From a financial innovations standpoint, 2010 is off to a great start. Just 35 days into the year and we've already had two launches of services I don't think anyone saw coming: Blippy to automatically stream your purchases to the world (previous post) and now Kwedit (say it out loud if you don't get it).

Kwedit is designed to be the payments engine for the massive virtual goods market, estimated to be $1.6 billion in 2010 according to InsideVirtualGoods.com, up from $1 billion in 2009 (cited by GamesBeat last week).  

Many of the gaming networks, especially the so-called "social gaming" startups such as Zynga's FarmVille, appeal to teenagers and younger kids (note 1) who don't have credit or debit cards available to pay for virtual goods. This has made it difficult for the publishers to monetize the games through direct payments.

How it works:

1. Users of games partnering with Kwedit can purchase in-game virtual goods by promising to pay later through their associated Kwedit account. See the screenshot below to see how Kwedit is positioned in the online game FooPets.

2. Later, users print out a bar-coded coupon from their Kwedit account (see inset right) and take it to a participating 7-11 convenience store and pay via cash, mail payment directly to Kwedit, or "pass the duck" and send the IOU direct to their parents for payment. The site also offers an option to pay directly via credit or debit card.

3. To help drive off deadbeats, the company has created a Kwedit Score that shows which users are paying their IOUs on time (inset left). At FooPets, users will get more virtual goodies as their Kwedit Score increases, creating a game within the game and a way to promote responsible spending. 

Analysis
I'm not a gamer myself, but as a parent, I understand the pull of online games and look forward to the day when I don't have to hand over my credit card for use on some site I barely understand. Some will argue that Kwedit needlessly encourages credit use in the pre-teen set (note 1). But as long as parents stay involved, Kwedit can actually be used to teach kids the importance of paying their bills.

So, if users take this option seriously, by paying down their virtual debt with real money, Kwedit could be huge (in which case, PayPal buys it of course). And it's relatively low risk for the gaming companies because the virtual goods have a zero marginal cost. BillMyParents is another company we've covered in the teen-payments space.

There is no doubt in my mind that online gaming needs a better payment system and that the solution is unlikely to resemble anything us parents have ever seen or imagined. Kwedit fits that bill. 

Kwedit gets star billing on the main screen at FooPets (4 Feb 2010)

Users create a promise to pay using a popup screen served by Kwedit (link)
Note: Users first must log in to their Kwedit account from this popup

Notes:
1. Kwedit users must be 13 or older to sign up for an account.

My Citibank checking account dates back to when iPods were novel and 1GB was enough to satisfy your iTunes cravings (see Jan. 2005 post). For several years, Citibank gave iPods away to anyone who'd open up a checking account online and do a few bill payments. 

I haven't accessed my Citi checking account in at least a year, because last time I tried, I locked myself out with too many password attempts (note 1). And I've been too lazy to go through the often tedious reset process (see below).

So I was pleased to receive an email this morning offering to help me get restarted (see screenshot below). I figured the bank had noted my previously futile attempts to login and was sending along a bit of digital assistance. Sure, it was a year or two after the fact, but I believe in better late than never.

But the main call to action in the activation email is:

Enter the User ID and Password you created when you opened your account online.

So evidently, the bank thinks I'm smarter than I really am and actually can remember the username/password from my two-years dormant account.

Had I not been blogging about the email, I would have deleted it. But as I re-read it more closely, I did see the small light-gray link in the corner for resetting my password. Unfortunately, Citi requires your ATM card and PIN to reset passwords (see second screenshot). This is precisely why I wasn't able to reset the thing when I was locked out two years ago.

My take:
1. An activation to stalled online banking customers is a great idea. But in this case, Citibank did not deliver on its promise to "help" me restart online banking (note 2). As a matter of fact, I am now even more frustrated. If you are going to send a message offering help, make sure there is actual help available for the various ways customers will respond.
2. For infrequent users, consider simpler password-reset procedures based on email address or mobile phone number on file plus Social Security Number and/or shared secrets. 
3. Finally, don't offer a dead-end password reset page. In Citibank's case, if the user doesn't have both their ATM card number and PIN, there is no place to turn. There's not even a phone number listed on the page to seek live help (you have to use Contact Us in the upper right).

Citibank email (sent 3 Feb. 2010, 9:30 AM Pacific)

Citibank password-reset page

Note:
1. I have two Citi accounts with different usernames and passwords, so it always makes for an interesting memory test at login.
2. I should add that I have enough money in the non-interest account to provide Citi with a bit of profit every year. 

Happy February! We hope your 2010 is off to a strong start.

As we ramp up our blogging for the new year, we wanted to take a moment to thank Yodlee for their continued support of NetBanker. They sponsored the blog for several months in 2009 and recently made a long-term commitment to support it in 2010.

Yodlee is, in their own words, a "provider of online and mobile personal financial management (PFM) and payments solutions". They're one of the leaders in the space with "more than 100 leading financial institutions and portals today offer Yodlee-powered solutions to millions of customers worldwide."

On February 9th (next Tuesday), Yodlee is offering a free webinar on their AccountVerification tools and how they can help financial institutions increase deposits and decrease abandonment. Register now if you're interested in learning more!

Thanks for your time! Now, back to our usual blogging.

I've often wondered how many people use the same username/passwords at their bank as they do at other random websites. I figured it was a substantial number, but never expected it to be as high as the 73% Trusteer cited in a recent white paper (note 1). That's why most financial institutions have used "multi-factor authentication" for years.

One of the most common multi-factor techniques is to ask additional questions if the bank detects a login from an unknown computer. However, it's possible that these same people are also using the same "secret question" answers at non-secure websites, defeating this multi-factor approach.   

Luckily, it's still relatively difficult to remove money from most U.S. consumer accounts because online interbank transfers are more tightly controlled, or simply not offered. However, if crooks are able to log in to online/mobile banking and determine the user's account numbers (debit, credit, or checking), a number of more lucrative frauds can be engineered.

What's a bank to do:

• Use secret questions that are not commonly used across the Web. Or allow users to create their own, but caution them not to use ones they see at other non-banking websites.
• Create an additional out-of-band authentication process (e.g., text message an approval code) for moving funds out of an account.
• Do not allow online banking users to see their own account numbers online
  (note 3)
• Educate/encourage customers to use different username/password for online banking than for other non-financial sites
• Financial institutions using Trusteer's Rapport service can identify which customers are sharing username/passwords at less-secure sites and ratchet up internal fraud control settings for these customers

And the most effective method, which we don't recommend because it's just too painful for the user experience:

• Force users to make more challenging usernames and/or password such as those with a capital letter, number and/or special character

Silicon Valley Bank (SVB) offers Trusteer's Rapport (link, 2 Feb. 2010)

Notes:
1. While 73% shared banking passwords with other sites, less than half the total, 47%, shared BOTH username and password. Two other data points:
- 65% of user-selected banking usernames were used elsewhere
- 42% of bank-selected banking usernames were used elsewhere
2. Trusteer's data was compiled over 12 months using its plugin software running on more than 4 million computers (see previous post).
3. There's still the issue of the easy-to-read account number on check images; it would be nice to mask it, but that's probably not worth the expense) 
4. For more info on Trusteer and other security topics, see our previous reports such as, Online Banking Report: New Security Techniques (Sep. 2008)

I had been intrigued about rumors that Microsoft and Citibank were partnering on a joint personal-finance venture called Bundle. I was hoping for the financial services version of an Apple launch.

OK, that's a little too high of a bar to set. I was really just hoping for the next Mint or at least something we hadn't seen before. To some extent, Bundle delivered, with Mint-like attention to design and deeper data than we've seen previously. But in other ways it's just a me-too personal finance site, FiLife 2.0. Bottom line, Bundle has been open only a week so it's way too early to predict where it's going or how it makes money. 

Bundle is a personal finance startup backed by Citibank, Microsoft, and Morningstar. Two of the key execs, including CEO Jaidev Shergill, are from Citi Growth Ventures, the group charged with commercializing products and ideas that have bubbled up within the banking giant. The startup also enlisted professional journalists, including Janet Paskin who's written for Dow Jones's SmartMoney Magazine among others.

Given that pedigree, the new site is kind of a SmartMoney Magazine meets your credit card statement with some social networking thrown in the mix.  

What distinguishes it from most personal finance content providers is that Bundle showcases proprietary data, sourced from Citibank's massive card-spending warehouse. The site gives center stage to data and shows household spending personalized to your specific location.

There's also professional personal finance advice mixed with stories and comment from the community. Even the articles use the database to illustrate points (screenshot 3). 

Naturally, it's well-integrated to Facebook. You cannot even comment unless you log in via Facebook Connect. You can follow Bundle on Twitter, of course, but surprisingly there is no blog or RSS feed.

And Bundle already has its own iPhone app called Vice Tracker (iTunes link) that makes shopping for non-essentials into a tongue-in-cheek game. The unique app was added to the store two weeks ago in the Lifestyle category. 

According to the FAQs, Bundle's business model is advertising, but there are no ads on the site yet, other than the logos of the backers (Microsoft is using its MSN Money brand). Presumably, they are looking for financial advertisers, but the Citibank connection might make that a harder sell.

Analysis
I like what Bundle is doing, creating a consumer-facing company around Citibank's cardholder data. But I can't figure out who they are targeting. Maybe they haven't decided yet.

If they want to attract data junkies like myself, the data needs to be more transparent and they need more robust tools to play with it. I enjoyed being able to compare the spending of my Seattle neighbors against that of my home town in Iowa (it's surprisingly similar). But I was left with a number of questions: 

• Where does the spending data come from? The FAQs are vague on saying that it comes from Citibank card data, government sources and "other third parties." 
• If it's primarily Citibank card data, is it really representative of the entire town or just the people that hold Citibank cards? For example, Bundle tells me (screenshot #3)  that the average dining out expense in Seattle is $115 and the most common spot is Starbucks followed by McDonalds. Something seems wrong with that.  
• And furthermore, are these estimates of all spending or just that on Citibank cards? And which Citi portfolios are included? What about business cards?
• The graphical bubbles are nice, but I like to view data in tables, especially when trying to drill down and do meaningful analysis. Is there some way to see the underlying numbers?

On the other hand, if Bundle is trying to attract readers looking for personal finance advice and discussion, the data is kind of in the way, more window dressing than anything else.

Final thoughts
The graphics are great and the spending data is interesting. But why would I come back? There's only so many times in one's life that you want to compare the shopping habits of your city vs. somewhere else.

Presumably, future versions will allow you to compare your actual spending to the Bundle averages using account-aggregation technology. This is a popular feature of Wesabe, and is one of the major tenets of what we've called "social personal finance" (note 1, 2).

I also expect they'll integrate Bundle into the Citibank cardholder site so its customers can do online comparisons while they are checking their statement online.  If Citi can document a spending lift from bundled Bundle, then the startup has proven its value. Armed with that success, it could be licensed to other big card issuers, increasing the value of the Bundle data for all users, attracting more users and more advertisers. The network effect. Perhaps that's the end game here. 

#1: Main Bundle page after selecting "Seattle" as location to show spending (29 Jan. 2010)

#2: Main page after drilling down through the "Food & Drink" bubble (link)
Note: Top five restaurants for dining out in Seattle are Starbucks, McDonalds, Subway, Red Robin and Cheesecake Factory. That sounds possible, but then the average purchase size is listed at $115. That's a lot of lattes or Big Macs.

#3: The ever-present "spending balls" hover above an article by Bundle Managing Editor Janet Paskin's short post. The balls compare the spending in Brooklyn with her hometown Seattle 
Note: Brooklyn comes out cheaper, see the solid circles (Brooklyn) in front of the cross-hatched ones (Seattle).

Notes:
1. See our previous reports on Social Personal Finance (2007) and Online Investment Communities (2008).
2. Wesabe would seem to be a great acquisition if Bundle wants to add the aggregation technology piece and jump-start its user base.  Blippy-like features would also make the site more sticky.
3. For more background on the software tools being used, see the article on Bundle in Microsoft's Financial Services publication published 22 Nov. 2009.