Memo to Bankers: Where’s the Online Memo?

One way to make checking transaction histories more valuable is to let online bankers add information to them. There are several kinds of information that customers can add, and the technical requirements involved in implementation and potential for customer adoption differ.

For instance, persuading online bankers to input information about checking transactions, such as payment categorization, register entries for uncleared checks, payee names for checks and transaction memos, can theoretically elevate the value of the online checking account history page. But our analysis suggests that some features that require online bankers to manually input data may not be easily consumed and digested. Our conclusion: While the categorization feature is said to increase the loyalty of customers who use it, other data input features are more likely to be useful to and be used by online bankers.

Categorization

Categorization raises several issues that go to the heart of the difficulties banks have in making their offerings more useful to customers. One in five banks on the Q4 2003 Gómez Internet Banker Scorecard allow customers to categorize transactions online and run reports based on these categorizations. According to banks that enable this feature, roping a customer into categorization leads to higher profitability and retention. But banks that are considering this feature need to weigh several factors that can defeat its promise.

The first is account history. Of the banks that offer categorization, all but one of these banks offers more than a year of checking transaction history. There's a reason for the high correlation between long transaction histories and online bankers' ability to categorize transactions: It takes time for the customer to categorize transactions. The return the customer realizes on this time invested decreases if the categorized transactions quickly roll off the available history range and, more importantly, if the customer can't run reports that revert back at least a year. If the customer uses Quicken, Money or another personal financial management software package, then they will be less sensitive to a shorter transaction history length in Web banking. But then, they will already have another means by which to do categorization.

Beyond lengthy account transaction histories, categorization functionality also calls out for aggregated account information. For many customers, looking at just their primary checking account would convey an incomplete picture of their spending. For instance, many customers use a credit card for a given kind of expense one day, and then use a debit card or paper check on another day. Banks that offer categorization typically allow customers to run reports across accounts held with the bank.

But if the customer is using a credit card from another bank, as even most online bankers do, then categorization is less useful unless the bank can offer the ability to seamlessly aggregate external accounts. First, the bank must convert the customer to this aggregation feature, a tall challenge that is just beginning to be addressed effectively. The upshot: While customers do not abandon Web banking for personal financial management applications such as Quicken or Money, the aggregation advantage these PFMs enjoy drives customers to stick with them even when they begin using Web banking.

Payee Names

Another information input option, offered by one in six Scorecard banks, is the name of the payee for a cleared check. Banks offering this feature are typically the same ones enabling categorization. But there are basic differences in the value proposition and the hurdles to adoption. Entering the payee name into the transaction history allows a customer to more easily digest and search through the transaction history.

Indeed, the payee name is actionable information even if the customer only enters information for some checks, even if the page rolls transactions off after six months, and even if the customer also uses a credit card (which, unlike a checking account, is likely to feature transaction histories with all payees filled in). The ultimate value for this may be lower than with categorization for some Web bankers, but the customer effort required to get value out of the feature is low enough that greater adoption is likely.

Pending Transactions

As with payee names, one in six Scorecard banks offer the ability for customers to input information on checks not yet presented to the bank. In contrast to categorization, this feature does not grow more or less valuable with transaction history length, as it is essentially forward-looking.

There are, however, a couple of complications that banks need to bear in mind, one age-old, the other emerging. The age-old issue is the reconciliation of the customer-s memos with the bank-s posts. The emerging issue is many retail banks- desire to push customers to debit cards. Debit card transactions generate their own pre-authorization holds and amounts, which are occasionally different from what the customer might expect. On occasion, the customer may expect a stay at a hotel or particular purchase will be contained in one transaction but is actually detailed as two on his transaction history. At the end of the day, banks are accustomed to dealing with customer expectations anyway, as when customers keep paper check registers. Therefore, this data entry option provides value with few hurdles to adoption.

Transaction Memos

The fourth type of data entry option is the transaction memo. Bill pay memos are well understood (and offered by most Scorecard banks) but transfer memos, such as offered by Wells Fargo, are also worth a look. Where customers maintain accounts for various savings goals or expenses, or maintain deposit and credit accounts, the purpose of a transfer is often worth recording. While all of these features require shadow databases to track information that would not typically reside on the host system, the systems integrations work; other back-end initiatives required for such features as check imaging are not as large. Indeed, most banks are in a position to offer these data-entry features.

The issue is more one of economizing customer effort and reducing confusion as banks attempt to further increase the value of the critical checking account history page. While categorization is great when adopted, there are many other data-entry features that gain superior adoption and provide sufficient value to keep increasingly savvy Web bankers loyal and transacting more online.

Chris Musto is a vice president of research at Gómez, Inc., an Internet benchmarking and advisory services firm in Waltham, MA. He can be reached at [email protected].