Javelin Strategy & Research Blog

A number of you have asked Javelin the question “What’s the profile of people who left large banks for Bank Switching Day?”.

Surprisingly, we see no evidence to suggest that these bank-switchers were predominantly young, low-income hipsters. In fact, the surprising finding from our survey of 5,800 people is that those who left large banks in favor of a credit union or community bank because of November 5, 2011 Bank Switching Day actually trended towards *higher incomes*! Mostly, they just looked like everyday Americans but perhaps with a slightly fatter wallet. I love being surprised by data!

While traveling around for purposes that range from speaking at banking events to personal work I visited several Occupy Sites, sometimes interviewing the predominantly-young people there. I wasn’t at all surprised by our recent research finding that a moderate-but-statistically-significant 610,000 individuals actually moved their money from large to small FIs during (and becuase of) the period around Bank Transfer Day. I knew there was real movement afoot, yet my interviews told me that may Occupiers had significant concerns over the general downgrade in electronic capabilities that awaited them at a community institution. Our quantitative data speaks to this in spades, showing that the average credit union or community bank has around ten percentage points fewer young adults than the typical large bank. In general, some young idealistically-minded people might love the small banks and credit unions, but data show young people (in particular) love the technology at large banks even more. In fact, our data clearly show that smaller financial institutions are beloved by all Americans, yet our benchmarking analysis show that the larger players are delivering on specific emerging capabilities that include mobile, social, online and even the best ATM or branch ratings. At Javelin we’ve even coined a phrase for this: “the Occupier’s Dilemma”.

How do we solve the Occupier’s Dilemma? First, let’s all drop any notion that banking should be free. Apple doesn’t make free products and Google rakes in tons of cash so it is bankers who need to get more creative with an audience that is willing to pay for always-on, real-time and transparent services. Bankers also need to move from a revenue that is primarily punitive (such as overdraft, insufficient funds, etc) to one that is proactive (this especially applies to larger banks), in order to actually get people feeling good about paying more for more. Second, institutions need to identify the specific capabilities that are causing younger and even more affluent people to leave them, or risk going the way of the Oldsmobile. It’s a myth that banks and credit unions are in some sort of high-dollar arms race in which only the largest players have enough coin to win. By taking a precision approach to identifying particular technologies that give a competitive edge when empowering the individual with more proactive control over what happens to their deposit, payment, investment and other financial accounts, financial institutions can make money by creating prosperity. The good news for institutions large and small is that the answers are contained in the data (easy for me to say, because I stare at it all day!)

If I’m idealist on this notion of shared-prosperity than blame it on factual research data, because that’s what I draw my conclusions from. There is opportunity and need aplenty, folks.

Bank Transfer Day and the Occupy Movement have received tremendous attention, and for the first time we have market research data to measure the impact on the financial services industry. Javelin’s research estimates that 5.6 million U.S. adults with a banking relationship changed providers in the past 90 days. Of those switchers, 610,000 US adults (or 11% of the 5.6 million) cited Bank Transfer Day as their reason and actually moved their accounts from a large to a small institution. With a Google search of “bank transfer day” returning fully 22,000,000 responses we’re not surprised that these angry bank-switchers represent nearly a three-time increase over the amount of people who took their funds out of large banks for highly-similar reasons during the previous 90-day period in 2011.

This exodus was certainly not the massive departure banks might have feared. Javelin’s nine years of customer-transaction research insights has found that people are highly resistant to moving their money, and even Huffington Post’s similarly-positioned 2008 “MoveYourMoneyProject.org” failed to barely even register in previous Javelin surveys. Yet this time, Bank Transfer Day and the Occupy Movement did have a measurable impact.

In comparison to the 11% of actual bank-switchers who cited Bank Transfer Day, 26% of the switchers stated that they switched because the bank charged too many fees during the 90 day measurement period. Individuals frequently state dissatisfaction with banks over reasons that range from customer service to rates and fees, and other common reasons that motivate individuals to switch banks also includes a simple relocation of their primary residence. While financial institutions increasingly enable electronic methods for interacting with one’s money, the transition hasn’t been complete enough to eliminate the essential importance of a local branch or ATM. The transition to electronic money inches steadily forward, but the evolution is far from complete.

Javelin urges banks and credit unions alike to increasingly focus on sustainable mutual-prosperity for both provider and customer, and we believe that technology can increasingly make such a shared-value approach possible. Examples explored by our research range from fee-based services for online expedited payments (to reduce even larger late fees), security and identity protection products, and mobile-based methods for giving individuals more control over what happens to all their financial accounts. Javelin’s recent social media research of financial institutions examines how FIs are meeting consumers on Twitter and in other social media spaces. FIs will need to be agile through social media, smartphones, tablets and other new interaction methods to strengthen customer connections while enabling them with improved control over their personal financial affairs.

As always, Javelin subscribers are invited to inquire for further details on this or any other research study.

Methodology statement:

Using a questionnaire designed independently by Javelin Strategy & Research, the Bank Transfer Day findings are culled from an online survey of 5,878 consumers fielded in December 2011. The survey targeted respondents based on representative proportions of gender, age, income, and ethnicity, and data was weighted to U.S. census proportions. The survey is based on a set of questions that were first fielded in 2003, and are now deployed on a twice-annual basis.

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Turning over a new leaf this week, Bank of America announced the forthcoming trial of a new merchant-funded rewards program that will benefit both credit cardholders and debit cardholders. Following the bank’s recent debacle surrounding a proposed $5-per-month debit card fee (refer to Javelin’s blogs on the proposed fee and its demise), this rewards program offers debit users the opposite: cash back opportunities in association with debit card use. Read the rest of this entry »

According to the records on my credit card statement I’ve eaten at a local pizza restaurant three times this month, but I’ve actually not been to the particular restaurant in years. Upon calling the named restaurant to inquire about the charges I was greeted with the name of my favorite Indian restaurant, and after some discussion I learned that there’s nothing preventing a merchant from using any description they want for a payment transaction. Because this can frequently result in cardholders getting nonsensical information on transaction alerts or bank statements, individuals have lessened motivation to actually monitor their transaction activity and we end up with a banking-technology world in which the operations specialists are out of touch with the customers they are attempting to serve.

After some discussion my favorite restaurateur apologetically said he would correct his name name. Surprisingly the two subsequent visits to this restaurant have each been recorded with different names for the establishment, and neither name matches that shown on the outside of the building! I don’t know how to explain the behavior of this restaranteur, but it confirms what I’ve seen elsewhere for years: because people can’t always get access to intelligible information about their money they often give up trying.

Consumers don’t have all that much control over their payments activity in this electronic age, and this is a missed opportunity for everyone.  Read the rest of this entry »

eBay reported that PayPal’s mobile payments in 2011 grew by more than 5 times over the prior year to  $4 billion. But perhaps even more amazing is PayPal’s growth in average annual mobile payment per active user. As is shown in the chart below, the average annual mobile payment per user has grown from $1.56 in 2009, barely the cost of a ringtone, to $7.98 in 2010 to $37.63 in 2011. This is a rise of 371% over 2010, and an increase of 2304% over 2009 average mobile payments. To calculate these numbers, we took the total mobile payments volume and divided by the active user base to arrive at the average annual mobile payment per active user.  While admittedly this method is not without its faults, as we do not know how many of PayPal’s active user base are actually making mobile payments, it still gives a good guideline and snapshot of how mobile payments are changing over time. Mobile payments are being used for larger payments as consumers become more comfortable with the technology. More and more consumers are using their mobile devices to make payments and their payment sizes are rising as well. PayPal is leading the way and showing how it can be done.

Read on to see Read the rest of this entry »

I recently visited PayPal’s “Shopping Showcase” in New York City. Staged with store-like vignettes – a coffee shop, a grocery, a hardware store, and a clothing shop – PayPal’s showcase was designed to demonstrate the company’s evolving POS/mobile solution. This solution incorporates aspects of the mobile experience – such as browsing the Internet for a product, using geolocation to find a merchant location, or using QR codes to get additional product information – with mobile payments and rewards that will enable consumers to use their device in a variety of ways at the point of sale. No longer simply an “online alternative payment” option, this solution will leapfrog PayPal with full force into the payments network arena. A quick review of some of the pros and cons of the showcase: Read the rest of this entry »