 |
Using Web 2.0 to Grow Your Bank
By Joe Trafton, Chief
Strategies Officer |
|
What a difference a year can make! One
year ago, a barrel of oil cost $58 and
most mortgages, brokers and agencies
were solid. Back then, banks had time
enough to consider the next big market
segment – Gen Y – and the next big
technology – Mobile Banking.
Not any more!
Today’s bankers are focused on surviving
one day at a time, and while that makes
sense in today’s volatile credit market,
keeping an eye on emerging strategies,
competitors and service channels should
never be far from any banker’s mind.
|
 |
You see, while bankers have
been busy fretting about real estate values,
credit quality and liquidity, their Web 2.0
counterparts have been dreaming up a new blend
of finance and social networking called ‘social
finance.’ Its market share is expanding rapidly
and could take the world by storm like ING
Direct which accumulated a staggering $63
billion in just three years. We could learn a
lot from this Web 2.0 banking model.
Social finance companies such as Prosper and
Zopa entered the banking market in 2005. Backed
by global investment companies such as Benchmark
Capital, Fidelity Ventures, and Wellington
Partners, the social financiers attempt to reach
a younger demographic with several blends of
financial services and social networking.
So far, Prosper has attracted more than 500,000
members in the US while Zopa had attracted
around 200,000 in the United Kingdom prior to
arriving in the US late in 2007. Neither company
reveals its current product numbers or total
assets.
The social finance concept is simple – the
borrowing members take out small loans ($25,000
or less) while other members invest in those
loans. Prosper conducts an online auction where
investors bid on the borrowers’ loan requests.
Once the auction ends, Prosper combines the
lowest rate bids into a single loan to the
borrower. Prosper then handles the on-going loan
repayment, reporting and collection tasks on
behalf of the matched lenders and borrower.
A similar process occurs with Zopa. Here the
investor buys a one year CD and understands that
he (or she) must donate a portion of the yield
to reduce the monthly loan payment for one of
Zopa’s borrower. The portion can be as little as
one tenth of one percent. Zopa borrowers create
special profiles that explain their reasons for
borrowing, and investors review the profiles to
decide who to help. Zopa borrowers are
encouraged to ‘market’ their profiles to
friends, family and others willing to help them
with their loans.
Obviously, this ‘get-to-know-your-borrower’
concept is quite different from traditional
banking where deposit customers rarely know the
borrowing customers — although the connection
certainly exists in portfolio lenders. The Web
2.0 version of lending establishes a more direct
connection where the depositor actively helps
the borrower. The concept evokes strong
allegiances between lender, depositor and the
social finance company.
Add competitive rates and a guaranteed return,
and these social finance companies stand a good
chance of increasing their market share beyond
current levels. At this writing, Prosper offers
a loan rate as low as 7.68% while Zopa offers
8.48% minus the contribution of well-meaning
investors.
Could a more traditional bank jump into the
social finance game? Of course! Banks have
well-established – and regulated – underwriting
and collection practices. Add the advantage of
ties to the local community and the social
finance model may be just the ingredient that
helps build a community bank’s market share in
these turbulent times.
The following ideas borrowed from the social
finance model and other Internet banking
entities that can help you expand your business
and compete against the emerging Web 2.0
companies:
-
Larger Loan Amounts. Prosper, Zopa and
others have limited themselves to the small
end of the market with their $25,000 caps.
Since a community bank can make large as
well as small loans, this could be your
ticket to flexing your community bank’s
muscles – both on the Internet and in your
flesh and blood community.
-
Online Customer Contact. Beyond the ‘contact
us’ and ‘account application’ forms,
consider staffing a true online messaging
web page with a bank professional. Your
customers want more than a new account or a
balance update – they want professional
financial advice. Consider scheduling your
staff for key times of the online banking
customer’s day. The hours will be more like
6 p.m. - 10 than 9 a.m. to 4, but that’s
when your customers are home from work and
need your expertise the most.
-
A human Internet Branch Manager. Many
bankers believe Internet banking is a
completely automated solution that requires
little human intervention beyond
troubleshooting. Perhaps it’s time to
revisit that idea. If your bank is serious
about Internet banking, then it might well
consider staffing its Internet branch with a
flesh and blood manager. Who else will
develop a unique feel for the branch and
make sure the Internet customers are treated
right? Who else will respond promptly to
customer inquiries and promote the branch by
hosting Internet-only programs? Just as
physical branches need a manager, your
Internet branch needs one, too.
-
Avoid Internet Traps. Blogs, MySpace and
interactive games may sound like the ticket
to Internet success, but so far, they have
brought little value to banking. When
considering a blog or tell-all pages for
your bank’s customers, ask yourself if your
customers really want to splash their
financial profiles to the masses? And if
they did and they regretted it later, would
you want to defend the bank for revealing
non-public customer information online? As
for interactive games, a recent visit to
Wells Fargo’s Stagecoach Island game found
only 19 people across the entire U.S.
playing the game. That’s hardly a
groundswell of interest, and I doubt that it
resulted in much business for the bank.
-
Incentives, Yes; Penalties, No. It’s a great
temptation to offer Internet-only rates for
loans and CDs, but try denying the customer
in your lobby who prefers to open his or her
account in person. If your goal is to expand
customer relationships, then expand them
whenever and wherever the customer contacts
you. Rather than Internet-only, think
bank-only, and the Internet as just another
means to communicate the message.
-
Listen Carefully to Your Customers. Lobby
conversations can reveal a great deal about
new products and service channels, and your
customers can give you excellent ideas that
will separate your bank from the rest. The
key is listening and separating the wheat
from the chaff. The Internet whiz kids who
design systems such as Prosper and Zopa will
never know what your customers tell you –
and that’s to your advantage.
-
Keep looking at the new models. Like ING
Direct, one of the Web 2.0 models will break
through the clutter and become a winner.
When it does, you will want to follow soon
after, preferably with an improved product.
That’s why early detection and regular
attempts to answer the perennial question
“How did they do that?” are so valuable.
They give you a head start on overtaking the
leader.
These are sobering times for
every banker, and we will be watching Fannie and
Freddie for some time to come. But these
sobering times will end, and when they do, more
of your customers will be online than they are
today. Keeping an eye on Web 2.0 will help you
prepare for them and keep your bank strong in
the future. |
