January 17, 2013 by 3 Comments
On January 15th, Green Dot, a US-based company best known for its prepaid cards, announced the launch of GoBank, a full FDIC-insured bank account designed for and available via mobile phone. Promoting itself as “a bank with tomorrow’s technology”, it does indeed come with a host of attractive features, such as a mobile-only account opening, checking the balance in 2 seconds without logging in, multiple ways to deposit money (from direct deposit to check RDC to deposits via any Green Dot retailer, such as Wal-Mart), and a network of over 40,000 ATMs to withdraw cash for free. It also includes alerts and other tools meant to help customers manage their money, such as, for example, “Ask the Fortune Teller”, which if a person tries to spend too much, might say: “Remember that time you won the lottery? I don’t either!” let the customers name their own monthly fee, up to $9 a month. That’s right – there is no fixed monthly fee, instead, the bank asks the customers how much they are willing to pay. Now, as far as I know, that is new in Banking; I’ve only seen it done in other industries. In the early days of the Internet revolution, I recall websites that would let the users name their price for a seat on the plane or a hotel room. More recently (in 2007), Radiohead, a popular UK band, made news when they started distributing their “In Rainbows” album themselves online and allowed listeners to name their price before downloading. Of course, many downloaded it for free, and subsequently the album was released as a CD available via regular channels. I am sure there will be many customers of GoBank that will also decide to pay nothing. However, perhaps this is not as crazy as it might seem at first glance. As a “purely mobile” offering with no branches, GoBank’s costs must be lower than that of most other banks. The bank probably expects that the fees they will be charging (e.g. out-of-network ATM use or personalised debit cards at $9 each and others) will more than cover those lower costs. And they might be in for a positive surprise – I also fully expect that some people will offer to pay monthly fees if they genuinely like the service. After all, I was one of those that did pay a voluntary fee to download “In Rainbows” and ended up buying the actual CD… It is too early to tell what kind of impact this migth have on the banking industry, but good luck to the team at GoBank! We will be watching their progress with interest.
August 11, 2010 by Leave a Comment
In today’s New York Times, the paper announced that Wells Fargo had lost a Federal Court ruling to the tune of $203 million. Wells Fargo, like most other large banks, processes checking and debit transactions from largest to smallest, rather than in the order received. There are a number of rationales for this policy. One is that it is likely that the larger check is for a more important payment such as a mortgage payment or utility payment. Small checks would be to other service providers. The flaw in the logic comes in if the bank is charging overdraft fees and paying all three transactions regardless of the order processed. There is no customer benefit to processing largest checks first if all three are paid regardless. This practice also maximizes overdraft revenue, which is a huge chunk of the fee revenue that has been driving free checking as shown below. Let’s review how this works. Suppose I have $100 in my checking account and write three checks (or had three debit card transactions) for $40, $50 and $120, in that order. If these checks were processed in the order received, the checks for $40 and $50 would clear and the check for $120 would generate a single overdraft charge. If the checks are processed in descending order, the check for $120 would generate an overdraft as would the $40 and $50 checks for three overdrafts rather than one. The changes to Reg E that become effective for existing customers on August 15 will reduce fee revenue, as I have laid out in the Celent report Reg, Reg, Go Away. If this ruling stands, it will put another nail in the coffin of free checking. Banks will need to respond in innovate ways, some of which I have laid out in this same report.