Attention Financial Institutions: Use Interactive Alerts to Achieve Profits, Build Customer Loyalty

Apr 7, 2011

Attention Financial Institutions: Use Interactive Alerts to Achieve Profits, Build Customer Loyalty


Javelin: New Research Shows How FIs Can Utilize Interactive Financial Alerts to Drive Profitable Banking Behaviors

San Francisco, CA, April 7, 2011 – A new Javelin Strategy & Research report issued today —Interactive Financial Alerts 2011: Using SMS and E-mail Alerts Bundles to Drive Profitable Banking Behaviorsoutlines the cost-savings and revenue benefits FIs can achieve through the smart use of interactive alerts. Javelin notes that alerts used correctly can reduce operating costs dramatically, by more than $1 billion. However, Javelin warns that alerts done poorly will increase costs for financial institutions and frustrate their customers. The report examines the growing use of text and email alerts received by consumers, demonstrates how FIs can achieve cost savings and increase return on investment (ROI) from alerts, provides an in-depth critique of alerts that are flawed in seven significant ways, and presents five models for bundling alerts to boost profitability.

Javelin’s analysis reveals that FIs can achieve cost-savings of more than $1 billion by using financial alerts. Javelin identified a key customer segment – Moneyhawks – who prefer to receive alerts on a regular basis and comprise 27% of consumers who have received an e-mail or text alert in the previous quarter. Javelin compared the banking behaviors of Moneyhawks to non-Moneyhawks and conducted an ROI analysis of alerts and examined savings from cutting costs. Javelin found that FIs can save $868 million in servicing costs by using alerts to direct customers to more cost-effective channels such as online and mobile banking, as Moneyhawks more frequently use these channels to make balance inquiries, pay bills, and transfer money. Javelin also estimates that if FIs use alerts to reduce the volume of CSR calls from Moneyhawks by 25%, the CSR expense would drop by $429 million. These uses of alerts total over $1 billion in savings. In its report, Javelin provides an in-depth statistical profile of the Moneyhawk consumer segment including ethnic background, earning and spending levels, types of financial accounts utilized, types of online and mobile banking activities compared to all consumers, and rate of use of banking channels compared to all consumers.  FIs can use this information to target Moneyhawk consumers, reduce operating costs, and establish the ROI of using alerts.

The Javelin report also identifies seven critical flaws in the delivery of alerts. Alerts that are unclear or ill-timed not only create confusion for customers but also lead customers to use more costly channels such as call centers. The report analyzes a variety of problematic alerts from American Express, Bank of America, Chase, Citi, Mint, USAA and Wells Fargo and makes recommendations on how FIs can avoid similar pitfalls.

“Well executed interactive financial alerts offer huge benefits to consumers, as well as FIs,” said Mark Schwanhausser, Senior Analyst, Multi-Channel Financial Services at Javelin. “Alerts are important personal finance management tools that help consumers manage and track every aspect of their finances, including credit card purchases, fraud detection and prevention, and bill pay. Our research forecasts that adoption of alerts will grow at higher rates than in recent years: 45% of U.S. adults — or 93 million — will receive financial alerts on their personal computers, smartphones, mobile phones and tablets by 2015, representing a 6% CAGR and a real opportunity for FIs to build customer loyalty.”

In addition to cost savings, Javelin found that bunding alerts can boost profitability. The report presents five types of alerts bundles, including four that could generate new revenues from convenience fees, subscription fees and revenue-sharing with merchants.

“Look first to Moneyhawks,” advises Mary Monahan, Managing Partner and Research Director. “In addition to being comparatively low-cost customers, they are also a prime revenue-generating segment. Our report provides details on combining alerts with those particular fee-generating services that are most appealing to Moneyhawks and analyzes the impact on ROI.”

The Interactive Financial Alerts 2011 report examines consumer use of alerts, evaluates paths to profitability using alerts, and identifies the opportunities and challenges facing FIs regarding consumer adoption of alerts. The report based on data collected online by Javelin in November 2010 from a random sample panel of 5,494 consumers and in July 2010 from 3,100 mobile phones owners explores the potential of using alerts and outlines the next steps FIs must take to achieve cost savings, boost profitability, and establish ROI.

Selected Key Report Findings – Interactive Financial Alerts 2011

  • Adoption trends of SMS text and e-mail financial alerts – and the new revenue and cost-cutting opportunities they create for FIs.
  • Consumer use of alerts and details of the consumer segment most likely to use alerts, by gender, age, race, income level, and banking behavior.
  • The seven problems with today’s alerts that FIs need to avoid.
  • How FIs can use alerts to save over $1 billion in costs.
  • The five alerts bundles FIs can offer to generate revenue and improve cost-effectiveness.
  • The next steps FIs can take to boost adoption and make alerts more valuable to customers.

Contact
For more information about this or other Javelin reports, please contact Liz Travers at (925) 225-9100 ext. 31 or etravers@javelinstrategy.com or visit www.javelinstrategy.com/research.

To arrange an interview with a research analyst and/or view available research (available to qualified members of the media), please contact Liz Travers at (925) 225-9100 ext. 31 or etravers@javelinstrategy.com.

About Javelin Strategy & Research
Javelin Strategy & Research is the leading provider of quantitative and qualitative research focused on the global financial services industry. Our extensive quantitative data and deep analyst experience enable us to forecast the direction of the financial services market and make recommendations that empower you and your business to succeed.

Javelin provides superior direction on key facts and forces that materially determine the success of customer-facing financial services, payments and security initiatives. Our advantages are rigorous process, independent position and expert people.