Implications of Web 2.0 for financial institutions

Financial services providers need to adapt to a new era of communication and may turn it into their advantage. Retail banks are feeling the heat in the form of diminishing margins on standard products and increased scrutiny by the online community. Those who stay abreast of events, however, may turn the Web 2.0 challenge to their advantage by offering new services and reaching out to new customers. Any Web 2.0 presence of a bank must be authentic and consistent with the bank’s brand and corporate culture.
Users of Web 2.0 applications propagate information and opinion – this multiplies reputational risk. Any news can spread uncontrollably through virtual worlds. Financial institutions must adjust their internal and external communication policies accordingly. This includes, for instance, deciding on a company policy for accessing the new applications as they will inevitably become widely used by employees.
Innovative payment systems are capturing niche markets. A limited market is developing for innovative online payment systems that address specific needs. Since those niches represent only a small slice of B2C e-commerce, conventional payment systems continue to dominate the B2C business.
Online P2P lending platforms nibble at banks’ loan business. New internet ventures match people who need a small loan with others who have extra cash to lend online. They aim to save costs by cutting out the middleman – i.e., the retail banks. The market for standard loans is highly competitive, though, which limits the potential for P2P platforms.
Web 2.0 inspired inroads into traditional banking seize on the human factor. Many users are attracted by the community aspect. They often trust customer reviews and private postings more than official information. Some online P2P lending platforms draw on user networks to assess credit risk, determine interest rates and pressure for repayment.