Competition Update: Banks Deploying Web 2.0

CU360
June 5, 2008 | COMMENTS

Increased customer engagement is a primary benefit of Web 2.0 and other new-generation online applications. Blogs, social networks, and podcasts all promote increased interactivity.

Recently, American Banker took a look beyond the obvious benefit of increased contact with customers, to uncover other applications and rewards.

CU360 is an online portal for benchmarking tools, market insights, industry data, and analytical information. This article was orginally published online by CU360 at cu360.cuna.org. Reprinted with permission.

Among other things, pioneering banks report that these technologies are extremely flexible, allowing them to put their own stamp on Internet services. They also can be used to address very small market niches and extract deep insights into customer attitudes and behaviors. And their low cost allows for trying new ways of reaching customers.

Recent initiatives by Bank of America and Umpqua Holdings illustrate the flexibility of media and markets. They're using the same types of technology to support similar services, but in ways that reflect each company's brand and reputation.

At Small Business Online Community, introduced late last year, registered users can ask questions and get answers from others in the community or from industry experts. Users also can post success stories and tips, rate articles, and search member profiles for potential customers, suppliers, partners, or investors.

Anyone can register for the free site, which features content driven mostly by users. Bank of America's primary role is administrative. The only sign of its involvement is a note at the top of the home page informing visitors that the site is "powered by Bank of America." The site is a response to research showing customers wanted more bank-provided resources to help them succeed.

The $7-billion-asset Umpqua 's community banking emphasis seeks to create stronger links between small businesses and the neighborhoods in which they operate. Umpqua also makes local consumers part of the interaction. Consumers can view an online map of all the businesses participating in the forum and bring up a particular company's address, hours, and web links—as well as Umpqua branches.

The initiative supports Umpqua 's "brand anthem," described by one executive as supporting the "friendly people who live and work in our community." About 80,000 small businesses operate within three miles of Umpqua 's 146 branches, but many are not visible to the public because they're home-based or lack storefronts.

Consumer Insights

The interactivity of Web 2.0 makes it ideal for another purpose: gaining insights into customer attitudes and behavior.

For about two years, Charles Schwab Corporation has been recruiting groups of a few hundred customers or prospects to participate in ongoing online communities that provide real-time feedback to the company. Schwab uses the forums to get input on prospective ad campaigns and new products. Activities may take the form of answering surveys, writing in a diary, mystery shopping, or asking questions of their kids or friends.

The online communities "give incredible feedback," says one Schwab executive. "It's amazing how much people are willing to engage with you." To organize its online conversation groups, Schwab works with Communispace of Watertown, Massachusetts, which specializes in recruiting people for various online communities.

During the past year, Schwab has deployed an online community to find out how it can serve people in their late 20s to early 40s who don't know much about money management but are facing the pressures of buying homes, supporting families, and saving for college and retirement.

The online group had input on the design of a high-yield investor checking account aimed at that target market. Through 2007, Schwab reports that customers opened 65,000 such accounts and the number of customers in this age bracket increased 40% from a year earlier. Information-gathering among that community is credited as driving those results.

The low cost of many Web 2.0 technologies also allows for experimentation. Wells Fargo may be among the most aggressive in exploring new ways of reaching consumers on their own online turf. Taking a page from virtual worlds such as Second Life, Wells Fargo has created Stage Coach Island, billed as an online space where young people can connect with friends while learning about money management.

The site is populated by "Cassie" and her fellow avatars. It's a virtual world, which Wells believes will teach consumers about interest rates, property taxes, and payment schedules. Cassie also has a page on the popular social networking site MySpace.

Wells also operates blogs covering four topics: company history, student loans, new products for commercial customers, and Cassie's activities—all designed to promote customer engagement. Posting blogs and running an online world has not been a major financial burden, with the biggest challenge being the time invested in it. Wells has received more than 2,000 comments since it began its blogs about two years ago, according to Ed Terpening, Wells' vice president of social media.

In another Web 2.0 initiative, Wachovia is testing podcasts of economic commentary available through its site to its corporate and investment banking customers. The podcasts offer an additional way to deliver content, a more compelling forum for economic commentary, and the ability for a mobile audience to download content to an iPod.

Caution Required

Not everyone is as enthusiastic as Wells Fargo about meeting up with 20-somethings in the online areas where they like to hang out.

"We've not been able to clearly articulate a business case to support an investment in a Wachovia profile" on the social networking site Facebook, notes Juan Silvera, director of emerging trends and analysis in the company's e-commerce group.

Large social networks actually may stymie intimacy, according to another commentator. Networks of thousands of people are likely to result in low participation, whereas in a group of 400, up to three-quarters might become actively involved.

Dealing with Risk

Along with Web 2.0 technology goes the risk of an institution losing its ability to control user-generated content. Experts agree, however, that conversations about a company's products or services will occur online no matter what. "It's better to be part of the conversation than to turn a deaf ear to it," Stephen DiMarco, chief marketing officer of online research firm Compete Inc., tells American Banker .

Blog postings and responses can be run through simple workflow procedures to let staff review comments before they go online. In addition to barring inappropriate content, a company also can redirect comments: a posting from a person who had a bad experience, for example, could be sent to the customer service department without bogging down the online conversation.

Most financial institutions develop a user agreement that outlines appropriate behavior. Instead of reviewing comments before they go online, an institution could choose to monitor posts and pull any inappropriate ones. Users also can flag content for the company.

Perhaps the most important advice about Web 2.0 technology is to embrace it.

"You need to do something," says DiMarco. "It's not an option anymore." Above all, financial institutions venturing into Web 2.0 should strive to be themselves, adds DiMarco. "The thing the blog community most cares about is that you are genuine and transparent about who you are."