The next generation of web usage, boosted by the spread of broadband, is going to be bigger and more diverse than ever – so banks should rethink their online strategy now. Stephen Timewell looks at the latest developments.
Internet giant MySpace is planning to revolutionise the music industry by allowing bands to sell their music directly to customers over the internet. The next generation of web usage – known as Web 2.0 and characterised by MySpace, Google, Napster and blogging to give some flavours of this new era – is radically changing the way transactions can be done and the way consumers can interact. And increased use of the web, helped by the big expansion of broadband, is leading to a wider range of users of all ages, greater connectivity and a broader range of unexplored functions that stretch from music to money.
So how are banks responding to Web 2.0 and to changing consumer usage? Unsurprisingly the answer is slowly, banks traditionally being better followers than leaders. But some are recognising the opportunities that the next generation internet can bring and are beginning to move.
Net acceleration
According to Angus Hislop, global head of retail banking at Cisco IBSG: “The basic story is that the use of the web for transactions – as opposed to research and information – has accelerated quite substantially over the past couple of years.” How people use the web is changing, he adds, and the range of users is broadening, especially to older people, who are becoming more familiar with it, and younger people “who are using it in completely different ways”.
This explosion of new usage has happened recently, in the past year or two, and is reflected in Bank of America’s online product sales. Recent Bernstein Research reveals that the bank expects to sell 15% of total anticipated product sales of 38 million in 2006 through the online channel, up sharply from 8% in 2004 and 10% in 2005. BoA is said to be looking to increase its online component to one-third over the next three to four years, implying over 30% growth versus much lower growth for branch sales.
Point of entry
But unlike five years ago, when technology advances were thought to spell the demise of the branch, the new web still allows an important role for the branch – but a different role. For Mr Hislop the branch is only one element and for many people, especially young people, the main point of entry for the bank will become the internet.
Banks need a change of attitude. In five years, for example, the growing shift to the web requires banks to view the internet as not just a cheap service channel as many do today, but as a core or centre supporting other channels, and as a customer experience channel. Also, given that the web is both front office and back office, new priorities must be given to regular infrastructure support and refreshment.
Banks will have to respond to online banking or face being left behind and losing market share. Mr Hislop says: “In the US and Europe, based on present trends, the share of the web for new sales will reach 30% by 2010 and also another 30% for influenced sales [where the lead comes from the web].”
Meanwhile, although banks are acknowledging the trend towards greater web use, they are still finding it difficult to get customers to service their accounts online (thereby doing away with paper statements and a lot of costs). But, although banks and customers may be reluctant to shift to the web, some banks have recognised the interactive possibilities and are introducing, for example, blogs for mortgages so that people can gauge other opinions. Spain’s Bank Inter is extending collaboration across channels by testing a scheme that provides video equipment to customers for face-to-face financial advice at home.
Creative possibilities
Also the MySpace.com concept that has attracted 100 million users worldwide very quickly begs the question of why banks cannot do the same. A little more than a year ago, the former founders of UK internet bank Egg set up Zopa.com, through which people with money to spare can lend directly to creditworthy people who are willing to borrow. The Zopa model by definition disintermediates the banks and has attracted 75,000 members, albeit borrowing small sums. Although bankers may dismiss this as irrelevant, how far it could snowball, like MySpace, remains to be seen – and with a little creativity, banks could utilise the Zopa model.
The key aspect of the explosion of new web activity today is that it is driven by customers. It is still early days but the issue now is which banks will achieve the advantages of the new opportunities that are available.
