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Why Banks Need to Step Up in Social Media

Posted by Barry Silverstein on May 27, 2011 01:00 PM

Banks are keeping up with technology through their use of ATMs and, increasingly, by offering online and mobile banking — even partnering with the world's search engine giant to advance mobile commerce, as Citi is doing with Google Wallet.

But when it comes to social media and digital channels in general, "retail banking has largely remained on the sidelines," according to Johannes Bussmann, Paul Hye, and Jorg Sandrock, three principals with the global consulting firm Booz & Company, authors of a new report, Banking on Social Media.

They argue that banks "need to reach out to younger, more Web-savvy customers... devising new products and services that are simpler and more transparent, and using the power of social networking and other digital platforms to improve their marketing."

The authors also suggest that banks could use social networking and digital channels to capitalize on three specific opportunities:

1. Reaching customers. 

Most banks, the authors say, "still use their websites primarily to provide information and enable standard transactions" when they could start blogs and actively participate in social networks. "Increased transparency, trust, and convenience" online would allow customers to "compare, evaluate and discuss" the banks' offerings. Direct feedback from customers would help banks improve those offerings. The authors cite Wells Fargo as an example of a U.S. bank that uses blogs, YouTube, Facebook, and Twitter (even flash mobs) to interact with "Generation C," or the "Connected Generation." Fidor Bank, a new German bank, uses blogs, forums, and social networking to communicate with customers.

2. Reducing costs.

Shifting communications to the Web, the authors suggest, will dramatically reduce the costs of communicating with customers. Banks can sell complex, high-margin products via online channels, adding to their cost savings. Banks that use new technologies can cut the cost of branch operations; for example, Deutsche Bank in Germany and BBVA in Spain use video chat for customer-banker interaction, thus reducing the reliance on traditional branches.

3. Restoring confidence.

Employing Web 2.0 technologies can simplify the interactions between customers and banks, thus "building customers' confidence...and helping customers understand complex financial products." Ally Bank in the U.S. uses a "straight talk" marketing campaign and blog to differentiate itself from banks with confusing terms and practices. BankSimple, a U.S. bank that will launch this year, intends to offer free online bill payment, free online and telephone support, and check deposit via a smartphone.

While some banks have demonstrated their ability to take advantage of social media and digital channels, the authors say that "few have succeeded in integrating all their various channels into a seamless customer experience."

Comments

Jeffry Pilcher | The Financial Brand United States says:

Everyone has lots of suggestions about how financial institutions could use social media. No one, it seems, actually bothers to study the industry very deeply. Booz & Co. were able to identify a handful of huge international bank brands — all with $100 billion in assets or more — who have done some interesting things with social media. But had they looked any further, they would have seen that there are indeed thousands upon thousands of other retail banks and credit unions who have launched blogs, started Facebook pages and created Twitter accounts, etc. There is no shortage of financial institutions chasing social media rainbows, thanks in large part to the never-ending tidal wave of hyperbole spread by consultants and the press.

For the thousands of banks on Facebook, fewer than 0.3% of their customers bother to "like" them. Banks, on average receive one Facebook like for every $23 million in assets. Credit unions do better, yielding one like for every $1.5 million in assets.

The story at Twitter is worse. The average is one follower for every $160 million in assets.
Among big banks — those with over $100 billion in assets — there is only one follower for every 5,000 customers. Less than one quarter of one percent (0.021%) of all big bank customers follow their bank on Twitter. That translates to an average of 208 followers for every one million customers. Who's getting excited now?

Retail financial institutions are mentioned on social networks about once per month for every $10 million in assets. So if you're a bank looking for customers to help, you better have billions in assets and millions of customers otherwise it's pretty much a waste of time.

The banks everyone talks about in social media have billions (often trillions) in assets. They have more employees than most financial institutions have customers. They have more marketing staff than most financial institutions have employees total.

90% of the banks and credit unions in the US have less than $250 million in assets, less than 5 branches, less than 25,000 customers, less than 100 employees and marketing budgets under $250,000 annually. These folks are seriously struggling to muster the manpower and money needed to take social media seriously.

The big banks — those for whom social media makes sense right now — are almost all already very active in social media (Ally, BofA, Wells, Chase, ING Direct, USAA, etc.)

It's easy to pick on banks. Everyone enjoys calling them crusty, anti-innovative companies that need to hop on the social media bandwagon and "join the conversation." Too bad it's wildly impractical for all but the top 10% of whom that advice is intended.

May 28, 2011 04:33 AM #

company name ideas United States says:

One of the best things about Facebook advertising is the ability select who sees your ad using a number of variables, including keywords. You can target by geography, age, gender, education, relationship status, workplace and keywords.

May 29, 2011 10:48 PM #

Gerard Australia says:

Social media from a bank perspective also creates huge issues from a logistical perpsective too.  Who will do the work, how will it be monitored, how do you ensure customers information is secure and ensure legitimate requests are being actioned.  It appears that banks are moving towards the space, albeit some more slowly than others.

June 1, 2011 07:19 PM #

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