Making Online Banking More Effective with Web 2.0.

by Daniel Singer, Ph.D, Towson University

Banking web sites can be a passive distribution channel for traditional bank products and services marketed in a traditional way to traditional customers, or they can become powerful weapons in the drive for new business. A more dynamic approach is made possible by the development of new Internet technologies. These new technologies (generally referred to as Web 2.0) permit dynamic applications heretofore impossible.

The past decade has seen a quantitative rise in Internet usage to the point where it permeates every nook and cranny of our society. This has been accompanied by an even more dramatic rise in the use of online banking facilities from a few experimenters to the majority of bank customers. The development of the new Web 2.0 technologies has created the potential for a further revolution in Internet usage. This new technology moves from a static platform (you set the form) to a dynamic (user set) platform, from bank provided content to multi-source content, from one-to-many communication to many-to-many communication.

The appeal of this platform to Internet users cannot be understated. Young Internet use IM and look down on email as "old technology." Blogs already draw a vast audience and promise even wider applications. Interactive forums drawing information from many sources are the wave of the future.

This means that web site content will no longer be centrally controlled by the bank, but will be open source. Bank web sites will become (if they are successful) loci in large networks that are in a constant state of change. These changes will occur not because banks want them, but because customers will demand them. Banks whose cultures cannot permit such loss of control and dynamic processes will lose ground to those banks whose cultures can.

Banks are forever talking about the importance of "relationship banking." While for the older generation, relationships are largely a matter of face-to-face contact, the younger generation looks for relationships on the web! What is "instant messaging" and "blogging" about? For young people it is about relationships. Where are the bank web sites that are using these forms of communication to develop relationships with its next generation of customers? This train is leaving the station now. Banks can either get on board, or cede relationships with their future customers to more aggressive organizations who are not so resistant to new ways of thinking.

An exceptionally powerful application of this new technology lies in the international sphere. It is widely recognized that in the face of a maturing banking industry in the US, the next great frontier for banks is in the third world.

Based on our continuing survey of 1,200 domestic and 235 international bank web sites, banks have become very comfortable with the static web site where they control communication and content. It is also clear that those banks who have used their websites to adapt to the needs and expectations of their customers are more successful in developing and retaining business than those who do not.

Nowhere is this effect seen more clearly than in addressing the issue of local diversity and international expansion. Increasing domestic and international population migration and the continuing expansion of international trade create market opportunities that are ideally suited to the Internet. The key to accessing these opportunities lies in the ability to recognize and directly meet the need of the clientele market. "One size fits all" no longer works.

What bank in America today does not have an actual or potential Spanish-speaking customer base? Some banks offer alternative web sites in Spanish, but most do not. Such sites can be customized to reflect the cultural values and expectations of the target population and not only serve the local Spanish-speaking population, but customers from Spanish-speaking countries around the world. How about web sites for Koreans, for Chinese, etc.? The opportunity to be a "first mover" is here now. Those who take it today will enjoy a better tomorrow.

Online banking web sites transcend national borders. A bank in Chicago (or even Kansas) can do business anywhere in the world from its web site. A bank in India or Switzerland similarly can have a web site that is readily accessible by individuals in Chicago or Kansas. A bank in N.Y. who wants to access the market for financial services in Turkey should not open a US bank in Turkey, they should open a Turkish bank in Turkey. This holds equally true for online banking websites. Banks who recognize that and have begun to address the need to internationalize their web sites are positioning themselves for future success. Lack of familiarity with other cultures, regulatory constraints, and security concerns are all lame excuses for not doing this.

Successful banking strategies will embrace this change and their web sites will be the leading edge by which such changes are implemented. Dynamic Web 2.0 platforms offer banks the perfect opportunity to allow their sites to conform to the needs and expectations of any target market because that market will define itself. The resultant website will prove highly effective and profitable to the bank because it will be positioned to create value for those it serves.

Daniel Singer, Ph.D. Daniel Singer is a Professor in the Finance Department at Towson University, Towson, Maryland. He also is a participating faculty member at John Hopkins University.
Singer is the co-author of numerous books, including "Successful Web Portals in Retail Banking" with D. Ross and A. Avery.

He can be reached via email at singer@townson.edu or via phone at (410)830-3019.

First published on BankersOnline.com 3/19/07