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Web 2.0 in Financial Services

By: Ray Cain
Published: July 2008


Web 2.0 in Financial ServicesCustomer retention is the key to success in these recessional times and Web 2.0, or social media is the killer application in delivering a personalised and cost effective service.

User generated content such as blogs, social networking sites and podcasts are already used by over 40% of the global e-community, with a staggering 54% of surfing time spent on these sites. With so much potential customer contact can you afford to be left behind?


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Engaged customers are brand advocates. They remain loyal to their chosen brands, spend more and promote them within their network. Ensure your brand is one of those chosen. Web 2.0 is the answer.

The customer relationship is the critical success factor in retail finance. As more time is spent online, web 2.0 will be the essential part of the engagement, strategy, turning employees into social media brand advocates, and transforming negative consumers into influential word-of-mouth marketers.

This report uses non-public domain data and other exclusive material to provide a comprehensive analysis of the impact of web 2.0 on retail finance, including:

  • Tools and techniques demystified from Avatars to Widgets
  • Creating a fantastic brand experience for all segments
  • 2.0's role in operation and strategy, in particular; customer service, marketing, marketing research and product development
  • Understanding, assessing and mitigating the risks from new activity
  • Integrating 2.0 with other delivery channels
  • Global best practice and case studies
  • Emerging trends: prepare for the future world of web 3.0!

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Web 2.0, or social media, with its emphasis on interactivity and collaboration, can be a powerful way to engage customers online. It has the potential to improve outcomes in a range of areas including customer service, marketing, market research, and product development

Financial services institutions have been somewhat slower than other industries to embrace web 2.0. The main reasons are aversion to the operational, compliance, and reputation risks that come with employees’ use of the media and the proliferation of consumer-generated content, and simply that it is a new and unknown medium. Credit unions have been the fastest adopters. Their community-orientation means they tend to already enjoy higher customer engagement than their larger counterparts. They also see web 2.0 as a way of differentiating their offerings from banks, and revamping their images as more modern and “cool.”

The risks associated with using web 2.0 can be largely mitigated with best practice implementation. This includes establishing the right culture and guidelines for employees to engage in social media – on behalf of the company and privately, and the moderation and screening of consumer-generated content. Moreover, the appropriate handling of negative feedback can turn the bank into a more customer-oriented organisation and transform disgruntled customers into advocates for the company. In practice, banks and credit unions that have used social media have enjoyed overwhelmingly positive feedback.

Fears about stepping into uncharted territory can be allayed by starting slowly, planning carefully, and starting in an area where the bank is already successfully engaging a community. Other success factors include being authentic and transparent in all interactions with customers, maintaining a focus on adding value to the community, ensuring management buy-in for the project, and ensuring that sufficient resources are available to see a project through.

The wide range of web 2.0 tools that can be deployed by banks to engage customers have had varying degrees of success so far.

Blogs and podcasts are easy to establish and are often the starting point for a web 2.0 strategy They give the company a human voice and are a useful channel for sharing information and ideas and receiving feedback. However, unless a blog or podcast series is launched for a time limited campaign it represents an open-ended commitment of time and resources - and some observers have questioned the corresponding return. The biggest challenge is providing regular content that is informative or entertaining for readers. Banks with blogs generally report that, while feedback is positive from those customers who do interact, there are only modest levels of participation.

The popularity of social networking sites has led many observers to view them as the next big opportunity in online marketing, and a powerful way of engaging the youth demographic. However, marketing on social networking sites has had limited success so far. The main reason is that users are too engrossed in communicating with their friends to be interested in advertising. Those initiatives that have been successful have been in the context of multi-media marketing campaigns.

Online communities are a valuable resource for engaging customers and gathering feedback and market insights. In this they have many advantages over traditional surveys and focus groups. Public communities are typically focused on the small business segment and traditionally have had limited success. Private communities are more conducive to fostering stronger relationships and generally enjoy higher participation and better results.

Banks that have established a presence in virtual world Second Life have struggled to engage the community, as users are generally there for other reasons than to interact with banks. An alternative approach is to bring customers into private virtual worlds for a specific purpose such as education or entertainment. Banks have also enjoyed more success in virtual world Whyville, which caters to a much younger demographic.

Consumer-generated ratings and reviews are a widely used by online businesses, and numerous studies testify to their positive impact on a range of outcomes. Concerns over negative and/or inauthentic reviews can be mitigated with best practice implementation

Web 2.0 offers various ways to make banking offerings more personalised and customised. Notably some banks allow customers to create customised credit cards by manipulating variables such as reward rates and types, interest rates, and fees, to find the combination that suits their specific needs. A risk of customisation is ‘mass confusion’ - whereby an excessive variety of choices leaves customers overwhelmed. This can be mitigated with guidance and education.

Integrating personal financial management (PFM) solutions into a bank’s website has a number of potential benefits in engaging customers, helping them reach their financial goals, and better understanding their needs. While there is still not a strong demand from consumers for the functionality, banks face a risk that if PFM services are provided by a third party, they can steal customers “eyeballs” from banks’ online banking portals.

Interactive online tools such as widgets, mashups, RSS feeds, virtual agents, and instant messaging are all effective ways of delivering assistance, information and alerts to customers in an engaging way.

Viral marketing is most effective when it goes hand-in-hand with broad consumer awareness created by traditional media advertising and a strong product and service offering. Viral marketing and other web 2.0 tools are often integrated with multi-media marketing campaigns which combine them with more traditional marketing approaches.

It is early days and not yet known which approaches will yield the best results long term. The experience of the pioneers is instructive however and a lot of important lessons have already been learned. As consumers spend an increasing amount of time online, web 2.0 tools will increasingly become a part of the marketing mix and an essential part of engaging customers online. Banks are therefore wise to experiment with different approaches and develop their capabilities in the new medium.

Web 2.0 tools are best deployed in the context of a broad multi-channel approach that seeks to enhance customer engagement through all of a bank’s activities and points of interaction with the customer.


Section I – The case for using web 2.0 to build customer engagement

Chapter 1 – Web 2.0 and customer engagement
Chapter 2 – Customer engagement and web 2.0 in customer service
Chapter 3 – Customer engagement and web 2.0 in marketing
Chapter 4 – Customer engagement and web 2.0 in market research and product development

Section II – Web 2.0 tools for customer engagement

Chapter 5 - Blogs
Chapter 6 - Podcasts
Chapter 7 - Social networking sites
Chapter 8 - Online communities
Chapter 9 - Virtual worlds
Chapter 10 – Consumer-generated ratings and reviews
Chapter 11 - Personalisation and customisation
Chapter 12 – Online personal financial management tools
Chapter 13 - Interactive online tools
Chapter 14 - Viral marketing and multimedia campaigns

Section III – Success factors in engaging customers with web 2.0

Chapter 15 –Authenticity
Chapter 16 – Starting out
Chapter 17 - Risk management
Chapter 18 - Measuring customer engagement with web 2.0 initiatives

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