As banks lure depositors with higher interest rates, PNC Financial Services (PNC) says it is attracting 130 new customers a day to an account that pays only mediocre returns. And look who's signing up: the finicky members of Generation Y.
The online product is called "Virtual Wallet." What it lacks in generous terms it makes up for in user-friendliness. Virtual Wallet is three accounts--trendily dubbed "Spend," "Reserve," and "Growth"--linked together with a slick personal finance tool. The offering is part of Pittsburgh-based PNC's strategy to grab the next generation of banking customers as they start to shop for home loans and brokerage accounts. But Virtual Wallet is helping in the short term, too. PNC President Joseph C. Guyaux says customers carry above-average balances.
In early 2007, PNC hired IDEO, the Palo Alto (Calif.) design consultancy, to study Gen Y (which PNC defined as people aged 18-34) and help formulate a plan. The research turned up two things: twentysomethings consider bank sites clunky, and they typically don't know how to manage their money. "This group understands how to research online," says Michael Ley, the PNC executive who led the project. "But they said, 'We need help helping ourselves.' "
With that in mind, PNC rolled out Virtual Wallet in July. Customers can drag money from account to account on one screen. Instead of a traditional ledger, they view balances on a calendar that displays estimated future cash flow based on when customers are paid, when they pay bills, and on their spending habits. Customers also can set various saving rules with a feature called "Savings Engine," which transfers money to savings when they receive a paycheck, say.
PNC has been advertising on youth-oriented TV shows such as America's Next Top Model. The bank has also placed ads on job site Monster.com (MWW), wedding site The Knot, and ApartmentFinder.com, places for people making a life change that can include opening a new account.
Colleen Rohlf is a typical customer. The 24-year-old special-needs teacher from Pittsburgh had become frustrated with her previous bank. She found it hard to figure out how much money she had in her account, and sometimes the site froze. At this stage of life, she says, interest rates aren't a big deal, and she was sold on one Virtual Wallet feature: getting balances by text message. "I always know how much money I have," she says.
PNC has found ways to profit from Rohlf and her generation that would make some older customers apoplectic. Because twentysomethings rarely write checks, the bank levies a fee on Virtual Wallet holders who write more than three in a month. PNC pays 0.1% on interest checking accounts vs. the national average of 1.25%. And while the bank pays a relatively healthy 3% on a Virtual Wallet savings account, it limits deposits to less than $25,000.
There is this, too: Gen Yers are cheaper to service than older customers because they rarely call customer service or visit branches (though PNC charges fees for things like transferring money if they do call).
It's early days. PNC says it has signed up more than 20,000 Virtual Wallet customers so far, 65% of them new and 70% in the Gen Y demographic. Guyaux says he expects the project, which cost around $15 million, to break even in two years, about a year less than it would take a new brick-and-mortar branch to do so. As Gen Y grows up, Virtual Wallet will grow up, too, says Guyaux, with new loan and investment tools.