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innovative products and services to stay ahead of the competition, as well as rebuild customer trust. In a 2011 survey conducted by Ernst & Young, 55% of U.S. respondents said their trust in banks had decreased.2 Banks play a crucial role in the economy, and hence there are demands for a more responsive banking industry from various stakeholders. Winning back consumer trust is crucial to the survival of banks, and this is where social media fits into the picture. A well-planned social media strategy can help banks create a space where customers interact with the bank and each other, thus allowing banks to gauge customer sentiments, preferences and attitude. These insights help create innovative products and services, improve branding and promote transparency. In todays multichannel banking environment, social media is a key enabler of customer engagement. Customers want to interact with their bank wherever and whenever they wish (such as via Web sites or mobile devices) rather than having to physically go to the branch or use a landline phone. Social media is unique in the sense that it operates across different channels, such as Twitter, Facebook, forums, chats, review sites, social shopping sites and the banks own Web site, just to name a few, thus allowing banks to create a connected and integrated customer experience.
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as likely to shop for a new bank, compared with less connected consumers.3 Todays consumers are more connected online than ever, whether through computers, smartphones or tablets. Leading the way is the millennial generation.4 This generation of digital natives constitutes 30% of the total U.S. population, and 35% of the Internet-using population, according to the Pew Research Center. Individuals in this generation have adopted new technologies very quickly and in ways that are all encompassing. Many use advanced tools to plan their investments and place a greater emphasis on the online service capabilities of banks when researching a new financial institution, compared with their baby boomer generation parents. Millennials understanding of financial institutions is limited, which means banks need to reach out to them and create awareness about the various services available. In addition to millennials, social networking has cut across all age groups, with the number of users significantly increasing over the past few years (see Figure 1). This clearly represents a big opportunity for banks to leverage the power of social media to create much-needed interaction with customers of all age groups. Done right, banks can create a vibrant space where they interact with a diverse base of customers on a personalized basis.
Source: "Internet & American Life Project," Pew Research C enter' s April 29-May 30, 2010 Tracking Survey Base = 2,252 adults 18 and older
Figure 1
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or experts in a particular field. Their advice or choices tend to be taken seriously by other users, and banks that have such users in their networks can generate some visibility for their marketing efforts.
networks, blogs, videos, wikis, RSS feeds and podcasts, cut across hierarchies and can allow employees at all levels to contribute to the organizations cause. Idea creation campaigns, product naming/tagline contests, internal blogs and wikis are among the initiatives banks should use to capture and convert grassroots ideas into valuable insights that can illuminate customer perceptions and improve internal processes. Amid the industrys ongoing turmoil, such tools could have a wide array of benefits, from short-term operational cost reductions, to lasting benefits of ensuring better coordination of innovation thoughts and strategies across the organization. Indeed, early social media adopters in companies across various industries have enjoyed measurable benefits, according to McKinsey & Co. (see Figure 2). Companies with intensive integration of Web 2.0 technologies are likely to experience greater benefits in the future. Additionally, such companies also tend to deploy these technologies more effectively in customer- and supplier/partner-facing operations.
Percent of respondents within each region gaining at least one measurable benefit from using Web 2.0 technologies* 64 India 46 43 North America 36 58 Europe 35 57 45 China 41 62 54 Developing Markets** 41 53 52 47 55 47 36 54
High-tech/ Telecom
Latin America
37
32
Asia-Pacific 36
47
Figure 2
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Getting it Right
The social networking space is in itself dynamic, with several networking sites coming and going in rapid succession. It is only in the past few years, with the emergence of strong contenders such as Facebook and Twitter, that this space has stabilized. Many organizations were wary of leveraging these sites for a variety of reasons. In the financial space, regulatory concerns and unclear return on investment proved to be a strong deterrent. Those that managed to overcome initial resistance have been able to leverage their experience quickly to reap benefits. Compared with other consumer-serving industries such as retail and consumer goods, the retail banking sector has been a late entrant to social network engagement (see Figure 3). Nevertheless, the wariness seems to be giving way to curiosity, which in turn has led many banks to undertake formal social networking initiatives. This trend is only going to accelerate as late-arriving banks join the frenzy. Banks are inherently service-focused, high-customer-touch organizations, and social media presents an opportunity that can be used to their advantage. The Aite Group estimates that by 2012, two-thirds of financial institutions will look to social media for customer retention. A Mixed Bag So Far A look back at banks social media activity over the past couple of years reveals mixed results. While some banks have taken to the medium as a natural extension of their customer-facing strategy, others have struggled due to lack of clarity. Take, for example, 1st Mariner Bank, which was one of the first U.S. banks to engage in social media. To begin with, the bank did not have a clear-cut strategy, but it was sure that this medium could not be ignored. The bank exploited social medias ability to make up for lost interactions at the branch level. Through social communication and surveys, 1st Mariner was able to create a product that appealed to its target audience customers in their late teens. It also created personal finance management (PFM) tools in association with the Web site Geezeo, which aggregate financial products from different banks to suit users financial requirements.
16% 16%
Yes No, but we will within 12 months No, but we will within 6 months No plans yet
Source: "Are Banks Ready for the Next-Generation Customer?" Efma and Oracle Financial Services, September 2010. Base = 100
Figure 3
This strategy is aimed at maintaining customer interest in a banks products and gives banks a chance to be the first choice of consumers when they decide to buy a product. This tool has gained popularity with Generation X5 customers, and the bank plans to reach out to millennials as well, over time. Along similar lines, SunTrust Bank started its LiveSolid Network, which combines PFM and social media and is targeted at women aged 25 to 45 years. Wells Fargo has been able to leverage its large customer base to create online communities, in which customers get free advice on financial planning. Customer engagement, education and branding seem to be top priorities for these banks as they start off in the social media space. Admittedly, there is no one-size-fits-all social media strategy. But these banks have a first-mover advantage and are in a position to quickly adapt if needed. There are also cases where banks have experienced the negative effect social media can have. Australias Commonwealth Bank came under heavy criticism when its social media policy was made public, which stipulated that employees report any criticism of the bank made by others on social networks or face disciplinary action. Social media can also exacerbate potentially embarrassing events that, before the advent of social networks, would have been easily overlooked. Consider the case of Chase Bank, which
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wrongfully had a customer arrested at a bank branch who it thought was cashing a fraudulent check, as reported by ABC News.6 Later, the bank was subject to continued criticism on social media sites for its poor handling of the aftermath.7 Bank of America also faced vitriol over its recent debit card fee announcement since withdrawn as it was perceived to mainly impact low-income customers. A Facebook campaign titled Bank Transfer Day was started to encourage BoFA customers to switch to smaller banks that do not charge this fee. The campaign attracted several aggravated customers to sign up and was aided by the Occupy Wall Street protests. The banks efforts to highlight other attractive offers were lost in the chaos. It finally succumbed to pressure to cancel the planned fee, as did at least three other competitors that had similar plans in the works. Such campaigns demonstrate the power that social media holds. While there are risks associated with social media, what is clear is that banks can ill-afford not to have an active presence in this space.
39% 32%
21%
Advanced: We have a social media competency and regularly use social media tools. Intermediate: We have launched social media efforts but don't consider ourselves experts. Novice: We have not launched any social media efforts. Beginner: We have launched social media efforts but are not very experienced.
Source: "Social Media at the Starting Blocks: A Look at Financial Institutions in Europe and the United States," Aite Group, November 2010. Base = 166
Figure 4
gram development. Such a strategy is the key to social media success, and banks that figure out what works for them stand to benefit. Much of social media remains a largely uncharted territory for banks (see Figure 4); those that have done well are the ones that have taken cautious yet well-planned first steps. Mastering this medium will not be easy. Banks need to plan for the long term and stick to it. Otherwise, they risk taking hasty steps that do more harm than good. Furthermore, these social media initiatives need to be organization-wide and should be integrated with other channels. While banks might see individual channels differently, for customers they are all a gateway to interaction with the bank. As such, they demand a similar level of service across channels. To exploit the potential of social media, banks need to create a presence across various social networking sites, such as Facebook, Twitter, LinkedIn and other industry-specific forums. This should be supported by links across channels, such as their Web site, mobile sites and smartphone applications that lead users to these social networking pages. This way, banks can build a strong platform in the form of active online communities that will be critical to their future social media initiatives.
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decisions on products and services. Analytical tools also allow banks to forecast the response to new products, leading to possible enhancements to their offerings.
Overcoming Challenges
Banks operate in highly regulated environments. Any external communication must pass a due diligence check. Indeed, this is one reason why several banks have stayed away from entering the social sphere. In a survey by the American Bankers Association, 74% banks said that social media efforts were vetted by the compliance department before going live.9 This can cause delays in response, which in turn could damage the banks image. To overcome this, it is important that a banks compliance effort is embedded into its social media strategy. Furthermore, employees must be educated about the institutions social media policy so they know what they are allowed to discuss in public. Another area of concern for banks is data privacy. Banks typically accord high confidentiality to their customer information. This makes it imperative for them to create safeguards that prevent leakage of private data. This calls for robust data management structures that span the organization. Standardized data management structures can eliminate data silos and create a single version of the truth. Such a system will help in protecting customer data and delivering a consistent customer experience. Social media initiatives are inevitable and call for a change in the existing culture in banks. This cultural change will go a long way toward maximizing the benefits banks derive from social media tools. Established banks face competition from new entrants that have already created strong social media presence and are not burdened by legacy systems. They must, therefore, identify and implement tools that integrate social media into their legacy systems. For larger banks, it is imperative that proper coordination exists between the different teams that interact with the customer. This calls for strong leadership support. Bank leaders must drive social media strategies and identify the right talent in-house who can act as change agents in creating a pro-social media culture.
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In our view, banks can successfully leverage the power of social media by doing the following: Put in place a full-fledged and comprehensive social strategy aligned with business goals. Create organization-wide buy-in by ensuring sponsorship by executive leadership. Identify and measure key metrics related to the social media strategy.
Invest in educating employees about social media policy. Embed social media into the organizations culture. Identify compliance-related risks and incorporate appropriate measures in the strategy. Standardize data management structures across the organization to improve coordination.
Footnotes
1
According to the Financial Times, the Volcker Rule aims to limit risky behavior within banks. Banks that take retail deposits are not allowed to engage in proprietary trading that is not directly relevant to customer-related market making and trading activities. These banks would also be prohibited from owning or sponsoring hedge funds or private equity funds. A New Era of Customer Expectation: Global Consumer Banking Survey 2011, Ernst & Young. Consumers Who Use Social Media Are More Likely to Purchase, blog post, Council on Financial Competition, Corporate Executive Board, April 5, 2011. The Pew Research Center defines millennials as the generation that was born after 1980 the first generation to come of age in the new millennium. According to the Pew Research Center, Generation X constitutes the population aged between 34 to 45 years. Reshma Kirpalani and Christina Ng, Washington Man Wrongfully Arrested for Check Fraud at Chase Bank Branch, ABC News, July 9, 2011. Gavin James, Transforming Negative Sentiment into a Winning Customer Experience, blog post, Beyond the Arc, October 2011. Building Sustainable Competitive Advantage with Advanced Analytics, Cognizant Research Center, June 2011. Brett King, Social Media and Bank Compliance Departments: Eternal Enemies? blog post, Banking4Tomorrow.com.
Bibliography
Eight Principles for Social Media in Banking, IDC Financial Insights, September 2011. The Durbin Amendment: Swipe Fees Impact On Credit and Credit Scores, Credit.com, June 2011. Social Media Expertise is A Joke, Bank Systems & Technology, May 2011. Despite Low Interest Rates and Dismal Returns, There is Hot Competition for Customer Deposits, The Economist, May 12, 2011. Social Media: More Than Just a Passing Fad, Say Bankers, Finextra, April 2011. Implications of Dodd-Frank for the U.S. Banking and Financial Services Industry, Reflections Journal, Cognizant Technology Solutions, May 2011. Lisa Banks, Banking Sector Must Learn from NAB Social Media: Ovum, Computerworld.com, February 16, 2011. Dion Hinchcliffe, As Collaboration Goes Social, Where Will it Thrive? blog post, ZDNet, February 15, 2011.
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Matt Gunn, Social Media: Perhaps Retail Banks Just Don't Get It, Bank Systems & Technology, February 23, 2011. Web 2.0 Banking: Fresh Thinking for a New Decade, Booz & Co., January 24, 2011. Penny Crosman, Channel Innovation: Building Online Relationships, Bank Systems & Technology, April 27, 2010. Rob Garcia, 7 Reasons Why Banks Have Failed at Social Media Miserably! blog post, LendingClub, November 10, 2010. The Future of Retail Banking, McKinsey & Co., November 2010.
Credits Author
Akhil Tandulwadikar, Cognizant Research Center
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