Expanding banks take root in cyberspace

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Consolidation in the industry downplays role of location, but brands benefit

Acquisitions and technology are causing seismic changes in the banking landscape and how financial institutions are marketed.

Small is out, big is in. Branches are out, cyberspace is in. And even as branding gains importance, the traditional geographic identifier for banks is dissolving.

In fact, even though marketing will be crucial in this world of consolidation and computers, agencies will have to fight harder to win and keep the fewer, but larger, bank ad accounts available.


The year 1995 was a record smasher for bank acquisitions--651 deals worth $76 billion in volume were announced, more than tripling 1991's high-water mark of $24 billion, according to Securities Data, Newark, N.J.

Six of the top 10 deals ever occurred last year. Until this month, that included the granddaddy of them all, Chase Manhattan Bank's $9.9 billion merger with Chemical Banking Corp.

Last week, that deal was topped by First Interstate Bancorp's decision to be acquired for $11.6 billion by Wells Fargo & Co. The merger will mean a $30 million billings loss for First Interstate's agency, Hal Riney & Partners, San Francisco. DDB Needham Worldwide, Los Angeles, which earlier this month won the Wells Fargo corporate branding account, is expected to pick up billings for the introduction of the Wells Fargo brand to the dozen states that have been First Interstate's territory.

These bank acquisitions, plus the growing popularity of banking by phone and PC, have meant big changes for the branch bank down the block.


Take Charlotte, N.C.-based First Union Corp. The super-regional has shut nearly half the 900 branches it collected in 31 acquisitions during the past decade. A $5.3 billion merger with First Fidelity last June added more than 2 million new customers.

Last March, First Union launched Community Commerce, a "cybermall" for the bank's products and services.

"Over time, banks will move away from branches, and home banking will be the only game in town," said Seamus McMahon, managing VP at First Manhattan Consulting Group, New York.

"Our research has concluded that people don't want to bank in the branches anymore," added Gary Meshell, VP-online services at Chase Manhattan.

Currently, less than 1% of transactions are processed from the home, but personal finance software could change all that. In November, Intuit agreed to provide home banking services to all America Online users and has inked 19 banks to use its Quicken software; Microsoft Corp. is a close second, with 17 banks signed to use its Money program. Chase Manhattan, the biggest bank in the U.S., is available on both systems. In December, Intuit and Microsoft also announced plans to offer banking via the Internet.

Chase Manhattan is betting heavily on remote banking, spending more on its production than any other aspect of the bank and stepping up direct marketing, Mr. Meshell said.


"With computers, banks no longer have a geographic span," said Joan T. Goodman, an analyst with Pershing & Co., Chicago, who banks in Los Angeles.

"Thanks to the information base, the geographic will be replaced by the demographic," said Karen Mulvahill, director of corporate marketing at Comerica, the only major independent bank left in Detroit.

"We've been shifting our resources to direct marketing," she said. "When we market over the Internet, people won't see a Michigan-based message ... We're moving to a national platform."

The consolidation of the industry will cause an agency shakeout, said Jim Feeney, a consultant and former president of Albert Frank-Guenther Law International, a New York agency that handles CS First Boston and Union Bank of Switzerland.

For those agencies that continue to have banks for clients, "The package-goods mentality is upon us," Mr. Feeney said. "Banks are starting to learn that you have to brand the institution."


"Home banking is simply not going to work if it's not branded," said Doug Peklo, VP at branding consultancy David Wood & Associates.

Because bank products are often labeled with bland descriptors and the names of institutions usually correspond to their location, founder or an industry they're aligned with, banks have been brand-blind for too long.

Cyberspace could even help some smaller banks find a spot among the giants. With surfers free to choose banks anywhere, the Internet could level the playing field for banks of all sizes.

Cardinal Bancshares--a small, Lexington, Ky., bank holding company with $650 million in assets--in October created Security First Network Bank. Billed as the first bank wholly on the Internet, the service signed up 450 accounts in 36 states during its first week.

"Our size is a benefit," said Kim Humphreys, director of public relations at Security First's operations center in Atlanta. "We were able to move more quickly than bigger banks."

Cardinal handled the marketing it did in-house, placing a few ads in major newspapers when the service was introduced.

Copyright January 1996 Crain Communications Inc.

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