Social media in banking: fad or trend?

In the banks’ quest to increase customer satisfaction and revenues, having a social media strategy has become a prominent aspiration. The past few years have witnessed a number of social media activities and programmes operated by banks with a mixed bag of failure (remember Barclays and the debacle with its fictional character Dan on Facebook?) and success (like Chase Bank blending social media channels with charity and community giving). In the current ever-changing landscape in which financial institutions operate, where does social media in banking stand? Is it a revolutionary and lasting ground for banks to design and roll-out their products and services? Fad or trend? 

Social media, yet another data play

At the core of social media is the ability for users to exchange and create information publicly (and arguably behind the boundaries of a corporate firewall too). Whether or not this flow of information is directly actionable in a banking context, there is no denying that it is real and here to stay.

The first aspect for banks to fully appreciate is how massive the information exchange and media creation are. Building a capability to collect and evaluate a multitude of data points and information streams is likely to be the first milestone to achieve by a bank before it can extract any benefit from social media channels. So, yes, most likely yet another candidate for the Big Data buzzword.

To paraphrase (or rather contradict) Dilbert, a significant part of any social media manager’s job is unlikely to be only about using the words “Facebook” and “Twitter” a lot, but instead have more to do with massaging huge amount of data.

Enabling a wide range of activities

To try and assess the real impact of social media on the banks’ business, it is worth looking at the typical activities those social media data flows enable them to conduct:

• Monitoring: an accurate measurement of social media signals enables sentiment analysis around the bank’s brand and its products, and also competitive intelligence, the identification of prospects or a better understanding of its existing customers.
• Participating: addressing customer satisfaction issues as well as running financial literacy & learning communities are the most common way for banks to enter the dialogue.
• Publishing: one-way broadcasting of PR and advertising is perceived as a low-hanging fruit and often treated as little more than a new distribution channel for information and campaigns, albeit more and more tweaked to try and implement some viral components.
• Crowdsourcing: using the collective input of the masses to help design new products and services is promising, but so far limited to the veneer of products (debit & credit card design being a typical example). The regulatory hurdles of launching real new banking products are unlikely to enable full crowdsourced products but a good level of customisations is likely to be achievable.
• Transacting: enabling smooth peer-to-peer payments is the typical candidate on the transactional front but obviously one of the toughest to implement, with very few successful initiatives thus far.

Aligning with the value chain

If done holistically and with the right dose of C-level committment, social media activities seem to be able to contribute at practically every step of the value chain for banking products. Assessing social media from a product lifecycle management perspective is an interesting way to measure its potential end-to-end benefits:

1. At the time of idea generation, by monitoring trends and sentiments, feedback and ideas,
2. In product design, by crowdsourcing popular features or by conducting relevant competitions,
3. Upon implementation, by increasing productivity between the bank, its suppliers and its early adopters with more efficient communications,
4. In marketing activities, by broadcasting to multiple channels including videos, blogs, short messages on multiple platforms to increase reach and virality,
5. In sales, by lowering costs and increasing efficiency thanks to additional proximity to the customers and a more seamless ability to buy products across multiple platforms.
6. And finally in ongoing customer support, by providing more transparency in addressing queries.

The last bit is not without challenge though. Emphasising online interactivity comes with a certain loss of control and banks together with the regulators don’t like to lose of control.

Collaborative banking?

While enforcing that the same security and privacy policies as for other channels are firmly in place (another key challenge), social media can also lead banks to explore new usages, like community-based or collaborative banking products.

At this point, community features behind the online banking firewall within personal finance management functionality have not delivered on their promises. Comparing one’s spending in a category to her peers is largely perceived as a gadget with no call for action and hardly a feature which will make the customer come back.

On the other hand, collaborative banking could be seen as a relatively seamless evolution of the traditional joint account. Tracking, sharing and/or contributing to families or friends’ goal-based savings accounts is a prime example, initially pioneered by companies like SmartyPig but with unclear traction to this day. Are customers ready to socialize what has traditionally been considered personal account information or are they still reluctant to mix banking with social activities? The jury’s still out on this one to fully understand the opportunity around collaborative banking.

However, as much as we like to debunk buzzwords and enjoy a contrarian point of view, social media is without a doubt a key part of the world banks operate in today. Collecting and analysing social media data and looking at incorporating its signals in its product management policies do not seem to be an option anymore, whether or not the bank is planning to boast a full-blown social media strategy.