Is Social Media a New Banking Market?

Community outreach is at the heart of retail banking. But how should banks respond to the growing social influence of blogs, Facebook and Twitter? As people redirect more of their social discourse and banking transactions online, the process of locating products is changing, as are the influencers of product usage, further threatening the dominance traditionally associated with heavy local branch presence.

Already, two branchless financial services players are beginning to sell through social media: Ally Bank and American Express. Ally, spun off from General Motors and formerly known as GMAC Bank, has used a variety of electronic venues to generate customer inquiries and product sales. The online outreach includes a blog with self-help tips and expert advice; a continuing heavy stream of articles that are broadcast and posted on its Website; posts on Facebook; tweets; and infographics. Such activities have generated millions of Website visits and have become a driver in deposit account origination, according to Forrester Research.

Amex recently launched its “Sync, Tweet, Save” program, which entices customers to sync their cards with their Twitter accounts. Under this arrangement, promotions from merchants and Amex itself are pushed to the customer via Twitter, with discount offers concurrently activated at the merchant point of sale. “Learn how easy it is to Tweet your way to savings at your favorite stores, retailers, restaurants and more,” says the American Express Website.

More than Defense

Such social media initiatives clearly go beyond defensive measures, which are the initial focus for many banking companies. Several major banks have endured painful episodes where customer perceptions and corporate communications spun wildly out of control in social media (most notably following announcements of fee revisions), forcing quick modifications or even outright retreats from announced policies.

Certainly as a reasonable first step, institutions within the top 100 should establish an individual set of surveillance routines and contingency response plans for social media. This includes participating in conversational threads as appropriate; responding to customer service requests; diffusing negative events; and generally monitoring “the voice of the customer.” Much of this preparation remains to be done, although there are a few standout examples of banks with strong antennas in the virtual space.

The bigger picture, however, is about proactive involvement. The essence of social media is interaction, and in that spirit, banks must eventually learn to proactively participate in the online dialogue, not just react in trying circumstances. Here the emphasis turns to community building, supported by two-way conversations and content threads aimed at strengthening brand presence and building product awareness.

It is time for the marketing teams to begin clarifying a multi-year vision for social media strategy, including goals to build brand presence and foster account acquisition and product usage. The roadmaps will be sketchy at this point but institutions will have to start somewhere, just as they did when the Internet took off ten to fifteen years ago.

This leads to the thorny question of resources. While there is a high need to conserve in a tight market, we believe it is a mistake to begin using strict return on investment (ROI) calculations to evaluate social media initiatives right now.

Keep in mind that back in 1999, when banks were fiercely debating the appropriate level of commitment to the fledgling Internet, no one knew that online bill pay would become one of the most profitable and sticky products a bank Website could offer. At some level, players have to stay abreast of the market to capture their fair share of tangible opportunities as they emerge.

Right now there is a tendency among banks to use a loose assemblage of staffers to handle social media, with part-time assignments and little central coordination. But inevitably for major banks, real traction with social media will require a dedicated team.

A Question of Focus

While social media activities are limitless, we believe that regional banks should set a clear priority on augmenting the various markets where they have established branch networks. As more social discourse streams online, there is more potential for social media to become a game changer in local competition.

Potentially, the most visible returns will come in high-potential markets where the bank has a sub-scale branch presence and weak “street branding.” Along with community involvement and awareness, social media is presenting more opportunities for low-cost service and problem resolution, suggesting a need for blended propositions that will meet multiple objectives in given markets.

Still more focus will be needed to identify the types of online community-related activities that will resonate with high-potential customer segments. Better to attempt meaningful involvement in a few priority areas rather than angle for blanket exposure. Simplicity and flexibility will be the watchwords as banks experiment with different content domains to get a sense of which type of involvement is helpful.

To support a growing need for research-based innovation, many banks eventually will need a more formal commitment to data and analytics. Data-driven customer segment responsiveness has been a big contributor to the evolution of retail banking and it makes sense that banks will want to further sharpen their analytical understanding of customers through the lens of social media.

Finally, as the bank learns to parse the voluminous shared information in social networks, the stage is set for targeted campaigns, both for groups and individuals. At this level, the progressive bank is able to evaluate the financial payback on social media initiatives; provide fully integrated multi-channel sales and service; and achieve best-in-class results. Campaigns become more adaptive and able to operate in real time, based on refined data and analytics that include insights from the linkage of customer data with social media data.

Different Dynamic

To be sure, banks face their own set of challenges in crafting social media strategy. First, many of a typical bank’s customers are as yet unfamiliar with social media. Second, as a service industry, retail banking is particularly susceptible to negative consumer commentary. Third, the sensitive nature of financial accounts requires heightened attention to privacy and security. Finally, due to regulation, banks must be extra cautious in what they disclose over social media.

These issues highlight the public nature of social media, which creates a completely different dynamic compared with traditional one-on-one interactions between a bank and a customer. Not only can users around the world listen in on a conversation, they are free to share, critique and transform that content – potentially causing a bank to lose complete control over the conversation it started.

Overall, however, institutions with competitive products and services ultimately stand to benefit from positive word-of-mouth testimonials as consumers share their experiences with each other in like-minded forums. To mobilize for this new channel, executives must embrace the notion that building “social equity” has long-term value for the institution. They then need to allocate the required resources, build the right teams, and craft a long-term strategy for transformation. Future market leaders will make it a point to progress from passive customer service to active brand-building and customer engagement in social media.

Mr. Mattei is a partner in the New York office of Novantas LLC, a management consultancy. He can be reached at [email protected]. Peter Gombeski, a senior associate in the New York office, also contributed to this article.