Locking in customers with Xero and Heaps

It seems to be an emerging meme – comments in the post about Kiwibank’s Heaps and BNZ’s Xero Personal are worried that banks will create lock-in using personal financial management products. This comment is typical:

Ben Lilley January 28, 2010 at 1:50 pm

I really hope banks aren’t going to start using tools like Xero Personal to lock us in, because I can already see we’re heading down that route with Kiwibank and ASB offering their own.

Let’s get this straight – banks would be foolish to do anything else. The reason to offer these products is to increase the value proposition to the customer and to reduce churn. It’s a lot cheaper than acquiring new customers.

But with that said, there are at least three options for banks to consider:

1: Offer the enhanced services using internal client transactions details only. Charge either nothing or very little for this. I am guessing that some banks will try to charge for it, either at launch or down the track. They will learn about adoption rates, whether paid or unpaid, and make a decision one way or the other. I am picking that while some people will want this service regardless of cost, that providing personal financial management tools will rapidly become a price to play and be free.

2: Offer the enhanced services allowing you to draw in records from other financial institutions. There are three interesting impacts of this:

– Privacy – do you really trust your bank with all of your financial information? Are you comfortable with your bank knowing just how much debt you have?

– Price – banks could feel that they are able to charge for this service, and so price discriminate between those customers willing to pay and those who are not. That will help fund development for the entire suite of tools.

– Information – the reverse of privacy – banks can use the information contained in your other accounts to make better assessments of your risk profile and to offer you tailored products or services. Imagine getting an email “transfer your $1000 loan with Y Bank to us and lower your interest rate costs.” The downside of this is that for some the bank may decide to not offer your products and services, and even degrade the ones you have given their enhanced understanding of your risk profile.

While privacy advocates are noisily defending our rights (and I support them), when it comes down to it we will surrender those rights if it is in our benefit.

3: Offer to upgrade to an external provider that aggregates data from several financial institutions. Thus I start using Xero Personal in BNZ, and I have the option of upgrading to XeroPersonal.com -which is independent of  BNZ. This gives confidence that customers will maintain privacy when getting records from other institutions, and also allows Xero (or whomever) to charge for the service. Xero for business fees are pretty high, but hopefully retail prices will be accessible to the masses – say $20-40 per year.