Banking in the Digital Age

“It’s not a matter of whether or not you’re going to get new business [using technology], you have to do this just to stay in business,” says Alden J. McDonald Jr. “It’s not a choice anymore.”

McDonald, president and CEO of New Orleans-based Liberty Bank and Trust Co. (No. 5 on the BE banks list with $463.8 million in assets), points out that change is going to happen whether you’re providing loans or hawking ice cream. With delivery channels for selling products having undergone dramatic changes in just the last decade, he says it’s very important for any business owner to look at how they’re offering services today–and tomorrow. The impact on its operations and profitability should be among their top questions.

Celebrating its 40th anniversary this year, Liberty is now embracing social media as a pathway to transform itself into a bank that can aggressively compete in the digital era. This makes solid business sense, when one considers that 65% of adult Internet users say they use social networking sites such as Facebook or LinkedIn as of 2011. In a report by the Washington, D.C.-based Pew Research Center, this is an increase from 61% the prior year. According to the study, most of last year’s growth came from Americans 30 and older. Thirty-three percent of adults ages 65 and older say they now use social networking sites, versus 26% who said that in 2010. Still, those between ages 18 and 29 years old remain the overall biggest group clicking on social networks today, making up 83% of the total.

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Liberty is implementing new products and services as part of its $1 million investment over 18 months for new systems that enable the launch of a virtual institution that allows individual and commercial customers to process checks or make deposits from home or work. Customers can now get a loan via the Internet with a faster turnaround time. Liberty’s strong earnings in recent years allowed it to make the technology investment despite the sour economy. Last year it had profits of $2.95 million, versus $2.2 million in 2010. Its assets rose to $558 million, up a robust $105 million from 2010. Described as a “visionary” by peers and financial services experts, McDonald has long kept Liberty in step with changing technology whether it’s installing ATMs or launching online banking. And at the age of 68, he’s not looking to slow down yet.

Technological Reinvention
Over the past decade, McDonald says Liberty realized that technological change was accelerating at such a fast clip that the bank had to gain a better understanding of the rapidly evolving environment. Liberty had to grasp the current and future market changes. To compound matters, Liberty faced the challenge of competing with larger companies in the financial services space that had much bigger budgets and were making similar moves. It was also in an environment where consumer buying habits were evolving and becoming more demanding for the latest goods and services.

So in 2005 and 2006, the bank began to hire some 16 young people in their 20s, and while teaching them the banking

industry, picked their brains for advice on how to help the bank become more technology driven. The bank also hired about a dozen consultants to assist. “We were looking for them to give us new and better ways of developing our products to meet the needs of a new market we’re going to have to serve in the next 10 to 20 years,” McDonald says.

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But Liberty faced some big hurdles before installing the new technology, including figuring out how to recoup the investment. McDonald says the challenges were ensuring the technology would operate efficiently to save money, determining whether the upgrades would lead to new customers, and making sure the modifications wouldn’t upset existing clients. “We had to make sure the new technology achieved those three things,” he says.

Liberty made the following investments:

• $350,000 for the institution to rebrand itself. This process included the development of surveys and pulse readings of its staff and customer base to determine factors such as customer wants and needs as well as the bank’s core competencies. The effort included changing Liberty’s colors, signage, and delivery of services.
• $100,000 was invested on remaking Liberty’s website (www.libertybank.net).
• $200,000 was allocated for new software for remote banking and deposit captures, and improvements to the delivery channels.

Expanding its Reach
McDonald says the new technology will expand Liberty’s reach w

here it operates. “We needed to make those changes because in today’s environment we have to communicate with our future customer base and new people entering the workplace [that are] banking through new technology,” he says. Liberty’s roughly 30,000 customers are served by several Louisiana branches in New Orleans, Baton Rouge, and Opelousas, and one each in Jackson, Mississippi; Kansas City, Missouri; Kansas City, Kansas; and Detroit. Liberty can now target these customers by age group, income, asset ownership, and size of household, and determine who may be prime mortgage refinancing candidates.

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Liberty also recently launched Liberty Line, an online newsletter that provides personal finance tips and applications for credit cards, mortgages, and other products. McDonald suggests that an employer or a business take inventory of its staffing to see if employees can cope with, deliver services through, and communicate by way of technology. Liberty used to sell products with ads. Today, it reaches customers using Facebook and e-mail. Liberty sends customers messages at least twice weekly through e-mail blasts and plans to engage more with the use of viral videos.

The bank has had talks with a local university about forming possible partnerships that would allow Liberty to produce viral videos on a regular basis. Also, McDonald says Liberty is using mobile devices to target specific customers for campaigns related to mortgage banking for individual homeowners, future homebuyers, and real estate agents. Individuals can go online, apply for a mortgage, and be processed through technology or a combination of manual and automated processing.

According to Michael Grant, president of the National Bankers Association, Liberty was one of the first banks to use social media and McDonald displays a rare penchant for investing in new technologies to expand his bank’s clientele. “It’s

amazing how he’s able to jump on things right away,” Grant says. The NBA comprises about 40 minority member banks–mostly African American banks–with branches in more than 20 cities with more than $8.8 billion in combined assets and more than a million depositors.

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Technical Glitches?
William Michael Cunningham, social investment adviser at Creative Investment Research Inc., a Washington, D.C., firm specializing in minority banking, said often a big challenge for small banks such as Liberty is managing multiple locations in several states. Becoming familiar with each market and coordinating those efforts can prove costly. Cunningham says McDonald can use Web metrics to determine Liberty’s website traffic and stickiness, or why customers come to the site and why they stay. Moreover, the creation of customer profiles would be a bonus. “If he can take advantage of the cost efficiencies bundled into online services, then he’s got a pretty good model,” Cunningham says.

Looking ahead, McDonald maintains the young people Liberty hired to keep the institution abreast of technology trends are now are in management posts and are being positioned for future senior management as part of the institution’s training and succession planning. That group includes Todd McDonald, Alden’s 31-year-old son, who has worked at Liberty for eight years and was instrumental in helping McDonald become tech-savvy. “He would say, ‘Dad, what you’re doing is old time and you have to change the way you’re doing this.’”

Today, McDonald could tweet him that that statement no longer holds true.