Recently Steve Ellis asked why more banks aren't stepping up to the challenge of social media.

It's true, few banks seem willing to embrace social media and other Web 2.0 tools, but there are a few innovators taking the first steps in Australia.

Bryan Inch is one of the few Australian bankers blogging regularly to customers. As head of financial services for Rabobank Australia & New Zealand, Inch regularly communicates with customers and responds to their comments on the RaboPlus blog.

Inch and I joined a panel of social media innovators at last month's ad:tech Sydney conference to identify some of the obstacles facing the financial services sector as it considers whether to adopt Web 2.0 tools.

"Generally management are not aware of the opportunity," says Inch. "The debate about blocking of Facebook is a classic example of management not understanding the potential business opportunity that it creates within the corporation."

Bryn Nicholson, head of eCommerce with Wizard Home Loans, says while there are pockets of resistance to Web 2.0 within GE Money (owner of Wizard), executives are gradually realising that communicating with customers via social networks can be more effective than traditional advertising.

"We have such a rich amount of information that people are providing in social networks ... it's a fantastic way to identify people with particular needs and target them effectively," Nicholson said.

"We can provide people with information that's useful and say: ‘Come and be part of this forum', or do something other than just ‘click here' and ‘apply now', which is the current state of financial services marketing as we understand it."

Last year Wizard launched its own online community called Wizard Women, targeting women looking to invest in property. The community now has thousands of members that regularly engage with the educational information being provided by Wizard.

Likewise, PayPal has experimented with building tools for social media sites, including "charity badges" that can be displayed on Facebook sites allowing users to make donations to the charity of choice of their friends.

"Payments historically isn't very sexy ... we're finding Web 2.0 is an opportunity to change that mindset and establish more of an emotional connection with users," says PayPal head of marketing Marcelo Silva.

Other examples include the community blogs from Savings & Loans Credit Union, and Community First Credit Union's user generated content site.

I discussed the general Web 2.0 innovations being watched by bankers with James Gardner, head of innovation with LLoyds TSB in the first edition of the Banking Review Podcast.