In a well-conceived 16 page report, Gartner analysts Stessa Cohen and Alistair Newton depict social network in banking as having two dimensions — an information flow between social networkers and transmission and storage of funds on social networks.

Banks, they say, are not inclined to see social networking as a threat as a threat, while the analysts think it could displace banks from the center of financial relationships and provide a way for Tier 2 and Tier 3 institutions to attain mainstream adoption.

They recommend that banks look to build relationships with social networks, but not develop their own — probably a good idea given how clumsy banks are at this sort of thing. Plan for increased transparency on pricing — although this seems to go completely against the way most banks behave, to judge from BusinessWeek’s piece on credit card plans.

They also suggest good communication and workflows between business and product delivery group to react promptly to negative or positive comments and migrating retail multi channel delivery to a process-focused architecture to enable the banks to participate in a new social banking model.

One area which seems to offer promise is social responsibility, such as fair trade or charitable giving coupled to banking. But is this diametrically opposed to the way banks operate?

Perhaps the analysts should forget about banks and target their messaging to credit unions.

I think the real growth opportunity for alternative financial channels lies with places like Tesco — which has both a brand and regular customer visits, and Virgin, which has a brand and a level of sex appeal that is generally lacking in a grocery chain. At least the grocery store chains I go to.
So, I am still not persuaded, but I do think any intelligent bankers ought to follow the example set by Jack Welch at GE who insisted that senior managed adopt a 20-something mentor to help them learn how to use PCs and the Internet.

I can remember BAI Retail Delivery Show conferences in the US where banks were investing, or talking about investing, in Web software thinking (ah, the power of delusion) that customers would make the bank site their home page, drawn in by information about weather, schools, and local businesses. So far Yahoo, MSN, Google, etc. seem to have survived this threat, probably because their default home pages are filled with celebrity gossip.

Gartner says customers have unchanging relationships with banks — looking elsewhere to achieve goals around social justice. That’s also true for nonbanking financial goals, such as around investment and insurance. For all the talk of one-stop shopping, it has been a dismal failure, at least in the US. In fact, I think banks are often chosen for simple convenience — I started with my bank because its office was across the street from my newspaper…through half a dozen or so mergers it has become Bank of America and I stay with it because it has branches up and down the East Coast and in Chicago, so I can usually find a local ATM

Actually, the Gartner report has a diagram that captures this pretty well – showing personal accounts in BoA and investments outside, like at Charles Schwab. Someone I don’t think the acquisition of Merrill is going to make much difference, even if any of the Merrill staff do stay.

This disconnect, which Gartner identified, has been persistent

“However, banks do not naturally present themselves as institutions with which many people want to do business. Banks continue to talk about growing their relationships with their customers. For the most part, however, Gartner research has indicated that the majority of those customers have no interest in developing any relationship with their bank.”

Two exceptions — ING Direct which has made pricing transparency a priority and Caja Navarra in Spain which lets customers analyze their relationship, see how profitable they are to the bank and then decide how the banks should invest some of that profit in sustainable economic projects.

Now THAT’s interesting. What would happen if a community bank or credit union did something like that, supported Habitat, raised money for a house and then got customers involved along with bank staff in the actual construction?

Another good point, which resonates with me because I always look at user reviews when booking a hotel online:

“Much of the advice available through these Web sites is initially focused on better budgeting and more-informed product choices. However, as the depth and scale of third-party advice and access to data increase, it is likely that these social-banking groups will start to impact
mainstream banking in more-extreme fashions. The potential longer-term impact for consumers and banks is huge. Consider new customers basing some, or all, of their financial services decisions on reviews and information provided by independent customers of the bank or banks that they are considering switching to.”

In any event, banks should probably look at assigning a young tech-savvy and social staff person to monitor developments and experiment with social networking on behalf of the institution. The young person will probably need an adventurous senior mentor for protection against defenders of the status quo.

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