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A research paper:
Current and future potential of Web 2.0 applications for financial products in the retail banking market
by Sebastian Schabowski
Course: The European Banking and Insurance Market
MBA program, San Francisco State University
2011
Table of contents Introduction...................................................................................................................2 Web 2.0 vs Web 1.0.......................................................................................................2 Banks and the internet – before the 2.0 phenomena.....................................................4 How banks were adopting the idea of online banking – Polish example.................4 Security is the key to winning customer's trust and business...................................5 How can banks benefit from using Web 2.0 solutions .................................................5 Attracting more customers with Web 2.0.................................................................6 Building relationships with existing customers.......................................................9 Driving innovation by getting the community involved........................................10 Why banks still remain skeptical about Web 2.0...................................................10 Conculsion..................................................................................................................11 Bibliography...............................................................................................................12 Tables..........................................................................................................................12
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Introduction
There is a pretty new trend on the internet called Web 2.0. This term was first used by Tim O'Reilly at a conference in 2004. The change that Web 2.0 brings is not so much technical as it is about the way we use web applications.
"Many business applications are based on Web 2.0 concepts and technologies—C2C e-business, video sales, iTunes, Google Maps, and so on—which represents the transformation from the traditional enterprise-centric model to the customer-centric model. In the age of Web 2.0, the end users play more important roles in the network. They participate in communities, compose blogs, contribute to wikis, share Flash videos, populate tags, and perform many other functions. End users are not only consumers of the information and services provided by enterprises but also providers." (Next-generation banking with Web 2.0, IBM Report, 2009)
The power shifted from companies that were creating content to the users that now generate their own content.
This shift started to have an influence on banks and how they do business online. In this paper I will look into the details – what Web 2.0 really is, what existed before this concept, what is the potential of using this new trend for banks, what are the dangers and concerns associated with it and how online banking can look in the near future if banks utilize the Web 2.0 potential to the fullest.
Web 2.0 vs Web 1.0
We can use the term Web 1.0 to refer to all what was happening in the internet before around 2004 where the new term – Web 2.0 was created.
Web 1.0 was mainly based on the concept of publishing. It was popular to have a
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personal website were the author would for example write about himself. The users could only read, they were not involved. The user of the internet at that time was not really expected to contribute content. It was more passive – almost like watching television or any other channel of broadcasting.
Technically speaking – websites were pretty simple and in order to get anything done the user needed to click on something that would then reload the entire page (which takes a lot of time).
In an article "How to web 2.0 your bank" (Henderson, 2006) we can find a table that provides with a simplified comparison between Web 1.0 and Web 2.0. (see Table 1).
We should keep in mind that is was written before popularization of some of the key components of Web 2.0 that we are used to today - called social media (YouTube, Facebook, Twitter etc.).
Web 1.0 Web 2.0 DoubleClick –> Google AdSense Ofoto –> Flickr Akamai –> BitTorrent mp3.com –> Napster Britannica Online –> Wikipedia personal websites –> blogging evite –> upcoming.org and EVDB domain name speculation –> search engine optimization page views –> cost per click screen scraping –> web services publishing –> participation content management systems –> wikis directories (taxonomy) –> tagging (“folksonomy”) stickiness –> syndication
Table 1. Comparison: Web 1.0 and Web 2.0
Especially important in my view are shifts from personal websites to blogging (and now even more to microblogging like Twitter) and from publishing to participation (commenting on the content, ranking, tagging etc.).
The internet is now more community based than ever before. It is also full of user-
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friendly AJAX applications (that allow users to take different actions without reloading the whole page) and web services. Facebook has become one of the most important websites on the internet gaining a great power of spreading information between networks of users (every user has his network of friends to whom he can broadcast content at anytime).
Banks and the internet – before the 2.0 phenomena
How banks were adopting the idea of online banking – Polish example
From observations that I made on the Polish market – it seems like the traditional banks did not appreciate the web at first. It was the first online banks that started driving innovation and rapidly winning market share without even having offline branches or offices.
The internet has always seemed pretty dangerous for banks and its clients. Many scandals were publicly talked about in the media concerning credit card abuse, different methods of stealing money from online accounts etc. There is a large group of people who to this day are too afraid to use online banking or even to pay with their credit card on a website.
This kind of black PR did not create a perfect environment for online banking. Apart from real only-online banks, the rest of the banks started implementing some basic functionality on the web pretty slowly.
There was a big shift as a result of the traditional banks delay in jumping on the bandwagon – the early adopters, usually young people left the traditional banks that charge fees for running the account etc. and switched to totally free online banks.
In the end, the traditional banks saw what was going on and caught up with technology. Now pretty much every major bank offers online banking.
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Security is the key to winning customer's trust and business
So up to around 2004 we saw banks having simple websites (without technologies like AJAX that allow to create a more user-friendly interface). There were initial concerns about the security of the whole idea, but they were pretty well solved by using SSL to encrypt the communication between the bank and the client as well as one-time passwords. These passwords were primarily distributed as a list printed on paper, some banks had token machines to generate these codes and now the banks use SMS to send the right one-time password at the right time to the user that tries to confirm a money transfer request or other form of change on his account.
Even with this level of security there were still cases of stealing the money by the use of fake emails and fake bank websites where the users would give their secret data thinking that they are in an actual bank. After doing some educational campaign with a help of media I think banks have mainly dealt with this problem and it is not so easy to cheat the customers now that they are more aware.
Instead of using email a lot – the banks started tapping into some of the new trends of Web 2.0 which also help in terms of security even if it was not the main intention in this case. It is much more credible to read about some changes that the bank is introducing on its blog, RSS feed, Twitter or Facebook than by getting emails of which we know they can be easily faked.
This brings us to another chapter in the history of online banking...
How can banks benefit from using Web 2.0 solutions
Let's look at the Web 2.0 ideas from the business perspective. What could be the goals that the banks want to accomplish? I think there are three major goals:
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1. Attract more customers. I would consider here a standard lead generation as well as branding and building strong brand presence in the minds of internet users.
2. Build a better relationship with existing customers (by keeping them informed, having user-friendly websites, useful mobile apps etc.).
3. Drive innovation based on feedback and ideas contributed by the community centered around for example bank's Facebook page or its blog.
Attracting more customers with Web 2.0
Let's discuss several different ways in which banks generate leads online using Web 2.0.
First of all they can use Google AdWords which is a system of contextual advertising. Thanks to this system banks pay per click and can display their ads in search results on Google. Let's just say the user typed in Google:
"mortgage san francisco"
In paid search results we can see an ad:
Bank of America® Mortgage Take Advantage Of Low Refi Rates For Home Loans Up To $5 Million. www.bankofamerica.com
It is very effective because it is targeted at people who are in this moment actively searching for a mortgage in the area of San Francisco.
Another use of Google AdWords is to promote the bank of other websites that have
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some content attractive to people looking for some bank's products. The algorithm of Google AdWords will analyze the keywords that are present on the page and display relevant ads. It even works in Gmail – if the user is mentioning a loan in their email – the bank's ad is likely to show up.
Another big advertising vehicle is SEO which stands for Search Engine Optimization. The effort here is to position the website of the bank high in free search results.
The most recent idea is to promote the bank on Facebook. It can be done in many different ways. Before we look at them I need to mention that the mindset of a Facebook user is much different than the mindset of a person looking for a mortgage in Google. They are in a mood to socialize, waste time and relax rather than wanting to be presented with some commercial offer.
An interesting example of using Facebook to build brand awareness and likability is Chase Bank:
"Chase Bank is utilizing a Facebook application named Chase Community Giving. Chase is relying on the power of Facebook’s social capacity in order to find various charities to receive its $5 million donation pool. Requesting individuals across America to submit their local charities for consideration, Facebook is able to quickly and immediately access the individuals Chase needs." (KRISTEN NICOLE, 2009)
This kind of application gets people involved and gets them talk about the initiative. It spreads like a virus on Facebook – if one person mentions it in his or her profile – all of their friends can see it and join the effort.
Another way of using Facebook is to create a fan page of the bank or a particular product and then get people to "Like" the page. It can be done by paid advertising, contests (for example if you like the fanpage you can win an iPad) etc.
Huge community around a fanpage can give a bank an option to notify all the people that like the page about the latest promotions and also builds some social proof.
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While Facebook can be seen as an opportunity, it could potentially become one of the serious threats for banks. Thomas Power in his article: "What happens when Facebook becomes a Bank?" shows a really interesting vision of the potential future:
"So what happens to the existing banks when Facebook becomes a Bank?
It starts with a Facebook piggy bank, payment system and credit card. Then it's a savings account and a loan perhaps for university. What about a mortgage, life insurance, health insurance, car insurance, house insurance and a pension? After all with a billion users these should be the best deals on the planet. Volume speaks price. Low price. This is before you offer your members peer to peer lending like Zopa giving them better interest and lower risk on their savings." (Thomas Power, 2009)
Even if only 10% of Facebook users decided to do their banking with Facebook – they would have 100 mln customers which sounds pretty significant as far as retail banking is concerned.
Let's move on to another way in which banks can help themselves generate more leads using Web 2.0. One of the strong fundaments of Web 2.0 are blogs. There are some very famous and respected bloggers out there. Some of them review bank's products and describe them on the blog. Building a relationship with these bloggers, getting them involved in designing new products and then pitching them gently to their audiences may be a very smart strategy.
The last option that I will mention for the customer acquisition is YouTube and viral videos. All of the bank's TV ads can be placed on YouTube. There can be also some other videos developed just to attract people on YouTube. If the ad is really funny and interesting – chances are it will spread on the internet like a virus – the people that saw it will pass it to their friends.
Building relationships with existing customers
We already discussed some of the benefits of having a bank's fan page on Facebook.
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It not only generates leads but it also helps to build a community and syndicate some information about promotions and new products. A bank can post short updates on its Facebook wall and all of the people that like the fan page will see them (in an non-invasive way).
Another good idea for building a relationship is to have a corporate blog where many important for customers issues are addressed publicly and the customers can comment and contribute.
Creating a Wiki could be also a good idea to help the customers be well informed about the products as well as the concepts and the vocabulary that is used by the bank.
Talking about Wiki (which is a user-generated website) it is an appropriate point to mention Wiki Leaks – a Web 2.0 phenomena that can put some banks in danger. Halah Touryalai is debating this issue in his Forbes article: "Could WikiLeaks Really Take Down A Major Bank?". His conclusion is that it is not a real danger for banks (I guess at least not this time around).
"Some lawmakers compare WikiLeaks to a terrorist organization. So what are the chances documents provided by a "terrorist" would be upheld in any investigation or U.S. Courtroom?" (Halah Touryalai, 2010)
While the government may be not interested in using the findings of Wiki Leaks, I think that people can be very worried especially if some portion of private customer data was stolen and then made available.
When it comes to PR in the era of internet and Web 2.0 – the banks have to be very careful not to annoy whole communities of customers that are gathered online. The times where it was easy to hide information that is not good for the brand of the bank are over.
In this light – building relationship with customers in social media and providing them with excellent applications (useful, AJAX based, mobile etc.) is the key to
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maintaining some credit of trust so that some minor disappointing event for the customers does not make the bank go bankrupt.
One of the interesting options that also helps to build relationship with customers is an online chat with a bank representative which is available on some banks websites. Thanks to that option the customers does not have to call if he is having some difficulty or doubt while dealing with the banks website – he can ask it right there and get an immediate response.
Driving innovation by getting the community involved
Banks create their products for customers. What if the customers could be actively involved in the product design? What if influential bloggers had a say in developing new solutions that the bank will introduce?
I think there is a huge potential for cooperating with online communities centered around a bank in order to learn from the customers what makes them happy and how to be the best that the bank can possibly be.
Why banks still remain skeptical about Web 2.0
We mentioned some of these issues before (for example the fact, that Web 2.0 can be dangerous – what if Facebook becomes a bank, what if Wiki Leaks publishes something damaging etc.). Banks are usually not the biggest fans of risk and this Web 2.0 revolution that in inevitable, brings opportunities as well as challenges, is not making them feel good. At least that is my impression from the analysis I will present below.
Ron Shevlin in his article "Why Banks Aren't Capitalizing On Web 2.0" gives three reasons:
1) ROI. Despite all the talk about building customer relationships, most banks
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