The Bankwatch

Tracking the consumer evolution of financial services

Is there a deep shift occurring, where internet becomes “the” channel?

After this post the other day, something has been bothering me. Are we at some kind of crossroads here in the convergence of old style banking, with internet banking? By Internet Banking, I am not thinking of paying bills online and moving money around … the traditional, transactional view of online banking. Is there a deep shift occurring, where internet becomes the channel, with branch and telephone as fall back channels?

Brand managment will exclude social networks | Citi « The Bankwatch

Citi represent the apparent majority view, amongst Banks, and the antithesis of Wells Fargo, and RBC.

What intrigues me about this comment from the Citi CMO is that she must be unaware that the conversations she fears are already taking place online. Here are a set of examples on Youtube.

The Citi CMO’s reticence to engage in the online conversations, is not unique. At the Forrester conference, June in NY, the topic came up repeatedly in various sessions, and in my panel session, hosted by Benjamin Ensor. It was fascinating conversation, with Jason Knight from Wesabe, and Ed Terpenning, VP of Social Media at Wells Fargo. The mere fact of having a Social Media VP at a Bank is telling. Anyhow, at that Forrester session, over the three days, it was clear the majority of Banks, the large majority, are on the side of wariness, and are straight from Kansas, waiting for Social Media to collapse under a barrage killed reputations, and brands, after which we can presumably go back to the old way.

Lets think about that for a moment; ‘go back to the old way’ …. if we consider that rationally and objectively, what are the chances that we will go back to the old way. Consider the shifts that have occurred since the web began in 1992, took firm hold in 2000, despite the dot com crash, which was actually a stock market thing, not an internet thing, but thats for another day. We used to measure monthly increases in internet usage, and usage of online banking. We used to consider the demographics of internet users, and their higher incomes, and educations, and how that would reflect in higher value to the Bank. But internet usage, and online banking are mainstream now. The hold outs are in the small minority.

Since when do we build strategies based on the minority view?

So if the old way is gone, what is the new way? That is the unanswerable question, but we have clues to the future. Sometimes its instructive to look at another industry, and consider the disruption for them. Then the realities for us may become clearer. Lets pick on telco’s.

Disintermediation amongst Telco’s

Consider the position of Ivan Seidenberg, Verizon Chairman. You can see Google bidding $4.6 Bn against you for the 800 Htz wireless band. You see Apple with a device (iTouch) that is online all the time, has phone capabilities, yet no telco carrier on it. You see iPhone that has a telco carrier, yet also has Wifi. You see Cubic Telcom offerring cheap international calls, using voip across the internet, to your unlocked cell phone. You see Intel preparing a WiMax chip for Nokia phones. [WiMax: think WiFi everywhere/ anywhere – wireless internet that follows you around]

There is one common thread here. Internet is pervasive in two ways. Pervasive across peoples lives, and pervasive geographically. Internet is even more convenient than traditional utilities like water or electricity. No wires or pipes … people just need a device; a laptop or handheld [formerly known as a phone].

So, considering a simplistic SWOT for Telco’s:

  1. Strengths: network presence, and call centre coverage
  2. Weaknesses: high costs associated with network, and product complexity. Tied to old network protocols, eg GSM, EDGE, GPRS, etc.
  3. Threats: newcomers can lever internet technology and open standards, to offer new services, cheaper and faster
  4. Opportunities: to lever brand and network expertise to offer new services that can compete with newcomers

If you were Ivan what would you do; head in the sand, and hope that WiMax, Apple, Cubic, Google disappear? Or, ask the difficult questions now:

  1. consider alternative products that lever your networks
  2. what if we think of phones as wireless handhelds that are online
  3. what if we have to operate in a world where our revenue is cut by 50%? How can we eliminate infrastructure costs to compensate?
  4. If newcomers can offer cheaper services, why can’t we? How can we offer cheaper services to combat new startups?
  5. what can we do now to work with people to understand how this will work in the future. What do people want to do with their ‘handhelds’.
  6. how do Gen X/Y people want to communicate?
  7. Provide iphones to all executives now …. see what they think?

Banks and disruption:
There are many parallels for Banks, but with one dramatic difference, that highlights the risk but also the reward.

  1. strengths – customer confidence, from local presence in branches and qualified staff spread across the country
  2. weaknesses – costs associated with 1.
  3. Threats: newcomers have low risk and high opportunity to lever social internet tools, to offer new services, eg Wesabe, Prosper, Virgin Finance (CircleLending), Pertuity, Mint.
  4. Opportunities: to lever financial expertise, and customer knowledge, with new social tools to gain expertise and knowledge

Analysis – thoughts
This simple SWOT analysis, highlighted something, that may well be the cause of the discomfort that Bankers feel. For Telco’s the issue is pure technology. Newcomers can lever new technology standards, that are easier and simpler than the old ones. Plain and simple. That kind of problem can largely be given to smart technology people to solve.

For Banks, the issue is not technology. Banks are already levering technology across online banking, and branches, to provide lower costs operations, and simplified network management.

The threat lies in the use of technology, and the new behaviours that are facilitated by internet. Instant messaging, social networking, buddies, friends, micro-blogging (Twitter, Pownce, Jaiku etc), consumer generated content, or even just blogs. All of these take social interactions that could only occur offline, and permit them online. Banks turn to the marketers to advise on these things, and all that will come up is reputation risk.

But if we reflect, that conversations, creativity, expression, are simple the things that the new tools allow people to do. In the old days, customers gathered in coffee shops, and cocktail parties, and had conversations about lots of things but often including banks. Those conversations have simply moved online, and accelerated online. The conversations are already happening online, about your brand, your services, and Banks services. Where it will all get to, and end up, is not known by anyone, not even the 23 year old who owns FaceBook. This is a journey, not an end game.

Scalability of Banks
One thing we do know is that the profileration of channels means that its very hard to scale large operations, whether its Banks or telco’s. Each are highly dependant on one-to-one conversations between employee and customer, using branches, and call centres. More and more that customer is beginning his conversation through any one of several methods, and still expecting advice and guidance.

What the large eCommerce companies learned early, is that trusted advice from customers becomes a powerful tool to guide future purchases. Chapters Indigo, and Borders have people walking around offerring to help people locate that next book. Yet Amazon tells me immediately based on my earlier purchases, browsing history, and searches, using collaberative filtering. That experience is supplemented by peoples comments and discussion of books. No employee costs here. Infinitely scaleable. Consider that model for Banks and product comparisons, advice and guidance. This is the prospect of social tools for Banks. If there is any doubt, check the forums, in Prosper, and Wesabe. How can Banks harness that power?

In times of disruption: Management or Creativity?
I have been reading The Upside of Down [which I highly recommend] and of the early themes in the book is how to deal with complexity. Traditionally Bankers are used to analysing problems, developing alternatives, and following a plan to get through it. This is Management 101, and worked well. The author argues, that creativity and non-extrapolated alternatives are one way to develop break out thinking.

The situation Banks find themselves in today, is disruption, and the solutions and the variance of solutions is highly complex. Thats where creativity comes in. The need to think of different and new things, and just try them.


Thats what Wells Fargo, RBS, and Verity Credit Union are doing, just for three examples. Another thing those three are doing is developing in-house expertise. They have used outside help to advise, but there are people inside with titles and responsibilities for the new creative work. If the Bank /CU CEO asks about any of the SWOT items above, then the internal folks have a clear point of view, and can provide advice based on external knowledge, and applied knowledge.

Relevance to Bankwatch:

This turned out longer than I expected, but to summarise:

  • we are in a highly disruptive period, that requires creativity as a reactive tool
  • online reputations are being set and defined today, with or without Banks’ participation
  • there is no simple big bang answer waiting in the wings
  • social tools offer potential solutions to scale and cost problems, and if done right, bring the side benefit of enhanced customer loyalty
  • to do nothing risks your competition will gain valuable expertise, that is hard for you to replicate

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Written by Colin Henderson

October 2, 2007 at 12:19

Posted in Uncategorized

4 Responses

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  1. Thanks for this. I’ve read it through a couple of times, trying to square it up with my experiences in recent usability testing at my job. I still don’t know what to DO, exactly, but it’s given me something to chew on. 🙂


    October 3, 2007 at 11:18

  2. To give my POV on your question, I would have to say, Yes, the internet will become THE channel. The majority of Gen X may never fully adopt the digital lifestyle, however, as we’ve seen with Gen Y, digital lifestyle is not something that needs to be adopted, but something that is just lived due to circumstance.

    Just as it would be terribly difficult to find a company that did not adopt the telephone, it will eventually be equally difficult to find companies that did not adopt the internet as a the channel. Companies that are slow to adopt may find themselves struggling to renew their client base and widening the gap between them and their clients.

    There isn’t a model for success through the internet, but companies that are able to innovate will be the creators of the model, if there is one at all, and will come out of the shift, if there is an end to the shift, on top. This is a very interesting and exciting time for people who like change!


    Host, RBCp2p

    Michel Savoie

    October 4, 2007 at 07:29

  3. Thanks Michel …. the real challenge that interests me is for large Banks to adapt/ adopt. They have a model that has worked for 200+ years, and makes, in the case of Canada, the largest profits of any national company. In that state, and from that perspective, how do you innovate and still manage the perceived risk to the bottom line, and the share price.


    October 4, 2007 at 15:40

  4. There may be a shift, we’re very early in the curve. Remember, the large banks are still at least a decade away from considering the internet channel a major part of their operations.

    Dan Dickinson

    October 5, 2007 at 11:15

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