49 Fees!

In the United States, banks have dug themselves a large hole with the structure and complexity of fees. And because their traditional revenue models are being legislated out of existence, it will just get worse before it gets better.


The consumers are miffed and thinking  “I’m getting more and more service from companies like Amazon, better products from Apple, but my bank is gaining in complexity and adding fees to more of the things I want to do.”


And the people who are the most price sensitive are hit the hardest by fees. For those consumers who can afford to pay, they are irritated by the complexity of the fees. So even though it may be “noise,” it is irritating noise. Both groups are especially frustrated, given the simultaneous decline in customer service levels.


Today, the Pew Institute reports that a checking account customer may be charged as many as forty-nine different fees. How can anyone anticipate and understand forty-nine different fees? It is too complex. So even if the fees make sense, it is impossible for the average person to remember all the potential fees.


The fees could be reasonable or fair, but the complexity, frequency, and always-evolving fee structure leaves the customer feeling like they are being nickel-and-dimed to death. And users can be informed at fees at different times; when using an ATM you may see one charge at the ATM and yet another charge on your monthly statement. It makes my head spin. I feel like I need a special calculator from outer space to calculate the actual fees I will be charged every month.


Overdraft fees are some of the most painful, since they are more likely to be levied against a tight budget family or individual. In 2011 the average fee was $27.50 for an overdraft but is predicted to increase to $40 or $45 in 2012. In this era of banking by super-computer, it is hard to believe that overdrafts are actually costing the banks more. And all those fees add up; Moebs Services says that bank deposit institutions earned $31.6 billion in overdraft fees in 2011.


According to BankRate.com, monthly fees on some checking accounts can run about $14 a month or almost $170 a year. And even with monthly fees, people can and do experience other fees. Avoiding monthly fees is also getting harder because banks are raising the monthly minimums for no-fee checking.


Banks need to take a time out and rethink the business and pricing model around banking. It is so complex and is a symptom of something fundamentally broken, as we will discuss in future chapters. We must look behind the scenes at banks to understand what is contributing to this increase in complexity, frequency, and increasingly irritating fees.


See the book on Amazon http://amzn.to/HfvGbt

Why I wrote “BankRUPT – Why Banking is Broken. How it can be Transformed”

With the book coming out next week I decided to blog about how I came to write the book, BANKRUPT Why Banking is Broken. How it can be Transformed.


The book was a decade in the making.


It started when I was traveling in Africa in 2002. I was taking a long needed break from being a technology entrepreneur and was supporting a non-profit working in central Africa.


It was my first time visiting a place where the infrastructure was severely lacking; transportation, roads, electricity, water, and health care – nothing worked. Yet even in 2002, many people had cell phones. That is the first time I imaged a world where everyone would have access to mobile phones. And since I had just finished building a technology company, I started to think about what else besides basic communications could be done with all these cell phones.


That is when I realized in my lifetime it might be possible for everyone to have access to banking through his or her mobile phone. For people with limited or no access, this would be transformational. For the rest of us, it would just mean more convenience – and potentially lower cost banking.


So then in 2005 I went back to technology to build a mobile banking company. I was involved in launching next generation banking solutions in Africa, India, and even in the US. At the same time, I saw how slowly traditional banks were embracing  new models of banking, especially in the US. In fact with the recent financial crisis, things slowed down even more.  Sure we have new mobile interfaces from the banks – but the products are the same behind the scenes. If anything banking got worse with people having underwater mortgages and increased everyday bank fees.


During the last 5 years, I saw first hand the struggles within the banks to support innovation.  I have been in countless meetings with bankers all over the world. One thing I have heard over and over again is that when they let their hair down, the universal comment emerges: “We don’t know how to make money from small depositors.” In addition, it was clear there was too much emphasis being put on protecting traditional revenue streams, not enough of disruptive innovation. Even when innovation received initial support, it was frequently bogged down with business constraints and internal organizational struggles.



So when I retired from my moible banking company in 2011,  I felt unsettled about what was happening with banking, especially in the US. There is a lot of industry hype, but a alarming number of underserved and unhappy consumers.  The big banks have especially lost their commitment to serving everyday people by providing affordable banking services that empower people’s life and work.  In the US the number of Americans opting out of traditional banking is reaching new heights; 106 million Americans are cash preferred.


I wrote a book about what I thought needed to happen – especially given the financial crisis. Crisis’ forces change – which is painful, but it can also be good. I want so much to inject a sense of urgency and a big vision for the banks as banks recover from the crisis; a vision of affordable banking for all and a reorientation of the banks to delighting their customers. This is a moment in time similar to the moment when Steve Jobs returned to Apple – a time of crisis that he turned into an effort to build a great foundation for the future.


That opportunity is there for the banks. What is at stake is banking for all, global competitiveness in banking, and customer loyalty. For banks to do this, they have to have a culture of Steve Jobs-like innovation within the banking industry. Being about the customer must be in the very fabric of the banks. Banks can follow the example of Steve Jobs, who turned around a failing Apple by relentlessly focusing his company on building great products that customers love, and backing them with unsurpassed customer service. Banks have to be about being great at serving the needs of the consumers and business.


The BankRUPT book is appropriate for customers of the banks and for banking industry insiders. The book will demystify the crisis, provide a bigger definition of banking that serves more people, and give new insights and ideas for a path forward. My desire is for the bank employee or executive reader to wake up their latent passion to serve the everyday customers. For the rest of us, it will give us needed insights so we can be better equipped consumers of banking services. For all of us, it will give us some specific ideas on what disruptive innovation is possible.


And that is why I wrote the book. I am looking forward to the book release next week – and especially excited about reader comments. I look forward to the dialogue.


See the book on Amazon http://amzn.to/HfvGbt

What my teacher taught me in grammar school about Banks

When I was in grammar school our teacher gave each student a small envelope, and we were told to save our pennies and put them in the envelope. On the appointed day we were to bring the coin-laden envelope to school so the banker could come get it and take it to the bank.  My teacher explained banking to us. Our money, along with the grown ups money, would help the bank make loans to businesses and families. She told us it was a fair deal: the bank kept our pennies safe, and in exchange they used those pennies to help build the community.


I was proud to save my money at the bank and from a very early age trusted that the bank was there to support my life. Fifty years later, the world has changed in many ways, but people still need their local bank to be there to help keep their money safe, save for education, build a future for their families, support their communities, and provide services to small businesses.


Yet many people today aren’t sure the bank will support their lives. Today, the Pew Institute reports that a checking account customer may be charged as many as forty-nine different fees.  How can anyone anticipate and understand forty-nine different fees. It is too complex. So even if the fees make sense, it is impossible for the average person to remember all the potential fees.


And the mortgage crisis is adding to our frustration with banks. Realty Trac, a company that tracks foreclosure activity, announced in January 16, 2012 that more than 5 million Americans were now two months or more behind on their mortgage payments, setting the stage for a record high foreclosure rate this year. One million homes were repossessed by mortgage lenders in 2010,  and  2011 is projected to be 1.2 million foreclosures.


So although there have never been more banks ATMs, mobile applications, and internet banking sites,  people young and old feel disillusioned about their bank. The confidence and support I once felt bringing my envelop full of pennies to class has been replaced by frustration.


The bank hides behind pages of fine print. They sell credit cards that charge breathtaking interest rates. They advertise that they are friendly and community-spirited, yet the average person cannot get a mortgage and the small businessperson cannot get a loan.


So I decided to write a book about all this (BANKRUPT, Why Banking is Broken. How it can be Transformed).  It is not about creating nostalgia for some imagined golden age. Change is a necessary part of life. But consumers have a right to expect and demand transparency, fairness, and real competition in the banking industry. They have a right to expect that advances in technology that benefit the banks will also benefit the consumer.


There is a crisis the banks are facing – the business model that worked fifty years ago does not work now.  Bankers need to reinvent themselves and their industry. They need leadership like that provided by Steve Jobs who went back to Apple when it was close to bankruptcy and insisted that for Apple to be great again they would have to build great products that customers love.


Part of the motivation for writing BANKRUPT, is seeing first hand the innovation happening globally around mobile banking. In unexpected places we are seeing banking innovation that could be applicable to our problems. But what the casual observer may not understand is that the change in banking is not just the interface being mobile; everything is changing behind the scenes as well. The banking crisis we are experiencing is an opportunity to look forward to a very different kind of future for banking. We should embrace that opportunity and reinvent banking.

The Value and Opportunity of Mobile Money

(reprint of IQT Quarterly Winter 2011 article) .

There are five billion mobile phones in use around the world, providing unparalleled
access to communications and mobile applications. This is having a profound effect
on the lives of consumers, business infrastructure, and the way governments tackle
challenges. Specifically, mobile ubiquity has brought extraordinary communication
access to those that never had it before.

Now, a growing number of mobile money applications are expanding upon this and, in the process, changing the way traditional bank customers choose to be served, which opens up opportunities to reach an unprecedented number of new customers. With this new access come great opportunities and challenges. The challenges include ensuring security and risk management when offering financial services through these new channels and with this vastly expanded access. In addition, mobile money applications represent an opportunity for governments everywhere to improve financial efficiency and security. The vast majority of people worldwide are unbanked or under-served. In the U.S. alone there are over 40 million families who are underserved by traditional banking models.

Additionally, it is not just consumers that are underserved. The vast majority of sellers of goods and services accept payment by only cash and checks. According to studies from the Philadelphia Federal Reserve, 80 percent do not accept electronic payments today. Some predict recent legislation and economic conditions will mean that this number will increase in the coming years. At the same time, the number of mobile banking users around the world is expected to surge more than 16-fold to 894 million by 2015, according to Berg Insight, an industry research firm based in Stockholm. Clearly, this represents a fundamental shift in how people bank, send and receive money, and pay for goods and services.

What is Mobile Money?

read more…


The Future of Banking is in Kenya

Kenya started a banking revolution, one coming to the world from Africa. The Gates Foundation, the Department of State, the World Economic Forum annual meeting in Davos (WEF), and companies around the world invite Carol Realini to talk with them about this – and some even travel to Kenya to see it first hand. They want to understand what started first in Kenya and is now moving quickly around the world.

“Africa is the Silicon Valley of banking. The future of banking is being defined here.” says Carol Realini . “The new models for what will be mainstream throughout the world are being incubated here. It’s is changing the world.”

It started in 2007 and now about 80% of the mobile phones users in Kenya use Mobile Money – mPesa is the most popular but all mobile operators offer a similar offering (including Obopay is being offered by YU). And banks, merchants, service providers have all joined in to increase the uses and acceptance of mobile money. Because of the scale of adoption and usage, innovation is happening in Kenya first and then is exported to other markets.

The world has taken notice of such success. Obopay is developing mobile-banking services for clients in the U.S., India, Senegal and 5 other countries around the world. “There are 100 countries around the world looking to Kenya and asking, ‘How do we do that?'” Realini says. Executives and Board members from MNOs and Banks take trips to Kenya to see the future.

Don’t be surprised to see Kenyan-style mobile-banking apps on your phone in the near future, says Realini. It may be even more popular than Google Wallet and Paypal. It addresses a burning need since 2.7 Billion people who have mobile phones don’t have adequate access to banking – but that is all changing. If you want to know how – go to Kenya.

Read more about Kenya in Time http://ti.me/f0206y