Banks are keeping up with technology through their use of ATMs and, increasingly, by offering online and mobile banking — even partnering with the world's search engine giant to advance mobile commerce, as Citi is doing with Google Wallet.
But when it comes to social media and digital channels in general, "retail banking has largely remained on the sidelines," according to Johannes Bussmann, Paul Hye, and Jorg Sandrock, three principals with the global consulting firm Booz & Company, authors of a new report, Banking on Social Media.
They argue that banks "need to reach out to younger, more Web-savvy customers... devising new products and services that are simpler and more transparent, and using the power of social networking and other digital platforms to improve their marketing."
The authors also suggest that banks could use social networking and digital channels to capitalize on three specific opportunities:
1. Reaching customers.
Most banks, the authors say, "still use their websites primarily to provide information and enable standard transactions" when they could start blogs and actively participate in social networks. "Increased transparency, trust, and convenience" online would allow customers to "compare, evaluate and discuss" the banks' offerings. Direct feedback from customers would help banks improve those offerings. The authors cite Wells Fargo as an example of a U.S. bank that uses blogs, YouTube, Facebook, and Twitter (even flash mobs) to interact with "Generation C," or the "Connected Generation." Fidor Bank, a new German bank, uses blogs, forums, and social networking to communicate with customers.
2. Reducing costs.
Shifting communications to the Web, the authors suggest, will dramatically reduce the costs of communicating with customers. Banks can sell complex, high-margin products via online channels, adding to their cost savings. Banks that use new technologies can cut the cost of branch operations; for example, Deutsche Bank in Germany and BBVA in Spain use video chat for customer-banker interaction, thus reducing the reliance on traditional branches.
3. Restoring confidence.
Employing Web 2.0 technologies can simplify the interactions between customers and banks, thus "building customers' confidence...and helping customers understand complex financial products." Ally Bank in the U.S. uses a "straight talk" marketing campaign and blog to differentiate itself from banks with confusing terms and practices. BankSimple, a U.S. bank that will launch this year, intends to offer free online bill payment, free online and telephone support, and check deposit via a smartphone.
While some banks have demonstrated their ability to take advantage of social media and digital channels, the authors say that "few have succeeded in integrating all their various channels into a seamless customer experience."