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Web 2.0 and Retail Banking: Less Hype Equals Opportunity

Web 2.0 is one of the most misused and abused terms in business today. While consumer expectations advance at a fast pace, a gap between consumer expectations and bank delivery grows. Without a change in strategy, this delivery gap will widen and threaten the bottom line, according to a new report, Web 2.0 and Retail Banking: Less Hype Equals Opportunity from Celent, a Boston-based financial research and consulting firm.

Key findings of the report include:

• Celent defines Web 2.0 as the tipping point in the evolution of the Internet, where consumer behavior and activity and their enabling technology emphasize the user experience and capabilities as engaging, interactive, and collaborative. Web 2.0 represents a departure from the aspects of much of the Internet's legacy roots of one-way communication and static, desegregated data. Absent the hype and technobabble, Web 2.0 might simply be characterized as "the dynamic Internet" or "the interactive Internet."

• Banks can realize the untapped opportunity Web 2.0 provides by:

1) Realizing Web 2.0 is not a specific technology; rather, it is a shift in consumer behavior (largely online) and the technology supporting it.

2) Understanding the drivers of the behavior shift as well as the behaviors and expectations of post-Web 2.0 consumers.

3) Recognizing that the gap between traditional banking products and services and the expectations of the post-Web 2.0 consumer is significant, and it grows every year the bank does not evolve.

4) Creating a roadmap to transition the bank's products, services, and marketing and sales methodologies to remain relevant to a rapidly evolving consumer population.

5) Accepting that-though some banks will not change, and still continue to exist-those that can evolve their product and services offerings to be on par with and relevant to an evolving consumer population will see the greatest returns.

6) Applying a smattering of pixie dust in the form of add-ons or queues such as charts, or participating in a social network, will move the needle, but decades of consumer evolution require looking at the bank's product and services in a new way.

• Banks have not been on the leading edge of online consumer sales. Consumers have continued to change, and so have banks, but at a much slower rate. While consumer expectations advance at a faster pace than banks can support, the gap between expectations and delivery grows, threatening many banks' bottom lines.

• Generation Y's expectations of the retail experience (online and offline) have been shaped by the Internet. The wise retail banker will look at this segment's needs and begin a transition plan to ready the bank to serve them. Without a change in strategy, this delivery gap will begin growing at a faster pace, particularly as Generation Y-which will include 84 million US consumers in 2010-becomes a more important market segment for banks. Combined with the following generation, dubbed Generation Z, these groups will represent over half (53%) of the US population in 2020 and nearly two-thirds (64%) in 2030.

• Although Web 2.0 will have the greatest impact on the bank's marketing and sales strategy, the impact of Web 2.0's enabling technology will be great. Addressing consumers' broadening expectations will require a cultural shift within the bank as well as a technical one. Where the experiential side of Web 2.0 presumes information transparency and richness as well as collaboration, it will impact system design and system integration. The shift in design patterns and methodologies will benefit the end consumer and internal bank staff, and in time will help the bank deliver new products and services faster and at a lower cost (based on the increasing share of standards-based development).