2010 is the year for mobile! Person-to-person payments (P2P) are the next killer application for banks and credit unions! Can the hype get any louder? I’m always distrustful of the predicted “next killer applications”. I’ve yet to see one really pan out. Let’s take a walk down memory lane on previous killer apps:

Mobile banking: We saw the first incarnation of mobile banking back in 1998. Bank of America was one of the early leaders - offering mobile banking through a Palm PDA. Cool stuff. Only problem was consumers weren’t all that interested in another banking channel. And the technology was so new that separate development efforts were needed for each device. Fast-forward to 2002: the early leaders had shut down their mobile platforms due to lack of adoption. When Wells Fargo shut down it’s mobile platform in 2002, three years after launching, it had just 2,500 of it’s 2.5 million online bankers using mobile.

Aggregation: Aggregation took the market by storm when it debuted in 1999. The big banks led the march to market. By 2001 banks and credit unions of all sizes were in a rush to get aggregation launched, even though the early leaders had not achieved compelling consumer adoption and a business model was still elusive. By mid-2002 aggregation was used by just 1% of online households in the US. So not surprisingly, one-by-one, most firms stopped offering the service.

Person-to-person payments (P2P): Remember when Citibank’s c2it P2P service launched with much fanfare in 2000 offering a service for users to transfer funds to other members electronically? This “killer app” was touted as the new way to move money. And Citi figured it would be so hot that consumers would pay for P2P transactions. Turns out, they wouldn’t. In 2001 Citi dropped the fee and even then failed to meaningfully grow the user base. The service was shut down at the end of 2003.

Don’t get me wrong, I don’t begrudge a firm wanting to test and learn about new financial services, but let’s get real. In this economy with dwindling budgets and resources does your firm really have the where with all to do this without cutting costs somewhere else? What I can’t understand is why firms rush to follow the competition to offer new services without a second thought to the business case. Where’s the return on investment for mobile and P2P? I haven’t seen anyone prove it yet. Are consumers clamoring for either of these services? Bank of America touts they have 4 million mobile users, the largest base of mobile users we’ve seen reported. But let’s put that in perspective, the firm has 30 million active online users and they’ve been offering their latest mobile platform since 2007. It’s taken them three years, and a significant marketing effort, to get to a 13% adoption rate. I don’t classify that as a run-away success that competitors should be rushing to copy.

Instead I’d like to see firms, especially regional/community banks and credit unions, focus on maximizing the adoption of online banking, bill pay and eBills. Why? That’s where incremental bottom line benefits are to be found. Moving an offline customer online dramatically reduces attrition rates. Moving an online banker to bill pay, or up-selling a bill pay customer to eBills can have a dramatic effect on incremental bottom line benefits. In a recent online channel financial study I conducted for a large credit union it was astounding to see how much more profitable eBill viewers were compared to online bankers and bill payers. eBill viewers had higher retention rates, they owned more products and they carried higher balances.

So before you follow your competition off the cliff chasing the next killer app – take a moment to assess where you are on the basics: Do you have 50% of your checking accounts holders banking online? Do at least 40% of your online bankers pay bills online? Do at least 30% of your online bill payers also view bills online?

If you answered “no” to any of the questions above, you’ve got to focus on the basics to maximize your online adoption rates. That, and not some touted killer app, is what will help you optimize the bottom line benefits from the online channel.

Ok, so I ranted in my last POV about “killer apps” and the lemming effect that financial firms display when they buy the vendor hype and clamor to quickly launch an unproven new service.  But it’s time to turn the tables and talk about a new online service that deserves consideration for your 2010 priority list:  Online Financial Management (OFM). I believe that OFM represents the perfect storm for adoption where key elements come together at the same time to ensure success.

What is online financial management?  It’s a service that gives consumers and small business owners the ability to use the online channel to efficiently manage their money and achieve financial goals, all in one place.  Users of the service can:

Aggregate account information from, ideally from multiple financial providers, for a complete financial picture; and Actualize the information through automated budgeting, expense categorization and planning tools to make informed decisions about spending and saving.

Honestly, I think online financial management makes online banking seem obsolete.  When fully integrated into online banking it becomes the user’s financial hub for all money-related activities.  When I first started talking with vendors back in 2004, looking at their demos and hearing their visions for the service, I’ll admit it was intriguing.  But I wondered if adoption would materialize and if there was an ROI for the service.  So while at Forrester I did some research with consumers and found that across all generations and income levels there was a high level of interest in such a service.  The one proviso – users wanted all the benefits of these money management tools but it had to be simple to use and they did NOT want to invest any time inputting data.

Fast forward to 2010 and we’re in the early phase of adoption.  OFM is offered by online players such as Mint, Wesabe and Geezeo.  And there’s probably 300-400 banks and credit unions offering the service. Some big banks, like Wells Fargo and PNC have built their own services and smaller banks and credit unions offer OFM delivered through their online banking platform providers. My best estimate is that that there are about 10 million OFM users.  Financial firms, with BofA and Wells Fargo leading the pack, account for about 6 million users and the online players bring another 4 million users to the table.

So why do I believe that OFM represents the perfect storm?

Customers need this type of service: The tough economic climate created a need among consumers and small business owners to become more hands-on with their finances.  To do that, they need online tools like budgeting, expense categorization and goal setting.  OFM meets those needs. The technology is ready for prime-time: Vendors, to their credit, have developed easy-to-use solutions that require little to no time requirement from users. By using OFM, users can see exactly what they’ve spent and where they’ve spent it.  They are alerted if they’ve over-spent in a budget category.

OFM delivers incremental bottom line benefits:  When pitched on a new online service idea my first reaction tends to jump to looking for an ROI. What’s in it for the bank or credit union if they offer this service? And my other skeptical thought is always – haven’t we used up all the retention and relationship deepening benefits by offering online banking and bill pay?  Are there really more bottom line benefits to be had?  Well, I’m happy to report that OFM really can add incremental benefits to the bottom line through increased retention rates and product ownership.

I've just finished working with eight banks and credit unions offering OFM to determine the impact the service had on their bottom line.  The results were very promising.  Check out my new white-paper which is a case study on one of the credit unions I worked with. OFM users log-in to online banking twice as often as non-users.  In calculating the incremental annual product profit (net of attrition) attributable to OFM users we found that each OFM user returned an additional $40 to the bottom line each year.  That’s above and beyond the benefits derived from use of online banking and bill pay.

Remember that line from the movie A Field of Dreams – if you build it, they will come?  Well, this might have worked for Kevin Costner but it definitely hasn’t worked for eBills.  eBills have been around for almost a decade and adoption rates at bank and credit union sites are less than optimal. Ok, let’s cut to the chase.  For most FI’s their eBill adoption rates suck.

In recently looking through eBill adoption rates for ten bank/credit union clients I found that while online bill pay adoption was acceptable (35-45% of online bankers also paying bills online) I was dismayed to see that eBill adoption was extremely low.  The firm with the lowest eBill adoption rate had just 8% of their bill payers viewing bills online while the firm with the highest adoption rate was hovering right around 22%.  I tracked eBill adoption while at Forrester and found for my big bank clients it was hard for anyone to get to 30%+ on eBill adoption.

So what gives, do your customers just not want eBills?  I don’t think that’s the issue.  I think they don’t get it.  They don’t get what eBills are and why they would be good for them.  And that’s because most bank and credit union web sites do a horrible job of “selling” eBills.  Here’s what I see when I review web sites:

Search on the term “eBills” and you’ll find nothing.  And I mean absolutely nothing.  No relevant search terms are returned.

In contrast take a look at a biller direct site.  They know how to explain and sell the eBill concept.  And they take the time to not only explain the service but knock down any adoption barriers. Barriers like “I need the paper bill for record-keeping” or “I’m afraid I’ll forget to pay my bill if it doesn’t show up in the mail”.   Site content calms those fears by explaining how the eBill PDF can be printed or saved. Email alerts sent to remind customers when their bill is due.

eBill users represent some of the most profitable customers/members.  Online channel studies I've completed for my clients show that among online users it’s the eBill viewers that have the highest retention rate, the highest number of products owned and the highest balance levels.

Smart firms will assign resources to revamp Website content and demos to explain and sell eBills.  These firms will also up-sell eBills within online banking sessions and through email marketing campaigns.