James Clarke ‘Quality hookups’

Continuing its quest to ingratiate itself with stoic New England banking customers, Sovereign Bank has entered into an affinity relationship with AAA Southern New England and AAA North New Jersey.

Click onto the American Automobile Association’s Web site and you’ll find its iBanc option for customers. According to Mark Shaw, president of AAA Southern New England, focus group studies have shown members want more products and services offered through the club, which already offers insurance, travel services, auto loans and mortgages.

“We believe that Internet banking is something that our members are interested in and will continue to be interested in,” said Shaw.

But the service is a little different in that iBanc customers actually are Sovereign customers through its 1stWebbankDirect.com entity, according to Tony Benedetto, vice president of affinity marketing for Sovereign.

The 1stWeb component of Sovereign was initially created as an e-commerce initiative, he said. Subsequently, 1stWeb was internalized and made part of Sovereign’s affinity marketing group. “What we do is basically take Sovereign product, put the AAA label on that and market it to AAA members. That allows us to create another channel of distribution for Sovereign Bank into AAA members’ households with the AAA endorsement, which is the key,” said Benedetto.

IBanc offers basic banking products like checking, money markets and certificates of deposit, along with a free AAA membership when a customer opens and maintains an account balance of $500 for the first 30 days.

AAA maintains a separate Rhode Island bank charter that brokers mortgage loans, which it sells to a variety of entities, including Sovereign.

“It’s essentially a partnership to enhance the product offerings AAA has, and it also gives Sovereign more exposure and potentially more customers in the New England area,” said George K. Darling, chief executive officer of the Newburyport-based Darling Consulting Group.

AAA becomes a type of ambassador for Sovereign, especially since the bank remains a fairly new entity in the New England area, said Benedetto. The bank entered the region about 18 months ago.

For AAA, the benefit lies mostly in pleasing and retaining its members. AAA does receive a commission, said Shaw, but it is “negligible from an income standpoint. They bring to us the ability to strengthen the relationship with our members and we will eventually see stronger renewal rates,” he said.

Cross Purposes

Of the 2 million AAA Southern New England members, iBanc has about 4,000 accounts. “Internet banking, as a general rule, we don’t believe has been as successful as people would have liked … We’re confident in the long run that this is a direction that consumers in general and AAA members in particular will take,” said Shaw.

AAA chose to partner with Sovereign for one chief reason: iBanc customers would be allowed to enter any of Sovereign’s brick-and-mortar branches and conduct business as usual. “So to me it was the best of both worlds. It was an Internet relationship that had the flexibility or convenience of also offering brick-and-mortar services,” said Shaw.

“We try to encourage the customer to do everything virtual,” said Benedetto. “If they need to do a transaction they can certainly do that over the phone, through the mail or on the Internet. If they need to go in and cash a check, they can do that in a Sovereign branch. It’s on a technology platform that’s directly related to AAA.”

Currently the two are working on statement stuffers to be included to Sovereign customers and AAA bills about the mutual benefits of AAA membership and iBanc. AAA membership welcome packages already include an iBanc brochure.

For Sovereign, the benefits of the relationship are numerous. “Sovereign gets access to about 2.5 million individuals in a way that they don’t have access today,” said Benedetto. Although marketing efforts through traditional measures can reach this audience, the AAA affiliation gives Sovereign a layer of credibility in the consumer’s mind, especially if they’ve never heard of the bank before, he said.

“The other thing is, AAA has what we call its customer touch points. It communicates with its customers through welcome packages, bills and renewal packages, membership drives, newsletters – we get access to all of those vehicles to promote our products to our customers,” he said.

While this relationship is cost-beneficial to Sovereign’s marketing campaign, Darling questions whether the special rates and savings offered to AAA members is enough to convince them to switch banks.

“If I were a member of AAA,” Darling said, “why would I want to change my banking relationship? Where’s the incentive to change?” For example, he said, a bank customer who uses the SUM network might not want to change to Sovereign, which is not a member of the ATM surcharge-free program.

But if an AAA member is moving into New England and sees the Sovereign affiliation, that may be one way for the bank to pick up an extra customer, said Darling.

For AAA, the goal of the partnership is simple. “We believe that we can offer financial services to our 1.9 million members … We can bring better-priced products and services in all areas of financial services,” he said. While AAA’s entry into the financial services arena was on the lending side, said Shaw, the group’s partnership with Sovereign exemplifies its strategic plan of expanding the arena of financial services it offers. “We believe the Internet is one of the [more promising] delivery methods,” he said.

For Sovereign, it’s an opportunity to cross-sell additional products and lure more customers in a cost-effective way.

“What they’re looking for is better ways of cross-selling so that they’re the first thing that comes to the customer in terms of name recognition,” said Darling.

Affinity relationships like that are likely to increase in the financial services world, according to James J. Clarke, principal of Villanova, Pa.-based Clarke Consulting. Bankers are waking up to new possibilities. A recent study found that of the top financial service firms named by customers, more than half were affinity relationships, not banks.

“The best example of [affinity relationships] would probably be MBNA on the credit card side. They’ve been doing this for 10 years … They’ve been working hard to put their card in the hands of alumni groups and it’s worked pretty well,” said Clarke. MBNA is a Wilmington, Del.-based credit card issuer that has affiliations to offer its card through such organizations as the National Football League and various college alumni groups.

The AAA/Sovereign relationship is a good idea, Clark said.

“I think you’re going to see [more] quality hookups like this,” he said. So far, the credit card, airline and hotel industries have led the way in terms of affinity relationships rewarding credit card purchases with frequent-flier miles and discounts at hotels. “And I think that’s what banks are watching – looking for – financial service situations where this would work,” said Clarke.

“I think the competition is going to continue to offer this and find it as an alternative way to market their products,” said Benedetto. “For us, what we have to prove is that we can make this a profitable enterprise in that we can sell one, two, three or more products into the [consumer’s] household,” he said.