Offering preferred pricing, discounts, rewards, and benefits on other products – things like free checking, no monthly minimum balances, etc – are benefits that appeal to consumers. Banks should also stress the benefits and positive nature of the existing relationship, and how that will extend to the servicing of the loan.
You shared a number of different mails. Do you ask your panelists which type of mailer they are most likely to respond to? One with a chart with options vs. bullet point benefits?
We haven’t asked our panelists which format they would most likely to respond to. Most likely, a better way to track this is to test both formats because it would result in the true response, which can be different from an “intended” response.
When mortgage rates go up, how will it impact HELOC demand? I presume homeowners will rely on less cash-out refi and turn to HELOC – any insights or stats?
Most likely HELOC demand will go up. Two things would prompt this: 1) By then almost everyone who was able to refinance would have done so; and 2) the rates on HELOCs will be lower than on mortgages.
Are you seeing a trend that people are getting a HE line of credit instead of using their credit cards because the HE line of credit rate is a lot lower and has the tax benefits?
In general, if a consumer qualifies for a home equity product, they’ll use that over a credit card to fund large purchases that will be paid off over time. The big benefits are lower rates and tax benefits. The exceptions to that might be people who have the resources to use their credit card, but pay the balance off quickly, mainly because they want to earn rewards or points.
How frequently are you seeing home equity offers for educational loans? Have you seen this decline with the new disclosure regulations with Title X for student loans?
We often see home equity products promoted as a way to pay for “anything” including “home improvements, college tuition, buying a car, emergency use, and more.” I think this is because the loan is taken out by the parents, not the student, and it’s up to the parents how they wish to use the money.
I’ve been reading quite a bit about Harp 2.0 , are you seeing much activity in this space?
Yes, we are seeing quite a bit of activity around HARP. We see many offers that outline the specifics of the program. Some offers state, “You are eligible for HARP if you meet all of the following criteria” which is followed by a list of bullet points. Other offers state, “Concerned you can’t qualify?” and then specifically mention HARP, but don’t go into the qualification details.
A lot of the examples you’ve shown are from mid- to bigger banks, do you see community banks employing the same tactics?
Yes, we’re seeing a cross-sell and relationship banking strategy across the board. To some degree, smaller banks may be focusing more on acquisition, mainly because they don’t have the huge customer base that larger banks have. This forces them to focus on acquisition. But having said that, the smaller banks are still trying to cross-sell existing customers on a variety of products, including loans.
There was a direct mail loan example that had an incentive as part of the offer. Incentives are common in deposit products, but how are they being used with loans? Are they common?
Incentives are the norm for deposit products, but they’re not nearly as common on loan offers – roughly 10% of the loan offers have an incentive. Most commonly, the incentive is in the form of a rate discount or cash back at the loan signing or for bundled packages. BBVA Compass marketed mortgages with checking and credit card accounts, and offered a $500 credit. PNC offered a $50 cash incentive to customers who could turn in all paperwork within 3 days of submitting the loan application. Some lenders offered gift cards or even iPads.
What are banks doing to encourage automatic payments of loans?
Banks are offering rate reductions if the customer does automatic payments for the loan from a checking account at the bank. They’re also mailing offers that are only good if the customer selects automatic payment.