Forte Financial Blog

How To Turn Your Online Bill Pay Expense into a Revenue Stream [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

How To Turn Your Online Bill Pay Expense into a Revenue Stream [NACHA Payments]

Peter Gordon
Partner, eCom Advisors

Synopsis from Conference Program

For a decade, banks' rapidly increasing expenditures on EBP have been justified on concepts like stickiness, consumer retention, consumer satisfaction, increased balances and product cross-selling. Although these concepts are attractive, most banks are not able to measure the ROI of EBP. As a result, banks cannot directly associate incremental revenue to their EBP expense. This session demonstrates how banks can monetize their EBP expenditure and data. Topics addressed include: monetization strategies; how to use bill pay cross-sell/up-sell; identifying unusual behavior for retention; identifying characteristics of "best customers" that can be utilized to acquire similar customers in the online channel; and identifying behaviors that can be utilized to reduce fraud.

My Observations & Comments

Long time readers of this blog know I am a proponent of competing on analytics (see posts here and here). I was particularly interested in this session by eCom Advisors' Peter Gordon on how banks can leverage their consumer bill pay data. Bankers, pay attention because this is good stuff:

The Bill Pay Challenge

Consumer bill pay is typically a free service offered by banks in the hope of retaining customers and cross selling. Its matured from a competitive advantage to table stakes. Banks must continually upgrade their bill pay services to meet customer expectations, but what is the ROI from this investment?

Tapping into consumer bill pay data enables banks to monetize their bill pay investment and drive further returns through more effective marketing, enhanced risk management, informed strategic investments, and fraud mitigation.

Bill pay data contains three valuable elements: 1) Who your customers pay, 2) how much they spend, and 3) the frequency and timing of the spend.

4 Ways to Unlock the Value of Bill Pay Data

1. Strategic Marketing - Marketing departments at banks typically buy data about thiner customers. yet through bill pay transactions, banks can determine which of their customers have accounts at other institutions as well as the type of products they have (mortgages, credit cards, auto loans, etc.). This data can be used to develop targeted cross sell offers delivered via the online channel or other means.

2. Risk Management - Almost all banks are utilizing the same credit bureau data to evaluate the creditworthiness of their customers. But as many as 25% of US adults of little or no credit data on file (they are young, they rent rather than own, etc. Banks can use consumers bill pay data to develop alternate scoring models based on the timeliness of their rent payments and other factors and meet the as yet untapped need of undeserved customers with little or no credit history.

3. Investment - Economic data is typically published at least a month after the fact, and often amended later. GDP is published with a two month lag. Yet savvy bankers have learned to analyze their consumer bill pay data in real time in order to inform trading decisions for their own investment portfolio and won big (example: top 5 bank earned $200 million on a bill pay informed trade). In addition, banks may choose to sell their data. Aggregated anonymous data (e.g. real time spending habits by industry or consumer segment) is of significant value to marketers, economists, and investors.

4. Fraud Mitigation - Finally, many banks utilize outside sources for fraud monitoring. By using bill payment data banks can develop models to alert when new, potentially fraudulent payees are created or when unusual transaction patterns occur. If the bank's fraud department is currently buying data from fraud monitoring vendors it may be possible to sell the vendor its own data in order to reduce the cost of early warning system/negative files.

Q&A and Tips

If your bank utilizes CheckFree for its bill payment services, it is possible to get a file (on a weekly or monthly basis) of your transactional data.

Banks have disparate data sources across the institution. They key to success (and challenge) is to maintain one master customer record.

This is not rocket science - but banks should take an iterative approach and learn as they go through pilots and continuous improvement.

A data warehouse is not necessary. Banks can get started right away using a simple data base tool such as Access.

>> Return to index of my posts from NACHA Payments 2008

Benchmarking DOs and DON'Ts

Benchmarking is a critical first step in identifying opportunities for process improvement. Used correctly, benchmarking allows companies to compare their processes versus the best practices in their industry and develop a road map of how to adopt best practices within their own organization.

Mark Brousseau at the TAWPI Blog compiled a list of Benchmarking DOs and DON"Ts based on discussions at the recent TAWPI Payments Conference (I live blogged the event - coverage here) and the Supply Chain Leadership Forum:

The Top 5 DOs:

1. Do align with key stakeholders.
2. Do succinctly summarize benefits for top management.
3. Do reduce your scope to actionable items.
4. Do maintain perspective of both your business and cultural model.
5. Do test multiple options before drawing conclusions.

The Top 5 DON'Ts:

1. Don’t use competitors that match up poorly with your processes.
2. Don’t ignore your competition.
3. Don’t use the “boil the ocean” approach (focus, focus, focus).
4. Don’t use benchmarking and data analysis tools without understanding how they work.
5. Don’t work in a vacuum and think your organization knows it all.

Live Blogging from Finnovate Startup

I am live blogging from Finnovate Startup in San Francisco. Jim Bruene and his team at NetBanker have gathered 40 startups, rebrandings, and company debuts in online banking and finance. Each participant has a brief 5 minutes to demo their product so I’ll be typing as fast as I can.

• Morning Session
• Afternoon Session
• Best of Show
• Observations & Trends [coming soon]

VENDORS REPRESENTED

The 40 leading startups that will present are as follows (grouped by industry niche):

Checking/savings:

• Andera
• First ROI
• SmartyPig

Financial shopping/comparison:

• Credit Karma
• FindABetterBank
• SmartHippo
• SimpleTuition

Investing/asset management:

• Boulevard R.
• Cake Financial
• CAPS (Motley Fool)
• SocialPicks
• TradeKing
• Vestopia
• Zecco

Lending/credit:

• Lending Club
• Loanio
• Prosper
• Wonga

Mobile banking/payments:

• Aradiom
• ClairMail
• Diversinet
• Tyfone

Personal financial management:

• Buxfer
• Expensr
• Jwaala
• Mint
• Wesabe

Security:

• Authentium
• Guard ID
• Guardian Analytics
• TrustedID
• VaultStreet
• Vidoop

Other:

• IP Commerce
• Unified Money
• WorkLight

Plus four stealth startups

We're starting momentarily...  

MORE live blog coverage from Finnovate:

• PaymentsNews
• NetBanker
• BankTastics

Participate in Prediction Markets at the Freakonomics Prediction Center

This is a follow up to yesterday's post on prediction markets.

You can try it yourself - the Freakonomics team have partnered with Predictify on the Freakonomics Prediction Center. And if you want more, Predictify allows you to both ask questions and make predictions (and potentially earn money) on the Predictify site.

Check it out. It just might fill that gapping hole in your life post-March Madness.

Bank Technology News' Top Innovators 2007

The November issue of Bank Technology News features an annual listing of the most innovative people, companies, and technologies. The technological strides featured in the ranking include next-generation payments and mobile banking, improved data analysis, more sophisticated credit risk assessment, open-source-based business intelligence, advanced remote-deposit capture, branch automation, regulatory compliance, core banking, and internet security.

Click on a link below to be taken directly to each profile at American Banker (subscription required).

            

Jeff Yabuki - President and CEO, Fiserv Bank of America Tripp Rackley - CEO, Firethorn RBC Financial Group Louis Hernandez - Chairman and CEO, Open Solutions Inc. CheckFree's Web RXP PrimeRevenue Frank Martire - President and CEO, Metavante Corp. Art Coviello - President, RSA, the security division of EMC John Woolbright - SVP and CTO, Synovus Oracle

June Felix - General Manager, Global Banking Solutions and Strategy, IBM Corp. Panini Michael R. Cote - President & CEO, SecureWorks Pete Cittadini - CEO, Actuate Corp. Actimize's Employee Fraud Solution IdenTrust Wincor Nixdorf's Bulk Check Deposit NCR mFoundry VSoft WSFS Financial Corp. Verint Harland's CreditQuest Bottomline Technologies

Corporates Demand More than Transaction Processing from Commerical Banks

Bank Systems & Technology has a thorough article today on the various challenges facing commercial banks as they fight commodization of their core transaction processing capabilities.

The need to differentiate on service to overcome product commoditization is especially true in the payments area, says Maggie Scarborough, research manager with Boston-based Financial Insights. "For years, banks have sat on their position as the only entry point to payments," she comments. "They hurt themselves by operating on thin margins. This drove prices down. In payments, there's very little differentiation in pushing transactions around.

Primary Needs for Corporates / Opportunities for Banks

• Consolidating bank relationships - corporates are centralizing their banking relationships and will move business to those banks that provide the most meaningful partnership, often on a global basis. Only banks that can provide exemplary customer service will maintain and grow their client base.
• Corporates are demanding that banks agree upon and adhere to file standards that simplify interfaces and increase straight through processing.Ideally corporates want to submit a single payment file to a bank with interoperability among its payment platforms (ACH, wire, etc).
• Banks should help their customers transform back office operations so that corporates can maximize the value of their ERP systems.
• Supply chain services - from electronic invoicing to automatic payment regardless of the size and sophistication of the trading partner - are one of the most important areas for value add and differentiation for banks.
• Real time visibility to account information is necessary to support liquidity management.

Banks will only achieve differentiation through truly value add services, delivered consistently, and continuously improved upon as corporate needs evolve. If banks cannot deliver solutions to corporate needs, more nimble and innovative non-bank providers will, leaving banks to compete with one another for the low cost, commoditized transaction processing on the back end.

Transaction Processing Not Enough to Succeed In Commercial Banking
Bank Systems & Technology
September 28, 2007

Studies cited in the article:

Global Corporate Banking 2007-2011 Spending Forecast and Analysis
Financial Insights

Are Banks Effectively Meeting the Cash Management Needs of Middle Market Businesses?
Aite Group

Strategy - Are Porter's 5 Forces Irrelevant Today?

Over at winmarkets.com a recent post by Nilofer Merchant, a marketing entrepreneur I admire, questions the relevance of Porter's venerable 5 Forces strategic framework in today's Web 2.0 era. Her business focuses on the technology innovators of Silicon Valley - admittedly a different industry than the payments realm we usually cover here - but what happens in Silicon Valley often ripples through the rest of the business world. Take a look at Nilofer's argument and consider how it impacts your business strategy.

New Model for Competitive, Market Power ?? (WinMarkets.com)
Porter's 5 Forces (Wikipedia)

A Call to Action

Promoting Process Improvement Company-wide

Increasing responsibility for operations efficiency and performance management requires a more proactive approach than finance has traditionally held. Financial professionals have a uniquely analytical skill set and holistic perspective to share with colleagues.

The following strategies are useful when promoting process improvement company-wide:

SHARE OPPORTUNITIES FOR IMPROVEMENT
As a result of Sarbanes-Oxley process documentation efforts and traditional reporting and analysis responsibilities, the finance department has a uniquely holistic view of the organization. Leading finance professionals share opportunities for improvement that they’ve identified with business line managers – highlighting how the business units will benefit, of course.

ASSIST WITH PROJECT COST-BENEFIT ANALYSIS
Financial analysis skills are invaluable in analyzing potential projects and measuring their potential benefits. Coaching managers on calculating ROI and working with project sponsors to develop solid business cases that will obtain approval and project funding is a proven means of supporting process improvement.

LEND RESOURCES
Finance has honed process evaluation and improvement expertise as a result of Sarbanes-Oxley attestation efforts. Put these new skills to use to drive projects throughout the organization by loaning resources to support critical projects.

ENSURE BUSINESS UNITS ENJOY SAVINGS
By promoting internal policies that allow business units to keep and reinvest the savings they generate as a result of process improvement initiatives finance can build momentum. Project sponsors will be motivated by improvements to their own P&L.

Positioning Finance as a Process Improvement Resource

Finance has a broad mandate and an opportunity to promote process improvement throughout the organization. But other departments and executives will not turn to finance for assistance if they are unaware of the talent.

Take advantage of cross functional meetings and impromptu hallway conversations to let fellow managers know how the finance department can help them increase efficiency and improve performance.

Do you have the management support you need? What do Tiger and Lance have that you lack?

Increasingly CFOs are utilizing coaches to improve performance and meet the demands of c-suite jobs. Tiger Woods has one, Lance Armstrong has one, do you need a coach?

"Over the last five years, we have probably seen more people come in for coaching who are in finance or information services parts of the business," says Bill McCarthy, a coach with LeaderSource, an executive coaching firm recently acquired by executive search company Korn/Ferry International. The reason: the technical expertise that helps a CFO or CIO rise to the top is just one part of the skill set needed to succeed in a C-suite position.

Read more about finance executives and coaches at CFO.com:

Tiger, Lance, and You
An executive coach may be your ticket to peak performance.
Theresa Sullivan Barger
CFO.com
February 22, 2007

Top Biz Books of 2006

For the avid readers out there here are a few round ups of the best business books released in 2006:

• Tom Peter's Notable Books 2006
  
• Fast Company: Best Business Books of 2006 Slideshow
• Strategy+Business Best Business Books 2006 (free registration)
• Business Week's Best Business Books of 2006
• Amazon's Best Business Books of 2006

As always, I end the year with a large stack of half-read books. I read a few chapters, get distracted, start something new, and sometimes months later, resume where I left off. I am an author's nightmare and a publisher's delight. Amazon loves me, too.

Here are my personal favorites for 2006 (not necessarily published in 2006, but I read them this year):

• The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (Princeton University) by Marc Levinson I was predisposed to like this one because my father is a retired maritime attorney and from my office window I watch container ships cross San Francisco Bay. Levinson credits the container as the primary enabler of globalization - see my previous post.
  
• The Long Tail: Why the Future of Business Is Selling Less of More (Hyperion) by Chris Anderson. This one was the only book that made every one of the lists cited above. It is engrossing - see my previous post.
  
• The Omnivore's Dilemma: A Natural History of Four Meals (Penguin Press) by Michael Pollan. Not a business book per se, but a fascinating exploration of the food industry. I guarantee that it will change your eating habits and grocery store purchase behavior.
  
  
• The World Is Flat: A Brief History of the Twenty-first Century (Farrar, Straus and Giroux) by Thomas L. Friedman. I read this as I was reading the container book and the two went together perfectly. Friedman's triumph is to foster a sense of urgency - hurry, a new era is upon us and you are missing out!

To have been a fly on the wall for this meeting... "Craigslist meets the Capitalists"

The NYTimes DealBook blog describes the stunned, puzzled reaction on Wall Street to Craigslist. The SF based internet company - with its devoted following of apartment seekers, job hunters, online daters, garage-emptiers, and bargain sleuths -  is interested in serving its customers, not making money. Period.

A completely foreign concept to the bankers.

Read all about it here and be sure to follow on and read the related items at MediaPost, Between the Lines, and Tech Trader.

Will banks continue to be at the center of the payments industry?

Not necessarily. In a recent speech Mark Garvin of JPMorgan, acknowledges the threat of non-bank entrants to the payments industry:

Having talked to regulators, correspondents, market infrastructures and, most importantly, our clients, about how they see the future of payments in 10 years, the consensus is that everyone is expecting a much more streamlined, accessible payments product, and one that is truly global. We all recognize that someone will ultimately offer that simpler product - let's hope it's a bank.

Over the next 10 years, governments will continue to push us towards greater interoperability, higher speed and lower charges. Our non-bank competitors, in some ways, are already there. Each time someone chooses PayPal to pay for an online purchase there is a shift of perceived value from banks to non-banks. Our data suggests that this bias for simplicity will continue to drive change in payments, whether you're a consumer or a General Electric.

Drawing on the history of the CLS initiative (CLS is used by over 850 banks, corporates, non-bank FIs, and investment funds around the world and accounts for 65% of all spot market forex transactions - more info here), Garvin outlines a course of action starting with industry cooperation on a global scale - abandoning national, parochial payment issues. He stresses the need to agree on a vision for the industry end-state, then develop a well-honed strategy to get there. He suggests that execution is dependent on "sufficiently representation, well governed, and adequately funded and staffed" industry bodies to guide collaboration, determine priorities, and establish common ground.

Sounds like a tall order for the world's largest banks that have trouble achieving consensus and alignment within their own organizations.

Read the full text of Garvin's speech on GTNews.
And there is an informative overview of CLS here.

 

Tower Group on Financial Services Strategy

In its Cross Industry practice 2007 report, TowerGroup anticipates three major strategic shifts for global financial services.

"The global financial services industry is changing in response to tectonic shifts in marketplace and business dynamics," said Guillermo Kopp, vice president of TowerGroup Cross-Industry research. "Traditional markets are saturated with product and service options. The maturation of established customer segments is limiting traditional market opportunity. Both customer satisfaction and loyalty are being eroded by competition from traditional and nontraditional sources and industries."

Three major strategic shifts on the horizon for global financial services:

Reinventing Financial Services

The financial services industry has been slow to reinvent itself in the face of an increasingly networked world. Without reinvention, institutions risk being disintermediated by nontraditional industries as new, previously unlikely competitors find their way into financial services. Rather than continuing to make tactical changes in response to shifts in the marketplace, successful firms will be those that consider how to reinvent the financial services institution from a blank slate -- rethinking the full spectrum of products, services, and delivery options.

Repurposing Financial Services for Global Diversity

Financial institutions must begin responding more effectively to dramatic changes in a continuously shrinking world. Emerging economies will demand a broader range of product and service options to meet wider variations in customer needs and economic status. It is no longer acceptable to operate under a business model focused purely on shareholder value -- meaning institutions must develop dynamic capabilities for serving a larger number of more varied and yet more modest customer relationships in a profitable way. Success will mean establishing a lifetime relationship with large numbers of people who were previously outside the normal scope of an institution's services.

Restoring Confidence in an Uncertain World

News of security breaches, loss of customer data, identity theft, fraud, and terrorism has been disturbing to individual financial institutions and the industry as a whole. Meanwhile, none of the industry's traditional risks (such as those related to credit, catastrophes, investments, or interest rates) have dissipated. To date, most institutions have pursued the single strategy of playing defense against the universe of global threats. Yet institutions have an obligation to take greater control by making an offensive foray into the global need for assurance, responsibility, and security.

TowerGroup

Reassessing the Structure of Your Treasury Organization

GTNews has three new articles that focus on the organization and structure of treasury departments. If you haven't considered the extent to which you should centralize, determined how to position your team as company-wide resource, and identified how will you leverage new technologies start here:

Measuring Treasury's Added Value
Treasury is transforming itself from a cost centre by moving into broader areas of the business.

The Changing Treasury: Towards Centralisation
This article discusses how to successfully implement a central treasury function.

Technology's Impact on Treasury
How will technology drive change and what will tomorrow's treasury look like?

Wal-Mart & Sustainability II

A must-read article in this week's FORTUNE Magazine

In an earlier post I shared my astonished reaction to Wal-Mart's sustainability initiative. I had just attended a corporate performance management conference and my impression of Wal-Mart had been turned upside down by a presentation by David Blackwell, Wal-Mart's VP for Global Procurement.

The August 7th edition of FORTUNE Magazine features Wal-Mart in its cover story and opens describing Al Gore (another recent Forte Blog topic) presenting his movie "An Inconvenient Truth" at an all-day employee meeting.

Wal-Mart has already transformed the business practices of a legion of suppliers, can it now dictate green business practices? Fortune is skeptical and indicates that the sustainability initiative may distract Wal-Mart from other concerns, namely a falling stock price and slowing growth. Yet, sustainability may be the best response to Wal-Mart's PR woes.

But if there is any company that can effect wholesale change in business practices, it's Wal-Mart. And they've calculated a compelling return on sustainability:

[excerpted from FORTUNE]

Wal-Mart was defining its responsibility broadly, in a way that would bring its vast supply chain - where its environmental impact is greatest - into the picture.

About a dozen people from BluSkye, CI, and Wal-Mart spent nearly a year measuring the company's impact. Fairly quickly, the environmentalists spotted waste that Wal-Mart's legendary cost cutters had overlooked.

On Kid Connection, its private-label line of toys, for instance, Wal-Mart found that by eliminating excessive packaging, it could save $2.4 million a year in shipping costs, 3,800 trees, and one million barrels of oil.

On its fleet of 7,200 trucks Wal-Mart determined it could save $26 million a year in fuel costs merely by installing auxiliary power units that enable the drivers to keep their cabs warm or cool during mandatory ten-hour breaks from the road. Before that, they'd let the truck engine idle all night, wasting fuel.

Yet another example: Wal-Mart installed machines called sandwich balers in its stores to recycle and sell plastic that it used to throw away. Companywide, the balers have added $28 million to the bottom line.

"Think about it," Scott said in his big speech to employees last fall. "If we throw it away, we had to buy it first. So we pay twice - once to get it, once to have it taken away. What if we reverse that? What if our suppliers send us less, and everything they send us has value as a recycled product? No waste, and we get paid instead."

I encourage you to read the complete FORTUNE article and contemplate the impact of sustainability on your business (before Wal-Mart forces you to).

The Green Machine
FORTUNE Magazine
by Marc Gunther
July 26, 2006

The Long Tail of Niche Marketing

Does your business model rely on volume?
Are you constantly seeking blockbuster products?

A new book The Long Tail by Chris Anderson challenges the traditional blockbuster mentality. It’s currently ranked #18 at Amazon (yesterday it was #38).

Hit products make sense in an economic model governed by scarcity. If chain bookstores only stock a fraction of titles published each season, movie theaters only have screens for a finite number of movies, and grocers shelves only have so many facings, producers must compete to get their products in front of consumers. Only the most popular items survive because "it's only sensible to fill them with the titles that will sell best."

But technology is changing the economics of demand. Web sites and online retailers offer seemingly infinite inventory, and the result is the "shattering of the mainstream into a zillion different cultural shards."  The book challenges the traditional assumption that 20% of a company’s products generate eighty percent of the revenues. Relying on internet examples such as Netflix, Google, eBay, iTunes, and Amazon Anderson demonstrates that there is untapped revenue potential in the other 80%.

Quick quiz to demonstrate The Long Tail effect:

QUESTION:

Of the 60,000 titles available at Netflix, how many are rented at least once on a typical day?

ANSWER:

35,000 – 45,000

It’s astonishing isn’t it? When I read that fact in a New York Times article I guessed 2000. But then again, how many documentaries, classic films, foreign movies, and childhood TV favorites are in your queue? Whether your are aware of it or not, the majorty of your rentals are probably among the 80% that make up the long tail.

Applying The Long Tail theory to your business, what are the "countless niches" of opportunity in your industry? How will you capitalize on them? This book (or at least the well researched summary and review in this week's New Yorker) are well worth a read.

Articles and books mentioned in this post:

The Long Tail: Why the Future of Business Is Selling Less of More
By Chris Anderson
Hyperion (July 11, 2006)

Chris Anderson’s article that was the genesis of the book:
The Long Tail
Wired Magazine
October 2004

New Yorker review of the book:
GOING LONG: In the new “long tail” marketplace, has the blockbuster met its match?
The New Yorker
July 10, 2006
by John Cassidy

Chris Anderson’s blog

New York Times article on Netflix (source of quick quiz above)
What Netflix Could Teach Hollywood
The New York Times
June 7, 2006
By David Leonhardt