11 Big Ideas for 2011

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The New Frugality
Americans are becoming savers again, and experts say this will have huge ramifications for the banking industry.

M&A Makes a Comeback
Bank merger and acquisition activity is likely to look a lot different than it did in 2010, both in terms of the number and the kind of deals announced.

Keep It Simple
The banking industry just might get its next lesson in what customers really want from two startups that are not even banks.

Stop Extending and Pretending
Neither the real estate market, nor the economy as a whole, can recover until banks get serious about moving troubled commercial real estate loans off their books.

Ignore the Unbanked at Your Peril
Banks have always been intrigued by the potential of the unbanked. For years, many banks have been offering special accounts to low-income consumers hoping that they will become savers and eventually need a mortgage or car loan.

Compensation Gets an Overhaul
Among those who pay close attention to employee compensation at banks, there is little discrepancy over what the biggest issue of 2011 will be.

P2P Morphs into B2B
Vendors initially pitched person-to-person payments as a way for consumers to split a dinner check, pay the babysitter and send money for Mom's birthday. But few felt the need to try out new technology to do those things.

Make Banking More Fun
By tapping into primal human desires — to be social, to be competitive and to achieve status — banks can create experiences that are simply more fun.

Bid for Wallet Share Drives Core Upgrades
A core processing system is the heart of a bank's operations. But when an institution undertakes a modernization of that core platform today, it's like a brain transplant.Next Step in Mobile: Turbocharging the App
Amazon's popular iPhone app truly impresses NetBanker editor Jim Bruene. Now Bruene and financial tech futurists like him are wondering: Why not include features like this in a bank app?

Build Loyalty Through Merchant Rewards
First National Bank of Omaha never bothered with a rewards program for its debit card until just this past fall.

1. The New Frugality

Spendthrift Americans generally save more when a recession hits, then go back to buying as usual.But not this time, a growing number of economists and trend watchers agree.

Look for the personal savings rate to continue its upward trend, settling at around 10 percent of disposable income within the next seven years, says John Garvey, the U.S. financial services advisory leader for PricewaterhouseCoopers.

The ripple effects of this behavior change will be so transformational for the financial services industry that it's difficult to predict the results, Garvey says. But he anticipates lending volume will not be returning to the levels seen before the financial crisis. Instead, banks must prepare to derive a greater share of their revenue from savings and investment products.

The personal savings rate averaged 5.8 percent in the third quarter, more than double what it was in early 2008, according to the Commerce Department.

Consumer surveys suggest the savings trend will continue. In a report titled, "How the Great Recession Has Changed Life in America," the Pew Research Center says 48 percent of Americans plan to save more after the economy recovers, 31 percent plan to spend less, and 30 percent intend to decrease their borrowing.

Many in the banking industry are skeptical; before the financial crisis there had been a steady slide in the savings rate for well over a decade. Surely a stronger economy will give consumers and businesses the confidence to spend again, and loan demand will rebound, their thinking goes.

"They're wrong," Garvey says. "Many of them are thinking that way because that's what they're hoping. We're advising them that they need to structure their businesses in a way that does not anticipate such a rebound."

Each percentage point rise in the savings rate removes $100 billion of consumption from the economy, Pricewaterhouse calculates. Such a dramatic spending decline will continue to make conditions difficult for retailers, real estate developers and other businesses over the next three to five years, the firm says. Unemployment will remain elevated as a result.

The lower lending revenue will require "massive changes" from banks, Garvey says. They'll need to do acquisitions just to keep loan volume steady. Outsourcing for other financial institutions will be another common tactic to regain scale in key areas.

Wealth management will be critical. "You have a lot of banks now who haven't really made a lot of money in the wealth area hurriedly building up their wealth management capabilities," Garvey says.

Banks won't necessarily continue to be awash in deposits. Much of the savings are likely to be put into investments, as people fret about retirement. Garvey says disappearing pensions will be a key driver behind the shift from spending to saving in coming years. "That's going to be the biggest shock that people have experienced in this country in decades," he says.

Mark Hoppe, the president and chief executive of Taylor Capital Group in Rosemont, Ill., says a higher savings rate — if it lasts — would benefit banks as the economy recovers. "That's your inventory to loan out."

But he's not convinced it will last. "I think a lot of this is just nervousness with the economy."

Richard Hartnack, the vice chairman in charge of consumer banking for U.S. Bancorp, expects the emphasis on savings to stay strong, but also foresees people spending again, just more wisely. "If you have a recession this deep, that affects this many people this much, it probably changes their financial psyche forever. So it wouldn't surprise us a bit to see that savings rates would stay higher for a very long period of time."

But people will still need homes and cars, he says. "As confidence comes back, some of the savings will be redeployed into other investments besides just savings in a bank. I think some of that money will be deployed into the things that people buy, whether it's a second home, or a new larger home, or new things for their home, or new cars."

Bonnie McGeer Back to the Top

2. M&A Makes a Comeback

Bank merger and acquisition activity is likely to look a lot different than it did in 2010, both in terms of the number and the kind of deals announced.Whereas many deals in the past two years have gone through only with Federal Deposit Insurance Corp. guarantees, Joseph V. Rizzi, a senior investment strategist at the New York private-equity firm CapGen Financial Group, says bank failures of any significant size are going to be less common. "FDIC-assisted deals are last year's news. They've been pretty well picked over."

By the second half of 2011, he predicts "quite a bit" of merger activity between small and medium-sized banks, particularly as the small ones are snapped up by their larger counterparts looking to boost growth and expand their footprints. He says many of the sellers are likely to be willing targets, because of increased regulatory requirements squeezing profits and making it difficult to raise capital.

James Gardner, chairman of Commerce Street Capital, a Dallas investment bank, says that he anticipates bank M&A activity "heating up materially" in the coming year.

"What we are seeing is banks that need capital finally giving up and saying, 'OK, let's find a partner' and banks that don't need capital and are tired of the regulatory problem saying 'OK, it is time for us to get out of this business,'" he says.

Attorneys who represent buyers in M&A transactions confirm that they are seeing significant interest in smaller banks that may be struggling in the current economic and regulatory climate. Marc Weingarten, a partner with Schulte Roth & Zabel in New York, says that hedge funds as well as banks are looking at the market, though "regulatory approval is always problematic."

But selling out of frustration is not an attractive option for publicly held institutions. There is a strong possibility, Weingarten warns, that banks putting themselves on the market will have shareholders watching the deal terms very closely-and protesting when they're displeased. "The resurgence of M&A generally will result in a resurgence of activist investors."

Still, few foresee significant M&A activity among the largest banks in the country. "This is going to be concentrated on banks under a billion dollars of assets," says Gardner. "Those are the banks that have the hardest time raising capital, and are most affected by the lack of economies of scale."

Rob Garver Back to the Top

3. Keep it Simple

The banking industry just might get its next lesson in what customers really want from two startups that are not even banks.BankSimple and PerkStreet Financial are online ventures working with banks to provide a streamlined menu of products that have as few fees as possible. Both contend they are responding to a "back-to-basics" craving by consumers.

"Most people consider their bank to be like a utility company and they would like the service to reflect the simplicity of what they are really getting," says Joshua Reich, CEO of Simple Finance Technology Corp. in Brooklyn, N.Y., which plans to launch its online banking portal, BankSimple, next year. "Banks don't seem to get that."

Through bank partners that are yet to be announced, BankSimple will initially offer checking with debit cards, savings accounts and a credit card. It will have no branches, but customers will be able to go to surcharge-fee automated teller machines under an agreement with ATM networks.

The most distinguishing feature will be hardly any fees-not only no overdraft fees, but also no insufficient funds fees since people won't have the ability to overdraw. "It really comes down to attitude. We don't have any hidden fees, so you don't have to check your balance multiple times a day," Reich says. "We take care of messaging your balance to you."

The startup will offer automated money management between customers' checking and savings accounts, and between their credit card and savings accounts. Other features include free online bill payment and the ability to deposit checks with smartphones.

PerkStreet offers rewards on debit card purchases, and by the first quarter, will do the same on savings account deposits. In June, the Boston firm doubled its rebate on debit card purchases, to 2 percent, on accounts with a minimum balance of $5,000. Those with smaller balances get a 1 percent rebate, which comes in the form of gift cards from Visa or retailers.

"We are obsessed with finding more ways to put more cash back in people's pockets," says Dan O'Malley, PerkStreet's CEO, who previously co-founded the payments division of Capital One Corp. PerkStreet has venture capital backing from Highland Capital Partners, and its products are offered through Bancorp Bank, a unit of the $2.7 billion-asset Bancorp Inc. in Wilmington, Del.

Industry experts say traditional banks should pay attention to these startups' main thesis that less can often be more. "People want to bank with an institution who can meet the bulk of their needs without confusing them," says Greg Phalin, a partner with McKinsey & Co., and co-author of the New York firm's report, "Profiting Through Simplification."

Nick Malic, McKinsey's senior partner and director of the consumer and small-business banking practice, advises banks to step back and ask whether a particular product or process truly adds value, or is just another legacy item that was assimilated after an acquisition. Winnowing 800 numbers would be a good start, Malic says.

Aaron Fine, a partner with Oliver Wyman Group, says banks might simplify rewards programs by using third parties like PerkStreet does, to make them cost-effective as fee revenue is reduced. Overall he says banks can take away this lesson from the startups: As branches continue to diminish in importance, "helping customers manage all of their electronic payments so they can avoid paying fees will become the new convenience."

Katie Kuehner-Hebert Back to the Top

4. Stop Extending and Pretending

Neither the real estate market, nor the economy as a whole, can recover until banks get serious about moving troubled commercial real estate loans off their books, says Arthur Segel, a former real estate investor who teaches at Harvard University."We need to get transactions going and start pricing these portfolios to market, because banks are afraid of their own shadow right now," he says. "They don't know what capital they have, because they're setting aside such big reserves — which is holding them back from making loans and refinancing."

Some banks have ceased the practice known informally as "delay and pray," or "extend and pretend," selling off their CRE loans at a discount. The practice of holding on and hoping for better times is still pervasive, however.

Of the roughly $350 billion in commercial mortgages coming due in 2011, about 60 percent are being extended beyond their initial maturities, according to Matthew Anderson of Foresight Analytics, an Oakland, Calif., research firm.

But better times often never arrive. Studies done by Chuck Bowsher for the Government Accounting Office concluded that bank forbearance during the savings and loan crisis actually ended up costing the industry, and taxpayers, more than if there had been a quick workout. "Anytime they tried to pretend and extend, it generally got worse," he says. "You pretend you're not in bad shape with your balance sheet, and therefore you don't have to do anything. But the truth of the matter is you extend the problem into the future."

It's true that a spate of asset writedowns would wipe out capital and jeopardize the future of dozens, if not hundreds, of community banks. Also, many community bankers don't feel they're pretending at all — instead, they believe they're under heavy regulatory pressure to write down loans where the borrower is still making payments, albeit at below-market terms.

Yet any belief that a property-price rebound is just around the corner is misplaced, Segal says. "I'm assuming there's no quick fix in this world economy and this country's economy, and the sooner you can get clearing prices and transactions going in the real estate arena, the faster these banks will be able to understand the value of their capital and make loans again."

But his idea for today's shakeout is a kinder, gentler one: Segal believes banks with more than 20 percent of their assets in real estate should sell off the loans over and above that 20 percent in chunks for up to five years. A phased sell-off will avoid the problems that would occur if banks had to dispose of the properties in one fell swoop. "That could bring things down to ridiculous prices, because there'd be a huge supply of properties and probably not enough capital."

And as an incentive, he believes mark-to-market accounting for those deals should be deferred for 12 to 18 months after each transaction.

David Milstead Back to the Top

5. Ignore the Unbanked at Your Peril

Banks have always been intrigued by the potential of the unbanked. For years, many banks have been offering special accounts to low-income consumers hoping that they will become savers and eventually need a mortgage or car loan.These days, though, it might be less a matter of wanting these customers than needing them. With a weak economy stifling loan demand and sweeping regulatory changes expected to tamp down fee income, banks are eager to attract new customers from all income groups — and the millions of unbanked and underbanked consumers represent a huge untapped market, says Tony Goland, a director at McKinsey & Co.

The FDIC estimates that nearly 8 percent of U.S. households do not have bank accounts; another 18 percent have accounts, but often don't qualify for bank loans and instead turn to pawn shops or payday lenders for credit.

Goland says that if banks don't structure products and services to appeal to these folks, others surely will. Wal-Mart already has hundreds of financial centers in its stores — offering such services as check cashing, wire transfers and bill pay — and plans to add more, while rival Sears is opening similar centers in its Kmart stores. And the recent success of prepaid card issuer Green Dot Corp. — it raised $164 million in a public offering in July and third-quarter revenue increased 36 percent year over year — signals that the demand for reloadable debit cards is strong and growing.

"There is a huge unserved need here, and [nonbanks] are going after it," Goland says.

Of course, many consumers are unbanked or underbanked by choice — they simply don't like or trust banks, or feel intimidated by them. Rather than try to change that mindset, Jennifer Tescher, the director of the Center for Financial Services Innovation in Chicago, suggests that banks look into offering more of their products through grocery stores and other retailers.

"Consumers can buy a prepaid debit card pretty much anywhere, and those products are issued by banks," Tescher says. "So why can't banks sell a checking account from the j-hook, or a secured credit card? They absolutely could. They just have to be willing to give up a little control and meet the consumers where they already are."

For banks content to stay behind the scenes there's also opportunity to reach these consumers through the Internet. For example, First Bank of Delaware offers online installment loans of $250 to $2,500 not directly, but in partnership with Think Finance, a Fort Worth firm that markets alternative credit products to underbanked consumers.

Whatever approach banks take, Goland says there are benefits — both tangible and intangible — in targeting consumers outside the banking mainstream. "These people really need products, and if you can deliver real value, this can be a significant and profitable customer segment," Goland says. "There could also be some reputational benefit from figuring out how to serve these people."

Alan Kline Back to the Top

6. Compensation Gets an Overhaul

Among those who pay close attention to employee compensation at banks, there is little discrepancy over what the biggest issue of 2011 will be.Throughout the coming year, executives and board members will be focused on the elusive goals of alignment and risk mitigation. The object will be to simultaneously assure that incentive programs are rewarding the right kind of behavior, while creating pay structures, such as clawbacks and deferred compensation, that give banks some recourse when short-term gain causes long-term pain.

The move is partly a reaction to the havoc that poor incentives in areas such as mortgage origination caused to the financial services market as a whole over the past several years, and partly a regulatory mandate stemming from interagency compensation guidelines published last summer.

A recent paper published by McKinsey & Co. suggested that in the mortgage lending sector in particular, "management incentives across sales, operations, and capital markets should be reevaluated" with an eye to improving return on equity. Such a move, the authors say, would mean more than just a stated change in compensation policy, requiring a retooling of entire reporting and management information systems.

Unfortunately, those looking for clear instructions on what an improved compensation system might look like, particularly to the eye of a bank regulator, won't be finding them soon.

In a recent meeting with regional directors of the major federal bank regulators, bankers looking for guidance simply didn't get it, says Kelly W. Earls, a principal with Bank Compensation Consulting in Plano, Tex.

"We were hoping we would get some further instruction," says Earls. "But when someone asked them the question 'What are you going to require?' They just had a blank stare on their faces. In their mind they have bigger fish to fry."

Other compensation professionals see regulators on a similarly slow pace.

"This is going to be evolutionary," says Susan O'Donnell, managing director and head of the national banking industry team for compensation consultants Pearl Meyer & Partners. "Regulators are still working this out, and a lot of them are still learning themselves."

The interagency guidance on "Sound Incentive Compensation Policies" mandates regular review of a bank's compensation structure as it affects any employee who has the ability to expose the institution to material risk.

The rules will have at least some impact on every bank in the country, says O'Donnell. "Everybody has to go through the review, and everybody is going to have to make some tweaks and changes, but the degree of them is certainly different for Morgan Stanley than it is for the community bank down the street."

But while it may take some time for regulators to clarify how the new guidance will apply on a bank-by-bank basis, Earls says that one thing is clear: There will be more of an onus on bank directors as a whole, not just compensation committee members, to understand their banks' compensation strategies.

"Regulators are going to want the board to have a good handle on what is being incented and what risks are being taken," he said. "If the board members cannot articulate that, it is going to be considered the first sign of a problem."

Rob Garver Back to the Top

7. P2P Morphs into B2B

Vendors initially pitched person-to-person payments as a way for consumers to split a dinner check, pay the babysitter and send money for Mom's birthday. But few felt the need to try out new technology to do those things. So the wizardry — just another solution in search of a problem — mostly languished.Enter small businesses. Lately many have been using these services to speed up payments, and the trend is expected to accelerate in the coming year.

Vendors, eager to meet this unexpected demand, are working to add features specifically for merchants. The changes would simplify chores like invoicing customers and paying suppliers.

"The true consumer-to-consumer volume of this has been so low," says Ron Shevlin, a senior analyst with the Aite Group research firm in Boston. "The opportunity is still more on the business side than it is on the consumer side."

Banks can capitalize by rolling out to their own small- business customers the option to make and receive electronic payments — through the likes of ZashPay or Popmoney.

ZashPay, a person-to-person service that Fiserv began offering to consumers and banks this past summer, intends to release new features by the middle of next year. The plan is to enable consumers to pay small merchants electronically through their banks' online billing system, a method that traditionally has been available only to large billers. The merchants also will be able to send invoices to consumers.

About 500 banks and credit unions have signed up to offer ZashPay to their online banking customers, says Erich Litch, Fiserv's general manager of consumer services.

The advantages for small businesses is being able to convert cash and check payments they receive from their customers and vendors to electronic payments, which typically get deposited faster, he says. This improves their cashflow.

"Every month we send out 9 million paper checks to small businesses," Litch says. "You get a sense for how many payments we can impact through an initiative like this."

CashEdge expects to add similar features for its Popmoney service in January. Catherine Palmieri, the global head of product and marketing at CashEdge, says its new features also will allow merchants to offer discounts for early payments, impose penalties for late ones and create customized invoices with their logos.

"Because it's completely integrated within your bank and your bank accounts, when you receive a payment it directly goes into your bank account," Palmieri says. "There is no uploading or downloading of data. The software is not sitting outside of your bank account."

Small businesses represent a big opportunity for such services, because of their heavy online banking activity, she says. Existing invoicing and payments systems traditionally have been geared toward large companies. "There are 30 million small businesses in the U.S. today and over 60 percent of them bank online," Palmieri says. "They are interested in electronic services. They are willing to subscribe to fee-based services. Of course it is a revenue opportunity for banks."

More than 175 banks are set up to initiate payments with Popmoney, Palmieri says. But a consumer need not bank at a financial institution that offers Popmoney to use the service because there's a separate website they can use.

CashEdge is looking to add other business services to its P2P system as well, including the ability to do batch invoicing, credit memos, refunds and better receivables tracking. "There are an awful lot of things that are on the roadmap," Palmieri says.

Andrew Johnson Back to the Top

8. Make Banking More Fun

Growlers Pub in St. Louis sells more than 130 varieties of beer from around the world and Barry Kirk goes there with friends every week to try a different one.Kirk, the director of strategic consulting for Maritz Loyalty Marketing, even carries a card in his wallet that the pub uses to check off each type of beer as he tries it.

"They don't want to get you to consume large quantities of beer. What they're trying to get you to do is become a beer connoisseur," Kirk says. "And they've created an experience that is absolutely completely gamified, although nobody in it would ever point to it and say it's a game."

Kirk tells marketers in the financial services industry they can use techniques common to game design to better engage customers too. By tapping into primal human desires — to be social, to be competitive and to achieve status — banks can create experiences that are simply more fun.

Though he has yet to see an example of gamification from any banks, the idea is starting to attract more attention. "We're talking to a number of banks right now who are asking us to help them envision what this would look like," Kirk says.

He sees loyalty programs as being a natural venue for game mechanics. Designing these programs to be more interactive — more like a game — banks can get people engaged again. "The whole idea of game mechanics is to wake the brain up," he says. "You create a challenge, create something competitive, create something playful."

Maybe a leaderboard could show how much the top earners in a loyalty program get each month, even if their names are not used. Like the list of top scorers on a video game, this would allow people to see where they stand compared to others and make the experience more social.

Another possibility might be offering rewards for online banking and bill pay. "Maybe you could earn a badge every time you set up a new bill in online bill pay, and when you earn enough of those badges, you actually achieve some new status," Kirk says.

Other industries — social media, for example — are far more advanced in capitalizing on the behavioral psychology that makes playing games so popular.

Foursquare users accumulate points for broadcasting their whereabouts to others — called "checking in." They get to be "mayor" of a location if they visit more often than anyone else. Many eagerly collect the badges that can be earned for certain types of check-ins, such as a babysitter badge for 10 visits to playgrounds or a barista badge for going to five different Starbucks locations.

"None of that stuff is generally worth anything, and yet millions of people are on Foursquare interacting," Kirk says. "It makes us feel good to earn badges and to be the mayor of something."

At the pub Kirk frequents, customers get a gift certificate after they've tried 25 of the beers and a T-shirt after 25 more. The names of those who hit the halfway mark go up on a board for all to see. Customers who complete the challenge get a pewter beer stein that stays at the pub for them to use every time they come in.

Kirk says the stein represents a form of "social status," which, neuroscience indicates, holds strong attraction for people. "The brain actually perceives status as a reward," he says. "If we have a status that's higher than somebody else's, we like that."

Bonnie McGeer Back to the Top

9. Bid for Wallet Share Drives Core Upgrades

A core processing system is the heart of a bank's operations. But when an institution undertakes a modernization of that core platform today, it's like a brain transplant.At UnionBanCal Corp.'s Union Bank, officials are undertaking a multiyear core replacement job that is about more than improving back-office efficiency. When finished, it will help improve the bank's market intelligence and cross-sales opportunities by giving it a 360-degree view ofcustomers. They'll no longer be segregated as deposit or loan customers in Union Bank's system, as the entire scope of their relationship will be part of product and service initiatives targeted for them.

It also will not matter how (or when) that customer interacts with the bank, be it through the branch, website, call center or a mobile device.

"One of the key pieces of analytics we see institutions looking at is customer lifetime value," says Les Dinkin, managing director at the consulting firm Novantas. "It's understanding not only what the current value is, but the prospective value."

The main goal of another core renewal job at American Savings Bank in Honolulu is much the same.

Frontline employees at the $4.9-billion thrift have to dive into four or five software programs at once to figure out how many products and services a customer has now.
The primary driver for core system improvements in the past has been cost-savings and back-office efficiency, which explains why there wasn't much of one during the pre-crisis boom years when banks enjoyed a bonanza of overdraft fees. But with banks facing serious challenges in growing revenue, core upgrades need to be — first and foremost — about reshaping how a bank is able to predict customer behavior and demands.

Much of that legwork is impossible on decades-old mainframes that were built according to the specific needs of retail deposit, loan or treasury units. More modern core banking systems from providers like Fiserv or Open Solutions are being installed with an eye for collecting and analyzing customer data from across different service channels.

New tools also can capitalize on trends; for example, banks might want to project the personal banking potential for business owners, or set risk management triggers when a customer with a mortgage and checking account deposits an unemployment check.
Only between 14 and 20 percent of technology decision- makers at small and midsize banks consider core replacement a high priority, according to research firm Aite Group, even though it estimates nearly 60 percent could potentially get bottom-line benefits through a system upgrade.

The most conspicuous customer-centered core improvement initiatives are at Spanish institutions Banco Santander and Banco Bilbao Vizcaya Argentaria, which financial tech analysts credit with influencing initiatives across the globe.

Each reportedly has core upgrade initiatives underway at their respective U.S. subsidiaries, BBVA Compass and Sovereign Bancorp.

Santander turned around a struggling Abbey National it acquired more than five years ago through a core platform replacement that consolidated customer file records into one database — meaning that customer-facing employees could see a single, detailed profile whether the customer was on the phone, surfing the website or in a teller line. The resulting cost savings and increased sales improved Abbey's efficiency ratio from 70 percent to 45 percent.

BBVA last year announced a single-platform core initiative, called Plan Uno, which will merge the retail and online customer service units of the bank. BBVA believes Plan Uno will help net it an additional 500,000 customers over the next few years.

Maybe not all U.S. banks are that ambitious, but to not follow the foreign banks' example would be foolhardy, says Dinkin. "Banks are looking for customers who can pay for themselves," he says. "So they can use a customer lifecycle value to determine the level of pricing, and product development."

Without an integrated understanding of customer behavior, which is at the "core" of burgeoning core renewal projects in the U.S., Dinkin says, "it's hard to develop that rich analytical understanding of a customer."

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10. Next Step in Mobile: Turbocharging the App

Amazon's popular iPhone app truly impresses NetBanker editor Jim Bruene. He likes the embedded barcode scanner that shoppers at a store can use to compare the price of an item from the shelf to one sold through the online retailer. Another feature he likes, Amazon Remembers, lets users store product snapshots they take with their iPhone camera to build visual wishlists, which then spur subsequent email offers from Amazon.Now Bruene and financial tech futurists like him are wondering: Why not include features like this in a bank app?

The barcode scanner is one many mobile users will use as a shopping aid, and it would complement a robust payment capability, Bruene says. "Where's the most logical place to locate that feature? Integrated directly into bank debit and/or credit card apps," he wrote in a blog in the fall.

While JPMorgan Chase and a few others have added innovations such as remote check-deposit capture to their iPhone offering, most banks staking claims on iPhone, Android or Blackberry devices have only cookie-cutter apps with basic balance-query, funds transfer and ATM locator functions. Meanwhile, alternative payments rivals like Amazon and PayPal are already on the prowl for a mobile user's attention through various value-adds for shoppers. More than just offering a digital wallet, these bank competitors are vying to become a cornerstone consumer companion through the mobile device.

PayPal's iPhone app, for instance, is already testing a local business search that serves up deals. Users getoffers on their mobile phones from local stores that accept PayPal or Bling point-of-sale payments.

"If the phone starts to be main payment device, and they use PayPal and Amazon as their shopping assistant, they may stay there for their payment services and never leave that app," says Bruene. "That could impact credit card and debit card usage once the payment mechanism has moved into the phone."

Price-comparison tools only scratch the surface of ideas on how banking apps can evolve as a shopper's mobile Swiss Army knife. Think of how the app might become an online coupon delivery engine, perhaps connected to a Groupon-like service where consumers pass on shopping discounts to friends and acquaintances, or how a dynamic consumer app from a bank might help auto buyers search rates or trade-in values while on a dealer's lot.

Most exciting to some is growing the bank app as a social-media portal, connecting users to communities only available through a financial institution's gateway app.

"If you talk about peripheral applications for banks, the place to look at is to think about Facebook or Foursquare," says Bob Egan, head of emerging tech at the research firm The Sepharim Group in Boston. "And if you begin to take a look at geolocation and other analytics that can be derived from Facebook or Twitter, that will spawn some pretty interesting innovation over the next few years."

Facebook is already jumping into geolocation; in December it launched Facebook Deals as a volley against Foursquare's neighborhood exploration tool. ThroughDeals, Facebook will deliver retail offers to consumers by tracking them through the GPS capabilities of their phone.

"Mobile is, and will be, a huge place," where people will handle nearly all aspects their day-to-day lives, says Bruene, and banks need to plan how they'll be a focal point of it.

"If you can stake out a claim or differentiate yourself and have people think of you as sort of the mobile bank in their mind," he says, "that's a pretty powerful positioning going forward."

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11. Build Loyalty Through Merchant Rewards

First National Bank of Omaha never bothered with a rewards program for its debit card until just this past fall.Rolland Johannsen, the president of its retail banking group, says none seemed compelling enough to be worth the trouble. "So many rewards programs are relatively complex," he says. "Redemption is tough. Calculation of the rewards is sometimes difficult. The customer service issues can be a hassle."

What prompted the bank to roll out its My Deals program in November had a lot to do with how simple it is to use. Offers from all kinds of businesses — from major retailers to fast-food restaurants — appear within a customer's online bank statement. A click activates the offer and the customer automatically earns cash back after using his debit card to make the required purchase.

Though merchant-funded rewards are nothing new, serving up offers in bank statements is. And it is expected to get far more popular in the coming year, in part because of new card regulations that will squeeze profits.

The mechanics of the program that First National offers via Cardlytics, and other programs like it from vendors such as BillShrink and Cartera Commerce, vary. But all three companies say they are seeing more demand for their services from financial institutions.

Johannsen acknowledges that First National's program even has "incremental revenue potential," as his bank can get a small share of the fees merchants pay Cardlytics. But he dismisses that as a motivator. Rather, he expects the program to help cement customer loyalty.

Tom Brooks, the head of the cards and payments division at Regions Bank in Birmingham, Ala., has the same hope for a similar program it launched in September, also through Cardlytics.

He says plans already call for expanding Regions' Cashback Rewards to include bonus points for customers who redeem an offer. The points would be funded by merchants and be used by bank customers as part of the overall loyalty program that Regions has in place.

"Merchant-funded rewards have been part of loyalty strategies for some time, but they're going to become more important going forward," Brooks says.

The offers delivered to customers at both First National and Regions are targeted to those most likely to use them. Paying with a debit card at McDonald's might trigger an offer from Burger King, for example.

Johannsen says such relevance means customers are more likely to appreciate the offers and see them as a real benefit.

"It's not a generic system," he says. "This is specific to the individual customer and how they use their card and what they use it for."

Bonnie McGeer Back to the Top

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