Web 2.0 for Financial Institutions

1,467 views

Published on

Published in: Economy & Finance
0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,467
On SlideShare
0
From Embeds
0
Number of Embeds
5
Actions
Shares
0
Downloads
79
Comments
0
Likes
4
Embeds 0
No embeds

No notes for slide

Web 2.0 for Financial Institutions

  1. 1. Be a driver, not a passenger Implications of Web 2.0 for financial institutions Think Tank of Deutsche Bank Group Dr. Stefan Heng, September 2008
  2. 2. Implications of Web 2.0 for financial institutions 1 Joe Six-pack live on stage 2 Communication form is a challenge to entrepreneurs 3 Web promotes product diversity 4 Conclusion: Be a driver, not a passenger S. Heng ,·September 2008 · p. 2
  3. 3. 1 Joe Six-pack live on stage Web 2.0 has many drivers and facets Technology - Broadband, convergence Society - Need to communicate, individuality Business - Globalisation, project work S. Heng ,·September 2008 · p. 3
  4. 4. 1 Joe Six-pack live on stage “Web 2.0 is an attitude, not a technology” Dissatisfying attempts to define the phenomenon via … – Consultant-speak, e.g.: – Citizen journalism, crowdsourcing, long tail, swarm intelligence, viral marketing – Technology, e.g.: – Atom, AJAX, API, RSS, SVG, XML, XUL etc. S. Heng ,·September 2008 · p. 4
  5. 5. 1 Joe Six-pack live on stage Lively exchanges via web platforms Number of German articles on Wikipedia, '000 Wikipedia – New articles per day: roughly 8,000 750 – Number of edits per article: about 20 LEO 600 – Responses to forum questions: within about 10 minutes 450 Volumes on P2P lending platforms 300 – Prosper (US): roughly EUR 100 m since start in Feb 2006 150 – Smava (DE): roughly EUR 3 m since start in March 2007 0 Consumer assessments on rating 01 02 03 04 05 06 07 08 sites (ciao, dooyoo etc.) Source: Wikipedia, 2008 – DB: roughly 1,000; DreBa, CoBa: roughly 300 S. Heng ,·September 2008 · p. 5
  6. 6. 1 Joe Six-pack live on stage Participatory network: Users trust users Source that German web surfers trust, % Opinion-based knowledge becoming more important than fact-based Newspaper article knowledge – Quality of report can often only be Customer assessment estimated on the criterion of topicality Quality is critical in terms of Private blog – Accuracy – Completeness Commercial Corporate e-mail Management information 0 5 10 15 20 25 30 35 Multiple responses possible Source: Ipsos, 2006 S. Heng ,·September 2008 · p. 6
  7. 7. 1 Joe Six-pack live on stage Market transparency drives down prices Clients who shop around for financial Average price development, 2005 vs. 2006, products, % Euro area, % yoy 55 Cash utilisation 45 Monetary transactions 35 Account management 25 Exceptions handling 15 -20 -10 0 10 20 2002 2003 2004 2005 Source: Cap Gemini, 2006 Source: Forrester Research Inc., 2005 More and more customers comparing offers on the web Prices of standardised products coming under pressure S. Heng ,·September 2008 · p. 7
  8. 8. Implications of Web 2.0 for financial institutions 1 Joe Six-pack live on stage 2 Communication form is a challenge to entrepreneurs 3 Web promotes product diversity 4 Conclusion: Be a driver, not a passenger S. Heng ,·September 2008 · p. 8
  9. 9. 2 Communication form is a challenge to entrepreneurs Promising outlook at the intra-company level Corporate investments in Web 2.0 worldwide, Global investments about USD bn EUR 400 m in 2007; 2.0 Social networks CAGR2007, 2013 : + 47% p.a. – North America expanding its lead RSS/ widgets/ podcasts/ 1.6 mashups – Social networking leads by far Blogs/ wikis 1.2 Especially internal Web 2.0 applications are gaining ground 0.8 – Blogs may reveal insider knowledge CAGR2007,2013 : +47% p.a. – Wikis serve as internal stores of 0.4 knowledge Objective for internal applications: 0.0 2007 2008 2009 2010 2011 2012 2013 Have employees identify with their Source: Forrester Research Inc., 2008 product and company S. Heng ,·September 2008 · p. 9
  10. 10. 2 Communication form is a challenge to entrepreneurs Companies have big plans for customer contacts Web users who post information them- Intensify customer contacts selves, Germany, % of age cohort, 2008 – Create emotional ties to product/ 50 company Expand customer contacts 40 – Establish contact also with groups that 30 have not yet been reached Manage reputational risk 20 – “It’s better if consumers speak with us than they speak about us.” 10 Forecast business development in 0 the physical world 14 - 29 30 - 44 45 - 59 age Source: Bitkom/ Forsa, 2008 S. Heng ,·September 2008 · p. 10
  11. 11. 2 Communication form is a challenge to entrepreneurs Heed critical factors in web applications Content and functionality that US customers General demands on int./ ext. appl. want on bank sites, % – Ensure long-term maintenance Customer – Content, response time for inquiries ratings – Style and content must be authentic Price – For customers, information ranks far comparisons ahead of pure entertainment Discussion forum Demands on internal applications – Create incentives for employee Quizzes/ games participation – Leapfrog hierarchies in exchanges of Product videos information 0 10 20 30 40 Demands on external applications Source: Forrester Research Inc., 2008 – Establish guidelines for employees’ communications – Ensure compliance with regulations S. Heng ,·September 2008 · p. 11
  12. 12. Implications of Web 2.0 for financial institutions 1 Joe Six-pack live on stage 2 Communication form is a challenge to entrepreneurs 3 Web promotes product diversity 4 Conclusion: Be a driver, not a passenger S. Heng ,·September 2008 · p. 12
  13. 13. 3 Web promotes product diversity New payment systems developing in tandem with e-commerce B2C e-commerce: gaps between goods delivery and payment in terms of time and location Payment systems must factor in particular circumstances of impersonal virtual world – Buyers and sellers who do not know each other are particularly wary of the payment procedure S. Heng ,·September 2008 · p. 13
  14. 14. 3 Web promotes product diversity New payment systems struggling for market share Worlwide eBay payments initiated by PayPal, Roughly 40 innovative payment USD bn systems in Germany 45 – Continuing dominance of pre-payment, 40 invoice, cash on delivery, direct debit CAGR2003, 2007: and credit card 35 + 39% p.a. 30 The most promising models … 25 – embrace the particular features of e- 20 commerce, 15 – are supported by established companies in the value chain, 10 – convey their unique value added 5 2003 2004 2005 2006 2007* * Q1 annualised Source: eBay, 2007 S. Heng ,·September 2008 · p. 14
  15. 15. 3 Web promotes product diversity International web of online lending platforms S. Heng ,·September 2008 · p. 15
  16. 16. 3 Web promotes product diversity Lending platforms changing the face of the business Web brings together lenders and Bank takes risk borrowers Bank – Procedure: e.g. reverse auction, internal matching Personal relation – But: private persons not allowed to P2P lending lend commercially – Additional information from knowing why customer needs loan – However: private creditors find it hard Peer pressure to assess risks rationally P2P lending online Diversification P2P lending online Source: DB Research, 2007 S. Heng ,·September 2008 · p. 16
  17. 17. 3 Web promotes product diversity P2P lending has particular default risk Default ratios for Prosper loans* by credit Smaller default risk thanks to … quality, % of total loans Personalised credit relationship 40 Formation of borrower groups aiming 30 Borrower is not a group member to improve conditions for members Borrower is a group member via group reputation – Group membership a signal for lenders 20 about the creditworthy – Group membership brings social 10 pressure helps ensure punctual repayment 0 AA A B C D E HR NC * From term of 6 months Source: Prosper, 2007, DB Research S. Heng ,·September 2008 · p. 17
  18. 18. 3 Web promotes product diversity High-risk category suffering from market breakdown Share of funded loans and average lending Interest rate and share of funded loans rate, by credit rating, Prosper, % hinge mainly on risk class of borrower 35 Platforms mainly arrange micro-loans 30 Share of funded loans But: nearly 90% of loans requested are 25 not funded – Probability of loan approval for 20 AA credit rating: 30%, 15 HR credit rating: 3% 10 Lending rate 5 0 AA A B C D E HR NC HR = high risk; NC = no credit score Source: LendingStats, 2008 S. Heng ,·September 2008 · p. 18
  19. 19. 3 Web promotes product diversity Virtual world builds bridge to new customer groups The virtual world lays the groundwork for business in physical world Objective for virtual engagements: generate emotional ties to product/ company in the physical world – Instrument: entertainingly and informative presence S. Heng ,·September 2008 · p. 19
  20. 20. Implications of Web 2.0 for financial institutions 1 Joe Six-pack live on stage 2 Communication form is a challenge to entrepreneurs 3 Web promotes product diversity 4 Conclusion: Be a driver, not a passenger S. Heng ,·September 2008 · p. 20
  21. 21. 4 Conclusion: Be a driver, not a passenger Web 2.0 brings pressure to bear in many areas Opportunities – Realise trends at an early stage – Improve emotional ties to product/ company – Emergence of new business areas (e.g. payment systems, lending platforms) Challenges – Market transparency squeezes margins on standard products – Ensure maintenance (esp. of content, response times on inquiries) – Style must fit (corporate culture, image, regulatory regime) – Manage reputational risk S. Heng ,·September 2008 · p. 21
  22. 22. 4 Conclusion: Be a driver, not a passenger “Do today what others only think of doing tomorrow, for only change is constant.” Heraclitus of Ephesus, philosopher, 540 - 475 B.C. © S. Heng, 2008 S. Heng ,·September 2008 · p. 22
  23. 23. Dr. Stefan Heng Senior Economist Deutsche Bank Research Theodor-Heuss-Allee 70 D-60486 Frankfurt a.M. Tel: +49 69 910-31774 Fax: +49 69 910-31743 stefan.heng@db.com http://www.dbresearch.com/eresearch S. Heng ,·September 2008 · p. 23
  24. 24. Disclaimer © Copyright 2008. Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt für Finanz- dienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. S. Heng ,·September 2008 · p. 24
  25. 25. For more on the digital economy and structural change • Telecom regulation in the EU facing change of tack (2008) • Be a driver, not a passenger – implications of Web 2.0 for financial institutions (2007) • E-commerce settles for established payment systems (2007) • Media industry facing biggest upheaval since Gutenberg (2006) • RFID chips: Future technology on everyone’s lips (2006) • Rising stars in information and communication technology (2004) http://www.dbresearch.com/digitaleconomy Think Tank of Deutsche Bank Group Dr. Stefan Heng, September 2008

×