Web 2.0 technologies have transformed the way people live and work by making it easier to connect and engage online. They have also enabled major changes in customer behavior, which in turn has revolutionized industries that have successfully incorporated these technologies into their distribution models. In travel, for example, sites such as TripAdvisor combine trip planning with social networking features, and in telecommunications, Internet services such as Skype are finding success by undercutting traditional telephone operators. Yet even as these industries and others have embraced Web 2.0, retail banking has largely remained on the sidelines.
The Internet has already significantly changed many aspects of banking. For example, online banking has grown substantially over the past decade, with online bill payment particularly strong in the United States. But most banks have yet to seize the true potential of today’s abundant new technologies and tools. And as consumer preferences and expectations continue to adapt, the imperative for banks to respond with new offerings will only increase. To retain their competitive edge, retail banks need to reach out to younger, more Web-savvy customers (we call them Generation C, or the Connected Generation), devising new products and services that are simpler and more transparent, and using the power of social networking and other digital platforms to improve their marketing. (See “The Rise of Generation C,” by Roman Friedrich, Michael Peterson, and Alex Koster, s+b, Spring 2011.)
The traditional banking model has long been made up of discrete segments — for example, retail banking, mass affluent banking, and small and midsized enterprise banking. Each segment depends on several sales and distribution channels, including ATMs, branches, contact centers, the Internet, and, more recently, mobile banking. Each segment also offers a range of traditional products, including checking and savings accounts, consumer and small business credit and mortgages, and investment products and advice. These products and services are marketed through traditional centralized functions, including brand management, promotions, and sponsorships.
Now, however, several factors are converging that will force banks to reconsider every aspect of their distribution systems. With Web 2.0 technologies, consumers are changing their behavior, and they are demanding a more user-friendly, networked banking experience, one that provides a greater level of trust, transparency, and interactivity. The banks’ goal, ultimately, is to attract new, digitally savvy customers by building their confidence in banks through increased involvement. The greater loyalty such efforts will generate, across all customer segments, will help banks increase revenues and compete more successfully. We have identified three key opportunities that await those banks that are willing to take the leap.
1. Reaching customers. In developed markets, virtually every member of Generation C uses the Internet — and almost two-thirds use social networks — to access information, entertain themselves, and stay in touch with friends and family. Already, 12 percent of this cohort read dedicated finance and investing blogs and participate in online investing forums. Despite these changes in consumer behavior, most banks still use their websites primarily to provide information and enable standard transactions, limiting real communication to branches and contact centers.
New Web technologies have significantly opened up the possibilities for better communication over the Internet and through smartphones. Banks could start blogs, for example, enabling discussions of specific economic developments, new services, or the latest research of interest to target customers. Active participation in social networks could increase loyalty among existing customers and attract new ones. Wells Fargo in the U.S. is an early adopter of these technologies. Its website offers several blogs covering such topics as general financial information and environmental sustainability, and includes a blog especially for students. It also offers YouTube videos about the company, Facebook pages, and the ability to contact the bank through Twitter.