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.

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.

INNOVATIVE ACQUISITION

"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.)

Mint.com, 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 Bundle.com, 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 Bundle.com, 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."

According to Jaidev Shergill, CEO of Bundle.com and a former Citi executive, it's a matter of trust. "What's really behind some of this can be summed up in one word: unbiased," he says. "When you think about the way banks dispensed information and advice two or three years ago, it typically ended up in a sales pitch for that bank's product. People started wondering if they were really getting the right recommendations. The quest for unbiased information has led to the creation and blooming of financial blogs and sites like creditcards.com that truly look out for the customer's interest." Consumers also want simpler, more clear advice, Shergill adds.

IN BANKS WE TRUST?

But Kevin Lynch, SVP of e-commerce at 1st Mariner Bank in Baltimore, argues that banks have a trust and security advantage over non-banks in the personal financial management arena. "There are people who wouldn't go to a Mint.com because it's not affiliated with a bank," he asserts.

The catch? A personal financial management tool that includes information from only one financial provider is of limited use, since most Americans have several credit cards and retirement accounts as well as checking and savings accounts, often from different institutions.

This is why PFM sites with account aggregation, such as Yodlee and Geezeo, are picking up business; they can give customers a true picture of their total finances. But most banks have shied away from tools that aggregate outside accounts, not wanting to encourage their customers to think beyond the bank's own products.

1st Mariner Bank ($1.4 billion in assets), however, recently became the first bank to sign up with Geezeo's white-labled online PFM. Offering personal financial management online "further enhances our ability to service our customers the way they want to be serviced," says Lynch. (By contrast, he notes, online banking is "a transactional place.")

"We recognize that we don't have all of our customers' accounts in our bank, yet they do need a place to manage those accounts," Lynch comments. "A PFM product like Geezeo is a good combination of budgeting tools, helping customers set goals and do some analysis of their spending."

Steve Kruskamp, e-commerce marketing manager at 1st Mariner -- Lynch refers to him as the bank's "primary social media activist" -- insists that the plethora of financial services available on the Web removes any need for consumers to maintain a single relationship with one financial institution. "PFM creates a tool that makes the relationship more sticky. If you go through the process of setting up all this account aggregation, and you start to use the tool and see its value, then you're more likely to look at that financial institution for other products and services before you start to look around to another financial institution," he says, admitting, "We don't have a lot of empirical evidence yet." (In fact, the Geezeo/1st Mariner site is still in beta; at press time, they hoped to take it live in April.)

According to Lynch, customers will access the Geezeo/1st Mariner site from the 1st Mariner homepage; 1st Mariner's online banking solution, provided by Fiserv, will not be embedded or part of the Geezeo PFM. But for the bank's online customers who sign up for Geezeo, its aggregator, Cashedge, will automatically pull their bank data into Geezeo's application as well as transactions related to their retirement accounts, credit cards, student loans, mortgages, car loans and other financial products from other institutions.

Geezeo tracks, tags and organizes transactional data to help users set budgets. It can even act as a customer's financial conscience: It will watch incoming bills and cash flow and warn customers when they might have trouble paying a bill.

Kruskamp says Geezeo has found that the sweet spot for PFM tools is Generation X -- people in their late 20s to early 40s. "Gen Yers are the ones we'll have to teach that this is a beneficial tool," he muses. "They're used to the helicopter parent mentality, where they look to their parents and elders to help them manage their money, give them advice and do it for them. But very quickly they're going to move into that age and role where they have their first job, and their parents won't be so involved."

But Lynch believes the PFM site will appeal to baby boomers and others in addition to Generations X and Y. "There are plenty of people who saw their 401(k)s and their retirement accounts get devastated over the last six months," he observes. "So their goals have changed. Once, people thought, 'I've got this nice 401(k), it's going to be there for me, so I'll continue to spend with my credit cards and eventually I'll pay them off.' A lot of people are starting to realize that that eventuality is now."

With so much sensitive data being handled, though, isn't Lynch concerned about security? "Always," he acknowledges. "You'd have your head in the sand if you didn't think about that stuff."

The bank is having Geezeo perform extra risk assessments and put in place additional safeguards, Lynch relates. The account data will be housed by Cashedge, which has been storing customer data for years, he points out. "We feel confident that they can support this service safely for our customers," he says.

SOCIAL NETWORKING

In addition to financial management tools, social media is a big part of 1st Mariner's efforts to attract and retain younger customers. Kruskamp and Lynch blog and participate in social media networks regularly. Kruskamp posts messages and videos, including information about upcoming events and industry news, on behalf of 1st Mariner on Twitter, Facebook and YouTube. In fact, a year ago the bank introduced a checking account for Gen Y based on feedback received in social networks.

"We look at Twitter as an extension of communication with our customers," Kruskamp says. "You no longer have the number of customers coming into the branches and having a one-on-one relationship with the managers. So we wanted to see if there was a way that we could get back those relationships that are somewhat lost. Twitter, the blog and Facebook offer a channel where our customers and prospects are already there." The bank doesn't use social media to market products but rather to carry out overall public relations, Kruskamp emphasizes.

Twitter, according to Lynch, lets the bank connect with local businesspeople and industry peers. Facebook, however, is more of an opportunity for the bank to interact with customers and prospects in a more social setting, where the bank shares pictures, promotes fundraising efforts and personalizes the brand.

"Facebook brings a transparency that didn't exist before," Kruskamp suggests. "Unless someone came to our back office or one of our picnics, they wouldn't see what we're doing, that we really enjoy what we do."

Although the bank has not laid out a strict business case for the Geezeo and social media initiatives, Lynch stresses that social media efforts are inexpensive compared to traditional channels and they're increasingly necessary. "The branch transaction level is continuing to decline, call center volumes have dropped from 65,000 to 70,000 calls a year to 59,000 or 58,000," he notes. But 1st Mariner's online customers more than doubled, from 2,500 in 2008 to 5,500 in 2009. "People are interacting with us, that's the business case."

Like 1st Mariner, Atlanta-based SunTrust Banks ($172.7 billion in assets) is experimenting with both online PFM tools and social media. The bank's mostly anonymous LiveSolid Network, which primarily targets 25-to-45-year-old women, went live Feb. 1. The site took about five months to develop with an outside marketing firm and falls under the bank's marketing budget, according to Broud Koun, director of digital marketing and direct mail.

Many of the articles offered on the LiveSolid site are from women's magazines, such as Fitness and More. "It's an explicit part of our strategy to be a facilitator of content, not just SunTrust speaking to clients and prospects," explains Koun. "We feel that to our clients and to our consumer base, there are many different sources of relevant information, and our goal is to bring that information to them."

But SunTrust's name barely registers on the site, which offers information unrelated to financial services. "It's not new for SunTrust to try to support our clients, especially in times like this," says Koun. "Recent times have made people refocus their priorities and try to solidify their financial and personal situations. In our research we found that our clients don't necessarily separate financial life from life. We wanted to speak to our clients and other consumers in a language and mind-set we found people to be in, as opposed to from a financial services/bank mind-set."

SunTrust is not trying to hide the fact that it's behind the site, Koun notes, pointing out that the bank's logo does appear on the homepage. "But we've found that translating the bank's brand and personality into the social media space requires a different approach and attitude," he says. "The last thing we want to do is say, 'Welcome to the SunTrust Facebook page, how about a checking account?'

"It's more about helping clients live a more solid life. We hope that that will lead them to do more business with us and recommend us to others."

The LiveSolid site offers more than 100 tools and calculators designed to help visitors manage debt and finances alongside other life challenges. The bank hopes to reach new customers and serve existing ones, but it's not too ambitious about the numbers. "If the only people who ever use the site are our clients, and it helps them live their lives in a more robust, solid, responsible fashion, we would be very happy with that," Koun insists.

He declines to comment on page views, but he says the average site visit lasts about four minutes. And while he also declines to share demographic information about visitors to LiveSolid, Koun observes that the demographics of social media sites are sometimes surprising. "It would be incorrect to assume that Facebook, for example, is all about 19-year-olds," he says.

IS IT WORTH THE PRICE?

Not every bank is jumping on the personal financial management bandwagon, however. A recent Aite Group survey found that only one in five banks overall -- and only one in 20 large banks -- offers online personal financial management. (Of the remaining firms, 60 percent said they will evaluate whether to offer PFM tools in 2010.)

According to Aite's Shevlin, one reason many banks have not advanced PFM strategies is a perceived lack of demand. "Bankers tell me they ask their customers if they want PFM and are told, 'No, people don't want to manage their money,' " he relates.

The other challenge is a hard-to-define return on investment. "At best it's hard to compete with other projects, like mobile banking and online bill pay, that have direct impact on the bottom line," Shevlin concedes. Yet, he notes, the Aite research showed the benefit of PFM to customer retention -- a quarter of all PFM users said they are less likely to switch their primary banking relationship as a result of using PFM.

Bundle.com's Shergill acknowledges that the business case for a PFM site isn't obvious. "If you're launching a new product within the bank, you can see the exact revenue model for the product," he says. "If it's a PFM product, you have to ask: One, is it going to allow me to capture new customers? Two, will someone put more of their relationships with me because I'm offering this PFM solution? And three, will someone not leave me as a bank because I offer this PFM solution? But since there are no strong [data] on any of those three levels, banks are finding it difficult to justify the business case."

For 1st Mariner Bank's Lynch, however, the more important question is whether a bank can afford not to have PFM tools. "Our perspective," he says, "is that this is a requirement that customers may not know they need yet, but they will."