Social banking, a new trend in 2010

More and more banks are finding that reaching online-savvy consumers of all ages takes a variety of new strategies – and most of them are online.

In Penny Crosman’s recent article in Bank Systems & Technology, “Channel Innovation: Building Online Relationships,” she explores the variety of new consumers – and how they view banks and money.

For example, there’s a whole contingent of consumer that focuses on not consuming, such as “freegans” who strive to have no money and live “off the grid.” To reach this and other hard-to-reach markets, banks must up the ante on social and online marketing. For example, 18 to 30 year olds (Generation Y), a Cisco survey found, are heavily in debt, need help with their finances, and prefer communicating via their cell phones. They’re used to having Mom and Dad take care of the finances, and could use the most help from banks – but may not trust them as much.

The bottom line? Financial institutions must innovate to reach the hard-to-reach consumers; however, the good news is that half of all searches for financial products start on the Web, according to Terry Moore, Accenture’s North American banking practice lead. And online personal financial management is on the rise. These aggregators, such as Mint.com or Geezeo, help consumers keep track of budgets, discover new products, and manage accounts from a variety of providers in one place.

In a new trend, though, banks are building their own personal financial advice Web sites – sites that are nearly independent of the bank and that, in fact, barely mention the bank at all. For example, SunTrust’s Live Solid Network looks like a self-help site that could be associated with a women’s magazine.

Ron Shevlin, senior analyst at Aite Group, believes there’s a perfect storm creating demand for personal financial management tools, citing 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. [Banks] realize that [personal financial management] 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.

1st Mariner Bank in Baltimore ($1.4 billion in assets), however, recently became the first bank to sign up with Geezeo’s white-labled online personal financial management, which lets their customers access their 1^st Mariner accounts as well as their other financial accounts from one site.

Steve Kruskamp, e-commerce marketing manager at 1st Mariner insists that online personal financial management “creates a tool that makes the relationship more sticky.”

Additionally, social media is a big part of 1st Mariner’s efforts to attract and retain younger customers. Kruskamp blogs 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 lets 1st Mariner 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.”

Kevin Lynch, SVP of e-commerce at 1st Mariner Bank, 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. Broud Koun, director of digital marketing and direct mail, 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.

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 such tools in 2010.) They cite lack of perceived demand and a hard-to-define return on investment.

For 1st Mariner Bank’s Lynch, however, the more important question is whether a bank can afford not to have these personal financial management tools. “Our perspective,” he says, “is that this is a requirement that customers may not know they need yet, but they will.”