The new online banks: using data to keep customers

Consumer demand for Internet banking services has sparked the creation of a number of branchless banks. Many financial services experts say these banks are heralding a new era in banking.

The branchless banks offer faster services for consumers who rely on mobile devices to access information about their accounts, products and services — anytime, anywhere. Consumers are also more likely than ever to use their smart phones and tablets to deposit or transfer funds, or apply for loans.

A 2012 Federal Reserve survey found that nearly 21 percent of mobile phone owners had used mobile banking — a form of online banking — in the past 12 months.

Ben Katz

Ben Katz, founder of Card.com, says the ability to mix different streams of data about consumers helps grow his business.

The branchless banks reflect a greater comfort with the security of mobile transactions. Security remains a concern, although the leading branchless banks have improved their methods for protecting customer information.

Building engagement

A keystone of these banks’ success has been the ability to store and analyze large quantities of information about consumer behavior. As a result they have been able to tailor their messaging in ways that have helped them engage consumers and improve service.

“Banks watch customer clicks to maintain and improve the customer experience across all digital channels,” said Tom Crosson, director of media and communications for the Consumer Bankers Association. “This data drives engagement, and the more a customer uses the online portal, the better banks can serve their needs.”

At the same time, online banks have optimized apps for specific devices, iPhone, iPad and Android, and bolstered their security measures — anticipating a common concern about online financial services. “We think the future of payments is in the palm of someone’s hand,” Card.com founder and CEO Ben Katz told SocalTech.com, a technology news service covering Southern California.

The lessons have not been lost on commercial banks that have been steadily increasing their online presence. These traditional banks also see Internet services as a way to increase business. “We are seeing less and less of a difference in the ways retail and online banks use data,” says Richard Hunt, president and CEO of the Consumer Bankers Association. “Banks are using it in the same way — whether that’s a brick-and-mortar or a purely online bank.”

Hunt adds: “I think it’s great that we know more about customers and their needs.”

Two branchless banks

Founded in 2012, Card.com offers basic banking services and prepaid Visa and MasterCard debit cards. The company targets small account holders who use mobile devices heavily. “Most people don’t need a hedge fund attached to their bank account,” Katz told SocalTech.com. “Most people just need a secure place to get their paycheck, and an easy way to spend it.”

The company segments data into three categories that cover account activity, the financial performance of the bank and customer relationship management. The company silos the data on separate servers at different data, largely to ensure its security. “By limiting our employees’ access to what they need to know, we ensure that if that person or their credentials are compromised, then only a limited set of data is exposed,” Katz says. “Similarly, if our website were compromised, someone could only get access to information needed for the website — getting access to further information requires pivoting and penetrating another set of security measures.”

Card.com markets heavily on blogs, Google and social media sites. Facebook and Twitter offer ad placement that targets mobile phone users. Katz says that one of the most helpful resources in growing the business has been an ability to mix different streams of data about consumers. “We might discover that people who order cards at 3 a.m. are only half as likely to load their paycheck onto their cards,” explains Katz .

The startup also uses data about customers’ cultural preferences to create personal customer-service experiences. Card.com has partnerships with such television and movie franchises as “The Walking Dead” and “Star Trek.” It also aligns itself with famed and iconic entertainers, placing their images on cards. “If you choose the Elvis card, maybe your hold music when you call us is ‘Jailhouse Rock,’” says Katz.

The 15-year-old Bank of Internet USA offers retail banking and loan services.

The company collects data about existing clients to determine “the most likely prospective customers,” says the bank’s CEO Greg Garrabrants. The data covers such areas as demographics and online tendencies.

Garrabrants says that Bank of Internet also works “with partner firms to develop analytical models” that determine small business loans. These services include a program to finance residential investment properties, such as small apartment complexes.

The Consumer Bankers Association’s Richard Hunt says that the banking industry is in a “transformational time.” He says that it is the first time in the history of banking where “the consumer is driving the technology. Previously it had been the banks — with the invention of checks, call centers and ATM machines. Now it’s the consumer driving the technology, and it’s happening at an accelerated rate.”

“Older demographics are expecting tech to be there just as well as younger demos. You’ll see some banks go away who don’t keep up with technology,”Hunt adds.

Lori Kozlowski
Lori Kozlowski is a Los Angeles-based writer and editor. She is a Forbes columnist, writing about innovation, startups and technology.
Lori Kozlowski
Tags: IT Security,Technology