To what extent, if at all, does the rise in social media affect the fundamental business model of financial services?
“The relationship between the financial sector and social media is similar to that between teenagers and sex; many people are talking about it, a few are doing it and those that are, aren’t doing it that well.” –Chris Jackson, Head of Digital, Cicero Consulting.
This essay has two strands, the first addresses how Social Media greatly influences public perception; enabling it to encourage transparency and influence policy. The second addresses a new way banks will conduct their businesses, using Social Media to generate revenue, through what I will call the ‘Social Banking Business Model’.
To understand how social media can change business models of the financial industry, we must understand its current trends. Quoting Christine Schmid from Credit Suisse Research in ‘The Great Wealth Shift in Full Swing’, wealth shift towards emerging markets will intensify due to demographics and financial crisis shock waves. Because of the financial crisis aftershocks, there seems to be brighter wealth prospects East and South. This calls for structural changes for international financial institutions. Penetrating these markets can be hard as Asian consumers value dealing with local institutions and are very loyal clients. This means that financial institutions have to step up their Public Relations efforts to create a favorable perception about themselves. Is social media the solution to restore confidence in financial institutions? The answer is clearly: Yes!
Quoting Schmid again, “only banks with a credible commitment to the region, a strong brand and a sustainable relationship with clients can be successful in the long run”.
How is this achieved through Social Media? 49% of global citizens use online means to conduct public research about a brand, the figure being 76% in China. Brand impression, is heavily influenced by what is available online. 40% of Finance Companies developed their interest in social media because they became aware that their brands were being discussed online. (Cicero Consulting in their publication ‘Social Media and the Financial Sector’) It seems like they have been merely ‘pulled in’ instead of genuinely wanting to understand its potential. Perceptions may be changing: Goldman Sachs has recently advertised for a ‘Social Media Community Manager’. (Maybe a direct effect of the parody twitter account @GSElevator that tends toward the profane?) What stood out in the job advertisement was the phrase ‘monitoring online conversations and participating in those conversations to build brand visibility and thought leadership’. If they don’t speak for themselves online, other people will be more than willing to! Banks are trying to regain the trust of the public. Remember that the ‘Occupy Wall Street’ movement was mobilized by the public through social media platforms, allowing thousands of live feeds to be posted every minute with a total of 1.2 million followers worldwide.
Ask yourself: What if financial institutions actually engaged in ‘Occupy Wall Street’ online? In my opinion, they could tweet back to the public and justify their actions. It could mobilize a formatted ‘twitter debate’ similar to live debates. Solutions and recommendations can be brought forward. Leaders will be held even more accountable for their actions, acting as a deterrent from involving themselves in activities that jeopardizes their personal reputation and their companies’. Banks will always be kept on their toes to ensure best practices throughout their businesses. Financial institutions will be encouraged to come up with strategies of more sound risk management practices and confidence in these institutions can be restored.
In light of the current economic climate, regulators have been playing a bigger role. Their mandate is to ensure such disasters will not happen again, hence, the enforcement of Basel III and the Dodd-Frank Act. According to research by Cicero: ‘Social Media and the Financial Sector’, 75% of users see it as being important to the development of public policy over the next five years.’ I agree with this point, as social media can be used to speedily create a campaign as mentioned in the ‘twitter debate’ idea earlier, views of the public can be quickly accessed, gauged and shared with policy makers. I feel that the interests of the taxpayer can be better looked after. Social Media might be the ultimate solution to the problem faced by a majority of tax payers in the West, as pointed out by Joseph Stiglitz- ‘Ersatz Capitalism’- Gains are privatized while losses are socialized!
So far, I have highlighted how Social Media is the solution to salvage the tarnished reputation of the banking industry. However, I think that the true strength of Social Media lies within its ability to bring home profits for financial institutions.
It has the ability to close the ‘social marketing loop’ whereby banks can understand consumer engagement into their brand. It is an efficient ‘listening device’ that captures social conversations wherever they are happening online, enabling businesses to identify the demographics of clients and create a more ‘personalized experience’. Closing the ‘social marketing loop’ means that with the amount of data financial institutions can compile through Social Media, they will be able to analyze the data and make correlations between the impacts of the online conversations (Comments, posts, shares, likes) with sales. In the future, people will be interested in a new career as a ‘Social Media Analyst’. Social Media will not be an isolated endeavor of a firm instead it will be incorporated in the main business strategy.
With this in mind, I would like to introduce a new business smodel for financial institutions: the ‘Social Banking Business Model’. According to a report by Accenture, ‘Social Banking: The Social Networking Imperative for Retail Banks’, when consumers were asked how they would like to interact with their financial services firms via social media, what stood out was:
1) Alert me about promotions
2) Let me read reviews from other customers
3) Present relevant financial offers
4) Reward me for recommending products
5) Post educational information about personal finance
6) Access applications to improve my financial situation
What I have in mind is an application that incorporates all of these aspects in the simplest form possible to reach out to consumers. I will call this the ‘Integrated Personal Finance App’. This application will not only handle all the financial products a customer subscribes to, but also incorporate the customer’s lifestyle into it. With this app, users are able to see all their cash balances in one place, against scheduled payments like rent and bills, and is able to compile data on spending patterns. The bank can classify these expenditures and understand the user’s spending preferences. There will be a section dedicated to ‘Financial Goals’. For example, I plan to save up to buy a flat screen television in one year. A user will be able to connect with other users who had the same goal or are still working towards it. They can find out what strategy was put into place to achieve it, or were there other payment methods, like installments and what was the interest rate. Banks can take an opportunity like this to alert the customer about a financial product the bank offers that would make goal realization easier and more possible. If the user, for example is looking to apply for a credit card, with the data compiled through the app, banks can possibly engineer a product tailored to the customer’s specific need.
The app has a ‘live feed’ page where progress of the community is shared. Example of posts include ‘John Doe has achieved his target of consistently saving 30% of his income for 12 months’, or ‘Joe Bloggs has achieved a return of 20% on investing in money market funds’. Users can ‘like’ this feed, ‘share’ it and ‘comment’ on it. They may ask for advice on what strategies were adopted to achieve these successes and discuss it live with a whole community. Customers want to be rewarded for recommending the brand so there will be an incentive for consumers to share information. Customers can be motivated by how others manage their finances and will take the initiative to consult customer support. This is a perfect avenue for banks to try and sell their products.
The points mentioned (encourage transparency, influence policy and social banking) in this essay flourish on the concept of referral marketing. Currently, we call it ‘Word of Mouth’, but this will be replaced by ‘Word of Posts’. According to Adobe Systems Inc, 70% of consumers trust recommendations from people they don’t know and 90%from people they know. Social Banking completely transforms consumer-business relationships. The consumer is ‘king’ on a whole new level. Financial Institutions will have to meet these demands, or risk losing to other institutions that have a ‘friendlier’ and more ‘interactive’ strategy in asocial landscape. Banks will have to fit into the lifestyle of the user, instead of users accommodating their lifestyles around financial products. Social media is the opportunity for financial institutions to rebuild its reputation by being more responsive to consumers’ thoughts and needs. Consumers are more than willing to embrace this new phenomenon. Financial institutions must respond now, under the watchful eye of regulators.
- ‘The Great Wealth in Full Swing’ by Christine Schmid,Credit Suisse Research. (6/12/2011) Available on https://emagazine.creditsuisse.
- com/app/article/index.cfm?fuseaction=OpenArti cle&aoid=329527&coid=285860&lang=EN
- ‘Made in Heaven, or a Marriage made in Hell?: Social Media and the Financial Sector’ report by Cicero Financial Sector Communications, 2011
- ‘Social Banking: The Social Networking Imperative for Retail Banks’ report by Accenture, 2011
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