Web 2.0 Changing Banking Habits

By Cho Jin-seo Staff Reporter
Lending or borrowing money from your pals on Facebook or Cyworld could become a reality soon, thanks to the integration of online banking and social-networking platforms. Traditional banks are aiming to attract young customers by taking advantage of so-called Web 2.0 services, such as blogs, virtual communities such as Second Life and social-networking sites such as Facebook. At the same time, those Internet services are actively seeking ways to transform themselves into a form of online bank to make profits from transaction fees. The integration of the two sides ― conventional banking industry and modern-day Web 2.0 Internet services ― is an irreversible trend, said Mitch Muroff, manager of Edgar, Dun & Company, a financial consultancy. ``There is increasing evidence. Traditional banks that are investing in Web 2.0 will remain competitive with other banks,'' Muroff said at a conference organized by LG CNS, a leading Korean IT service and consulting firm, Tuesday. ``Social networking services are very popular with young people aged 18 to 30 years old, so this is where that market is spending their time.'' Several U.S. banks such as Chase and Wells Fargo are operating blogs to appeal to students in need of loans and other financial assistance. Saxo Bank and ABN Amro operate virtual branches on Second Life, a 3-D online community. Others use podcasts or automatic news release systems called RSS feeds to communicate with their current or potential customers online. While banks are trying to adopt Web 2.0 services, Internet firms are approaching this issue from the opposite end ― Web sites such as Facebook is trying to make inroads into the financial sector by using its vast user base ― some 183 million people spend one hour a day on these sites in the United States alone, according to Muroff. ``Facebook developed its own user-to-user money transfer service. So everyone who has a Facebook account can easily use that,'' he told The Korea Times after the conference, adding that the Web site has recently hired people specializing in this. Other than Facebook, there are a number of examples of the Web 2.0's adoption to banking. One example is a credit card called Revolution Money, which offers money exchanges between Facebook users. Two startup Web sites Prosper and Zopa allow users to freely lend and borrow money to and from each other on their Web sites, and let them decide on their own interest rates and repayment period. ``The best rate, the nicest people: It's a more human way of getting low-cost loans,'' Zopa's Web site says. In Korea, money transfer is already available between users of Nateon, the most popular online short-messaging service, if they are customers of Shinhan Bank. The most critical step for the success of such a Web 2.0 financial service is, Muroff says, to convince people to go to the process of signing up for the account so it can form a critical mass.``It's sort of chicken and egg problem: people will not adopt it unless everybody has it, and nobody will adopt it until everybody has it. So the biggest challenge is to have enough people adopted, then it becomes very easy and common,'' he said. Another setback is the managerial costs. ``The biggest problem is risk management. If you are the payment platform and you created the service, you have to manage fraud, from the consumers and the senders and the receivers,'' Muroff said. ``That's a very complicated process, and it will take an entire team of specialists to do that properly.''indizio@koreatimes.co.kr