Using Your Friends to Get Better Interest Rates

If you're an influential tweeter or if you have a large network of Facebook friends or LinkedIn contacts, you could get a higher interest rate on your savings at Movenbank, an upstart hybrid financial institution that expects to launch around July.

New York City-based Movenbank wants to be the model for digital age banking. It is targeting two markets to start: 1) digital natives -- those who are comfortable banking with a mobile device, and 2) about 60 million people who are "unbanked" or "underbanked" -- those who don't have a bank account or those who have an account but also use other financial services such as a prepaid debit card.

It plans to launch first in New York and San Francisco and is targeting 50,000 customers in its first year, said Brett King, founder of Movenbank and author of Bank 2.0. Movenbank won't be licensed as a bank itself; rather, it plans to partner with banks and processing companies on the back end while taking full control of the front-end customer experience.

When asked which banks are collaborating with Movenbank, King told Investor Uprising that it was premature for him to disclose that information. "We will be working with bank partners who are licensed and will have various licenses at the time of launch, but that's all I can say for now," he explained.

In a Bank 2.0 blog post, King wrote about the question of whether the company should start with its own license and charter or "go the Bank Simple route and work with partner banks."

In the end, this decision was really taken out of our hands because there were no guarantees on either the outcome of the license/charter application process or the timing of such. Purely on a commercial basis, if we wanted to go to market, we couldn't wait on the regulators to make the call. That's not to say we might not acquire a bank in the future or build our own for purposes of scale.

For now, the focus is on social media, which is not new. Banks and credit unions have been using social media for marketing and as a means of providing customer service.

In 2007, Santa Clara, Calif.-based KeyPoint Credit Union became the first financial institution to allow its customers to log in to their accounts via Facebook, according to NetBanker.com. Wells Fargo & Co.'s (NYSE: WFC) vice president of customer loyalty and social Web programs tracks Twitter interactions as a way to improve customer service. JP Morgan Chase & Co. (NYSE: JPM) won a lot of press and goodwill when it held a contest allowing Facebook fans to designate the charities that would receive a chunk of a $5 million donation made by Chase. Bank of America Corp. (NYSE: BAC) has a page listing its social media connections, mostly used for customer service purposes.

But Movenbank wants to take social media to the next level. Few, if any, financial institutions have used data garnered from social media to set loan and interest rates. Movenbank may be the first. It remains to be seen whether it becomes the future of banking or a niche bank, or whether the concept takes off at all.

Here's an example of how it might work: If a customer introduced 10 new people to the bank, she may get a 5% interest rate on her savings instead of 1%, or she may get a better rate on a loan. "We can offset the cost of acquisition of new customers against the credit facility," said King. It typically costs a bank about $200 to $350 to acquire a new customer, he continued.

King outlined his plans for the branchless, paperless, and mobile-centric Movenbank at the Sibos international banking conference in Toronto last fall. Movenbank plans to use what it calls CRED, a progressive body of social and behavioral data, to evaluate a customer, as opposed to just financial data used by credit reporting agencies, such as Experian Information Solutions Inc., based in Costa Mesa, Calif.

Unlike a traditional bank, Movenbank employs behavioral psychologists who work with Movenbank's data analysts to evaluate customers. As a customer's CRED improves, he can get better rates and fee structures, King said. "As your relationship with our institution becomes more valuable, then we reward you."

Movenbank isn't concerned with tweets on what the customer ate for lunch, but rather the customer's influence on social media. For example, it will look at a customer's Twitter following. Is it increasing or decreasing? It will consider how influential a customer is within her group of friends. Such data will become part of a customer's CRED score, which the customer will be able to monitor.

One of Movenbank's key aims is to improve transparency between the bank and the customer. "We won't let you apply for a product if you don't qualify for it," King said. Movenbank will tell customers why their CRED score goes up or down, he added, noting, "We tell you what behavior you need to change to get a better CRED score."

Customers will be able to improve their CRED scores by recommending Movenbank to their online "friends," which may be as simple as sending a link via Facebook or sending someone money. Like the eBay Inc. (Nasdaq: EBAY) PayPal model, receiving money from Movenbank essentially establishes the customer's Movenbank account. The person on the receiving end would download an app or log in with their Facebook ID to receive the funds.

Movenbank is currently in private alpha, open by invitation only. And for now, those who receive an invitation can link to the bank directly from their Facebook accounts. King has said that once the bank opens for business, Facebook login will be supplemented with a second layer of "more stringent and traditional" identity verification.

There is no paperwork or upfront information collected to establish an account with Movenbank, King said. The usual steps to establish an account at a traditional bank, such as filling out a signature card, is a bank requirement, not an FDIC requirement. Movenbank's processes meet Federal Deposit Insurance Corporation (FDIC) requirements.

Movenbank doesn't use plastic cards as it believes mobile will be the no. 1 banking channel by 2015. It's counting on the proliferation of NFC (Near Field Communication) point-of-sale systems to allow people to buy products at a "cash register" by presenting their phones. That's one of the reasons why Movenbank is launching operations in New York and San Francisco, which "have the highest adoption of NFC point of sale terminals." The company has just hired a chief mobile officer.

In loaning, Movenbank considers Fair Isaac Corp.'s FICO score (NYSE: FICO). But it tracks how customers are managing their money. King described FICO scores as lagging indicators, which aren't necessarily good indicators of present or future financial behavior. "If we can see positive behavior, and we can see you're controlling your spending and you're managing your finances, regardless of what your credit score shows today, we may lend to you," he said. The bank will also attempt to help customers manage their money better by helping them understand their spending habits.

But King insists Movenbank is not using a Big Brother approach. For example, a customer who uses the Movenbank app at Starbucks (Nasdaq: SBUX) to pay for a drink might also get a Movenbank asking her if she's aware that she already spent $400 on coffee that month. "We believe that the service your bank should be giving you today is helping you use your money better," King said.

Maybe. But it's still unclear how customers will feel if their banks start monitoring their coffee consumption -- or whether they'll embrace the idea of rates and loan approvals based on their tweets and other social media posts.