The Bankwatch

Tracking the consumer evolution of financial services

“Make it much easier for consumers to find those institutions whose revenue models most meet their needs” | Bankwatch Interviews Marc Hedlund, Wesabe

After the post on Wesabe and their new API, I was fortunate enough to be able to pose some questions to Marc. I chose three questions, and I am thrilled at the result and the time Marc took to provide his valuable insights.

In particular, I would point readers towards two takeaways that I got from this:

  1. Wesabe is 100% consumer oriented, and specifically around the disproportionate increase in Bank fees, which is out of sync with both costs, and Banks’ brand messages
  2. how Wesabe views information, and through a combination of interpreted data, plus users evaluations, can produce meaningful merchant evaluations, which help consumers in their choices

Fascinating stuff! Read on, enjoy, and consider implications for your organisation.

INTERVIEW; MARC HELDUND, CO FOUNDER AND CHIEF PRODUCT OFFICER, WESABE:-

You speak of the “Value Bureau” as a means to allowing consumers to make better decisions. Can you expand on that, and maybe some ways we might expect those services to evolve, and your view on who might offer those services in the future.

Sure. Wesabe views a purchase as a kind of recommendation for the merchant to whom a consumer chooses to give their money. When a consumer has a need from a business, they evaluate options (“Where should we go to dinner tonight?” or “Where should get my car repaired?”) and then make a selection based on whatever factors matter most to them. Obviously, people will try to spend their money at the merchants they believe will best satisfy heir needs. By aggregating the decisions our members makes — their purchase (transaction) information — Wesabe is able to pull patterns out of these decisions, and use them to inform other members of the best values.

As a simple example, if 100 Wesabe members go to a new restaurant, and none of them ever go back, that suggests that the restaurant isn’t very good. If 100 Wesabeans go to a new restaurant and then 50 of them return within a month, that’s probably a pretty good restaurant. Looking at the decisions individuals make (for instance, does this person return to this merchant within this time period? how much do they pay compared to their other options?), we can make some excellent determinations of which merchants are satisfying their customers and which are not.

Of course, you may give money to the plumber every month because your pipes are old, not because you love the plumber. Likewise, you may be locked into a cell phone contract that really you’d rather not be in. Because of this, we ask people for explicit comments on their purchases. We believe that if we can get explicit feedback on merchants from even a very small percentage of users (and to date, we have received a great amount of this feedback), we can use that feedback to better interpret the implicit feedback purchase patterns imply.

This idea, of collecting post-transaction data for a great many transactions, is very similar to the idea of the credit bureau. Credit bureaus index their data by consumer — allowing businesses to look up a particular consumer and decide whether or not to extend that consumer credit. We index by merchant, allowing consumers to look up a particular merchant and decide whether or not to patronize that merchant. We believe this provides an enormous amount of potential value to consumers, especially through our Accounts tab (where recommendations are shown directly alongside the transactions the consumer has made in the past) and our Goals tab (where recommendations are shown pertaining to the consumer’s future financial plans).

Everyone worries about business models, and recalls the dot com days, in 2000. Can you expand your thoughts, perhaps only directionally, on how Wesabe will make money and continue to be there, a few years out, continuing to provide such an important service.

Forgive me for making this answer a lot shorter — we’re focused on building the primary service right now,which we provide at no cost to our users. All of our current services will continue to be free for all users of the site.

That said, our business plan is completely focused on building models that serve consumers directly. We are not, for instance, building software to sell to banks, nor are we planning to sell aggregate data for research purposes (though, as our API shows, we are intent on giving that data away within our service). We are also not planning on using an ad-supported model, since people come to our site looking for help controlling their money, while ads are designed to convince consumers to spend their money. We have previously announced plans to release a “Pro” version of Wesabe, so that members who want additional services beyond what we provide today could subscribe to a low-cost service for certain added features. In addition, we are interested in working with merchants who are intent on helping our users save money by reducing their costs and bringing their goals in reach.

Selfish question: while I recognise that Wesabe provides information and data on all aspects of consumers spending and lives, can you offer some thoughts on how you see the “information economy” as led by Wesabe driving change in one vertical, financial services.

I’ve written extensively on my concerns about banking models that rely on maximization of fee revenue rather than on deposit investment. In the U.S., we’ve seen banks and credit cards earn 1/3rd or more of all their revenue from fees. The sharp increases in overdraft and ATM fees — far above the growth of costs for these institutions — strongly imply that banks are creating circumstances where consumers are led into fee generation traps.

Banks in the U.S. are reported, for instance, to collect $17.5 billion a year in overdraft fees (see The Red Tape Chronicles)

The promise of the financial services industry is that banks and credit cards will protect your finances and maximize your purchasing power. Bank buildings constructed of marble blocks are designed to tell consumers, “Your money is safe with us.” Credit cards carry a message of financial freedom and power. Today, those promises are false — by creating circumstances where fees are maximized, the consumer can reasonably expect to *lose* their money at the bank, and severely constrict their financial freedom for years with credit cards — quite an irony.

I believe that many of these circumstances are created through poor information and inadequate tools. Wesabe is designed from the start to make sure consumers have all the information they need to make the best financial choices, and the tools they need to make savings and fee prevention automatic, painless, and reliable. We believe it is our job to get consumers to their financial goals. That $17.5 billion in overdrafts fees, as an example, could help a great many consumers reach their financial dreams a lot faster.

Wesabe’s emphasis on publishing information about merchants, including financial institutions, will make it much easier for consumers to find those institutions whose revenue models most meet their needs. We already see consumers writing to us all the time to ask how they can find a bank that will not charge them for downloading their data, nor for online access to their accounts. Many members have told us that they have switched their financial institutions in order to make their use of Wesabe easier, and to avoid institutions that have very high fees.

I would like to see institutions that provide high-interest savings, low average fee costs, and high customer service values promoted aggressively to Wesabe members. For instance, a disproportionate number of Wesabe members use USAA Federal Savings Bank, which meets all of these criteria. If we are able to help Wesabeans identify the banks and credit cards like this in their region, I believe that will be best for consumers and best for those institutions.

I hope this helps — let me know if you need anything else.

Marc Hedlund, Wesabe

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Written by Colin Henderson

July 18, 2007 at 12:45

2 Responses

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  1. Colin, thanks for this great interview. The more I learn about Wesabe, the more I love them. Marc’s answers here are great. The concept of a “Value Bureau” is very powerful.

    I wonder how many banks are paying attention to this. Consumers are going to find better and better ways to sift through the marketing clutter and find the best companies to spend their money with, and a service like this is an ingenious way to get there. Money is the ultimate way we vote with our feet in a consumer culture, and Wesabe has found a way to leverage that brilliantly for the benefit of the many.

    I wonder if you know how many registered users Wesabe has and how many transactions an average user publishes a month. I have been wondering that for a while, but it seems like they keep their data secret (or I have been looking in the wrong places).

    William Azaroff

    July 18, 2007 at 23:01

  2. @William RE “what Banks are paying attention”

    James at Lloyds wants to make a difference …..
    http://bankervision.typepad.com/bankervision/2007/07/a-challenge-to-.html

    Colin

    July 18, 2007 at 23:10


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