A toaster in a new suit of clothes

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The financial services industry has never been short on clichés. There’s the diminutive clerk wearing a green visor and sleeve garters. The rotund, cigar-chomping financier. The heartless, mustache-twirling userer.

Not to be overlooked are clichés the industry brought upon itself through marketing. There’s the “friendly banker.” (“If the banks are so friendly,” comedian Alan King quipped, “how come they chain down the pens?”) There’s the “your partner” bank. (Banks using that one would do well to look up partner in the dictionary.) And let’s not forget toasters, which, for whatever reason, came to symbolize the golden age of bank incentive offers.

The toaster giveaway cliché had its start when financial institutions took a page from direct response marketing playbook and began serving up incentive offers. A new account or loan could net you a TV, a household appliance, or your choice of a .12-gauge shotgun or .270-caliber rifle. (“Don’t you think it’s a little dangerous handing out guns in a bank?” asks Michael Moore, in his film Bowling for Columbine, as a banker hands him a rifle. The exchange was pure fiction. Gun-offering banks didn’t hand out weapons on bank premises. They arranged delivery or handed out certificates to be redeemed elsewhere).

The power of the incentive offer

Blogger turned ETF manager Eddy Elfenbein was partially correct when he wrote:

The reason banks offered toasters to new accounts wasn’t due to bad marketing, but due to outdated regulations. That’s the only way they could pass cost savings on to depositors. Free toasters from banks weren’t some happy relic of a bygone era, they were the one of reasons why the modern financial world came about. Interest rates were regulated and you couldn’t even pay interest on a checking account.

The regulatory choke-hold certainly played its part, but Elfenbein overlooks the power of the incentive offer to motivate purchase. Indeed, I take exception to “bad marketing.” A properly deployed freebie is good marketing. It cannot make you buy what you don’t want, but when it comes to a product you’re considering, the right freebie can make the difference between resolving to buy someday and versus buying now.

You’d be surprised at how often what turns out to be “the right freebie” proves counter-intuitive. In his book Of Marketing and Emasculated Goats, direct marketer Steve Cuno wrote:

Whether for small or big-ticket items, a compelling incentive will multiply response. I doubled natural gas fireplace sales by offering a free jar of honey for visiting a showroom. The jar of honey, incidentally, retailed for only one dollar. For an industrial manufacturer, I tripled sales by offering a $20 Victoria’s Secret gift certificate. Even though (or perhaps because) most of that client’s customers were male.

Whatever became of the free toaster?

Nowadays, on the increasingly rare occasion you see someone walk into a bank, you rarely see that person exit the bank with a toaster. But incentive offers haven’t disappeared. They have merely evolved. For instance:

• Instead of a toaster, an offer of a few hundred dollars might motivate you to open a checking account on condition of maintaining a specified minimum balance for a specified amount of time.

• These days it’s nigh unto impossible to find a bank card that doesn’t offer points redeemable for merchandise or cash.

• And “no interest for six months” is arguably a very expensive toaster in a new suit of clothes.

Donating to a cause isn’t an incentive offer

Sometimes you’ll see a quasi-offer in the form of “for every new account, we’ll donate to [insert charity here].” As I wrote last week, that seems to be working for upstart online insurance company Lemonade with its Giveback program.

But if it’s working, it’s not working as an incentive offer. Offers work by playing to the desire to get something for nothing, to eke a little extra out of the marketer “… if I act now.” The promise of a donation to a cause, no matter how worthy, doesn’t play to that desire. Lemonade’s Giveback program alleviates concerns about overcharging and delayed claims. That’s less of an incentive and more of a reassurance.

Supporting a cause is laudable on its own merits, of course, and it can make for good PR. It’s a classier way of publicizing philanthropy than a press release blatantly boasting “We just gave $X million to …”

Donate to a cause because you support it, not because you expect it to increase sales.

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TBT: Bank metamorphosis for fun and profit

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Originally posted September 7, 2017.

You will doubtless agree that morphing beats going the way of the typewriter. The good news for banks is that morphing in a digital environment represents more than survival. It represents exciting opportunities to prosper in newer and bigger ways.

The digital age has not rolled forth without casualties. Type-writers, maps, encyclopedias, calculators, film cameras, digital cameras, camcorders, cash registers, books, newspapers, music CDs, and more are found among the metamorphosed, endangered, severely wounded, and just plain gone.

If a building with a teller line, offices, an ATM and a drive-up is the caterpillar, then the butterfly is a device about the size of a deck of cards, except way thinner, and it rides around in purses and pockets. Some banks are now succeeding as butterflies only, but it doesn’t go both ways: No bank can remain a caterpillar and expect to be around much longer.

Change is never convenient, but this time the benefits outweigh

Share of wallet trends steadily up among digital banking clients. A study by Fiserv showed share of wallet for digital clients compared with branch-only clients at about two-to-one. And that correlated with increased longevity: Bank and credit union branch-only clients dropped off at about twice and thrice, respectively, the rate of mobile banking members.

I need hardly point out (but will anyway) that increased share-of-wallet makes clients less likely to dump you for a competitor. Hopefully that’s due to meeting demand with digital services; but on the more banal side, it can be due to the fact that moving accounts, already a pain, becomes a royal pain when clients also have to install, set up, and learn new apps. “It’s a pain to leave” isn’t quite the same as “my bank has won my affection forever,” but it’s nothing to rue, either.

Longevity aside, you’d hope that greater digital share would correlate with a rise in fee revenue, and that is indeed the case. The above-referenced study showed that mobile users generated 72 percent higher revenues than branch-only customers. Fee interchange fee revenue trended up, too, thanks to a positive correlation between mobile banking use, debit and credit card point-of-sale transactions, ATM use, and ACH transactions.

Meanwhile, apps like Zelle and Popmoney® present new opportunities for banks to generate fee revenue. These apps and others like them come with in-place fees as the norm, and, so far, clients haven’t rebelled. This can help compensate for and may someday overtake market forces making it difficult for banks to charge for bill pay.

I could go on about the growth and revenue opportunities that morphing with the times promise, over and above not ending up on the Digital Age Casualties List. Come to think of it, I have gone on about it, herehere, and here. More than a means of survival, this is a metamorphosis that looks to be as good for banks as it is for bank clients.

I’ll end on a prediction: I bet that soon the financial services industry will talk less about “share of wallet” and more about “digital share.”

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When life gives you parity products, make Lemonade

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Trivia question for you: What was the first product ever sold online?

The answer, explains Smithsonian Magazine, depends on how you define “sold.” If a legal product and digital payment needn’t be components, then the winner is: weed! If legality matters but funds transfer still doesn’t, then the winner is: groceries! But if you require check marks by both “legal” and “digital payment,” then the winner is: a Sting CD!

My reluctant vote goes to the Sting CD. Reluctant, because weed-as-trailblazer is funnier.

Today, it’s difficult to name a product or service you can’t buy and pay for online. Financial products from banking to insurance have in large measure led the way. (Right behind porn. Like it or not, there’s no arguing the role porn played in helping digital payments take off.)

As online financial services grow in ubiquity, differentiation proves an increasingly difficult challenge. That’s especially true for insurance, which is arguably the quintessential parity product: Give us some money, and if something bad happens, we’ll give you some money. The sameness leaves insurers scrambling to set themselves apart. Geico features Martin, a lovable lizard who, in his inimitable Aussie accent, promises low rates. (Pre-Martin, how many Americans even knew what a gecko was?) Progressive’s spokesperson Flo hawks low rates, too, talking up a website that comparison shops before your eyes. Allstate and Farmers promote easy claims processing, the former with a character personifying mayhem, the latter parading odd claims the company has honored.

In all of the above, product features seem to take a back seat to self-deprecating humor. The advertiser’s goal may be to endear itself by not taking itself too seriously, humanizing an industry typically seen as heartless. (Discussion question: Is Flo endearing or annoying?)

The Lemonade mix

But now there’s a new online insurance company in town, and it has found a way to make lemonade from parity in a new way. I refer to Lemonade, Inc. with its Giveback program. Forbes sums up Lemonade as …

… powered by a unique combination of artificial intelligence and behavioral economics to disrupt the centuries-old insurance industry. It offers homeowners and renters insurance in the U.S., and gives underwriting profits to nonprofits selected by its community during its annual Giveback.

Lemonade cofounders Daniel Schreiber and Shai Wininger come from legal tech backgrounds, not a financial one. Instead of having to drag legacy systems screaming and kicking into the 21st century, they built Lemonade as a digital company from the ground up. PYMNTS.com characterized Lemonade as not “bogged down by outdated systems and processes—and many of the market’s biggest points of frictions can be overcome right from the start.”

Lemonade’s marketing strategy also seeks to endear itself, not by appealing to humor, but rather by appealing to humanity. As quoted in the above-referenced Forbes article, Schreiber said this:

“Lemonade set out to make insurance loveable, but also to transform it from a necessary evil into a social good. We built an unconflicted business model powered by AI and behavioral economics, and invented the Lemonade Giveback, where leftover premiums are donated to charities our customers choose.

The approach seems to be working, for Lemonade is growing. Why the approach is working is not as obvious one might think. Donating a percentage of sales to charity can make for great PR, less so a sales-booster. And though PYMNTS.com suggests that the Giveback program may reduce “so-called soft fraud, in which a policyholder files a claim for more funds than they actually need,” well, call me cynical, but I think that’s wishful thinking. For what it’s worth, so does Insurance Nerds’s Nick Lamparelli.

But here’s what Giveback definitely does: It removes Lemonade’s incentive to overcharge and to deny claims, thus neutralizing common perceptions of the industry.

For a product category that no one particularly wants but everyone needs, that’s a strategy that could actually prove a game-changer.

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TBT: The pros at cons

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We all acknowledge that cons are reprehensible. At the same time, we find entertainment value in glamorized portrayals of con artists. For today’s TBT, here’s a bit of con history. I think you’ll agree that, in many ways, not much has changed. Originally posted August 17, 2018.

Popular movies like American HustleDirty Rotten ScoundrelsThe Sting, and Catch Me If You Can show that audiences like a good con artist story. The films even manipulate—con?—us into rooting for the bad guy, our consciences somehow assuaged by marks who deserve or at least can afford the loss.

The deserving-mark trope entertains, but in real life cons hurt people. Moreover, many of the classic cons of history have not gone, but simply changed clothes and reappeared.

Convention demands beginning with a look at the infamous Brooklyn Bridge. “I have a bridge to sell you” is no mere cliché. Many people have “purchased” the Brooklyn and other bridges, bumping up against hard reality only when forced to take down their newly constructed tollbooths. The most famous of the Brooklyn Bridge sellers was George C. Parker, who in the late 19th century targeted immigrants filled with the hopes and promises of the American dream—and took them for their life savings. 

Capone, counts, and grateful millionaires

Perhaps more audacious was “Count” Victor Lustig, whom Smithsonian magazine dubbed “America’s greatest con man.” He twice got away with alleging the Eiffel Tower was due for demolition and selling it as scrap metal to the highest bidder. In the U.S., he sold machines purported to turn paper into currency. He even conned $5,000 from none other than Al Capone.

In 1881, French peasant Thérèse Dauignac Humbert was in the right time and the right place to revive American millionaire Robert Henry Crawford from a heart attack. Two years later, Crawford thanked her by willing her a safe containing $20 million. Crawford’s nephews lost no time in contesting the will, persuading a judge to seal the safe pending litigation. With a sealed safe for evidence and its contents for collateral, high society welcomed Humbert and favored her with numerous, hefty loans. The safe was finally opened in 1902. According to Jay Robert Nash in his book Hustlers and Con Men, inside were negotiable bonds worth $1,000, an empty jewel box, and some brass buttons. There never was a Robert Henry Crawford. His “nephews” were in reality Humbert’s brothers. “A dozen Humbert creditors committed suicide the next day,” Nash wrote. As for Humbert and her brothers, they received only “short jail terms.” Echoes of the sealed safe ruse can be found today in loans made by trusting individuals reassured by promises of repayment “as soon as my next deal goes through.”

Three-Card Monte, a centuries-old and illegal scam, still goes on. You need only walk the streets of New York or other major cities to find clandestine games suckering marks.

Nigerian money scams: ridiculous for a reason 

A modern iteration of the Spanish prisoner game is found in Nigerian money scams, which NPR reported are “ridiculous for a reason”:

“It’s actually a brilliant strategy designed to save time and maximize profit by immediately identifying only the most gullible marks, according to an analysis by Cormac Herley of Microsoft Research.”

Indeed, in Herley’s abstract we find:

… tales of fabulous amounts of money and West African corruption will strike all but the most gullible as bizarre … It won’t be pursued by anyone who consults sensible family or friends, or who reads any of the advice banks and money transfer agencies make available. Those who remain are the scammers’ ideal targets.

Had you been around in 1890, you might have received a letter out-and-out offering to sell you counterfeit money, sometimes called the Green Goods game. To assure readers of quality fakes, one sender wrote …

“… it would be perfectly foolish to send out poor work, and it would not only get my customers into trouble, but would break up my business and ruin me.”

I knew someone whose family fell for a modern version of the Green Goods game—despite his experience in financial services. For cents on the dollar, they purchased allegedly stolen, dye-bombed currency. Included “at no extra charge” was a dye-removal solution. Of course neither was delivered. It hadn’t occurred to the marks to ask why the seller didn’t keep and clean the currency for himself.

Readers have doubtless heard of the Ponzi scheme, which generally uses later investors’ funds to pay high rates of return to earlier investors. Charles Ponzi didn’t invent it but made it famous. He died in 1949, but his scheme still pops up. More famous that Ponzi himself is Bernie Madoff … 

… the former non-executive chairman of the NASDAQ stock market, and the confessed operator of the largest Ponzi scheme in world history, and the largest financial fraud in U.S. history. Prosecutors estimated the size of the fraud to be $64.8 billion, based on the amounts in the accounts of Madoff’s 4,800 clients as of November 30, 2008.

Legal cons

Sadly, not all scams are illegal. Most drug stores carry preparations claiming to cure a host of maladies despite bearing the government-required disclaimer, “This product is not intended to diagnose, treat, cure, or prevent any disease.” The disclaimer is there for a reason, namely, that the preparations have not been demonstrated to do what purveyors claim. Unfortunately, that doesn’t seem to hamper sales.

Pyramid schemes—which pay enrollees for duping people into enrolling after them—are strictly illegal, yet they persist legally under innocuous-sounding names like “multi-level” or “network” marketing. They are legal because tangible products are involved. The problem is the open secret that the real money to be made is not in selling products but in enrolling more members, essentially a legal pyramid scheme. Science writer Brian Dunning has pointed out that the hope is unattainable:

Of all the thousands of network marketing plans available now or in the past, if only one of them had ever had even a single line active to only 14 levels deep, that alone would have required the participation of more human beings than exist. 

Moreover, Dunning writes,

On average, 99.95% of network marketers lose money. However, only 97.14% of Las Vegas gamblers lose money by placing everything on a single number at roulette. 

The old adage “… if it seems too good to be true …” will always apply. Sadly, whether due to being over-trusting or to an avarice-based willingness to push the boundaries of ethics and law, there will always be people who ignore the adage.

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The other Big Apple

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Atop the world is not a bad place to be.

Something remarkable took place on Wall Street last week. The total value of a company by the name of Apple, Inc.—perhaps you’ve heard of it—reached two trillion dollars.

Two. Trillion. As in a 2 followed by 12 zeroes. A value that, to date, no other U.S. company has ever attained.

PYMNTS.com did a great job of putting the initial digit and its train of zeroes in perspective:

… only seven countries on the planet have a GDP of more than $2 trillion. Among the companies whose GDP is less than Apple’s valuation: Italy, Brazil, Canada and Russia.

Moreover, a mere 18 days earlier, Apple was rocking the investment world by having attained a value of a trifling one trillion. Which means there’s no telling what that number may be when this post appears.

Not bad as comebacks go

Two trillion isn’t bad for a company that the biggest rock band in history made a habit of suing. (Namely, the Beatles. Perhaps you’ve heard of them, too.) Or for a company that in 1997, 10 years before iPhone was even a glimmer in Steve Jobs’s eye, was all but kaput.

That Apple was once on the rocks will come as no surprise to anyone familiar with Jobs’s approach. Brian Merchant’s book The One Device: The Secret History of the iPhone reveals Jobs’s habit of scheduling press conferences to announce products that, unbeknownst to the press, were neither completed nor fully proven. Behind the curtain, his team stood with crossed fingers, hoping against hope that the prototype they’d finished cobbling together only minutes earlier wouldn’t let them down. Remarkably, luck was with them every time.

In the end, Microsoft swooped in and saved the day by pumping $150 million into Apple. Not a few observers speculated that the move was calculated to ensure Microsoft of a continuing, worthy competitor in order to avoid anti-trust measures. If so, it may have helped, but not completely.

Not just Apple

Its $2 trillion aside, Apple is by no means the only high tech company riding high at the moment. The New York Times reported:

The stocks of Apple, Amazon, Alphabet, Microsoft and Facebook, the five largest publicly traded companies in America, rose 37 percent in the first seven months this year, while all the other stocks in the S&P 500 fell a combined 6 percent, according to Credit Suisse. Those five companies now constitute 20 percent of the stock market’s total worth, a level not seen from a single industry in at least 70 years.

I don’t for a minute pretend to be the only commentator who has observed the correlation between the COVID-19 pandemic and increased use of digital payment systems. The current self-quarantine environment certainly seems to have played its part. Back in March, the Times reported:

While the rest of the economy is tanking from the crippling impact of the coronavirus, business at the biggest technology companies is holding steady—even thriving … With people told to work from home and stay away from others, the pandemic has deepened reliance on services from the technology industry’s biggest companies while accelerating trends that were already benefiting them.

The gains are a mixed bag. We’re darned lucky that we have digital technologies at a time that we desperately need them. Yet significant numbers of people have no access to them. And no one with an ounce of morality, not even the biggest digital technology proponent, would call the toll in human lives worth it. (Shortly before the preceding Times piece ran, I posted, “Any havoc the pandemic wreaks on the global and local economies and any effects it has on the payments business pale in comparison to the cost of lost human lives. I am all for the growth of the digital payments industry. But not this way.”)

The future rarely plays by anyone’s rules

“Since 2020 has been a year full of all kinds of surprises,” opined PYMNTS.com, “hard predictions … are something of a sucker’s game. Where does Apple go from here—and how long will it take to get to $3 trillion? Depends on what the next entry in the hit parade is.”

It would be a mistake to assume that today’s burgeoning tech giants can count on being secure forevermore. The market has a long history of near-losers coming back from the brink à la Apple, and of the toppling of presumed topple-proof giants à la Sears.

The future has a habit of not being predictable. It’s part of what makes this business exciting.

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