We recently had the opportunity to interview Jim Bruene, author of the popular blog Netbanker. Netbanker is a leading online finance and banking blog which covers everything from online banking to person-to-person lending to mortgage lead generation. Jim has been providing insightful analysis and research of the online banking and finance industry for over 10 years.

We asked Jim his thoughts on innovations in the online banking world. Here is what he had to say:

How has the increased use of the Internet transformed the way banks market to them?

The online channel (including email) provides a very low cost way to get marketing messages in front of the your online banking customers who are frequent website users. So online messaging is one of the first things banks look at today before adding more expensive print and offline media to the mix. And the ability to get your advertising in front of consumers as they are doing a rate/product search on a search engine has changed the dynamics of prospecting for new accounts. So the marketing mix has definitely changed and will increasingly be weighted to online tactics, although none of the old techniques are in danger of disappearing, except perhaps telemarketing.

What is the most over-hyped new technology or strategy (in terms of bringing real value) out there today?

Historically, the most over-hyped technology/strategy by far is mobile services. It’s finally just beginning to catch on (in the U.S.), 10 years after it was first hyped. I don’t think there’s anything that is being seriously over-hyped today. Most of the new things we are looking at have real promise because of the size and sophistication of today’s users. A few things won’t live up to their press releases, but that’s always expected.

Are the market conditions (e.g. credit markets and interest rates) increasing or decreasing the importance of the online channel? In what way?

For mainstream online banking, the market conditions aren’t that relevant. No matter what Wall Street is doing you still have to watch your balance and pay your bills. It’s a bit harder for the online savings specialists to poach customers when they can only offer rates 1-2% higher instead of 3-4%. However, the genie is out of the bottle in that market and consumers will continue to seek higher rates online, they’ve learned.

One niche market benefiting from tighter credit is the loan exchanges: both the new person-to-person lenders such as Prosper and Lending Club and other types such as LendingTree and Virgin Money. We know of at least a half-dozen more that are on the drawing board and could come to market in the next year or two. The personal finance press loves these sites and you can expect plenty of coverage this year and next.

How will the consumer experience change on bank websites over the next year?

It may not be next year, but going forward online banking will require less time and energy on the part of the end-user. Instead of logging in three times per week to see what transactions have cleared, consumers will receive periodic notices on their mobile phone, Facebook account, or regular email address. This is not a new development, but the mobile phone as a receiving device for banking info will accelerate the trend towards the use of alerts to stay informed rather than logging in.

What new product offerings do you see banks rolling out to consumers?

Although not so much a new product, really just an evolution of customer communications, will be mobile alerts that are increasingly two-way (you can reply back to move money or pay a bill). In terms of web-based delivery, we’ll see more banks do what Wells Fargo has done with its MySpendingReport, that is provide simple tools for users to track and view their spending. I also think we’ll see more banks and credit unions put in more social-media inspired services such as user forums, blogs, and Facebook widgets/apps.

You were in this business in the late 90’s when the Internet bubble burst. Do you see any similarities between the market we’re in now and what was going on back then? What are the biggest differences?

In terms of online financial services, there never really was much of a bubble. Online banking was just getting started in 1999/2000 so there weren’t many casualties, other than in the mobile area and a few non-bank portals that never achieved critical mass. And I don’t see too much overinvestment now. Financial services and banking are huge markets with enormous potential both to increase revenues, reduce costs, and improve overall customer satisfaction. The bubble today is in brick and mortar. I’ve been a banker and I understand the power of the branch for sales, service and brand image, but their value has peaked. No, I don’t think branches are going away, but over the long run, like the next 50 years, their influence will decline substantially.

Thanks Jim!

Earlier this month, Bank of America announced that it was buying troubled Countrywide Financial for $4B in stock. There are several theories regarding the reason why Bank of America’s CEO, Ken Lewis, would even strike a deal with Countrywide. One theory includes Countrywide fitting nicely into Bank of America’s acquisition strategy focused on dominating markets outside deposits, as evidenced by its acquisition of MBNA back in 2005.

According to Inside Mortgage Finance, a combined Bank of America and Countrywide will account for 24.5% of the market share for top mortgage lenders based upon data from the first nine months of 2007. But how much of a power play does the absorption of Countrywide represent for Bank of America in the online mortgage world? During November 2007, Bank of America only accounted for 3% market share of online applications and leads and was in 9th place. Surprisingly, despite its recent troubles, Countrywide still accounted for 13% market share during the same period.

A leapfrog move from 3% to 16% market share for Bank of America post-Countrywide acquisition dramatically shifts players in the online mortgage world as Bank of America will just trail LowerMyBills while Lending Tree/GetSmart remains the #1 online market share leader with a whopping 37% market share. Excluding these two mortgage aggregators (which have a fundamentally different business model of turning around and selling leads to lenders to the direct lending model of Bank of America and Countrywide), the newly combined Bank of America and Countrywide will be the #1 online mortgage lender (as measured by submitted applications and leads). The next closest direct mortgage lenders would be Quicken Loans with 6.6% and then Wells Fargo with 3.4% market share.

Beyond consolidating the online mortgage market, another growth opportunity for Bank of America is to cross-sell its financial products to Countrywide’s sizable customer base. This strategy is articulated in Bank of America’s recent press release in which Lewis is quoted as saying, “Countrywide customers will gain access to a broad set of consumer products including credit cards and deposit services.”

So how much of a cross-sell opportunity will Bank of America have with Countrywide’s customer base? Countrywide had approximately 2.4 million online accounts in December 2007, which will represent approximately 11% of Bank of America’s total online banking base when the deal is finalized later this year.

Only 21.8% of Countrywide’s customers also managed an account at Bank of America between July and December 2007, while the remaining appear to be online bankers at the following institutions: Chase (20.9%), CapitalOne (16.3%), and Citibank (14%). Given that 78% of Countrywide’s customers do not bank online with Bank of America currently, this appears to point out a significant opportunity for Bank of America to cross-sell to those who might want to consolidate their credit card or deposits accounts with a single financial institution. The bottom line: If you are a Countrywide customer, be prepared to receive a ton of offers in your mailbox.

So easy a caveman can do it….Who would have guessed that what started as a funny tag line to a GEICO ad campaign would lead to a budding pop-culture hit? (My favorite line from those commercials is when the caveman sitting on his therapist’s couch says “my mother’s on the line, I’ll put her on speaker.”)

Perhaps to appease his anger, GEICO built the Caveman a killer crib and later ABC stepped in and gave the Caveman his own television show. Let’s start by looking at interest in his crib and then examine interest in the TV show.

The “crib” itself appears to be a standard bachelor pad, complete with flat screen TV, wet bar, and a dart board (with a picture of the GEICO gecko hanging on it). For three weeks in August (8/11 – 8/31) there was a significant spike in people visiting the Caveman’s crib – at least virtually – with 400,000 people spending an average of 7 minutes on the site. (Just for reference, 400K is more people in one month than popular sites like Wholefoods.com, Lexus.com, Barackobama.com, Hsbcdirect.com or Louisvuitton.com regularly receive.)

Looking back to August, we tried to uncover what drove all that traffic to the site. To start with, over 60% of all people came from search or direct entry (a person typing the domain in their web browser). This is an abnormally high percentage and suggests people were seeing or hearing about the Caveman (possibly through a commercial for his upcoming show on ABC, talk around the water cooler at work, or an email from a friend) that prompted them to visit the site. Whatever the cause, once they visited, they typically didn’t go back.

This raises the question, what is GEICO getting in return for setting up the caveman in such a great pad? According to Compete data,

• 10% of visitors to the Caveman’s crib also visited GEICO’s website in the same month.
• Considering only 2.6% of the entire Internet Browser Population visits GEICO in a given month, people who visit Cavemanscrib.com are 4X as likely to visit GEICO as the average internet user.
• For those visitors to GEICO.com who had also been on Cavemanscrib.com in the same month, approximately 20% were existing GEICO customers and 80% were potential new policy prospects.

It seems like the Caveman is trying to send some new business over to GEICO. However, it doesn’t look like it’s working out. Only 1,500 (or about 4% of prospects) submitted a quote for auto insurance. This 4% prospect to quote rate is well below GEICO’s average of 28%.

I doubt that the lower prospect to quote rate is much of a concern to the folks at GEICO. They don’t appear to view the caveman as anything but a branding campaign. In fact, in a March 5, 2007 WSJ article, which announced the creation of the ABC Caveman pilot, Ted Ward, GEICO’s head of marketing said, “”We are excited to have an opportunity to do brand extension. As a marketer you have to look for new and unusual ways to get your brand out there because of the large amount of messaging clutter and media fragmentation.”

Mr. Ward and GEICO have been extremely successful at promoting the GEICO brand. What started as a single TV commercial became a series of commercials. This in turn led to a micro site that spiked with 400,000 visitors and finally a primetime sitcom with over 100,000 streaming internet viewers.

Perhaps this is exactly what GEICO’s marketing department had in mind when they said “you have to look for new and unusual ways to get your brand out there.”