ORLANDO - Banks are facing more aggressive marketing by nontraditional competitors, which are using niche-oriented products to nibble away at the core consumer market.
Though the upstarts acknowledge that the strategy may have flaws, some are encouraged by a survey the Bank Administration Institute released Thursday that says traditional banks' relationship-building strategies may be ineffective, and that their customers may be willing to shift their loyalties.
The interrelated issues of market segmentation, trust, and customer loyalty arose this week at the Retail Delivery Conference here sponsored by BAI.
According to the survey, 70% of bank customers are uninterested in, or skeptical of, the idea of relationship banking.
"While banks tend to view relationships in terms of the number of accounts a person has with the bank, a consumer views relationship banking in terms of trust and confidence that the institution is acting in the customer's best interest," Deborah L. Biannucci, the president and chief executive of the Chicago bankers' training group, said in a press release announcing the survey's results.
In a panel discussion Wednesday, several nontraditional competitors described their strategies for attracting the customers who are the least interested in relationships with traditional banks.
Douglas K. Freeman, the chairman and CEO of NetBank Inc. of Alpharetta, Ga., described its typical prospect as a married, time-stressed, tech-savvy, college-educated professional in a two-income family with clear long-term financial goals.
He acknowledged the difficulty of establishing a banking business while relying on a channel that is still relatively immature. For example, he said that, "It's much easier for us to attract liquidity over this channel than it is to make loans." Though NetBank offers mortgages and auto loans, "for us to make our balance sheet balance, it's going to take a while."
However, just as Capital One Financial Corp. carved out a niche with credit cards, Countrywide Financial Corp. with mortgages, and Merrill Lynch & Co. Inc. with its cash management account, "the Internet gives us an opportunity to use channel differentiation in the same way they used product differentiation," Mr. Freeman said.
W.G. Jurgensen, the chairman and CEO of the Columbus, Ohio, insurance company Nationwide Financial Services Inc., discussed its plans to use its thrift charter to offer its customers banking products and services.
Nationwide is starting with its property/casualty and life insurance customers who receive large, sudden payments for settlements, Mr. Jurgensen said. "We're handing people an enormous check at the time they are least able to handle it."
He also said Nationwide's thrift could provide investment options, including mutual funds and deposit accounts, which could be accessed by cards, checks, or through the Internet.
Such arrangements could help both the company and its customers, Mr. Jurgensen said. "Our customers are going to be long [on] cash for a period of time. We're going to offer them a more competitive thing to do with that money than to take it to the bank and put it on deposit."
Nationwide might expand its banking efforts to customers of other insurance lines, such as disability management, disease management, and other health-related businesses, to address the financial needs of an aging population, he said. "We don't know if this will work. We will combine some things that we've always done with some things that we've never done."
Mark Ernst, the chairman and CEO of H&R Block Inc. of Kansas City, Mo., said he sees opportunities in offering financial advisory services to its tax customers. Many people visit a tax preparer only once a year, but that is the one time they are focused on their finances, he said.
About 10 million of H&R Block's 19 million customer households earn $35,000 or less a year, and 6 million of them are unbanked or underbanked, Mr. Ernst said. The company already has personal information about its customers, including job, income, and family details, so the cost of attracting customers for a financial advisory business is low, he said.
H&R Block offers customers temporary bank accounts, accessed by debit cards, where people can receive tax refunds and avoid high-fee check cashers. It has also established 350,000 "express IRA" accounts. "We encourage our clients to save a portion of their tax refund and put it in an IRA," he said.
Mr. Ernst said the biggest obstacle to getting advisory business is skepticism, both by customers and consumer advocates.
Unlike consumer organizations, philanthropic groups, or the government, "we're in it to make money," he said. "That immediately casts doubt on our motivation." But he insisted the business offers promise. "We are early in our transformation, but we're encouraged by the progress that we're making."
Benjamin P. Jenkins 3d, the president of the general bank at Wachovia Corp., offered counterpoints in a panel discussion Thursday.
He said that all his customers have the same basic banking needs. "Just because they are in that 70% that doesn't want a relationship doesn't mean that they don't want good service or good products."
Richard Carrion, the chairman and CEO of the $47 billion-asset Popular Inc. of San Juan, Puerto Rico, said in a keynote address Wednesday that a niche strategy does not work for a company like his that has ambitious expansion plans.
Popular is trying to replicate what it offers in Puerto Rico, where it provides a full range of financial products and services, on the mainland United States, Mr. Carrion said.
Over half of Popular's mainland customers are non-Hispanic, and he wants to continue to pursue a broad financial market. "In Puerto Rico, we are the 800-pound gorilla," but in the rest of the United States, "we have to be marketing guerrillas."
