Taking a Page from Facebook

Financial services companies are getting personal. They are adopting the techniques of social networking — blogs, online forums and chatrooms more commonly associated with trendy virtual communities like Facebook and MySpace — to engage and communicate with their (generally younger) customers and come up with new product and marketing ideas.

An October report by Corporate Insight, a New York–based research firm that tracks financial industry services and strategies, indicates just how rapidly social networking has been spreading through the once-stodgy world of finance. In spring 2007 there were just a smattering of blogs and other interactive features, often lumped under the Web 2.0 rubric. But now 11 of the 70 companies in Corporate Insight’s research database — including such leading brands as American Express Co., Bank of America Corp. and Charles Schwab & Co. — have incorporated social media into their Internet platforms. Of that group 70 percent operate what the research firm terms "full-fledged online communities," typically serving self-directed investors or small-business owners.

"Some firms have also started using blogs and forums to serve clients and prospects alike," the Corporate Insight report concludes. "We believe this represents the beginning of a major new development for the financial services industry, one that will impact the way firms serve Generations X, Y and beyond."

Such survey results suggest that companies that get this right aren’t just riding a passing fad. The volatile securities markets are filled with skittish investors searching for information, answers and advice, and customers are gravitating to online banking and brokerage sites that provide comfortable communities that are easy to join and responsive to their questions.

San Francisco–based Schwab, long known as an online finance and technology innovator — about half the firm’s 7 million clients access their accounts online — has taken a Facebook-like approach to probing the attitudes and desires of the wired population. It came up with a surprisingly traditional answer: What was most important to people under 40 was a high-yield checking account. The company offered exactly that and increased its accounts among Gen X-ers by 32 percent.

Schwab introduced an active-investor community in July after gleaning insights from similar groups in 2004 and 2007. These had been aimed at people who invest nearly one third of their assets actively (at least 36 transactions a year) to generate income, explains Richard Levine, vice president of Schwab Active Trading Services. Community members have access to blogs and Web seminars and contact with Schwab and other industry experts.

One interesting finding about Schwab’s online community: It didn’t primarily attract the young. The average age in Schwab’s active-investing contingent is 55, and participants tend to be business owners and professionals. Says Levine, "They are sophisticated and appreciate trading tools like Bollinger bands," a technical indicator traders use to determine which stocks have been overbought and oversold.

"While investors are less likely than the general online population to use social technologies, there are exceptions, and one is trading: Online traders are more active with social technologies than their peers," notes Bill Doyle, a financial industry analyst at Cambridge, Massachusetts–based Forrester Research.

Smaller online brokerages have aggressively embraced the community concept. "We realized we could help clients improve their trading skills and knowledge by connecting them with like-minded investors through a very safe and regulated online community," says Donato Montanaro Jr., chief executive officer of Boca Raton, Florida–based TradeKing, which launched its social network in 2005. "We don’t require a certain number of trades or amount of money to qualify."

Pasadena, California’s Zecco Trading opines on its Web site that it’s better to "interact with over 150,000 like-minded investors" than to go it alone, and its ZeccoShare online community features 150 discussion groups and 6,000 message threads.

Still, social networks are a new corporate frontier, and firms must monitor them closely and be alert to scams and other compliance hazards. "Management needs to provide guidance on how investors can or can’t use the tools on the community," says James McGovern, Corporate Insight’s vice president of consulting services.

But if these sites work like MySpace, there is built-in discipline as participants’ names are posted and their activities are transparent, according to Jason Feffer, former vice president of operations at MySpace and now CEO of Encino, California–based SodaHead, an online forum where participants express opinions on news and social issues. "The community itself polices the site — that’s the beauty," he says.