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Channel Innovation: Building Online Relationships

Looking to connect with Gen Y and other hard-to-reach consumers, banks are getting more creative in reaching out to customers online, particularly with personal financial management tools and social media.

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In the greater New York City/Brooklyn area, a large and growing community of twentysomethings identify themselves as "freegans." They are not interested in working or having money; they want to live simply and maintain a small carbon footprint. They can be found sleeping in abandoned buildings, dumpster diving for food and playing music on street corners to pay for basic needs (along with asking their parents for money). Many have at least one college degree and most come from middle-class families; they are deliberately shifting their economic mobility downward.

If banks want to grow, this is the type of hard-to-reach market segment they must crack. Not only do many freegans lack bank accounts, some don't even have street addresses.

While not always as extreme, Generation Y's (18- to 30-year-olds) broader mind-set toward finances is different from the views of their Generation X and baby boomer parents. According to a recent Cisco survey, Gen Yers are heavily in debt (25 percent said they had too much debt and 15 percent said they couldn't make ends meet), need help with budgets and finances, and use their cell phones constantly. Meanwhile, those that do bank like their financial institutions more than any other group (85 percent said they were satisfied or very satisfied with their current banks and that they wanted their banks to play a major role in helping them with their financial needs). And they like to have a nearby branch they can visit, even if they rarely do. (See page 11 for more on the Cisco study.)

Such demographic realities are driving banks to rethink the channels through which they interact with customers. In search of new opportunities and hoping to hold on to the business they do have, banks are getting more creative connecting with customers online, particularly with personal financial management tools and social media.


"If you look at the market today, there isn't a wave of [organic] growth for banks to ride anywhere on the horizon, so they have to ... bring innovation to how they go after new customer acquisition and cross-sales," says Terry Moore, Accenture's North American banking practice lead. "You need to look at innovation to cast a wider net for potential customers."

The good news? Half of all searches for financial products start on the Web, Moore notes.

Jointly a result of demographic change and hard economic times, online personal financial management has experienced a renaissance of late, especially among non-bank providers. (The term "personal financial management," or PFM, refers to applications and sites that allow consumers to track and manage their money, often aggregating accounts from multiple institutions in a single view.), the money management site that was recently acquired by Intuit, in February said it had 1.7 million users. In March, a former Brookings Institution Fellow introduced a service called HelloWallet that performs budgeting and money tracking functions for $4 a month. That same month, the Wall Street Journal's SmartMoney magazine launched a free online service called LifePlan that provides guidance, worksheets and calculators for financial, healthcare and real estate issues. Even the New York Stock Exchange in early April launched NYSE Money Sense, a new online educational resource for consumers to improve their money-management skills and knowledge. (April happens to be National Financial Literacy Month.)

Banks have always offered personal financial management tools of a sort. But typically they have been in the form of retirement calculators into which you carefully plug in your current age, your income, the total amount in your IRAs/401(k)s and the age at which you wish to retire only to find out that you will run out of money by the time you turn 72. These are sometimes referred to as sales tools.

In a new trend, though, banks are investing a lot of money to build personal financial advice Web sites -- sites that are nearly independent of the bank and that, in fact, barely mention the bank at all. SunTrust's Live Solid Network looks like a self-help site that could be associated with a women's magazine, featuring articles like "Rise and Shine: Beauty Experts Help You Freshen Your Look" and "All-Day Energy: Eating Right for on the Go Women." (In fact, some of these articles are from women's magazines, but SunTrust would not divulge its licensing arrangement). If you scroll all the way down to the bottom right corner of the screen, you'll find a small SunTrust logo.

Similarly, a joint effort of Citi, Morningstar and MSN Money that tracks and analyzes Americans' spending habits, features those companies' logos discreetly, in grey, at the bottom of the homepage. (For more on, see page 27.)

An exception is PNC, whose financial management Web site targeting Generation Y is clearly branded "VirtualWallet by PNC." VirtualWallet offers checking and short-term and long-term savings options to Gen Yers meant to encourage long-term financial responsibility.

What's behind all this PFM activity? Ron Shevlin, senior analyst at Aite Group, believes there's a perfect storm creating demand for PFM tools -- forces including the recession, the regulatory environment and the impact of credit scores on consumers' ability to get credit. "Consumers are becoming more aware and more diligent," he says. "[Web sites such as] Mint, Geezeo and Wesabe have made these tools easier to use, and Generation Yers are more online friendly -- they want to manage their whole lives, including their financial lives, online. And thanks to all these other factors, there's a general dislike of banks. They realize that PFM can add value to the customer relationship."

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