Struggling Banks Turn To Social Networking

Battered by the cratering home mortgage market and seeking ways to attract younger consumers, financial institutions are exploring online social networking as a way to acquire and retain customers.

Netherlands-based bank ING Direct, for example, maintains a site called MoveOutMoveUp.com, aimed at first-time homebuyers, with community-oriented forums and advice pages under categories like "Oh Baby!" (for new parents) and "Moving in Together," for prospective cohabitants.

Research firm Gartner two years ago predicted that social networks and Web 2.0 applications such as wikis, podcasts, and blogs would become increasingly important to banks and other financial services firms seeking to develop "nontraditional distribution channels" and forge new one-on-one relationships with younger customers wary of conventional loan applications and the like.

That prediction is only now starting to bear fruit. In February Fiserv, which supplies back-end bill-payment and transaction technology to financial institutions, launched a Facebook application called MyMoney, which allows users of the popular social-networking site to carry out basic banking tasks such as paying bills, making transfers, and checking balances.

Developed in-house specifically for Facebook, MyMoney is geared toward credit unions seeking to cater to younger, Internet-savvy customers who are unlikely to walk into a brick-and-mortar credit-union branch, said Richard Jones, Fiserv's executive VP and CIO.

"Our credit unions have a problem," said Jones. "The average age of their customer is now 47 years old and rising. If they want to attract these Generation Y consumers, they have to go where they are, and Facebook is a clear place to find them."

Fiserv last year acquired electronic payments processor CheckFree for $4.4 billion.

Facebook users can sign up directly for MyMoney if their financial institution supports the application. If it doesn't, they can submit a request that Fiserv forwards to the credit union or bank. So far 36 credit unions have started supporting MyMoney; Fiserv plans to launch a wider marketing campaign for the application in the fall, to go after its 2,200 member credit unions. Beyond that, the company plans to market the application more widely to its thousands of bank customers.

More than 1,000 Facebook users have downloaded the application, said Fiserv product manager David Reed. "It's probably exceeded our expectations," he said. "We did not think it'd take off that quickly."

Several studies have found that younger customers tend to feel more comfortable with online banking than their older counterparts and make fewer trips to physical branches. And tightening credit markets are making it more difficult for 20-something consumers with brief credit histories to make big purchases like autos and homes.

At the same time, younger consumers have fewer concerns about security issues surrounding banking online.

"There are college kids who haven't been inside a bank," John Zollinger, VP of corporate banking for Whitney Bank, told the Mississippi Business Journal. "You can do almost anything online now except commercial loans."

That means that financial institutions must find new ways to reach out to the "underbanked" generation and develop new relationships with them, often via online channels already familiar to the Gen Y crowd.

"I see Facebook as the next platform," said Fiserv's Jones. "There are now 30,000 applications sitting on that platform, not only for social interactions but as a place to do business. This is how people want to interact."