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Banking
Undressing
in public
Harnessing the power of
Web 2.0 to rebuild trust
in banking
IBM Institute for Business Value
IBM Global Business Services, through the IBM Institute for Business Value,
develops fact-based strategic insights for senior executives around critical public
and private sector issues. This executive brief is based on an in-depth study by
the Institute’s research team. It is part of an ongoing commitment by IBM Global
Business Services to provide analysis and viewpoints that help companies realize
business value. You may contact the authors or send an e-mail to iibv@us.ibm.com
for more information.
Undressing in public
Harnessing the power of Web 2.0 to rebuild trust in banking
By Wendy Feller and Cormac Petit
1 Undressing in public
other – with numerous others throughout decisions. To complete in this environment,
the world. They are blogging about their banks should become a part of their
experiences with banks, brokers and other customers’ online social networks and
financial institutions. Social networking site understand how to harness their power to
Facebook, for example, attracted nearly 124 create value.
million unique users in May of 2008, compared
to MySpace’s 114.6 million, and users spent an Based on discussions with more than 100
average of more than two hours per month bankers with responsibility for Internet banking
2
interacting. In fact, about 60 percent of the channels, as well as observations and study
world’s online population visit some form of of Internet banking sites and their function-
3
social network or blogging site. If you are ality, we believe social computing can have a
a banker, do you know what these online positive effect on the top line, driving increased
consumers are saying about you and your access to new customers, improved customer
institution? Are you even on their radar? service and greater levels of product and
service innovation. We believe, as well, that use
Web 2.0 allows customers to interact the way of an increasingly cost-effective and intercon-
they want to – by leveraging the social aspect nected Web 2.0 infrastructure can also result in
of the Internet to make connections and bottom-line improvement (see Figure 1).
FIGURE 1.
Web 2.0 can help banks reduce costs and increase revenues.
Increasing revenue impact of Web 2.0 Reducing cost impact of Web 2.0
Acquiring new customers
Customer service/support
Product/service innovation
Marketing/advertising/public relations
Customer retention
Account management
Online sales
Service delivery
Logistics and distribution
In-person sales
40 30 20 10 0 0 10 20 30 40
Percent of respondents Percent of respondents
Source: Serious business, Web 2.0 goes corporate, Economist Intelligence Unit survey, January 2007. N=406.
22 IBM
IBMGlobal
GlobalBusiness
BusinessServices
Services
Undressing in public
Harnessing the power of Web 2.0 to rebuild trust in banking
Customers are now Beyond the basics and retirement space as well – in particular, to
About 16 percent of U.S. households used benefit from the estimated hundreds of billions
using Web 2.0 tools
an online personal finance feature at least of dollars in baby boomer assets expected
to simplify, speed and 4
once as early as 2006. That percentage is to transfer annually from employer-sponsored
increase the value expected to climb to an estimated 33 percent retirement plans as they leave their jobs.
of personal financial by 2016, with nearly three-quarters of those Brokerage institutions are invading banks’
management. households using personal-finance tools turf by delivering cash management and
offered by their financial institution online.
5
investment vehicles combined with automated
Most banks have the table stakes of online payment and spend alerts, online bill payment,
presence in hand. Their customers can find automatic cash sweep of investment into
information, view and manage their accounts spend accounts and increasingly sophisti-
and pay bills online. Some have moved cated online wealth management tools.
beyond the typical, offering more convenience
Once, offering these services online may
and adding value through budgeting and cash
have seemed extraneous – service strategies
flow applications, providing customers a total
focused on the branch and face-to-face inter-
view of their accounts (even those with other
actions with customers; online banking was for
institutions) through a portal or enabling online
accessing account balances or simply finding
chat with customer service representatives.
the nearest branch. Wealth management was
While many banks aspire to deliver a full something to be discussed in an office, face-
spectrum personal finance management suite to-face with a trusted advisor.
online, only a few major banks have ventured
But now, Web 2.0 customers are becoming
full force into this space in the last few years.
a new breed. They have moved quickly from
For example, in 2006 Bank of America
being a source to drive low-cost deposits
debuted its MoneyCenter suite with a My
en masse to a savvy group of connoisseurs
Portfolio offering that includes basic personal
looking for ways to use technology to simplify,
finance functionality, including budgeting,
speed and increase the value of personal
categorizing and an array of preformatted
financial management. They are more involved
reports including: cash flow analysis, expense
and more self-directed. They research,
analysis, budget versus actual, credit card
shop and make financial decisions on their
utilization, get transaction reports and the
6 own more often than traditional customers.
ability to set budget goals.
They want more from a relationship, crave
Many other institutions are entering the connection and demand transparency. With
arena to deliver online investment and cash a constant flow of information to process,
management tools in the wealth management
3 Undressing in public
they require more proof to purchase. Recent Social “net worth”
research revealed that a staggering one in Social networks have always played a crucial
four Facebook users would consider leaving role in financial decision-making. Traditional
their bank to be able to obtain online banking banking and financial services were built
7
through Web 2.0 gadgets. on referral models. For online bankers, who
you know is still important. But the advent
To provide what online customers are looking
of Internet-enabled social networks and
for, banks must embrace the transparency
online banking has drastically changed the
to which their online users have become
banker to customer ratio. Instead of one to
accustomed. Online customers’ top concerns
several individuals, as has historically been
remain centered around data privacy and
8 the case, the ratio can now be one banker to
security. However, the ability to ask questions,
millions of customers. Two intersecting trends
inspect quality of products and research price
– consumers’ growing confidence in their
advantages also weighs in on consumers’
ability to manage their own financial affairs
minds. It is still about trust, value and
and a burgeoning user interest in “read-write”
convenience, but in the subjective world of
interactions through social networking venues
Web 2.0, those words have a radically different
– present new challenges and opportunities
meaning.
for today’s banks (see Figure 2).
FIGURE 2.
Customers are increasingly comfortable with “read-write” interaction through social networking venues.
Percentage of Internet users reading and Wikipedia – New articles per day
creating blogs
Percent Articles per day
50 14000
Read blogs
Create blogs 12000
40
10000
30 8000
20 6000
4000
10
2000
Wikipedia now in 246 languages
0 0
2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2008
Source: Left chart: PEW/Internet & American Life Project, www.pewinternet.org, quarterly surveys of 2,000 to 13,000 users.
Right chart: Wikipedia, www.wikipedia.org monthly data, new articles per day all languages. Data for English language not available from Octo-
ber 2006. Estimate October 2006 onwards based on average historical growth for English and actual data for all other languages.
5 Undressing in public
An interesting aspect of these sites is To become a part of the community, banks
the creation of communities among their must embrace the foundational purpose of
users (e.g. firefighters, school teachers, car the communities themselves and reach out.
renovation enthusiasts) and the impact the There are several steps banks can take to
type of community has on a borrower’s ability immediately to gain entrance into customers’
to get a loan. Some lenders actually choose online consciousness. No strategy would be
borrowers based on their interests, a radical complete without considering all channels.
departure from the way traditional banks dole This requires a greater transparency of
out capital. For instance, a lender may want to information, or to borrow a phrase from Web
support a renovator of classic cars based on 2.0, nakedness.
the fact of a shared hobby or interest.
Take a look in the mirror
These sites not only signal the advent of Banks should begin monitoring blogs and
new banking business models, but banks’ other chatter online. Customers often say
increasing need to understand what it takes things online that are less than flattering
to be the intermediary of choice in the online about services, products, treatment of
marketplace. Web 2.0 provides numerous employees or, even, social-political affiliations.
opportunities to attract customers. Whether Ignoring this fact will not serve banks, or their
they choose to play or not, banks are being customers, needs. No matter what information
rated and ranked, and no doubt ridiculed, is discovered, banks can benefit by using
in social networks online. Web 2.0 requires online commentary to improve brand image
banks to make a name for themselves among and counter unfounded negativity with facts.
these intermediaries that rate, rank, opine and This information can also be used to identify
amalgamate based on customer interests communities of targeted customers that can
and needs. To understand what customers be accessed easily.
want, play a part in shaping their opinions and,
ultimately, win and retain their business, banks
Show some skin
If they haven’t already, banks should develop
must “get in the game.” For many institutions,
their presence on the most popular social
however, doing so will require a wholesale
networks, such as Facebook, MySpace or
change in how and where they deal with
LinkedIn. Leveraging what they learn from
customers.
customers who join these forums – target
Undressing in public demographics, trends, wants, needs and
Just as banks once strategized about where to concerns – banks can then create special
build the next branch, they now must identify interest groups that leverage such existing
the prime online real estate on which to hang social networks. Or, they may choose to
a virtual shingle. More and more, these are use a platform such as Ning, which enables
places other than their corporate domain. To companies to build a tailored social network
attract and retain customers, and win back from scratch, to begin networking with target
20
their roles as trusted advisors, banks must customers.
become not only ingrained in their customers’
communities, but also understand how to use
these interactions to create value.
7 Undressing in public
real-world aware networks and sensors akin new (38 percent) and influence others (23
22
to today’s RFID will provide connectivity that percent). Online users benefit from access
knows where customers are, enables mobile to social networks that expose them to
payments, and tracks buying behavior. information and opinions they can use to
Advanced analytics of transactions will help compare and contrast the virtues of numerous
companies better understand what customers capabilities – including personal financial
want. Biometrics and advanced encryption management. Banks must research their
capabilities will make transactions safer, and customers as much as consumers are now
consumer trust and adoption will follow. In researching their financial services provider.
this future, we can imagine a scenario where The operative words are listen, learn and
storefronts “know” customers and can beam a leverage.
tailored advertisement to them as they walk by.
Consumers, in turn, will be able to beam back It is very important that banks transcend
a payment and be on their way in seconds. beyond a world of one-way, “read only”
provider-to-consumer interaction. Sixty percent
Get skin in the game of large companies plan to invite customers
The question is not will Web 2.0 affect banks. to contribute content that explains, supports,
23
Banks are already being affected, whether promotes or enhances their products. Even
they choose to play or not. We recently more striking is that 47 percent of companies
searched blogs naming a major U.S. bank, for plan to treat customers as co-developers of
24
example, and returned over 1.5 million hits. The products.
questions are what types of information did
Web 2.0 is the next frontier of customer
those blogs contain and how can banks use
relationship management. Whether developing
that information to drive value?
a presence on a popular social network,
How should banks react? As the number tapping into the virtual world, launching a new
of social network participants and allure of social network, or some combination thereof,
collaborative models continue to accelerate demystify it for your company. Embrace the
and unfold, financial services providers will trend. It is a world of which you are already a
aggressively redefine their online experience. part. The invasion of new, innovative business
First and foremost, providers must understand models delivering on these promises means
why customers access social networks. no bank – large or small – should opt out. The
Research indicates the top drivers center on sooner you join the conversation, the sooner
the ability to meet people (78 percent), find you stand to benefit.
entertainment (47 percent), learn something
9 Undressing in public
References 8
“Annual Internet Survey by the Center for
1
Banerjea,Sunny, Kim Hedley, Cormac the Digital Future Finds Shifting Trends
Petit and John White. “The Paradox of Among Adults About the Benefits and
Banking 2015, Achieving more by doing Consequences of Children Going Online.”
less.” IBM Institute for Business Value. University of Southern California Center
November 22, 2005. http://www-935.ibm. for the Digital Future. 2008. http://www.
com/services/us/index.wss/ibvstudy/imc/ digitalcenter.org/pdf/2008-Digital-Future-
a1022912?cntxtId=a1000043 Report-Final-Release.pdf
9
2
“Facebook helps you connect and share LinkedIn. http://www.linkedin.com; MySpace.
with the people in your life.” http://www. http://www.myspace.com; Facebook. http://
facebook.com; “MySpace.com a place www.facebook.com
for friends.” http://www.myspace.com; 10
“Social Network Stats: Facebook, MySpace,
“Facebook now has more unique users than Reunion.” Web Strategy by Jeremiah.
MySpace.” Neoco Digital Marketing. July January 2008. http://www.web-strategist.
12, 2008. http://blog.neoco.com/2008/07/12/ com/blog/2008/01/09/social-network-stats-
facebook-now-has-more-unique-users-than- facebook-myspace-reunion-jan-2008/
myspace/ 11
Ibid
3
“Facebook now has more unique users than 12
Ibid.
MySpace.” Neoco Digital Marketing. July
13
12, 2008. http://blog.neoco.com/2008/07/12/ Ibid.
facebook-now-has-more-unique-users-than- 14
“Ten Ways to Use LinkedIn.” How to Change
myspace/ the World – A practical blog for impractical
4
Bruene, Jim.“Personal Finance Features people. January 04, 2007. http://blog.guyka-
for Online Banking: Why ‘My Spending wasaki.com/2007/01/ten_ways_to_use.html
Report’ trumps free bill pay.” Online Banking 15
Ibid.
Report. August 28, 2006; Bruene, Jim. 16
“Master your money.” Wesabe. http://www.
“Back Story: Wall Street Journal’s Article on
wesabe.com/
Online Financial Planning Tools from Banks.”
17
Netbanker. March 13, 2007. “Five concrete things you can do to prepare
5 for hard times.” Wesabe. http://blog.wesabe.
Ibid.
com/2008/10/10/five-concrete-things-you-
6
“Bruene, Jim. “Bank of America is First Major can-do-to-prepare-for-harder-times/
U.S. Bank to Integrate Personal Finance into 18
“We can help you get a personal loan.”
Online Banking.” Netbanker. December 26,
Prosper. http://www.prosper.com/
2006. http://www.netbanker.com/2006/12/
19
bank-of-america-personal-financial-man- Virgin Money. “Changing the Face of Money.”
agement.html http://www.virginmoneyus.com/ (Note: that in
7 other countries such as the United Kingdom,
“Customers Seek Secure Banking with
Australia and South Africa Virgin Money
Web 2.0 Tools.” Worklight. June 4, 2008.
operates more as a direct online bank.)
http://myworklight.com/CurrentPage.
aspx?catid=64&pageid=117
11 Undressing in public
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