How can banks fully embrace social media?

With social media here to stay, banks should be fully exploring the possibilities this medium brings…but what is the best strategy to adopt in order to stay ahead? Ian Clover investigates.

“If social media is not a bank's top investment priority, if they are placing their emphasis elsewhere right now, I wouldn't necessarily fault them.”
-Brett King

The year is 1909 and Henry Ford's Model T motor vehicle - released the previous fall to widespread acclaim - is rapidly transforming the fledgling motorized transport industry. Ford, a revered visionary and eloquent orator, had not only kick-started the automobile market in the States but was also something of a pioneer in customer service, happily regaling the media and the wider public with the thinking behind his business decisions. There is one particularly memorable quote attributed to him that year (something about the color black), but there's also another, lesser-known quote that goes: "If I had asked people what they wanted, they would have said 'faster horses'". Even a century ago, captains of industry were of the belief that while customer feedback was valuable, it was they who understood the customer better than the customers understood themselves.

Fast-forward to 2010 and, while the various mediums available for customer interaction are far more sophisticated, attitudes towards consumer relations can often appear to be stuck in the past, especially in the finance industry. Banks have been dictating to their customers for centuries: introducing products, raising rates, closing and opening branches and generally behaving in a manner that is best for them with nary a cursory thought given to how their customers would respond. Dialogue between customer and bank has been played out behind the literal dividers of bulletproof glass and telephone anonymity for decades. For the banks, such control has suited them just fine. Until now.

The rise of social media is a phenomenon that has swept through every sector of commerce in the past couple of years, slowly but surely transforming the manner in which companies deal with their customers, who now not only have a voice, but a terrifyingly far-reaching soapbox upon which to spout their various ills or thrills. Poor social media strategies have had a deleterious impact upon a number of global giants, including perennial fall guys Nestle and new bad-kid-on-the-block, BP. There is little a company can do to smother bad publicity in the social media sphere, but they can assuage it so long as they adopt a proactive, positive approach.

Banks, in particular, are precariously positioned as we enter an age where the customer is now not only always right, but always online and connected. With confidence in the banking industry lower than the opening box office figures for a Ben Affleck movie, bridges need to be built, and social media - for all its potential pitfalls - must be embraced. "The first question I would ask a CIO or a CEO of a large bank is: 'Are you more or less likely to have to deal with this issue in the future?'", says Brett King, Author of Bank 2.0 and renowned banking sector advisor. "'Is there a chance that this is going to go away, or is there a chance that you are going to have to deal with this at some point?' I think we all know the answer to that. So the sooner banks learn about the challenges of integrating social media strategies into their business, the better off they are going to be."

Web of Buys

There appears little use swimming against this onrushing tide. Consumers have moved on from simply purchasing goods and holidays online; they are now proffering feedback in the form of reviews, comments, recommendation and criticism. Positive postings for hotels listed on TripAdvisor do wonders for that establishment's booking figures; restaurant reviews from real diners now dictate the blogosphere; and the explosive combination of Twitter and smartphones means that instantaneous customer feedback is being broadcast every second of every day, right across the globe.

The banking sector has been slow to pick up on the possibilities of social media, and perhaps with good reason. Security and fraud issues are obvious concerns, as results from a recent survey revealed. Technology analysts Forrester Research conducted a study on this very issue and found that - of the 5000 US adults they surveyed (online, naturally) - 71 percent had little or no interest in accessing their bank accounts through social media channels like Facebook. Their main worries were the threat of hackers (60 percent) and the issue of privacy (59 percent), while more than half wanted to keep their social and financial lives separate (56 percent), or did not trust social networks' security (43 percent). A mere 17 percent said that they were interested in banking through social media sites. "We can see that people are growing more comfortable with social media but they do not yet see a direct connection between social media and banking," says Mark Schwanhausser, Senior Analyst for Javelin Strategy & Research. "There is a disconnect for them there - they do not see social media as a place for conducting banking activities."

King, however, disagrees. "We are certainly more reliant upon interacting with the bank via technology these days. The metrics have changed. Traditionally banks made strategic decisions around how convenient it was for customers to get to their branch. Today, that convenience element is shifting towards electronic interaction.

"There have been three phases to this shift. The first was the introduction of the Internet, which produced a shift in transactional behavior. Essentially customers began undertaking day-to-day transactions and transfers, balance checking, bill payments and the like, so much so that Internet banking is fairly well accepted now. Indeed, in a recent Fiserv report, 80 percent of the US Internet population now regularly bank online. In Sweden in 2009, 88 percent of retail banking customers never even set foot inside a branch. The second phase was the mobility shift, the fact that we realized, with the introduction of smart phones, that we had the capability to do everything online, on the move.

"The third phase is mobile payments technology, conducting person-to-person or person-to-business payments through the mobile device, which further reduces the reliance on banks cashing your checks and conducting your transactions."

Mobile payments are relatively well established in the banking sector, and the practice of making transactions via a social media forum is something that is edging ever closer to becoming widely accepted. Schwanhausser believes that neither the consumers, nor the banks, are quite ready to take this step just yet. "It is a rarity at this stage. There are one or two examples of transactions taking place through these forums, but it is not something that has been fully embraced yet." So if banks and consumers are not using social media to conduct actual banking, how is the medium being utilized? "Right now," continues Schwanhausser, "banks are primarily looking at branding and communication. Some are branching out into Twitter and building a presence on Facebook, getting comfortable with these mediums and protecting their own turf, while other banks are being more proactive and using LinkedIn, YouTube and their own specially created forums for aggressive marketing strategies."

One such bank that has fully embraced the potential of social media is Wells Fargo, which has developed a sizeable presence on Twitter and through a number of specialist blogs. "We started our online channels in 2006 and I think that we were the first major bank with a dedicated social media team," says Ed Terpening, VP of Social Media Marketing at Wells Fargo. "We have launched six blogs to date and if there is an idea for a new blog we give it careful consideration, asking ourselves questions such as: 'Is it sustainable? Do we really have a long-term conversation here? How is it going to help our customers?' We see it as a long-term commitment to our customers."

Getting Social

Creating a social media presence is merely the first step. It needs to be augmented, managed and tailored to suit the audience it is trying to attract, converse with and serve. A silent presence could be more damaging for a bank's reputation than no presence at all. "Banks, like Wells Fargo, need to have a plan before diving in," warns Schwanhausser. "I think there are some banks and companies out there thinking that they have to do something, anything, just get involved. There is no downside to listening to your consumers, whether on a street corner, in a survey, at the teller, or on Twitter. The danger comes if you are unresponsive. Being part of the conversation, starting the conversation, showing that it goes somewhere, being responsive, committing to your social media agenda - this is what banks should be doing."

They should be doing it to the right audience, and on the correct forums, too. "There is a time and a place for banks to be involved in social media," says Stephen Cheliotis, Chief Executive of the Business Superbrands Council. "If you are not wanted there, do not go there. Some groups will, however, appreciate your presence. If you spot that a customer has a particular problem or issue, you can not only seek to resolve that but say 'hey, if anyone else has got a similar problem then get in touch, we can help'. This is a cost effective, reactive and proactive way of building trust and interacting with your customers. It also enables your customers to follow up with additional questions, where word of your good customer service will spread through the site. From a customer service and complaint handling point of view, there is no better medium."

Social media can indeed work wonders for a wide range of companies. The power of positive feedback is worth far more than any advertising campaign, while viral advertising can reach a much wider audience than traditional methods. Cell phone companies, drinks companies, sports shoe companies and a number of smaller, niche companies now see social media as their foremost marketing tool. The very idea of a company like Nike for example having no social media presence is a laughable one. Banks might well feel that this sphere is no place for them; the stuffy, uncomfortable-looking uncle at a hipsters' party springs to mind, yet social media is not merely a communications tool, it is also a great method for branding and rebranding. "Core millenniums is a term the industry is using for describing those who are aged 18 to 24," explains Schwanhausser. "This group is more open minded; they view social media as something that has more potential for banking. Our research shows that 27 percent of them see it as a medium for communicating with their bank, and 14 percent are looking at it as a medium for conducting balance checks and transfers. These core millenniums are joined by 'money hawks' - the folks who regularly receive financial alerts - and they both have a high degree of openness to connecting to social media with banking."

Banks are touch points throughout the key moments in our lives. From that first savings account set up by gramps which consisted of little more than a dollar, a crisp savings book and some sage old-timer advice, through to that first student account for the college-bound, the purchase of that first car or house and, finally, saving for retirement - banks are with you for the duration of your life, so it is important that customers bank with a brand they feel comfortable with. The proliferation of social media makes it imperative for banks to be seen to be embracing this medium or run the very real risk of being left behind.

"Shifting to social media requires quite a different philosophy," says King. "Traditionally, banks were only interested in a one-sided conversation where they tell you their message and you buy their product. They are now having difficulty shifting to an engagement model where there is a live dialogue, especially the larger banks.

"This is where social media represents a challenge because it is as much about listening as it is about speaking." In order for banks to become more user friendly to an increasingly connected, social media-savvy audience, King believes that they have to set up a valued listening post for its customers. "This would be a mechanism - such as a blog, a forum, a Facebook page or a Twitter account - which monitors what is happening in respect to their brand and what people are saying about them. Then as soon as there is an issue raised, use this opportunity to demonstrate their service capability by addressing this issue quickly; even small successes right from the off will be talked about by the customers. There are a few banks at the moment that are trialling this engagement model where they are saying to their customers: 'Come and tell us what you think.'"

Responsible Response

Where there is potential, though, there are also pitfalls. Banks that actively engage in social media activities are opening themselves up to a world where they no longer control the discourse. They are merely a voice on an equal footing with thousands of other voices and, what's worse, they are all potential targets, as Schwanhausser warns. "I think that all banks realize that there is the potential for something to go dramatically wrong, particularly if something goes viral. As with any medium, there is always the worry about messing up, but the fallout can be much more rapid and damaging with social media."

King recognizes these concerns but believes that a dedicated restructuring of a bank's marketing arm could quite easily help dispel any doubts about dealing with social media. "Banks have to ask themselves this question - do they have a senior executive in the business right now who is in charge of social media? In most cases, the person responsible for social media will be the head of interactive or head of digital: it is rare to find a job role for someone who is solely in charge of social media.

"The first thing banks need to be doing is appointing somebody who is senior enough to affect change within the business based on input and feedback they are receiving from their social media activities. This is where the challenge is for most banks." 

Financial institutions that fail to take these steps risk not only being abandoned by their existing customers, but also in failing to attract the millions of youngsters that come to market each year looking for their first bank, a bank that is going to be able to serve their needs in a manner in which they are comfortable. "Banks should forget about ROI for a moment," continues King. "Their social media strategy should be, to some extent, defensive, because a lot of what they will be doing will be about customer retention and attraction. There is far less loyalty to big bank brands at the moment, especially in the wake of the global financial crisis."

Younger bankers, while more inclined to choose a bank based on their social media presence, pose a unique set of problems. For them, convenience is king and other concerns, such as security, often play second fiddle. "The convenience is the driver for the younger age groups," says King. "These are the people that are prepared to accept that there may be security issues but, at the end of the day, the convenience that social media brings [for them] from an interaction perspective makes it worth the risk."

This is where banks have a secondary challenge, argues Schwanhausser, to educate their customers about the potential risks of exposing sensitive data online. "We have some fraud data that would suggest that core millenniums have some issues with taking precautions. This is where it is going to be an important area for financial institutions to be taking charge, engaging their customers in dialogue about the risks and educating them how to bank conveniently but safely."

Forging the Future

As technology and the financial industry evolves, so will attitudes towards social media and banking. Currently, the surface has been scratched and most larger financial institutions have set upon some sort of social media strategy. There is still some way to go before there is complete consumer confidence in undertaking the bulk of one's banking via these forums, and in many ways not much will change aesthetically or structurally - people are still going to require local branches, 24-hour hotlines and traditional websites. Where the shift is likely to occur - if it has not already - is in how a bank attracts, communicates and interacts with its customer base. Marketing departments face the greatest challenge in not only adapting to this new opportunity, but also moulding it into something that the banks can control once more. "We see it already in geo tagging, geo location through Foursquare and apps like that," says King. "This next intersection of social media, mobile banking and traditional banking is going to be very interesting. Banks will start targeting individuals who they feel have social media influence in the hope that they will then cascade their experiences through the site, and in turn customers will adapt.

"Interfaces are changing. Mobile devices are owned by Apple or Nokia or Google, and banks are becoming one more step removed from the customer, so unless they can figure out a compelling way to get messages to the customer that are really relevant based on the unique set of knowledge they possess, banks run the very real risk of becoming little more than the backend processor of financial transactions.

"Banks with marginal customer engagement propositions are effectively just going to be squeezed out of the marketplace."

While King believes that banks should be acting now in order to get their social media strategies in place, Schwanhausser is a little more reticent. "Social media will become a great forum for banks to show that they can solve problems, so it is certainly invaluable in rebuilding and creating trust between consumer and bank. Having a plan is important, but it is not the be all and end all cure for banking at this stage. If social media is not a bank's top investment priority, if they are placing their emphasis elsewhere right now, I wouldn't necessarily fault them."

Listening to what your customers want is an age-old strategy for large companies, banks included. Consumer feedback is undoubtedly more instantaneous, far-reaching and potentially damaging today than it has ever been. Social media platforms give consumers a potent voice and these voices should not be ignored. There is, however, a danger in listening too intently to what your customers are saying, particularly if it detracts from the overriding focus and strategy of a company.

Henry Ford was right in giving the customer a product that they themselves could never had envisaged. His knowledge, expertise, steadfastness and experience stood him well. Granted, he never had to deal with the twitterings of millions, but he was under pressure to deliver. "In Ford's time, the only method the public knew was the horse," concludes Schwanhausser. "Sometimes people have a hard time imagining what is best for them, particularly when compared to those that are deeply engrossed in a project. Ford was half right in what he said, but it's worth remembering - customers do not design or dictate for you, but by listening to what they are saying you can at least anticipate their needs and tailor your service accordingly." This approach appears, for now, to be the best course of action for banks to take.

Ed Terpening is the VP of Social Media Marketing at Wells Fargo and he spoke to FST about the bank's online strategy and presence.

FST. What are the unique challenges you face in relation to Wells Fargo's social media activities?

Ed Terpening. Two of the big ones are security and privacy. Often the activities we do in social media are a little more public than normal, so that is certainly a challenge which we face by setting expectations with our customers that when we are in social media forums such as Twitter they should not share account information or private information. On our Twitter channel we seek out customer issues, let them know that we are listening and want to help them, but ensure that we always drive them into a secure existing phone bank or other existing server channel because we do not want them to share that kind of information on social networks.

FST. Banks and social media networks do not seem to be the easiest of bedfellows, so how is Wells Fargo helping to change that perception?

ET. I think that social media has actually been the solution to one issue that many companies - particularly banks - face, which is how to humanize your brand online. Most websites do not feature real team members, and I know that our blog receives lots of comments from customers who appreciate the fact that there is a human face behind the corporation. So for Wells Fargo it has been more of a solution than a challenge, and this is how to humanize our brand, how to be where our customers are when they need us - they spend more and more of their time on Twitter and Facebook so if we are there too then we are able to learn from them and help them.

FST. How else is Wells Fargo nurturing and encouraging long-term feedback from customers?

ET. All of our engagements in social media are long-term sustaining. For example, the student loan blog has been in existence for close to four years now. We want to have a long-term relationship and conversation, so everything we do is measured by its sustainability and ensuring it is a conversation rather than a one-sided broadcast. This is what really differentiates our social media from other online channels - we are not just putting up a brochure or product information; we are having a conversation with the customer about how we can help them.

FST. Do you utilize customer comments and feedback to help drive and steer your own product launches, or is Wells Fargo's social media presence purely customer service-focused?

ET. Well we do listen to customer's needs. Wachovia had a popular product called Way2Save and so when we announced the merger and launched the Wells Fargo Wachovia blog in January 2009 we heard lots of conversations in the blog about the desire to keep Way2Save. This feedback made its way to the product team and so we had a discussion and decided to keep it. This is just one example of how social media has enabled us to gauge customer sentiment.

FST. How do you deal with the inevitable negative messages?

ET. If they are on topic and meet our community guidelines we publish them because we are open to criticism and constructive feedback, as you need to be in this medium. I think you cannot really survive in social media without this level of transparency or being thick-skinned. So of course there are some negative messages that we can react to and help customers with, and sometimes it might simply be customers venting frustrations about an issue that may or may not be solvable. However, I think the fact that we publish these comments too shows that we are very transparent and shows that we have a real commitment to listening to the good and the bad. Negative comments, while inevitable, are a surprisingly small percentage of overall comments - it is low generally because I think customers really appreciate the fact that we are there and we are listening to them.

FST. How do you manage, monitor and oversee the feedback given by Wells Fargo?

ET. We have a listening platform. There are a couple of different vendors who help us listen to social media conversations and we use that feedback in many ways to explain to various product groups and regions and people within the company how Wells Fargo is being viewed in terms of sentiment, especially in reaction to news and things that might be happening in our industry. We can provide a real-time pulse on what is happening to our communicators, but in terms of employees entering the social media conversation, that does happen and we have rules around that. Our number one rule is that if you do enter a social media conversation and it is any way related to Wells Fargo, you must disclose that you are employed by us. We want that kind of full disclosure.

FST. How do security concerns dictate what you do in social media?

ET. Security is obviously very important. For example, every day in our Twitter channels we remind our customers not to tweet any kind of financial or personal information. For our part, we never use URL shorteners like bit.ly on Twitter because we do not want to have our URLs controlled by other entities. Everything we do in social media has a security review - we look at all the things that could go wrong and try to plan accordingly, or at least eliminate some features if we need to because of risk. It is an ongoing concern because Twitter has had some recent malware incidents with links that have been distributed, so it is something we continue to watch.

FST. How will social media come to shape banking in the future?

ET. When we first started tweeting on Ask Wells Fargo and offered services to customers, it was a pleasant surprise because most of our customers did not expect it, and I think eventually it will become more and more expected, as it should be. I think when you ask the question 'Where do you offer service?' the answer should always be: 'wherever the customer is and whenever they need it'. So this means having ATMs, stores, online and phone banking, all these different channels. I think social media is another channel right now, albeit one that is for customer service and education, but I cannot really imagine it replacing the store channel. All of the various channels are complementary, and I think of them as an ecosystem of choices, and the choices really depend on the customer situation. For example, our stores have safety deposit boxes, so as long as people want safety deposit boxes, we will continue to have stores.

FAST FACT: A study by the American Bankers Association found that four out of ten banks avoid discussing specific products and services in their social media efforts.

FAST FACT: An Ad-ology survey found that approximately 20% of U.S. consumers between the ages of 18 and 24 were influenced by online video when it came to choosing a bank.

Who's doing it? Wells Fargo and Bank of America have tweets about product launches and bank fees; Discover Financial, American Express and Citigroup have launched Facebook or MySpace pages.

SOCIAL REGULATION

The Financial Industry Regulatory Authority (FINRA) is taking the rise of social media extremely seriously, so much so that it has just issued a Notice to banks for dealing with social networking sites: "Social networking sites and blogs raise new regulatory challenges, particularly in the areas of supervision, advertising and books and records requirements," said FINRA Chairman and CEO Rick Ketchum. "Our goal in issuing this Notice is to ensure that firms and brokers use social networking sites in an appropriate manner."