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Archive for December 2009

Bundle – Citi/Microsoft Venture

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Citi Rolls out Mint Competitor: Bundle

15 December 2009

First article on Bundle came out last week from Windows in Financial Services (above).  See my previous post here

“Americans know they are not saving enough for retirement. They know sometimes they buy things they cannot afford. They realize that as salaries go up, so does personal spending. And they know they are not alone. But these aren’t easy problems to fix. The popular personal finance magazines are all written for people already heading into retirement. The banks and investment companies all have products to sell”

The innovation guys at Citi are friends of mine. This team sat just 4 doors down the hall and I would love for them to be successful.  I like these guys… objective of this blog is to give feedback to this team (brutal honesty) and perspective to competitors. For those of you that don’t know Citi lets review some data on their US business and recent announcements in retail banking:

1)      Citi is largely a card bank in the US with only 12M retail banking accounts, and almost 100M cards in circulation (see 2009 10-Q for more info)

2)      Citigroup Will Pare Back To Six Major Metro Areas

“The bank has 1,001 U.S. branches, compared with more than 5,000 apiece at Bank of America Corp., J.P. Morgan Chase & Co. and Wells”..“Citi is trying to sell its roughly 120 branches in Texas and reconsidering whether it makes sense to maintain a big presence in Boston and Philadelphia”

3)      Citi’s internet and innovation teams have no (very limited) retail banking experience

4)      Citi’s Retial CEO Teri Dial is on her way out the door .

5)      Citi is largely an “affluent bank”. Although they rank 9th in branches, they are a solid 4th in deposits (see FDIC tables here ). Their average account balances are 3-5 times that of most competitors (2006 comscore data below)

6) Citi’s internal business heads don’t know what to do with this innovation team that has money to invest and  limited “connection” (read accountability) to the lines of business. This one may get me in trouble … so I need to expand here a little. Creating an innovation team presents a structural challenge for the CEO in any company. If they are too tightly tied to the LOBs, then nothing will happen. If they are too loosely coupled then their innovation will not be consumed. The issue with Citi is not the innovation team, but the structure of the constraints and incentives.


As I stated previously, a central challenge will be moving customers away from their bank to engage in activities such as budgeting and paying bills… and then transacting. In the US, MSFT, and INTU had trouble getting customers engaged separate from their Banks.   Mint has over 400,000 customers and VERY high customer satisfaction, yet this does not translate into revenue (below $5M).  This dynamic is why Microsoft has exited financial planning software (MS Money) and has very limited use of its own financial budgeting tools on MSN Money.

INTU certainly overpaid for Mint, at over $400+/per non transacting customer. Mint’s customer base was  “spenders” vs “savers” (hence the need for budgeting)..  they may need retirement planning, but Mint did not prove ability to get a customer into any product (even a cheaper card). Why would Citi want into this business? Investment hypothesis must fit into one of the following “buckets”:

A)    Customer feeder to core products, or

B)     Revenue generating service(s) for existing customers (think marketing, or card based payment)

C)    Revenue generating service(s) for new customers (think advisory), or

D)    Innovation team needs to invest money with a big name partner in the hope that something will work out

My guess is A and D. There are several organizational, brand issues and customer support issues with Citi’s approach. Why would Citi want to encourage existing customers to do budgeting external to Citi’s brand? Fortunately for banks, customer data shows that consumers prefer to go to their bank directly to perform financial services. This “Trust Pattern” is something banks should want to reinforce and was a key reason why banks invested in online infrastructure. WFC exemplifies the alternate approach within its online banking services, with integrated budgeting tools, which is a great service and provides solid customer retention.

With regard to aggregation and budgeting, they are great tools to build closer relationships to consumers. As a consumer, why would you want to go to bundle when the only products it recommends are those of Citi? Lets assume the Bundle signs up all of the major banks to also offer their “retirement services” products. This form of competition aligns with Citi’s new retail distribution strategy (reduced branches), but DOES NOT align with any of it’s product pricing competencies. Are Citi’s products capable of competing on price? How does this align with Citi’s current Affluent customer base and product mix? Citi has a tremendous brand, and in 2006/2007 Citi’s brand proved it was capable of competing online with a price driven product in Citi Direct growing $8B in deposits in 6months. However what Citi’s management team (at the time) also learned was that “most” of this growth in liabilities came from existing customers (read cannibalization). Outside of brokerage, few online channels have proven an ability to acquire (or cross sell) affluent customers.  So is Bundle a mass market acquisition play? What products will they offer and at what price point?

In the UK, customers select their bank savings account through leading comparison sites like In the US, mass market retail customers select their bank based upon the proximity to their house. The business premise with, Intuit and its competitors is that customers will start with budgeting, and then move to select financial products (no retention play as these are not necessarily Citi Customers) or transact. The UK online bank Egg was successful in online acquisition because is first started with the most competitive product, establishing trust, and then moved to deliver the best services to surround it.

Globally, the only success model for aggregation and comparison that I am aware of is, which my team at Citi acquired May 2007 for just over $1B.  If you sit down with Paul Gratton, Egg’s first CEO he will tell you that their success was driven by a complete focus on delivering value to the customer, both in product and online services. In other words, aggregation was part of a larger product value proposition. It is the coupling of product and service value that creates challenges for large companies to replicate, particularly with respect to cannibalization of existing products. For Bankers.. this is why the Egg model is so difficult to replicate (or acquire), it takes alignment of a value proposition across product, services and channels. A challenge which is even greater for an innovation team, hence Citi’s attempt to decouple the “idea” from the “business”.

If Microsoft had challenges running financial planning as a business, you can be certain that Citi will too.  Bundle’s seperate brand may not insulate it from the trends impacting its parent as Citi’s consumer brand has “lost luster” with furor over bank bail outs, bonuses and credit card rates.

As a side note, Egg’s troubles began when it lost its focus on customer and prioritized product based upon  meeting short term investor demands. The relative simplicity of the liabilities business gave way to more complex (and higher margin) asset products. As Egg developed a portfolio of card and PILs (to improve interest income) it started to resemble a card business much more than a retail bank (approx $14B in Deposits). The customers that “saved” with Egg were much different than the customers that borrowed.  Poor credit risk management and underwriting led to substantial write downs, under performance with Prudential PLC and eventual sale to Citi in May 2007. For Citi,  neither of the Egg customer segments fit well within Citi’s affluent focus, the acquisition was driven by Chuck who wanted to show “internet distribution” progress to the BOD.

Written by tomnoyes

December 15, 2009 at 1:39 pm

Verifone – Paywaremobile

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Verifone – Paywaremobile

December 10, 2009-12-10

 Super move by Verifone, a “serious” device for merchants. As an investor, be glad you skipped on the SquareUp opportunity. Advantages of the Verifone’s device:

Down side

  • Merchants must sign a merchant agreement with an acquirer
  • Costs associated with merchant agreement (below)
  • Paywaremobile could add chip and pin functionality… There is life outside of the US

Summary, for small merchants that don’t want to sign a merchant agreement there are payment solutions out there today (paypal). If you want to accept a card directly, you’d be best served by going through an acquirer and using a certified device like paywaremobile… as your risks are not inconsequential in accepting cards through without a merchant agreement in an uncertified device.

Written by tomnoyes

December 10, 2009 at 3:08 pm

SquareUp – Updated from Previous Post

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Updated Dec 10, 2009 (Previous Post Here)

Twitter founder Jack Dorsey. Card swipe on iPhone.

More info today (Dec 2, 2009) from Venture Beat. The updates are based upon business model of card-card vs. Card to existing POS (or receiver registering as a “merchant”). Will I see my local ticket scalpers and hot dog vendors taking credit cards on their iPhone? Data we know:

  • Plug in Card reader into Audio input Jack
  • Pilot with a couple small merchants
  • Not open for business yet (as of 12/2/09)
  • Mind behind it is Dorsey
  • Khosla is Seed Investor.
  • Very US centric.. no EMV (Chip and Pin)
  • “Picture” for risk management
  • Unclear whether model is Card-Card or SquareUp is acting as a merchant aggregator (see IPSG in Here)

Updated Analysis:

  • US Centric Consumer play (no EMV)
  • Credit Card transactions with 350bps… not the greatest for a “cash replacement” value proposition (PIN Debit is 150)
  • Issuing Banks have control over card-card transactions. Pilot likely used SquareUp as merchant.
  • If SquareUp is acting as a Merchant Aggregator, then they will own all fraud losses (CNP Transaction). Assuming that the  “merchant”  swipes the card, it is assumed that the “merchant” did not sign the merchant agreement (ie. visa/Mastercard), SquareUp would be the Merchant in this case and the card was not present at SquareUp’s POS for inspection.
  • Consumer population is limited (how many of your phones have an “audio input jacks”)?
  • Model competes heavily with both bank initiatives (in mobile) and those within Visa/MasterCard. (MasterCard MoneySend, Visa Money Transfer)
  • Merchant incentives are weak vs. Cash or PIN Debit.
  • Issuers will not jump on board with this one. 1) competes with other projects 2) fraud controls are not proven, 3) Consumer demand, 4) Issuers want to own the consumer experience,
  • MNOs will likely also resist, as they have no incentives to support.
  • Device is not certified by Visa or MC, where Verifone’s payware is

My guess is that squirrel has the technology working.. but haven’t figured out the “banking side” and how to expand beyond the cards that they can directly control. This team should have partnered with either a bank or an MNO as it will require some significant marketing dollars to move customer adoption.. even for a pioneer in social networking like Jack.  Differentiate this approach, with the “partnership” approach taken by teams like BlingNation (see post here)

In addition to BlingNation’s partnership model, integration of NFC into existing handsets will presents a much larger “global” opportunity. See

Innovation in payments is tough… if I were going to add something the Steve Job’s product plan for the iPhone what would it be?
• Global
• Ubiquitous
• Unique to every person
• Globally Accepted for use in Payment and Authentication, by merchants, banks, networks, regulators
• Low error rate
• Impossible to clone
• Difficult to crack
The answer is… ( ). OK so nothing fits my criteria, but any appendage on my iPhone must certainly seek to optimize the goals above. Only item I’ve seen that comes close it IRIS scanning.. now being miniaturized to fit on a chip the size of your thumbnail (below). Just for fun.. I bought “” domain as I finished this article (today).

Written by tomnoyes

December 2, 2009 at 5:20 pm