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2007 in review: retail banks back to basics

For most retail banks,
the credit crunch’s knock-on effect has made it a fairly depressing end
of year too, with tightening of policies for mortgages and lending.
Mind you, considering the debt mountain in the USA, it is not
surprising that the economy is grinding to a halt.  In fact, the
American debt mountain has long been forecast to burst, as this white
paper from the Daily Reckoning
of 2005 makes clear.  So 2008, according to all economists, looks
pretty recessionary and inflationary in those markets that romped away
with debt, such as the USA and the UK.  After all, growth has been
fuelled through booming consumer spending over the past decade, and
that consumer confidence has burst in the USA and the UK.

Ho-hum, that’s cheered me up.

For most retail banks, this has really therefore been a year of back-to-basics:

  • What are our branches there for? 
  • What are we trying to achieve with them? 
  • How can we move from transactional focus to sales focus? 
  • How can we move customers towards self-service, both in-branch and online? 
  • If we splash out on branch updates, what does this mean and how do we maximise our bang for the buck?

This has been the source of some debate, as those who read my blog saw just in the past couple of weeks.
It’s also been the source of some heartache, as bank retailers struggle
with what retailing financial products really means.  For some, it’s
all about innovative branch designs, such as Deutsche Bank.
For others, it’s more about customer servicing through socially
networked financial experiences online and through branch, such as Wells Fargo.  For some, it’s all about people and culture, such as WaMu.  For others, it’s all about understanding the customer’s psyche and gaining their trust.

Whichever
strategy or mix of strategy is adopted, bank retailing gets more and
more difficult as digital natives, those who grew up with technology
and the internet, change our behaviours.  That’s why this year has been
all about social networking, and why the deployment of IP (Internet
Protocol) as the technology foundation for consistent delivery across channels has become so critical.

In particular, this has been the year where mobile banking and
social networking has become a key phenomena.  I’ll cover mobile
banking tomorrow when I talk about payments and so, today, will
concentrate on social networking instead.

The main reason this has come to the fore is because social networks are now being adopted by adults through Facebook,
rather than Bebo and MySpace which tend to appeal more to teenagers
generally.  Equally, commerce is being transacted in virtual worlds
such as Second Life, drawing attention amongst the banking fraternity and technologists for this reason.

 

Facebook
gained attention because it opened itself to non-student fraternities
in the middle of 2006 and, as a result, has seen a massive rise in
membership.  In November 2006, Facebook had 12.9 million unique
visitors a month; a year later, they received 29.1 million a month,
rising at 21% per month!   In October 2006, Second Life (SL) had 1.2
million residents;  today, they have 11.5 million.

Both of these
sites are educating the world, the markets, the technologists and the
financiers, about the next generation of connection: the virtual
social. 

The virtual social
lives seamlessly alongside the physical social.  I meet you
face-to-face; I meet you virtually.  It’s one and the same.  I shake
your hand, I poke you.  I party at night, I cut and paste by day.  It’s
seamless interactions physically and virtually for the digital natives.

Is this the real life (RL), is this just SL Fantasy? 

Nope, I’m just a poor boy and nobody loves me, as Freddie Mercury would
have said.  This is one of the reasons why social networking works: it
enables shy folks to find virtual friends
to love them.  That’s one of the reason why it works so well.   Many of
us would never reveal the personal and intimate information we reveal
in Facebook in the real world.  That’s why Facebook is so fascinating.

Unfortunately, it also creates many dangers.
After all, a physical interaction is limited to the physical space.
The virtual interaction can potentially be seen by one and all, with
your identity revealed to friends and strangers.

That is why
banks are becoming ever more stringent in their online retailing, and
need to be tough on potential criminal activity, as the opportunity to
commit online fraud is everywhere.  The criminal fraternity have
stepped up their efforts to always be one step ahead of the bank’s
security guards in the globally connected markets we operate today.
From a fraud perspective, PayPal appear to understand this threat, whilst the banking reaction is always about a year or so behind.  From the money laundering perspective, I think banks and governments will be severely challenged by AML in the virtual world in the near future, and all of these themes will be a source of concern and focus for the next year.

Equally,
retail banks have got caught up in the Bebo, MySpace, Facebook frenzy
… but they are also learning a lesson that we all need to bear in
mind.  These things are possibly transitory.  Just as the big burst of
new players came onto the internet scene ten years ago, such as Amazon,
eBay and Google, there were also many that disappeared just as fast.
Who remembers Boo.com, Flooz.com, Pets.com, Webvan and the many other failed internet ventures back then?

There
will be many of these as we go through the Web 2.0 boom and bust, and
therefore I wouldn’t bet the farm on some sites, such as Second Life
(SL).  For all of their hype cycle of growth, the actual number of SL
users (those who logged-in within the last sixty days) is just under 1.5 million.  Compare this to six months ago,
when SL had 4.458 million users (those who had registered with the
site) and 1.68 million users, and you see what I’m getting at.  So
maybe Entropia will be the flavour of 2008, who knows? 

What
it does mean is that, in the rush to seek the goldmine treasures of the
newly networked social worlds, banks must use these developments as
experimental adventures to discover how to deliver customer experiences
through these worlds.  Sure, there will be some that will take off big
time, as Facebook appears to be, but don’t bet the farm on all of the
hyped worlds just yet.

Meantime, keep your eyes on the security issues.  I’m pretty sure we’ll some major blips in this area over the course of 2008.

Ah
well, it’s been a fun year to get yourself known out there in the land
of the virtual living.  Back here tomorrow for the more practical
issues of how to pay for stuff, as payments has seen a fairly fluid
year of change too.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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