Social networking and other interactive developments offer a whole new way of reaching consumers.
Until recently, the internet functioned almost like a glorified TV in which content was delivered from the top down and watched by passive viewers. But Web 2.0 technologies have fundamentally changed consumer behaviour by making it easier for individuals to create and share content and interact with one another via forums, blogs and wikis. Forward thinking banks already have picked up on the opportunity to leverage Web 2.0 as a means to gain competitive advantage.
Consumers spend far more time on public sites like Facebook, iGoogle, Yahoo Widgets and Google Gadgets than they do on their bank's web site. One might assume this trend just pertains to the "digital on" generation (those aged 18-34). But not so fast: As it happens, Facebook's fastest growing demographic is people 35 and older - the same folks who can be found browsing away on iPhones and other mobile devices.
According to Alan Maginn, senior analyst at New York-based Corporate Insight, banks can promote their brand to consumers of all ages through a presence on Facebook or Twitter and by re-purposing TV commercials on YouTube.
Commonwealth Credit Union, Canada's fourth largest credit union, is one institution that has tested the waters. It held a contest to see who could produce the best educational videos describing the difference between banks and credit unions. The winner became the spokesperson for the organisation's under-25-year-olds' web site called Young, Free Alberta.
"A lot of other credit unions picked up on this and used it themselves," says Maginn. "It was on YouTube, and it was a very entertaining and interesting way to compare banks and credit unions."
Other banks have launched similar initiatives. Wachovia Bank leveraged social media to create a commercial for its Way to Save campaign on Current TV, a station on which the viewers determine the content. And Bank of America established a small business community on YouTube.
Web 2.0 technologies can be used to take consumer education and service to the next level. Instead of simply putting information on a web site, why not allow individuals to share their experience in buying a home, applying for a business loan or purchasing other products and services? After all, comments from peers are often perceived as more credible than those from the bank that is trying to sell product.
Private online communities allow banks to create an ongoing focus group. Through comments posted online, they can collect valuable feedback from consumers and use it develop new products and services. This is how Charles Schwab figured out that current accounts are extremely important to younger brokerage customers. After launching a high yield current account targeted to this segment, the company increased the number of accounts in that demographic group.
Banks have much to learn from Amazon.com, a company that clearly understands consumer behaviour and knows how to create a positive online experience. Buy a book on Amazon.com and the system automatically recommends other books that might be of interest based on what others have bought.
If Amazon can use technology to recommend books, surely banks can use it to share their expertise in money management and make appropriate recommendations to their customers. As Celent senior analyst Edward Woods says: "If you take that rich pedigree that the bank has and you can create a bridge between them and consumers, there's an opportunity to revolutionise the bank."
Banks have made life more convenient for their customers by offering products through multiple delivery channels. But as institutions have grown bigger through consolidation, their services have become far less personal. Banking is perceived as a commodity and customers find it difficult to differentiate between institutions.
Web 2.0 is a differentiator. Not only can the technologies be used to develop relationships with existing customers, but they also can help capture business from the Generation Y and Z customers of the future.
PNC Bank built a youth web site that adds a twist to the standard cash management offering: the current account, short-term savings account and a long-term savings account. The site does not segment these cash pools into three different bank accounts. Instead of having to fill out a form online to transfer money between accounts, a slider bar enables the customer to move funds from one account to another.
"Graphically it's different; conceptually it's different," says Woods. "It's just rethinking that experience."
Some banks might be reluctant to implement Web 2.0 technologies because they already have a portal in place and they do not want to re-architecture it. Vendors such as WorkLight have addressed that concern. It developed a server-based product called WorkBook that can be installed at the bank and interfaces with the portal or directly with the bank's back-end systems, extracts the information and distributes it to any Web 2.0 interface (see panel).
"One of the values we bring to the table is there's no need to make changes to the portal infrastructure," says David Lavenda, vice president of marketing and product strategy at WorkLight. "You write the client interface one time, but then you can deploy it across any one of the 14 or 15 Web 2.0 interfaces that we support."
WorkLight's solution enables customers to view their account balances and latest transactions, promotions and stock prices on a gadget. They can receive alerts about suspicious transactions and dispute charges. Moreover, they can communicate with analysts or customer service representatives directly through a Facebook-like interface running within a Facebook window.
Web 2.0 and social media is a hot button right now, so some banks are just throwing things up on the wall hoping they stick. But if they want to be successful in their programmes, they will need to come up with strategies that include plans to address some significant issues.
Compliance and security have to be near the top of the priority list. "Banks are conservative in their very nature, and creating a forum or a blog where individuals in the community can say whatever they like is a risky proposition," Maginn points out. "That being said, there's ways to mitigate that risk."
Forums and blogs are only effective if people read them and interact with them. Banks have to play an active role in creating content and finding ways to encourage people to participate. Their success will depend on their ability to target specific types of individuals who would be interested to share their experiences and differentiate their site and online community.
Banks have to be prepared to deal with more knowledgeable consumers. Other people's experiences are much more important today than in the past. Before buying a product or service, consumers look on the internet for comments about it from their peers. Consumers that know more also tend to be more demanding. On the upside, there is the potential to save costs because customer service representatives have to spend less time educating consumers about products and services.
Positive and negative postings on the internet can have a direct impact on the bank's brand. Dell Computers learned this lesson the hard way when it discovered negative chat about the company on the internet. "Whether they liked it or not, they were involved in social media," says Maginn. "People were out there talking about them. If they didn't want to react to it, that was fine, but they were crazy not to. It's just managing the brand."
We live in exciting times with such technology at our fingertips. But with a nasty economic recession plopped on the doorstep, it remains to be seen whether banks will have the budget to follow through on Web 2.0 initiatives. Celent's Woods believes they will stay the course. "They're going to be trying to get as efficient as possible, but they don't seem to be doing it in lieu of trying to advance the user experience," he says.
Maginn agrees. Since the spring of 2007, 15% of the 70 firms tracked by Corporate Insight have jumped on the Web 2.0 bandwagon. Several did so in the summer of 2008. He believes the financial crisis could lead to tighter technology budgets and delayed Web 2.0 projects, but forward thinking firms will not halt their initiatives. BT
Case study: Standard Chartered Turns On Social Network
Standard Chartered Bank's employees were quick to figure out the usefulness of networking via popular public social networks. But as this activity proliferated, management became concerned about the potential for information leakage and security vulnerabilities that could result through these networks.
Implementing WorkLight's software-based server product, WorkBook, solved the problem. WorkBook is a secure Facebook overlay that resides behind the corporate firewall at Standard Chartered, allowing employees to use Facebook to connect with colleagues from other departments and locations. They can locate people with specific knowledge or common interests. Moreover, they can ask colleagues questions and get answers in real time, create and join discussion groups surrounding ongoing projects and research, and extend professional networking beyond the branch to the rest of the organisation.
Because the company's employees were already familiar and comfortable with the public social networking applications, the learning curve for the new technology was minimal. Employees leveraged their colleagues' presence on Facebook to immediately locate and connect with them.