5 social media misconceptions (and opportunities) in financial services

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Social media financial services

The financial services industry feels like it’s not ready for social media. You may think that this is due to regulatory restrictions, but there is more to it than that – and there are opportunities for the brands that overcome these misconceptions:

1. Financial services companies are worried about the risk of brand damage if they start talking with people online, because the industry’s public image is seriously wounded.

It’s easier to pretend a relationship hasn’t been hurt than to talk about the awkward feelings, but the current fraught market offers a big opportunity to re-invent the relationship financial services firms have with customers. The public increasingly favours honesty & transparency. Who dares wins.

2. Consumer banking isn’t where financial services firms make their money, so the compliance & customer service burden of “switching on” social media doesn’t feel worth the investment.

This is a false economy, because the thing that makes social media so powerful is the way it enables small groups of motivated people to influence many people, very quickly. Financial services organisations put themselves at risk by failing to establish ways to connect meaningfully with customers online as well as in branches and over the phone.

3. Senior decision makers in the financial services sector still believe that social media effort will create the burden of monitoring new KPIs based on engagement metrics and Facebook likes.

The reality is different: these metrics are meaningless for senior people in organisations of all kinds. However, low-level social media metrics can be aligned with existing business metrics, like those normally used to measure customer acquisition and retention. If social media effort is to be useful, it should contribute to existing business aims and measures, not create new ones.

4. Of all industries, the financial services sector has been the slowest to catch on that social media isn’t just a marketing channel (see: social business).

Strategic uses of social media can include improving recruitment & internal career development; enabling teams working in different parts of the world to collaborate effectively or customer-led product innovation. The key to understanding the strategic importance of social media to an organisation is to understand what separates a business strategy from a plan for implementation. A business strategy describes a way to win in the marketplace given the competition and any external forces such as regulation. In an organisation of thousands, the strategic opportunity with social media may not involve marketing at all.

It may involve discovering how many hours are wasted per working week per capita on ineffective document collaboration or customer relationship management. Let’s assume replacing MS Word or Excel document control with a collaboration tool could save an average employee 1 hour per week for 48 weeks a year. An organisation of 5,000 employees paying £15/hour would save £3.6M pa .This would be a strategic use of social media which could give an organisation a genuine competitive advantage.

5. The financial services sector is concerned about the ROI of social media investment.

I heard a great story from @benjaminellis at a conference last year:

When the telephone came into popular use by the 1930s, salesmen knocked on the doors of big businesses and said: “You’re going to need phones to talk with your customers. To enable this new kind of connection, you’ll also need a room in your office filled with expensive equipment and new secretaries to route calls. You’ll also need to create a new role for an electricity manager, because the telephone system uses a lot power.”

That must have been a tough sales job. Decision makers would have asked “We’ve managed with face to face meetings and letters for decades – what’s the ROI of this investment? Are our customers even going to want to call us?”

10 years later, nobody was asking the ROI of the telephone. I doubt any organisation in the world now works out the ROI of having telephones on the desks of its employees. It’s just the way we do business. In 2021, every organisation will use social media to talk with their existing customers and to talk with prospects, whether they work in retail, financial services or FMCG.

Which means that right now in the financial services industry, there is a significant strategic opportunity to win in the marketplace by being the first to make the move.

Photo by Richard Fisher

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6 Responses
  • Speakers at financial conferences have been haranguing banks and credit unions to hop on the social media bandwagon for over 6 years now. 2012 marks the 7th year the financial industry (and others) have been wrestling with social media. We’re just 3 years away from the “10 year” telephone analogy used in this article. Where’s the payoff? When’s it coming? Aren’t technologies supposed to be adopted with an ever-quickening pace? It didn’t take financial firms 7 years to figure out that the internet was a useful and necessary channel, so why the long lag with social media? Mobile banking is younger than social media, and yet it is being adopted more quickly. Why?

    It’s easy and convenient to lump all financial firms in the same boat, but the reality is that the social media advice offered to banks and credit unions seldom applies to anyone but the very largest financial institutions in the world. Studies have shown that a bank can expect about 1 Facebook Like and 1 Twitter Follower for every $1 million in assets they have. Similarly, banks can anticipate 1 relevant social mention per month for every $100 million in assets they have. The overwhelming majority of the world’s financial institutions have less than $10 billion in assets, so only about 5% are large enough to justify any significant investment of time and resources in social media. Which is why the only “successful social media case studies” cited in the financial industry come from the über-huge firms like Chase, Citi, AmEx, BofA, et al.

    Reply
  • Feb 20, 2012

    Hi Jeffry,
    Thank you for your comment. If I could reply (roughly) in 2 parts…

    Firstly, I take your point about the telephone analogy – I’m just using it as a metaphor for the adoption process, which I feel bears much similarity, and for the inevitability of the outcome, rather than specifically the time-frame. In reality the telephone took decades to get into normal households & businesses. Similarly, online communities have existed since well before the birth of Facebook in 2005. They actually date back to the birth of the Internet in the late 1960s – the PLATO education system being one example.

    Secondly, social media, in my view, doesn’t really have much to do with Facebook Likes and Twitter followers. Social media types include: book reviews on Amazon.com, closed online community conversations, open community conversations, blogs, forums, podcasts, video sharing, comments under articles etc.

    So, especially for F/S firms, I would steer the conversation (initially at least) away from thinking of SM as “Facebook & Twitter.” For most F/S firms, these platforms aren’t relevant, and Likes & Followers aren’t useful metrics for success in social media. Organisations that approach social from the SM metrics end won’t drive measurable business value. Hence the crazy “cost” of a Like which you mentioned.

    As I’ve tried to suggest in the article, I would recommend starting with existing business aims (and the supporting KPIs) and then size up the strategic opportunity (if there is one) with social media, whether that involves creating value online which retains customers or attracts new ones, facilitating easier working internally, improving staff recruitment or retention, or simply putting systems in place to monitor for Comms issues and prevent them escalating.

    The first question any organisation should be asking about social media is: “why do anything?” – the same question people asked about the telephone. i.e. Is there a convincing business case for investing in this?

    The issue is that too many F/S firms (and this applies to all industries) start by asking “What should we be doing in social media?” – which just leads to bandwagon jumping (Facebook & Twitter campaigns) rather than a process of identifying a strategic opportunity to win in the marketplace.

    I hope that answers the question, but happy to discuss further if not.

    Ed Feb 20, 2012
    Reply
  • The problem with the telephone ROI analogy (which I’ve heard before, most frequently from banking visionary Brett King) is that it presumes every innovation to come along will be a world-changing success. How can business executives tell which innovations will be “telephones” and which will be “Beta Max?”

    The Facebook and Twitter stats are shared only to illustrate that people have zero interest in connecting with financial institutions, particularly through social media channels. Banking is boring. The less people think about it the better. It’s akin to toilet paper, toothpaste and utility companies — a necessity, and little more. Everybody hates banking. It’s a chore. That’s why financial institutions should be finding ways for consumers to spend less time interacting with their brands — not more. The social media fallacy is that consumers want to engage with financial brands. They don’t.

    Reply
  • [...] last week’s post exploring social media fears and opportunities for financial services brands, this blog post suggests three  ways that retail banks could make real, innovative use of social [...]

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  • 5 Social Media Misconceptions (and Opportunities) in Financial Services - Sc Pulse Media
    Feb 24, 2012

    [...] article originally appeared on FreshNetworks Blog and has been republished with [...]

    5 Social Media Misconceptions (and Opportunities) in Financial Services - Sc Pulse Media Feb 24, 2012
    Reply
  • Feb 29, 2012

    Thanks for the article Ed, and interesting to read the debate beneath. My apologies for the self-promotion, but eModeration has produced a guide to Social Media for F/S which gives some clear examples of how and why F/S should be involved in social media. I do disagree with your last point Jeff – I think people DO want to interact with their banks – even if only to complain on Twitter if a server goes down. A blogpost leading to the guide is at http://blog.emoderation.com/2012/02/emoderation-guide-to-managing-social.html

    Tia Fisher Feb 29, 2012
    Reply

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