A Lesson In Mobile Banking Economics

A Wall Street Journal article titled Mobile’s Rise Poses a Riddle for Banks is so off the mark, I simply can’t let it slide. According to the article:

“A waitress from Queens, NY, Ethel Bueno keeps her phone close at all times and frequently logs on to her bank account to check her balance. But for bigger and more-complex transactions, which often require fees, Ms. Bueno prefers to visit a bank teller in person. That means her digital devotion to the bank doesn’t actually generate much revenue, a puzzle firms across the industry are still trying to solve. According to a new study by Bain, mobile [bank] interactions are now 35% of the total, more than any other type. A 2012 Fiserv report found that digital transactions cost on average 17 cents each, compared with 85 cents for an ATM transaction, and $4 for an interaction with a bank teller.” (italics added)

My take: Blind faith in the contention–and numbers–thrown around in this article is sheer stupidity.


If you read the full WSJ article, you’ll find that the two bank execs quoted are anything but puzzled about mobile banking. So how the author of the article concludes that mobile banking is a “puzzle” that banks “are trying to solve” is beyond me. Did anybody mention to the WSJ that the transactions being conducted on a mobile device for free were actually free when they done in a branch or ATM?

If anything, it’s a gift on a silver platter. Who cares if it doesn’t generate revenue? The cost savings that are implied by the channel transaction costs should more than compensate for the fact that the mobile transactions don’t generate revenue.


Assume for a moment that there’s a bank whose customers conduct 1,000,000 transactions per year. The WSJ article didn’t include estimates for call center transaction costs, so let’s assume they’re somewhere between the ATM and branch, at $2.50 per transaction.

Now assume the following transaction allocation, first before the implementation of digital banking (online and mobile) banking, and then now, with 35% of the transaction volume going to mobile (and for argument’s sake, another 15% coming from online transactions).

    Before After
  Per transaction cost Transaction allocation Channel costs Transaction allocation Channel costs
Digital $         0.17 0% $                  – 50% $        85,000
ATM $         0.85 10% $        85,000 8% $        68,000
Call center $         2.50 25% $      625,000 10% $      250,000
Branch $         4.00 65% $  2,600,000 32% $  1,280,000
TOTAL     $  3,310,000   $  1,683,000

In the Before scenario, based on the assumed transaction allocation, total costs are ~$3.3 million. In the After scenario, with digital transactions at 50% of all transactions (35% for mobile, 15% for online), the increased allocation had to come from somewhere, so ATM and call center percentages declined slightly. And with the impending death of branches (hey, that’s what all of you think, not me), the % of transactions going to branches declines from 65% to 32%.

Overall, the cost reduction from this jump in mobile transactions–based on the lower cost per transaction–should produce a 50% reduction in transaction costs. Good luck finding a bank whose has reduced their operating costs by 50% because of this explosion in mobile banking transactions.


But clearly, what’s happened, is that digital transactions have not fully displaced transactions in other channels, but have added to the overall transaction volume.

Now here’s what’s important, and what way too many bankers either can’t understand, or refuse to understand: It doesn’t matter how much less expensive digital transactions are than transactions in other channels if the digital transactions don’t displace those other channel transactions.

If digital transactions are additive, then even at just $0.17 per transaction, every digital transaction adds to the bank’s cost structure and is a drag on profitability. Conclusion: Per transaction costs by channel are meaningless if channel migration doesn’t occur.


There’s another problem with those channel transaction costs: They’re averages of all the transactions that occur in the channel. Some branch transactions will cost much less than $4 per transaction, and some will cost more.

If the branch (as well as call center and ATM) channel transactions that are displaced by digital transactions are the lower cost transactions, then the potential cost savings is even further reduced.


From a cost perspective, there are two key elements in mobile banking economics: 1) How many transactions are displaced from higher cost transactions, and 2) How many new transactions are added?

If the migration from higher cost channels doesn’t occur, of if the migration is from online to mobile (which is entirely possible), then there’s little economic benefit. If many new transactions are added, then even with a low cost per transaction, overall costs go up.

According to the Bain study, mobile transactions now account for 35% of all transactions. In other words, a minority of consumers (what, ~25%?)–who presumably are not mobile-only customers–are now accounting for a hugely disproportionate percentage of all banking transactions. That tells me that this minority must be adding a huge number of new transactions to the mix. Which implies that mobile banking isn’t saving banks anything, even with the huge disparity in per transaction costs.


The riddle (i.e, the challenge) that banks face–if there is one–has nothing to do with mobile banking. It has to do with the other channels. What can banks do to drive transactions out of those channels and into the lower costs channels?

Branded Content From Banks And Credit Unions

In a paper titled Identity and Opinion: A Randomized Experiment, researchers wrote:

“Content and identity are inextricably linked in social media. Facebook, Twitter, Linkedin, Pinterest, Reddit, Netflix and Amazon all provide identity cues that affect users’ link formation decisions and choices about who to follow for the best content. [This] raises an interesting question: To what extent are opinions about content influenced by features of the content itself or the identity of the user associated with the content? [The results of] a large scale field experiment show that identity effects exist and vary with a content producer’s reputation, activity level and reciprocity with the viewer.”

My take: This research has important implications for banks and credit unions deploying content marketing strategies.


In a previous post here titled Content Marketing For Banks, I wrote about one bank’s efforts to pursue a content marketing strategy.

According to an article in American Banker, a rather large bank “is launching a new online magazine with a goal of driving more traffic to its website.” According to an EVP at the bank, “we’re tapping into the growing trend toward trusted sources for news and information and doing it in a way that will drive new and more frequent visits to our public site.”

The article went on to say:

“The digital publication will feature branded editorial content, including promotions for the bank’s events, market data, personal finance tips and lifestyle stories on style and health.”

I had some issues with the goal of driving site traffic, and questioned whether or not the bank really thought through what kind of content would truly be effective in producing business benefits. But the academic research cited above raises another important question for banks and credit unions to consider: What, exactly, is “branded content”?


The AB article’s description of the bank’s efforts implies that the bank will be producing and distributing content under the aegis of the bank’s brand. What the academic research implies, however, is that consumers’ perceptions of the content will be influenced by the strength of the bank’s brand. In other words, content itself can have a brand–a brand that is shaped not just by the objective quality of the content, but by the brand of the producer of the content.

Yet, it seems likely to me that the bank in the AB article–as well as other banks and credit unions deploying content marketing strategies–is expecting that producing content will enhance the organization’s brand.


The research cited implies–if not outright indicates–that this is a multi-step process. Perceptions of content quality are influenced by the producer’s reputation (and degree of interactivity). But that reputation had to be built somehow, presumably by producing high quality content. The key questions–unanswered in the research study–are:

  • What was it about the reputable content producers’ content that led to the strong reputation?
  • What “level of activity”–i.e., frequency and duration–is required to develop a strong reputation?


Bottom line: A half-assed approach to content marketing is a prescription for failure.

Half-assed from two perspectives: First, from the perspective of content production. It seems very unlikely to me that the brand development that can occur from content development and distribution won’t happen after a month, and might even take years (hell, it’s taken me 8 years and 950+ posts to get Snarketing where it is).

But half-assed from another perspective: An institution that doesn’t create and nurture an overall brand image consistent with one that relies on content marketing, and consistent with the content produced, isn’t going to get the full bang for the buck from its content marketing efforts.

The big “aha” here is that banks and credit unions that turn to content marketing to enhance the brand must recognize the fact that the strength of the brand influences consumers’ perceptions of the content.

And sorry, folks, but anybody promising to show you “best practices” in financial services content marketing is probably only showing you interesting pieces of content–and not showing you how non-content related branding efforts setup, created, and/or reinforced the content marketing strategies.

Content Marketing For Banks

A recent American Banker article states (with the name of the bank anonymized because I’m a wuss and don’t want to be seen as picking on the bank):

“Big National Bank in Big City is launching a new online magazine with a goal of driving more traffic to its website. ‘We’re tapping into the growing trend toward trusted sources for news and information and doing it in a way that will drive new and more frequent visits to our public site,’ said an executive vice president at the bank.”

My take: If you don’t see anything wrong with this, you haven’t sufficiently thought through your organization’s content marketing strategy.


What’s wrong with what the bank is doing? For starters, having a goal of “driving more traffic to its website.”

If you’re Amazon, and you sell lots of things on your site, then driving people to your site is a worthwhile goal. If you’re an online magazine, and the rate you charge advertisers goes up based on your website traffic, then driving people to your website is a worthwhile goal.

But for a bank, why is driving site traffic a good thing? Are people really going to open more checking or savings account because they visit the site more often? Are they really going to deposit more money, or put more money in an investment account, because they visit the site more often?

You’re going to have a tough time proving that the answer to those last two questions is “yes.” You might have data that shows that customers who visit your site more often own more products and have higher balances–but that doesn’t prove that visiting the site more often caused the product behavior.


Here’s another part of the article:

“The digital publication will feature branded editorial content, including promotions for the bank’s events, market data, personal finance tips and lifestyle stories on style and health.”

Does “branded” content mean it’s original content? If so, I can only imagine how much the bank will have to spend to develop original content regarding market data, personal finance tips, and lifestyle stories. All for what? Driving people to their website. The ROI on this investment–if indeed, the content is original and fresh for the publication–seems pretty shaky to me.

It also seems to me to be a big bet–even if the content is fresh and original–that the content will be truly be better and different than the hundreds (if not thousands) of other sources of financial content regarding personal finance and market data.

And I trust that the bank did its homework and confirmed that its customers really want lifestyle stories on style and health from the bank. I’d find that hard to believe, but hey, it’s possible.


Bottom line: I can’t help but conclude that the bank in question–and, in all likelihood, plenty of other banks, as well–hasn’t figured out if content is simply fodder to engage customers that leads them to do something else (whether it’s visiting the website or some other truly desirable behavior), or if the content is valuable in and of itself.

All content is not created equally. Some content is effective at leading the audience to take action. Other forms of content, however, is valuable to the audience in and of itself. That is, just producing or distributing the content provides value to a customer or prospect.

Unique content can fulfill the latter role, but isn’t guaranteed to. Re-purposed, re-branded content might support the former role (i.e., driving desirable behavior), but isn’t guaranteed to. Not figuring out which content marketing strategy you want to pursue is guaranteed to do one thing, however: Cause you to fall short of your marketing goals.


People read Wired or Quartz or whatever they read because they like the content–and because they can’t find that type of content, and that quality of content anywhere else. In other words, the content from those publications is valuable in and of itself. The content from these publications isn’t designed to produce residual behavior.

In the financial services space, there’s no shortage of content available. For the bank described in the AB article to develop some new and different is a huge task. Why not simply curate the overwhelming volume of content already out there for well-defined customer segments within the bank (because not all content will be seen as equally valuable to all segments)?

Big Changes In Snarketingville

This week marks the 8th anniversary of the first blog post I ever wrote. It was titled CYA (Count Your Assets) and had something to do with the need for marketing departments to identify and quantify their assets–sales, information, and infrastructure assets–in order to demonstrate marketing’s contributions, analyze spending patterns, and evaluate marketing’s efficiency. The post has received about 40 hits in eight years–including one this year. Woot!

It’s likely that few of you know the history of Snarketing 2.0 (as the 2nd subscriber, @dmgerbino does). It’s also likely that even fewer of you care to know, but I’m going to tell you anyway.


Back in December 2006, when I started blogging, the blog was called Marketing ROI, because I thought people would search on that term and find my blog. Yes, I was a clueless idiot.

After a couple of years, I renamed the blog the Marketing Tea Party, trying to evoke both the Boston tea party and the Alice in Wonderland tea party. My timing couldn’t have been worse, coming just months before “tea party” became a household once again in the US. Yes, this was a dumb ass move.

After a while, it dawned on me that I might be losing readers turned off by the political connotations (despite the lack of connection). “Screw them!” (the people who wouldn’t read my blog, not the tea partiers) was my prevailing thought, but not a good marketing decision. So, in December 2011, I renamed the site Snarketing 2.0. Not that there was ever a 1.0, but nobody wants to read anything with 1.0 in its title. Finally did something right with the blog.


Blogging life has been good here at Snarketing 2.0. Named #1 blog for financial services marketers by The Financial Brand in 2013. Listed as one of the 25 best marketing blogs by Radius in 2014. Good stuff. Very proud of that.

Come the new year, however, there will be some big changes here in Snarketingville. Starting January 5, 2015, Snarketing 2.0 will become a column on The Financial Brand. Snarketing 2.0 will no longer be a standalone blog.


At this point, you might have one or more questions like:

  • Who cares what you do with Snarketing 2.0?
  • Why would you fold your blog into The Financial Brand? and
  • What should I have for lunch?

I don’t know the answer to the last question. Or the 1st one for that matter. I’m not sure even my mother cares. Actually, I don’t think she knows that I have a blog.


As for the 2nd question, I might have some answers. What Jeffry Pilcher has done with The Financial Brand in the past few years is nothing short of incredible. It isn’t just the premier publication for financial services marketers, it’s becoming the premier publication for financial services. Period.

Incorporating my blog into The Financial Brand is an attempt to get in front of a wider audience, especially at a time when I have a book coming out, and am looking to increase the number of speaking engagements that I do.


I’d be lying if I said I didn’t have some reservations. I get to do what I want with this blog–for better and worse. I’ve got complete control over how this blog looks. Which, of course, is why moving my blog into Financial Brand is a good move, because as you can clearly see, I am clueless when it comes to site design.

And I have to admit to fears of being lost in the sauce at The Financial Brand. On this blog, I’m the big fish in the pond. Actually, I’m the only fish. It’s my pond. At The Financial Brand, I’m just another fish in the pond. I’ll be a piranha, however, so those other fish better look out.

As for editorial control or influence, I’m giving up nothing. In the discussions about the move, I recall The Financial Brand asking me to not bad-mouth the advertisers. I said “OK, as long as they don’t do or say anything stupid.” I think the response was “That seems fair.”


If you subscribe to this blog, thank you. I’m not sure yet how it will work, if you’ll still get notifications or the posts through email, if that’s how you get them today. I’m working with The Financial Brand to figure out how to make this as seamless as possible.

Thanks for reading. See you (soon) at The Financial Brand.

Riding The Waves Of The P2P Lending Market

Congrats to all involved with the Lending Club IPO. This is what it’s all about: Building something from scratch, enduring the ups and downs, then going public and making a boatload of money.

I’m no Wall Street analyst, so I couldn’t tell you if the ~$8.5 billion valuation that Lending Club (LC) hit at the end of its first day of trading is a fair assessment of its current or future value. But what I can tell you is that there are people who are deceiving themselves about what Lending Club is, and what its future prospects are. The delusions are reflected in articles like CNBC’s How LendingClub Aims To End Banking As We Know It, which states:

“LendingClub is setting out to transform the banking world. To get there, it’s following a playbook popularized by some of the world’s biggest tech companies. Any true comparison between LendingClub and the world’s most valuable tech companies is premature, of course.”

I guess any “true” comparisons between LendingClub and the world’s most valuable lending and investment providers aren’t comparisons worth making, eh?

My take: The conditions which made Lending Club possible and got it this far are temporal and likely to change in the next few years–to LC’s detriment.


First of all, can’t somebody out there come up with a better term for what Lending Club is than calling it a “peer-to-peer” lender? The institutional investors providing funds on the marketplace are anything but “peers” to the people looking to borrow money on the site.


There are two conditions that have enabled Lending Club to exist and prosper (get it?). The first is a pool of investors that would like to get a better return on their available capital than what they can get from other (i.e., existing) investment alternatives.

The second is a pool of borrowers who need funds and are willing to pay a higher rate than they would have to pay elsewhere, or, more likely, that need funds and are unable to get those funds from other (i.e., existing) sources.

The size of these two pools–and their willingness to use Lending Club to meet their needs–have been sufficiently large, and growing over the past few years to fuel Lending Club’s growth and drive the IPO.


The questions to answer are: 1) Why did these pools grow over the past few years? 2) Will they continue to grow in the future?

The investor pool grew largely because of two reasons: 1) incredibly low interest rates, making it hard to find acceptable returns, and 2) even in the face of an increasing DJIA, professional money managers are always looking for superior returns to outshine the competition.

Why did the borrower pool grow? Because the economy sucked, and, to some extent, because some  (many?) individuals are mismanaging their financial lives–many are, or have been, unable to pay off existing loans and credit card balances. In fact, 83%of Lending Club borrowers report using their LC loans to refinance existing loans or pay off their credit cards.

Reported Loan Purpose

20141215 LendingClubSource: Lending Club


So what happens going forward? It mostly depends on the state of the economy, the direction that interest rates go in, and the P2P lending market itself.

If we experience a period of economic prosperity, and people are more able to pay off their loans and credit cards, Lending Club may very well see a steep drop in loan volume. Roughly 62% of Lending Club’s 2014 loan volume came from borrowers with a Grade C or lower rating. What happens when the economy improves and the Gen Y population–who start off adult life with lower credit scores and grades–mature and move into higher creditworthiness classes? Is there another pool of risky borrowers to fill the void? And if interest rates rise, could the rates that borrowers must pay on the LC platform might be even too high for them to stomach? Grades E, F, and G are already paying interest rates in excess of 20%. We’re getting close to payday lending territory, no?

Will the investor pool grow? This is comprised of two components: 1) the number of investors, and 2) the amount of funds those investors put into the marketplace. I can’t talk to #2, but it seems likely there are limitations to the number of investors who can or will participate in LC. As the marketplace has grown, competition to fund the best borrowing opportunities has grown, and has even spawned new companies who help investors identify their best opportunities. As a result–much like the stock market itself–professional investors have an edge over individual, amateur investors. As a result, the number of individuals investing in LC will likely remain capped.

And with a first day valuation of $8.5 billion, I’m guessing that venture capitalists across Silicon Valley are firing up their bongs and thinking “Dude! I gotta invest in one of these pee-pee lending marketplaces!” And that means more competition for Lending Club. Increased competition will likely result in some erosion of LC’s overall share.


Claims that Lending Club is “disruptive” or that it will “end banking as we know it” are so totally ridiculous that it has to make you wonder what the claimants were smoking when they made these claims. Lending Club is a niche player in the lending market, a fringe player.

According to the Federal Reserve, consumer loans issued by the 100 largest banks (ranked by assets) grew 6.5% between Q1 2012 and Q3 2014 to nearly $1.18 trillion. From the 2015 Financial Brand Marketing Survey, 43% of respondents indicated that their FI’s loan volume increased by more than 10% in 2014 over 2013 levels.

Disruption? Ending banking as we know it? Hardly. More like creating a niche somewhere between credit card borrowing and payday lending.


Bottom line: I can’t tell if you $8.5 billion is a fair valuation for Lending Club. What I can tell you is that, if and when the economy improves, it’s going to face some stiff challenges.

That said, I would love to have a ride on the boat.

Does Your Bank Need A Chief Ethics Officer?

In an article titled To Restore Trust in Banks, Build Ethics into Business Decisions in American Banker, the authors wrote:

“If a bank decides to have a formally designated individual (i.e., Chief Ethics Officer) with principal ethics responsibility, what steps should it consider to make the role effective? Such an executive could update and promulgate the company’s ethics policy and be responsible for training employees about their ethical responsibilities. He or she could help to illuminate decisions about what is “right or wrong,” even where there may be a legal argument to justify an institution’s proposed products, pricing or conduct. He or she also could be the senior officer to whom whistleblower complaints would be directed. The ethics officer might also be charged with identifying and investigating wrongdoing involving individual conduct to help ensure that the institution’s ethical culture is grounded in ethical behavior and not simply an abstract policy. In addition, he or she could be an advisor on products, services and programs, evaluating them in the light of fairness to their intended users.”

In many of these potential roles and responsibilities, there’s a strong whiff of “after-the-fact-ness,” meaning that the involvement of this chief ethics officer would come after some potentially unethical behavior was committed (with the exception of the training role).

A better solution would prevent unethical behavior (although, if you read my prior post on financial education, you might guess that I don’t think ethics education would be particularly successful). And, in fact, not only is that implied by the title of the AB article, but the authors write:

“One alternative or supplement to appointing a single officer to champion ethics is to require that bank decision processes explicitly incorporate ethics—whether the bank “should” as opposed to whether it “can”—into major decisions on products, programs and business initiatives. Especially given the subjective nature of ethical requirements, making ethics decisions part of a process that will incorporate the views of multiple executives may assist in capturing a broader corporate consensus.”

Sounds like a good idea, but seems impractical. The recommendation implies that many decisions that involve an ethical choice can be easily identified and isolated. That’s way too simplistic an assumption.


Every “issue du jour” in the business world produces calls for a Chief Fill-in-the-blank Officer. We’ve seen Chief Reengineering Officers, Chief Knowledge Officers, Chief Customer Officers, Chief Innovation Officers, Chief Security Officers, Chief Data Officers…and the list goes on and on and on. These calls rarely address some important questions, however:

  • How much budget should Chief Fill-in-the-blank Officers get to do what they’re supposed to do?
  • What are the limits, boundaries, goals, and metrics for these positions?
  • Are these permanent or temporary roles?

Lots of questions about these Chief roles, and yet the pundits who write articles advocating for the creation of these positions never seem to have any answers to the questions.


The authors of the AB article are lawyers, and they write:

“In some banks, general counsels are considered de facto ethics officers (and sometimes even hold the title of chief ethics officer).”

There’s a lawyer joke in here somewhere, but I’m going to let it pass, because I know that someday I may need a lawyer to get me out of trouble, and the last thing I need is some lawyer saying “oh, you’re the guy who made that nasty lawyer joke in a blog post back in December 2014.”


Another thing that bugs me about the “Chief Ethics Officer” proposal–as well as some of the other recommendations in the article–is that there is no root cause analysis regarding the ethics problem.

How can you know what the solution to a problem is if you haven’t defined the causes of the problem?

So what are the possible root causes of an ethics problem in banking? I’m going to need your help to come up with some more, but I can think of a few possible explanations off the top of my head:

1) Bankers are inherently corrupt cretins.

Sadly, I know there are people out there who believe this to be true (I’m thinking specifically of two Twitter buddies, neither of whom I will mention by name). We’ve been though this before. It’s not true–despite some folks’ misguided notions.

2) Banks’ cultures nourishes unethical behavior.

The authors of the AB article–like many other observers writing on the subject of bank ethics–raise the subject of a bank’s culture:

“The ethics officer might also be charged with identifying and investigating wrongdoing involving individual conduct to help ensure that the institution’s ethical culture is grounded in ethical behavior and not simply an abstract policy.”

This doesn’t get at the root cause, because there must be something that influences and shaped the culture in the first place. Like having a workforce comprised on unethical, inherently corrupt cretins. Which isn’t the case.

3) Bankers have incentives to engage in unethical behavior.

The problem (the root cause) is one of risk vs. rewards. The rewards for unethical behavior are greater than the risks of getting caught (or, at least, the perceived risk that one will get caught). When the perceived reward is greater than the perceived risk, people will engage in behavior to reap that reward.

If #3 is the root cause–and I believe it to be, at least, more so than #1 or #2–then the “fix” needs to be something very different than a Chief Ethics Officer running around promulgating policies, sanctioning lapses, and listening to whistle blowers.

The fix needs to be an adjustment of the rewards (i.e., compensation and incentives) and risks (penalties). In other words, it isn’t the legal department that’s important to the fix–as the authors of the article propose–but the HR department.

Unfortunately, this is anything but an easy fix. Changing the rewards/compensation structure organization–especially an organization like a large bank–borders on the impossible.


Being perceived as as unethical is not a desired image for any bank, so–from my parochial view–this becomes a marketing problem, because of the public relations and market perception implications.

So maybe the Chief Marketing Officer–and not the general counsel–should be the de facto Chief Ethics Officer?

Just as there is a risk/reward tradeoff that influences an individual’s behavior, there is a risk/reward tradeoff at the organizational level, as well. This is probably why unethical behavior persists in the industry–the downside of paying fines doesn’t outweigh the revenue gains of the behavior in question.

Marketers could model and address this. Is there an overall benefit to being perceived as honest and ethical, at an aggregate market level that could outweigh some potential gains in a few opportunities that are won with unethical behavior?

Even if that were impossible to do, if the Chief Marketing Officer is responsible for creating awareness and affinity for the organization through advertising and marketing efforts, shouldn’t that executive be responsible for preventing the actions that erode the positive affinity?

(Don’t think I don’t know that I’m going to get little support for making the CMO the chief ethics officer).


Bottom line: So I don’t know what the answer to fixing the “ethics” problem is in banking. What I do know is that creating a Chief Ethics Officer position isn’t likely to fix much. And it especially won’t fix much if the bank creating the position doesn’t first figure out what it’s trying to fix in the first place. 

I also “know” one other thing: From 30 years of consulting, I’ve come to believe that, in most cases, lawyers are usually not the solution to a business problem. I really don’t mean that as a slight to lawyers. My point is that I believe that the fix to most business problems is more operational in nature, rather than legal (or regulatory, for that matter).

Financial Education In High Schools: A Waste Of Time

The CU WaterCooler recently featured a DailyFinance article titled It’s Time to Teach Financial Literacy in High School which included the following:

“Seventy [percent] of incoming college freshman told us that they have never been taught basic financial literacy skills. Yet, they are signing up for student loans, opening credit cards and making decisions that will have a serious impact on the rest of their lives.

Why don’t we do more to help our children prepare for a financial world that can be extremely expensive when not understood properly? As a society, we spend a lot of time, money and effort helping prepare our young people for college.

Yet, for some reason, we do not spend a whole lot of time educating potential college students on the less exciting topic of financial literacy, which is the elephant in the corner. More than 90% [of students in a Brooklyn College financial education course] wish that they had more financial training earlier in life, preferably in high school.”

My take: Teaching financial literacy in high school is a waste of time and money.


Imagine that you would like to learn how to play tennis, and that I, an expert tennis player and teacher, agree to give you lessons.

I tell you to meet me at the local Starbucks, and being the really good guy that I am, I buy you a coffee (the cost of which I will more than recoup when you get my bill for the tennis lessons), and we sit down in a couple of adjoining comfy chairs.

I then spend the next hour telling you about the various shots that are used in the game of tennis, and I tell you what you have to do to hit them properly. I might even open up my Macbook, log on to that free SBUX wi-fi, and show you some videos of tennis greats like Borg and McEnroe to show you how it’s done. And let’s say we repeat this SBUX meeting once a week for the next 12 weeks.

At the end of the 12 weeks, do you really think you will have learned to play tennis? Hell no.


And therein lies why teaching financial literacy in high school is a waste of time. Financial literacy requires “on-the-job” training. You can’t learn it in a classroom. Fictional, theoretical situations and decisions simply can not replace–nor simulate–the decisions that need to be made in real-life.

It’s pretty easy to sit in a classroom and say you’re going to give up SBUX 2 days a week in order to save $XXX over the course of a year. Or say you’re going to pay off that credit card bill in order to avoid interest payments and build your credit score. Good luck making those decisions in real-life.


Another reason why high school education is a waste: Because high school students couldn’t care less about financial education.

If a school offered financial education, do you know why a guy would sign up for it? If some girl he’s into signs up for it.

Do you know why girls would sign up for it? I have no idea. I was hoping you could tell me. I have a wife and three daughters and I’ll be damned if I can figure out why they do what they do.

Sure, you can survey the small handful of college students who signed up for a financial education class, and find that they said they would have liked to have received that education in high school. But how representative are they? And would they really have signed up for the class in high school?


You simply can not take someone who isn’t out there earning money, paying bills, and trying to start and raise a family, and expect to teach them what they need to learn about financial management six to eight years before they they need that education.

In 2013, I surveyed US consumers about how their financial lives how changed from pre-recession to recession to post-recession. I asked about their level of financial literacy and how it changed over the years. By generation–splitting Gen Yers into younger (21-26) and older (27-34) subsegments–here are the percentages of consumers that considered themselves to be financially literate in 2013 and in 2010:

          Younger Gen Y     Older Gen Y     Gen X     Boomer     Senior
2010          24%               30%          42%        58%        68%
2013          47%               51%          57%        57%        72%

The Younger Gen Yers did a lot of financial growing up between 2010 and 2013 when they started off in the 18-23 year old range.

Clearly, it would be better if these percentages were higher–across the generations. But I doubt that financial education in the high schools would have had much impact on them. It was being out in the real that provided the real financial education.

The data suggests, however, that there is a group of consumers–in every generation–for whom real-life experience isn’t enough to teach them what they need to know about managing their financial lives. What distinguishes these consumers from others?


My first guess was that household income might be a good predictor of improved financial literacy between 2010 and 2013. But that didn’t pan out.

Improved financial literacy between 2010 and 2013
Young Gen Y (21-26) Less than $30,000 59%
$30,000 to $44,999 71%
$45,000 to $69,999 43%
$70,000 to $99,999 50%
$100,000+ 53%
Old Gen Y (27-35) Less than $30,000 45%
$30,000 to $44,999 48%
$45,000 to $69,999 43%
$70,000 to $99,999 47%
$100,000+ 32%

Among Young Gen Yers, a larger percentage of lower income consumers said their financial literacy improved between 2010 and 2013. Among Older Gen Yers, the percentage that said their level of literacy improved was fairly consistent across income brackets. Surprisingly (to me, at least), I didn’t find significant differences by level of education, either.


I thought maybe the use of online personal financial management tools (e.g., Mint) would predict the difference between those whose literacy levels improved and those who didn’t. Sadly, it didn’t. Neither did the use of financial self-help books or watching/listening to financial shows like Suze Orman.

The one factor that I did find to help explain the difference? Turning to a bank or credit union for help in managing their financial lives. Across each of the generations–all five of them–a significantly larger percentage of consumers who got help from their bank or credit union increased their level of financial literacy than consumers who didn’t.


Improving financial literacy (across all consumer segments, not just the younger ones) is certainly on the radar of some FIs. An early peek into the 2015 Financial Brand Marketing survey shows that about one in four FIs plans to make financial education one of the areas that they will heavily market in 2015 (I don’t have a bank/credit union split on that just yet).

But if the focus of these financial education efforts is going to be heading out to high schools to get a bunch of 16 year-olds up to speed on how to manage their financial lives when they hit their mid-2os, I’m betting those efforts are going to be nothing but a big waste of time. And money.


The health care system has made one notable change over the past 20-30 years that the financial services industry needs to emulate: A focus on outcomes.

The focus, in financial services, should be on financial health, not literacy or education. Being financially literate is like learning how to play tennis while sitting in Starbucks. You can pass a test, but it doesn’t mean you’re any good at it. And education may very well be what’s required to become literate, and achieve financial health–but without a measure of health, there’s no way to tell if the education was effective. 


The CFSI gets this. In an article titled The Future Is Financial Health, CFSI CEO Jennifer Tescher wr0te:

“We need to redefine financial services from the pursuit of wealth to the pursuit of health.”

I disagree a bit with this. “Financial services” is a broad category, and there are segments of the industry (brokerages, asset management, wealth management) where the pursuit of wealth is the correct focus.

But for retail banks–who need to regain trust, develop products that appeal to financially-educated young consumers, and find new, more profitable business models–Jennifer’s comment may very well be spot-on.


CFSI is spot on about something else, as well:

“Financial health is not a purely subjective matter. We have begun to identify key indicator variables, including both subjective and objective measurements. Over time, we will learn how factors like debt levels, savings, access to planning tools, and self-assessments of financial health fit together and how financial services innovation can bolster financial health.”

What’s needed is a FinScore. What CFSI is planning to do may very well become that score.


Bottom line: I realize that financial education is one of those “motherhood and apple pie” subjects. How dare anyone bad mouth financial education! But spending time and money on financial education for high school students is a waste of that time and money. That time and money is better spent elsewhere–specifically, on people already out of school.

p.s. Correct me if I’m wrong, but isn’t the title of the Daily Finance article grammatically incorrect? You don’t “teach” literacy, do you? Literacy is a result, or outcome of teaching, not what is being taught.

Putting The Fizz In Apple Pay

In an article titled Why Apple Pay Is Fizzling and What It Means for the Future of Mobile Payments, MPD founder David Evans writes:

“Apple Pay is fizzling. And unless it drastically changes course Apple Pay will follow the hundreds of other attempts, made around the world in the last seven years, that have sputtered along at low levels of use or, much more frequently, have just flat-out died. The evidence from Black Friday confirmed my fears. InfoScout did a survey of 400+ people who (a) had IPhone 6s and therefore could have had Apple Pay on their phones who (b) were paying at stores that had NFC terminals that accepted Apple Pay. So these are 400+ people who could have paid with Apple Pay. Less than 5 percent did.”

My take: It’s way too soon to be calling the death of Apple Pay.


Take a look at the following charts showing iPod sales.

Pronouncing the failure of Apple Pay in December 2014 is akin to proclaiming in Q1 2002 that the iPod would be a failure.

And there were plenty of reasons–two-side reasons as Mr. Evans might call it–to support an iPod death notice in Q1 2002: Consumers didn’t know what it was, there was no music no buy online, anyway, they were perfectly happy buying CDs (and certainly wouldn’t want to have to throw away all those CDs they had amassed). On the other side of the coin, music publishers and the stores that sold those CDs certainly had no vested interest in supporting the sale of iPods.

I would imagine that a survey of 400+ people who bought music back in Q1 2002 might show little interest in something called an iPod.


The InfoScout survey may very well be a representative sample of iPhone6 owners, but are existing iPhone6 owners representative of the overall public?

In addition, it seems very unlikely to me that a primary reason for those people who rushed out to get an iPhone6 was the Apple Pay feature. So what should we expect from the 400+ iPhone6 owners who were surveyed?


The point (put forth by Mr. Evans) that Apple Pay can’t be used at 98% of merchant locations isn’t a compelling death knell, either. Last I checked, both American Express and Discover were not accepted everywhere. They’re not dead.

It doesn’t matter how many places accept Apple Pay–it matters which places accept it.


Payments isn’t really a two-sided market. It’s more of a three-sided market: consumers, banks, and merchants (and I can’t help but wonder if, when talking about mobile payments, I need to throw in the telcos, and make it a four-sided market). All of which just makes any change in the market harder–and slower–to come by.

The “hundreds” of other attempts that have sputtered or died had, or have had, insufficient support from the constituents in the market. Many have tried to simply garner consumer support without sufficient support from the banks or merchants. Or have presented delusions of interchange reduction to the merchants, without any game plan for winning over consumers, and figuring the banks would roll over and play dead.

Sure, Apple Pay hardly has the support of many merchants–at the moment. But the lack of merchant support isn’t the same across the board.

A large percentage of the 98% that don’t currently accept Apple Pay may never accept any form of mobile payment, and who really cares, since a large of percentage of that 98% represent maybe 0.1% of all sales.

The “merchants that matter” fall into two (overlapping) categories: 1) Those that represent a good percentage of retail sales, and 2) Those where current and future iPhone6 owners shop at and buy from.

It’s the latter category that I don’t hear a lot of the pundits talk about. Everybody wants to focus on the MCX merchants not accepting Apple Pay. But Apple Pay can drive payment volume by following the Amex strategy–not accepted everywhere, but by enough of the places where Amex cardholders shop at. Case in point: Whole Foods.


Bottom line: I hate bad analogies, but I won’t let that stop me from giving one. Apple Pay isn’t a carbonated beverage losing its fizz. It’s more like a wine that needs to be aged.

The “aging” process for Apple Pay does involve a lot of moving parts: iPhone6 adoption, changing consumer behavior, bank (and credit union) support, and merchant acceptance (reluctant or not). In a three-sided market, strong support from two of the sides will probably be enough to bring along the third (even if it is kicking and screaming).

Which is why MCX is DOA. It’s all about one side of the market–the merchants. It can talk all it wants about how it’s supposed to be good for consumers, but that message has little meat to it.

Apple Pay, on the other hand, will provide additional convenience to some consumers and may provide other benefits in terms of yet-to-be developed features (for examples, see The Mobile Moments of Opportunity), gives a huge boost to banks (i.e., keeps them in the game), and is promised to benefit all parties in terms of reduced fraud.

That said, just because you let a wine age a few years doesn’t necessarily make it a good wine. But it’s simply too soon to say Apple Pay is “fizzling.”

NOTE: Thank you for reading this post. If you work at a financial institution, please help me out and take just a few more minutes of your time to complete the 2015 Financial Brand Marketing survey. For your time, you’ll receive at least two reports that I know you’ll find interesting and helpful. And you’ll get a discount on the registration fee to the 2015 Financial Brand Forum. Thanks!

Why Consumers Should Fear Mobile Banking

The Financial Brand recently reported on a study conducted by GOBankingRates which found that a little more than half of consumers–56%–indicated that they have a “main concern” about mobile banking.

My take: The survey really goes to show how clueless people really are.


Let’s take a deeper look into some of peoples’ “concerns” with mobile banking.

Less than a handful (3%) of respondents cited “no paper documentation.” I’m sure these people don’t buy anything online, either, because there’s no paper documentation with those transactions. If there are 3% of people in the world who will only transact face-to-face so they can get a paper receipt, so be it. I think banks can live without having these folks as mobile banking customers.

Seven percent of respondents listed “misuse of personal info” as their main concern. Apparently, these people haven’t heard about any of the data breaches that have hit Target, Home Depot, and the gazillion other merchants who have been hit. Bet these 7% still have no problem using their debit and credit cards when they make those face-to-face purchases.

Nine percent said “technical errors” were their main concern with mobile banking. These people are actually on to something. Fear of technical errors is my biggest concern with banking–not “mobile” banking, but banking altogether. Of course, the last time I had a problem with my bank, it was a matter of “human” error–not technical error–and I was the human who made the error.

Far and away, the largest percentage of respondents with a main concern regarding mobile banking was the 37% who cited identify theft as their concern.  Identity theft? How’s that going to happen? These people clearly don’t have a clue what the most common causes of ID theft are. And I can’t help but wonder how many of these 37% are banking online. Checking your account balance and moving funds between accounts is OK to do on a PC, but not a smartphone or tablet? 


The reasons people are giving for “fearing” mobile banking are baseless. If you need a reason to fear mobile banking, I’ll give you some good reasons:

3) Snakes will come squirming out of your smartphone when you use a mobile banking app. I’m not saying this has ever happened before, but it could. And that would be a helluva lot scarier than not having paper documentation of the transaction.

2) Your mobile banking app will access the naked pictures of yourself you keep on your phone, and post them on Facebook. And I’m sorry to tell you this, but that’s scarier for the rest of us than it is for you.

And the #1 best reason for fearing mobile banking….

1) You will give your ID and password to a phisher and try to use a mobile banking app to change that password before the hacker gets into your account–but the mobile banking app won’t let you do it. Sadly, this is true, and I learned it the hard way.

Of course, it hasn’t stopped me from continuing to use my bank’s mobile banking app. But at least my fears of mobile banking are grounded in reality.


The Financial Brand 2015 Marketing Survey

For the third straight year, I am collaborating with The Financial Brand to produce a series of reports on the state of bank and credit union marketing for 2015.

Respondents who complete the survey by December 31, 2014 will receive two reports, one from The Financial Brand on marketing trends in the retail banking sector, and one from Aite Group on mobile marketing trends in banking or marketing analytics in banking.

In addition, if you complete the survey, you will also receive a special discount code entitling you to a $150 discount on the registration fee for The Financial Brand Forum 2015, April 30-May 1 in Las Vegas.

I’ll make another offer to Snarketing 2.0 readers: Complete the survey by December 10 and I’ll send you all three reports.

The survey contains ~30 questions and should take less than 10 minutes to complete. I would be very grateful if you could take a few minutes and fill out the survey–the information is critical to what I do. Thanks.

Click here for the survey: The Financial Brand 2015 Marketing Survey