Gift Cards: Plastic optional

I recently spoke at a conference where Lowe’s gave $10 mobile gift cards to all the participants as a pilot.

(Disclaimer: one of my clients helped enable this process).

It was amazing to suddenly hear a chorus of chimes as the gift cards arrived on listeners’ phones during the presentation about the program.

In this case, the mobile gift card is an SMS with a link to a mobile site. The mobile site provides the gift card number and a 2D bar code for scanning at the checkout if the right scanners are present. Otherwise, cashiers simply key in the card number. In this case the gift card also uses a PIN for added security.

Both the SMS and mobile web applications allow balance and transaction inquiries so you know how much is on the card and what you’ve spent.

As with gift cards in general, I was excited to get it, then promptly forgot about it.

Last Friday afternoon, I received a text message saying:

Don’t forget to use your $10 Lowe’s mobile gift card before it expires at 11:59PM EDT Sunday May 16th!

We had a jam-packed weekend planned. We had a number of events to attend and were hosting all kinds family from out-of-state. We had no plans to go to Lowe’s, but this text message and the thought of throwing away $10, encouraged us find a way to fit a Lowe’s visit into our schedule.

We didn’t plan to buy anything from Lowe’s, but we can always think of something we need.

It turned out we left our kids with their visiting grandparents and got to the store one hour before closing on Sunday (the day the card expired). We ultimately spent $15 more than the $10 on the card for a total of about $25.

We took our stuff to the checkout, showed them the card on the phone, after the standard issues with a new payment process, the cashier entered the card number and it worked like any other gift card.

So, this process worked really well (if I can say so myself) and was even more effective than traditional plastic gift cards. In particular:

• The SMS call-to-action took a dormant gift card and turned it into more than double the revenue on the card (i.e. a $25 sale for $10 on the card).
• The card can be sent electronically and programatically. From the merchant it’s like a coupon. From a friend it’s like a gift.
• Users don’t have to remember to bring the physical card. The phone is always with them.
• The card could be used on any phone with any POS equipment
• The retailer didn’t have to pay for printing and distributing a plastic card
• The entire process facilitates expanded mobile marketing efforts

Gift cards provide a unique bridge to mobile payments because they are not connected to the rest of our financial lives. They’re not the only solution, but they add convenience and fill an expensive gap in mobile commerce.

I think we’ll see a lot more of solutions like this.

An overlooked issue in mobile banking for the developed world is that almost every implementation in the marketplace only supports online banking customers.

Wells Fargo is the only major institution in North America supporting offline customers with the SMS capabilities announced in February.

US Online Banking Adoption

Canadian Online Banking Adoption

Offline customers, as non-online banking customers are often called, are ignored because they’re more difficult to support technically. In fact, the exclusion is so complete that mobile banking adoption rates are usually quoted in relation to the number of online banking customers, not the number of overall customers or even households.  Most banks and credit unions are thrilled to have 40% online banking adoption. Therefore 10% mobile banking adoption usually means 10% adoption of 40% of customers.  I think it takes some of the excitement out of the adoption rates when you think about it that way.

The irony is that the real ROI in mobile banking is in reaching offline customers.

Fiserv/MCOM/Verisign research last fall found that 60% of offline customers were interested in using mobile services. Fiserv’s numbers also show that live agent calls typically cost an institution US$3.75 while online banking and mobile respectively cost only $0.17 and $0.08.

Customer Support Costs

So targeting mobile banking at online bankers doesn’t address the real customer support expense. Getting online bankers to use mobile saves $0.09 in support costs whereas getting an offline customer to use mobile would save $3.67 per call. Furthermore the same study found that offline users were 20% more likely to leave the institution than the broader population. This is backed up by data I’ve seen at other banks. Mobile banking customers are far less likely to attrite (leave the bank) than any other type of customer. Often the difference is quite dramatic (unfortunately I can’t share the numbers, suffice it to say I believe Fiserv’s numbers).

Sample ROI Calculation

Let’s do some back-of-the-envelope math. Let’s say an institution has 100,000 monthly live agent calls from offline customers. For many banks this would represent a household call-in rate in the single digits. Mobile banking has been shown to reduce calls by 30-40%.  At $3.75 per call, this institution would save $375,000 per month or $4.5 million annually.

100,000  monthly calls before mobile
     30% reduction in calls by mobile
  $3.67  savings per calls transferred to mobile
-------
$375,000 in monthly savings (after figuring cost of mobile support)
$4,500,000 in annual savings

Factoring in savings from attrition prevented can add millions more in returns depending upon how profitable each customer is to the bank.

4,000,000  customers
      10% "regular" attrition
       5%  reduction in attrition from mobile
----------
20,000 customers retained

$2 million in savings for each $100 in customer profitability

Banks rarely share customer profitability numbers. I would assert that $250 per customer is a conservative figure, at least historically.

At $250 profitability per customer, banks would save $5 million dollars annually from reduced attrition.  So this sample bank would save $9.5 million dollars by providing mobile banking to all customers, not just online bankers.

The next step is working through the technical and procedural complexities in supporting all your customers. Often it’s not a straightforward as it might seem. We’ve put a lot of thought into the process. Contact us if you’d like to discuss it in the context of your organization.

Donate to the American Red Cross Now!

Text “HAITI” to 90999 to donate $10 to the American Red Cross for Haiti relief. The charge will appear on your phone bill.

Mobile Commerce has taken another major step forward. And America is taking another step toward recovery. Hopefully our efforts can bring some comfort to Haiti and possibly even save some lives.

When I woke up early this morning in Cleveland, Americans had donated $1 million to help Haiti. By the time I landed and got back to my office in Atlanta, we had donated $4 million. The money is pouring into the American Red Cross at roughly $200,000 per hour. Twitter is awash with tweets to make mobile donations. Libertarian talk show host Neal Boortz was urging people to make mobile donations every few minutes.

Americans are pulling together whatever they can, even if they don’t have much, to help our friends and neighbors in Haiti. We know that no matter how little we may have, Haiti needs us, and there’s something each of us can give. The American Red Cross’ phones are jammed, but they have plenty of capacity via SMS. Some carriers have announced they’ll waive messaging fees for donations. Some on Twitter are calling for the carriers to match the donations.

Mobile Donations to American Red Cross by State

Hopefully our small efforts will be in time to save some lives in Haiti.

Doug Brown of Bank of America provided an update today on the success of mobile banking at BofA in a webcast sponsored by InformationWeek and VeriSign. Brown provided his insight on mobile banking and shared key statistics from their experience with mobile banking.

Bank of America now has over 3.5 million customers and represents over a third of all U.S. mobile banking customers. They have seen adoption increase significantly since they first went live in the first quarter of 2007. It took them 13 months for the first 1 million customers to adopt mobile banking. The second million took 9 months and the third million took 6 months. This represents an acceleration rate of roughly 30%.

Brown describes general mobile adoption as historically faster than other technologies such as telephone landlines, televisions, etc. Roughly 10% of online banking customers (30 million) now use mobile banking (3.5 million). BofA attributes their mobile banking adoption success to two key factors:

First, mobile banking is made available to as wide a customer base as possible. BofA noted that they support over 850 handsets via their mobile web application while providing native applications on iPhone, RIM, and Android platforms in addition to SMS banking. While mobile banking is limited to online bankers and isn’t available to customers in Washington State or Idaho, Bank of America’s mobile reach is far broader than most or all U.S. implementations.

Second, Bank of America embarked upon a marketing and customer education campaign to share the value proposition to end users and to alleviate their security fears. BofA has tried to completely integrate mobile banking into their existing operations to reach all kinds of customers and provide consistency to the consumer regardless of what channel they use. For example, Brown noted that mobile banking customer service and technical support is handled by the same team as online banking.

Notably, Brown described the technical support impact of mobile banking as a “non-event” that was “seamless to support.” This statement should put a lot of prospective mobile bankers at ease. Many banks and credit unions considering mobile banking are concerned by the potential impact of mobile banking on their support operations. Many bankers will be relieved by BofA’s experience as the largest mobile banking implementation in the U.S., however results depend upon how mobile banking is implemented. For example, a bank implementing SMS balance alerts with no other form of mobile banking risks dramatically increasing calls to the call center.

Mobile banking has also provided significant ROI to Bank of America. In particular, Brown says mobile banking is directly responsible for attracting 150,000 new customers. Additionally, Brown describes the type of customer mobile banking attracts as a “very valuable customer segment.” Brown describes these customers as more deeply engaged and typically using more products than average. Brown also shared some customer comments indicating how deeply customers appreciated mobile banking which creates stronger loyalty and engagement with the bank.

Verisign also provided cost figures for various channels based on a study commissioned by MCOM. Banks can find significant savings by serving customers in the mobile channel ($0.08) rather than through the contact center ($3.75), IVR banking ($1.25), ATM ($0.85) or even online banking ($0.17).

Banking service costs and channel usage

Interestingly, Brown noted that mobile banking users tend to spend more on their debit cards providing additional revenue to banks and retailers. Brown surmised that consumers can spend more confidently knowing that they have ready access to their account balance — even when purchasing on a whim. Mobile banking customers have also moved over $9.5 Billion since 2007, presumably reducing bank and consumer costs to move money. Bank of America provides payment capabilities between user accounts, to any other Bank of America customer, and through bill payment functionality. Brown described future interest in supporting point-of-sale (POS) payments, remittance, and value-added marketing such as location-based coupons.

Bank of America also uses mobile to provide additional security in other channels. Specifically, Brown mentioned that all high-value transfers in other channels like online banking require confirmation from their SafePass product on the mobile phone. Brown described the mobile phone as a unique security tool because almost everyone has a mobile phone with them and it is almost always on. Brown stated that the same anti-fraud scanning algorithms used in online banking are also used on mobile banking activity. He described mobile security as having industry-wide importance to ensure overall consumer trust in mobile commerce.

In summary, this type of specific case study is what the industry needs. 48% of webcast attendees not currently doing mobile banking cited Lack of ROI as the primary reason. Most bankers I talk to know in their gut that mobile banking will have a huge impact on future banking. However, almost every banker is struggling to build a solid business case for moving immediately, especially during the recent financial crisis.

Bank of America’s experience validates many bankers’ expectations and provides fuel for further experimentation. While sharing this data is bound to increase competition, the metaphorical tide is likely to raise all boats by increasing overall customer comfort with mobile banking and mobile commerce in general which will lower costs and drive up profits through new customers and more profitable transactions.

One of the most interesting products I saw today was from Spanish company Lleida.net. They offer the ability to get electronic signatures via SMS.

As someone who has spent a good portion of his life closing deals, I recognize the importance of making it ultra-simple to get ink onto paper.

It works like this, Lleida is licensed as a carrier in many countries including the US, Canada, and much of Latin America. You send any longer legal documents to them in advance then you ask them via SMS if they agree to the terms and reference the document. Since Lleida is a carrier they can provide a certificate of authenticity for the text and its response suitable for use in court.

So here’s a use case: You’re a company that sends lots of (expensive) paper bills each month. You can email customers with all the details about signing up for electronic billing. You can then send an SMS message asking if they want to sign up (and reference the doc you sent). If they respond YES, the SMS messages are digitally signed for nonrepudiation and sent to your operations team.

I’ve only started to think of the applications where this technology could save millions and generate net-new revenue.

I would love to hear any legal opinions out there from the US, Canada, and Latin America.

(I am not recommending this product in any way nor make any claims that it actually does any of this. I have no financial connection to this product)