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Chris Zagorski Posts Tagged ‘banks’
PNC enjoys the success of “virtual” banking
What does Gen Y want? Well, where can I start… They operate differently than any other generation: they’re technologically savvy, used to getting what they want and getting it now, connected to friends and family through cell phones and social networking sites almost all the time.
To target this group with specific (and often fickle) needs, PNC introduced its Virtual Wallet account in mid-2008, followed by the Virtual Wallet Student Account a year later. The company reports that the account has been a success, attracting 30,000 new customers in 2008, 60% of which are new to PNC. In addition, these virtual accounts have higher balances and better retention than traditional accounts.
A way to win Gen Y customers
The product portfolio is actually three accounts in one, which allows customers to direct money into different buckets labeled spend, reserve and grow. This is then enhanced by a personal finance tool. The product was built based on research as to how young people compartmentalize money in their minds.
Changing the online banking experience
The account works differently from traditional online banking tools, mainly because focus groups indicated that Generation Y feels that most banking sites are “clunky.” Instead of transferring money the traditional way, customers can drag money from account to account on one screen. Instead of presenting information in a traditional ledger format, customers view things on a calendar. The displays estimate future cash flow based on when customers are paid, when they pay bills, and on their spending habits. Customers can also set various saving rules with a feature called “Savings Engine.” All in all, the product is uniquely designed to respond to exactly what and how Gen Y wants to bank.
Marketing support
The company uses direct mail, email and print to promote the Virtual Wallet. One email targets existing customers aged 18-25, stating, “What are you waiting for? Go for the upgrade!” In direct mail, the account is marketed as a “high-definition online view of your money where you can pay bills, plan for monthly expenses, and save for the future.” Print ads go into more detail about the account and the features that make it different from a traditional account.
Looking forward
PNC stated that the cost of the project was $15 million and it expects to break even in two years. The company was smart to also release Virtual Wallet Student, since it allows the student to move right into the young adult version of the account. This helps ensure that PNC retains customers as they move into different life stages and need more financial products. Mintel Comperemedia expects other innovative products, targeted to specific demographic segments, to launch in 2010.
More predictions for the banking industry in 2010
With the turn of the New Year and news about potential banking legislation, I’ve been thinking about how the banking industry will change this year. We just put out a press release with five of my predictions, but here are some more things I’ve been thinking about for banking in 2010:
Prepaid cards could be a good alternative to checking accounts
The prepaid industry claims that, for some lower-income consumers, prepaid cards can be cheaper than traditional bank accounts with overdraft protection. This will certainly be true if banks begin to institute monthly fees or fees for bill payments and other types of transactions that are currently free. In a sign that there is more interest in prepaid cards, MasterCard reported it is looking at ways to market prepaid cards to the affluent.
Banks will seek to create “financially literate” customers
Much has been said about how the ongoing economic situation was caused—in part—by a lack of consumer knowledge about financial matters. The “Great Recession” been a wake-up call for every generation. According to Mintel consumer surveys, each generation is reacting differently, but young Echo Boomers have a strong desire to learn more about financial matters. Wells Fargo is tapping into this with its Virtual Island on Facebook.
Mobile banking is here to stay
The success and ubiquity of smart phones is driving banks and investment firms to develop applications that allow mobile banking and payments. User demand will be the reason that mobile banking succeeds. With teenagers and young adults relying on their phones in ways never imagined, mobile banking will become an expected service for the younger generations. At the same time, banks must carefully consider how they’ll engage mobile banking customers to ensure a long-term relationship.
Banks will begin to figure out social networking
Banks have struggled with how to embrace social networking sites such as Twitter, Facebook and You Tube, but 2010 will see them finding new and better ways to get involved. Jwaala, for example, recently announced technology that allows customers to receive alerts through social networking sites rather than through email.
Overall however, 2010 won’t be about financial services companies setting up pages and groups on social networking sites. Instead, banks will start developing applications for use in social media and creating a presence that says something about their brand. They will begin to use social media to network with new groups of customers.
Card Issuers Adapt to New Fed Rule on Floor Rates
On January 12th, the Federal Reserve Board approved a final rule amending Regulation Z (Truth in Lending) to “protect consumers who use credit cards from a number of costly practices.” The majority of the final rule, implementing the CARD Act of 2009, becomes effective February 22, 2010.
One provision of the rule prohibits credit card issuers from increasing rates on new charges and existing balances. However, variable rate cards are excluded from this rule which means the APR on variable rate cards, such as those linked to the Prime rate, will be permitted to increase when the Prime rate increases.
Some of the details regarding this exception for variable rate cards have been known for sometime and, as a result, the majority of direct mail offers for new credit cards now promote variable go-to purchase APRs tied to the Prime rate.
The final rule has surprised a number of issuers by adding a requirement that variable rate APRs must be allowed to decrease as well as increase. This impacts those issuers promoting variable rate plans with a “floor” or minimum rate whereby an APR can fluctuate, based on Prime, but can’t be reduced any lower than a specified rate.
Only a handful of issuers utilize a floor rate pricing strategy. Some of the larger proponents of floor rate pricing in 2009 included U.S. Bank, via its Elan Financial Services unit, HSBC, GE, USAA and Wells Fargo/Wachovia.
Each of these issuers promote a variable go-to purchase APR that varies with the Prime rate. In each case, the minimum rate matches the promoted go-to APR. The most frequently mailed offer in 2009 was for HSBC’s Platinum MasterCard promoting a “Variable Customary APR” that matched the “Minimum Customary APR.”
Issuers with floor rate strategies are likely to have their CARD Act compliance plans in place ahead of the February 22nd deadline. They will now have to adapt those plans to accommodate the new rule. The most likely outcome is that the change will drive further increases to go-to purchase APRs as issuers look cover any risk associated with dropping the minimum rate.