Relationship Banking is a term that has been around since the 80’s. In its first use, it described a holistic level of service that branch personnel could deliver to customers by having the entire bank relationship on their computer screen.

Gone were the days of reviewing daily overdraft reports and making subjective decisions about whose items to return or pay – now a branch manager could use hard data to make those decisions.

The concept was right, but retail bankers became distracted with more pressing matters until Banco Popular introduced its Premia program in 2002. I was fortunate to be part of the team supporting the launch, and coined the term Total Relationship Banking (TRB) at that time while working in the Colloquy consulting group (now Loyalty One).

TRB has at its core the use of a common rewards currency (points) awarded to customers to recognize their acquisition and use of any retail banking product including credit cards, debit cards, checking accounts, loans, and investment products.

TRB has become a commonly used industry acronym and once Citi launched its ThankYou! program in 2004, the buzz was that TRB would take retail banking by storm. Instead of a tidal wave, we saw just a ripple or two hitting shore as National City launched its Points program in 2006 followed by ….. nothing.

Nothing that is, until Regions Bank, the 22nd largest US Bank with $137 Billion in assets, launched Relationship Rewards during this past summer. Now we have banks ranking #3 (Citi), #12 (PNC), and #22 sporting a TRB model to increase customer loyalty and retention. As a footnote, PNC acquired National City during the past 2 years and morphed Nat City Points into their own branded currency. It says something about the value of the program that it was not shelved during the course of PNC’s takeover of National City.

One of the outcomes of the recent financial downturn has been increased focus in retail bank marketing on building relationships, encouraging financial literacy skills, and introducing or re-shaping loan and deposit products. The emphasis has been on transparency and value and consumers are responding.

Relationship Banking is a complex model to structure and manage and there is mixed research on whether consumers really want to put the majority of their eggs in one basket, regardless of how many points they can earn.

I’m going to take a closer look at the Regions Bank program this week and also summarize the opportunities and challenges with TRB over the next few posts.

If you’re not a banker, don’t worry, I have a juicy Foursquare post ready to go!

When people are asked about their greatest fears, you might be surprised by the results.

In recent polls, I have seen public speaking rank ahead of getting cancer and being stricken by terrorist attacks!

Apparently in Canada, the list would be different still. A recent article in the Toronto Globe & Mail reported that in a recent Angus Reid Strategies poll of 624 Canadian parents, talking about finances with their children was one of their greatest fears. Over all, the Moms and Dads surveyed felt better prepared to discuss sex, drugs and alcohol than to broach the topic of finances. And I thought that the conversation about the “birds and the bees” was enough to break a sweat!

According to Sarah Boesveld’s article, the survey findings shine a light on the real state of adult financial literacy and points to the particular squeamish-ness of Canadians about financial conversations. Steve Garmaise, associate director with Foundation for the Advancement of Investor Rights (FAIR) was a bit more opinionated, saying “most Canadians and most parents are fairly ignorant about financial matters…and would rather hand it off to someone else.”

I would venture to add that Canadians are not alone in this regard. This is yet another reinforcement of a clear opportunity in the marketplace, and the enterprise which is able to communicate financial basics and planning skills to the public without making them uncomfortable can create loyalty among its customer base without giving away the first point or mile.

Who is better to assume this leadership role than commercial banks? Banks have multiple channels through which they can communicate (retail branch networks and secure internet banking portals) and enjoy a high frequency/high visit environment. They have an edge over competitors including brokerage firms and insurance companies which have less frequent interaction with their clients and can be too narrowly product focused.

Having just written about Social Banking and illustrating how Bank Of America is launching products designed to address consumer’s need for financial product transparency, the Canadian survey is interesting and timely. The question is: how should a bank go about executing a financial literacy campaign?

Do you include features of Financial Literacy in a relationship banking model, or is it better to skip the rewards and focus on delivering a clear message and creating trust that the products recommended are the ones a person actually needs? Time will tell, but I do believe that “what doesn’t kill you makes you stronger“. For banks, this means that flagging consumer confidence in their offerings coming out of this recession can be used as a golden opportunity.

Banks can rebuild their brands and stake out a competitive edge in the near term through marketing products as financial advocates for their clients and with a message based on value and transparency. This is the time to leave the disclaimers, fine print, and hidden clauses out of product offers. No Loyalty Asterisk™ here, please! Sun Trust is talking about “Banking Solid“and Bank of America is leading with its innovative approach to credit cards and mortgages.

Let’s see which organization makes this message a part of the core brand message, not just a convenient fad that dries up and blows away when times get better.

Two forces are at work in the financial services industry today that place bank marketers at an interesting crossroads.

The first is a new wave of regulatory pressure specifically targeted at credit cards. The Credit CARD Act of 2009 will have wide ranging impact on the payments industry in the US.  Passing of the legislation was in reaction to increasing criticism and lobbying by consumer groups and was driven to passage as the US economy cratered over the past 18 months. The impact on credit card usage will be better understood with the passage of time, but there are immediate effects which mostly benefit consumers.

The second force at work is a growing need, indeed a demand, by consumers to improve their finanical literacy quotient. Members of Generation Y surveyed have cited a lack of understanding of financial products and an eagerness to get help to establish a higher comfort level with financial basics. Some bank marketers are putting programs in place to meet this need and may be creating the foundation for stronger consumer banking relationships for years to come.

The question remains: Will the industry jump on board to promote financial literacy or will it treat the subject as a passing fad?

That the need exists is undeniable. Just witness the results of the National Financial Literacy Challenge. Conducted among 46,000 high school students in 2008, the average score was a failing 52 of 100, indicating the level of work to be done. Congress recognizes the need as well, and is considering setting up a Consumer Financial Products Commission to evaluate products sold to consumers by the financial services industry and provide relevant protections.

Financial literacy could be defined as having the skills to be able to understand and perform basic tasks such as balancing a checkbook, creating and living within a budget, paying bills on time, avoiding late fees, and saving for the future and/or major purchases.

Becoming advocates of increasing financial literacy seems like a no-brainer as banks could build trust through transparency and a show of sincere interest in the welfare of their customers.

The reality that represents a speed bump in the progress is this: US Banks generate a massive amount of NSF and other deposit account related fees on an annual basis according to the FDIC.

The connection between transparency, financial literacy and Loyalty Marketing is this:  I am aware of some marketers who propose to craft Debit Card Rewards programs where the business case is driven by increasing overdraft fees and have listened to more than one debate about the wisdom of rewarding points for NSF fees. The answer to that question can be found by asking what type of consumer behavior we are encouraging. If it’s not good for the consumer, we should take it off the board.

Fifth Third Bank and SunTrust are examples of a wave of banks taking the high road. SunTrust has launched it’s new campaign “Live Solid, Bank Solid” and is training its own staff in financial basics, hoping that the skills learned will be shared with the customers they serve.

Fifth Third has launched a new marketing campaign “Don’t be That Guy” and has created a series of humorous but instructive videos to illustrate “what not to do” in common financial situations.

Targeted to students, the bank has seen a 27% increase in new accounts opened by students in the first 6 months of 2009 over same period of 2008 according to Larry Magnesen, Fifth Third’s CMO.

Whether the current interest in promoting financial literacy survives the economic recovery is dependant on two main factors: Will consumers relax as the economy improves and go back to their old ways of debt-fueled free spending? And, will banks be able to resist the temptation of short term profits to promote financial literacy and build more trusting relationships for the longer term?

If US consumer reaction to the ebb and flow of fuel prices is any indicator, we may be witnessing a recession induced fad. Helping consumers to stay in better financial shape, however, should make them lower risks for credit card and other consumer debt and create a higher appetite for financial services products. That longer term promise might be something attractive for banks to consider.