Impact of social media on financial services sector
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Impact of social media on financial services sector

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Report produced for GFT by IESE Business School. November 2012. This paper analyze how the financial services sector can use technologies to improve their client engagement and business processes.

Report produced for GFT by IESE Business School. November 2012. This paper analyze how the financial services sector can use technologies to improve their client engagement and business processes.

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Impact of social media on financial services sector Impact of social media on financial services sector Document Transcript

  • Blue Paper Impact of Social Media on the Financial Services Sector Report produced for GFT by IESE Business School | Authors: Juan A. Virgili and Professor Evgeny Kaganer November 2012
  • Table of Contents1 Executive Summary ................................................................................................................. 42 Introduction .............................................................................................................................. 53 Consumer Use of Social Media is Still Growing ................................................................... 54 The Customer Experience Journey in Banking is the Foundation for Social Media Initiatives .................................................................................................................................. 64.1 Stage 1: Discover ...................................................................................................................... 64.2 Stage 2: Evaluate....................................................................................................................... 74.3 Stage 3: Buy .............................................................................................................................. 74.4 Stage 4: Use .............................................................................................................................. 74.5 Stage 5: Re-engage ................................................................................................................... 75 Applying Social Technologies in the Finance Industry Means Understanding the Customer .................................................................................................................................. 86 Social Marketing ...................................................................................................................... 87 Social Marketing Use Cases and Examples .......................................................................... 97.1 Social campaigns ....................................................................................................................... 97.2 Brand presence ........................................................................................................................107.3 Consumer recommendations / reviews ...................................................................................107.4 Nurturing of advocates .............................................................................................................117.5 Voice of customer ....................................................................................................................118 Social CRM .............................................................................................................................129 Social CRM Use Cases and Examples.................................................................................129.1 Listen & Respond.....................................................................................................................129.2 Customer self-services ............................................................................................................129.3 P2P Support .............................................................................................................................139.4 Voice of customer ....................................................................................................................1410 Compared to Social Marketing, Social CRM is one of the Strategic Options for Financial Service Providers ..................................................................................................14 2
  • 11 Measuring Social Initiatives Means Transparent Metrics ..................................................1512 Social Increases the Size of the Pie: New Business Opportunities for FSPs .................1713 New business models Use Cases ........................................................................................1713.1 P2P lending / financing ............................................................................................................1713.2 P2P micropayments .................................................................................................................1813.3 Community banking .................................................................................................................1813.4 New Business Models are the Long Tail .................................................................................1914 Applying social in finance means overcoming external regulations, internal resistance, and updating systems .......................................................................................1914.1 External Regulations ................................................................................................................1914.2 Internal Resistance ..................................................................................................................2014.3 Traditional transactional Systems ............................................................................................2115 Future Trends Involve Mobile Convergence and Big Data Management .........................2115.1 Integration of social and mobile ...............................................................................................2115.2 The “big data” opportunity ........................................................................................................2216 Appendix 1: Classification of Social Technologies ...........................................................24 This report has been published in cooperation with IESE Business School based on a number of interviews with industry experts and secondary market research. The intention of the report is to make trends transparent and understandable within their context and give the readers impulses for their business. The content has been created with the utmost diligence. Therefore, we are not liable for any possible mistakes. GFT Technologies AG Executive Board: Ulrich Dietz (CEO), Jean-François Bodin, Marika Lulay, Dr. Jochen Ruetz. Chairman of the Supervisory Board: Dr. Paul Lerbinger Commercial Register of the local court (Amtsgericht): Stuttgart, Register number: HRB 727178 Copyright © 2012 GFT Technologies AG. All rights reserved. 3
  • 1 Executive Summary Based on a number of interviews with industry experts, this paper will analyze how the financial services sector can use social technologies to improve their client engagement and business processes. In this case, social technologies refer not only toThis paper analyzes how financial internal social communication platforms, but also to external socialservice providers (FSPs) can use marketing solutions and integrated social customer relationshipsocial technologies to improve their management initiatives.client engagement and businessprocesses The financial service sector is distinctly unique from other industries such as consulting and retail. The customer is diverse and the customer experience journey in banking has its own unique influences that change the main touch points that the customer has with the bank. Analyzing these touch points from the brand perspective reveals that there are five main phases where the customer interacts with the institution: discovery, evaluation, buying, use, and re-engagement. The intricacies of each stage become important for a correctlyCustomers interact with their FSP positioned strategy as each stage has its own specificities thatalong five main stages: discovery, alter the objectives and shape the limits of social initiatives. Theevaluation, buying, use, and re- discover stage is driven by customer needs that are out of theengagement banks control and based on the customer life cycle. The evaluation phase is marked by complexity and the necessity for professional help. The buying phase is limited by regulations. The use stage is hyperextended, meaning that the length of time a client is engaged with an institution is extended over a longer period of time than in other industries. And finally, past engagements carry significant weight in the re-engagement stage. Based on this analysis, certain conclusions have been drawn to help financial institutions understand the benefits of implementing social technologies in this industry,Currently, the majority of social initia- how this implementation can be measured and how the barriers totives are focused on social marketing, adoption can be mitigated. Existing examples of the currentbut it would be strategically more situation and usage of social technologies from financial entitiesbeneficial for FSPs to integrate social highlight success cases and the maturity of social initiatives in thiswith CRM programs industry. At the moment, the majority of social initiatives are focused on social marketing, but based on the banking customer experience journey, it would be strategically more beneficial for financial service providers (FSPs) to integrate social with existing customer relationship management programs (Social CRM). Looking forward, the two main trends facing the industry in terms of social media will be:  The convergence of social and mobile, resulting in higher adoption of mobile payments externally and mobile communication internally  The opportunity to leverage the “big data” available in social engagement in order to improve the existing customer engagement Mobile Market Share 4
  • 2 Introduction This is a report about the implications of social media, of current practices and future opportunities in the financial services industry. Based on a number of interviews with industry experts, this paper will analyze how the financial services sector can use socialBased on a number of interviews with technologies to improve client engagement and businessindustry experts, this paper will processes. In this case, social technologies refer to external socialanalyze how the financial services marketing solutions and integrated social customer relationshipsector can use social technologies to management initiatives on both public and proprietary customerimprove client engagement and facing interfaces. Please see Appendix 1 for a Classification ofbusiness processes Social Technologies based on how they empower users. 3 Consumer Use of Social Media is Still Growing The statistics continue to show increasing adoption of social media, with over 1.5 billion social networking users globally (Source: eMarketer, Feb. 2012). The use of social media is shifting to a point at which brand following is becoming mainstream, further closing the gap between the use of social media for leisure and the potential for business social mediaSocial media growth is explosive and use. As Edison Research shows, “From 2010 to 2012, theis having a big impact on every percentage of Americans following any brand on a social networkvertical industry, including financial increased from 16% to 33%.”services Based on a 2012 Report from Social Media Examiner, “A significant 83% of marketers surveyed indicate that social media is important for their business.” Despite this, many executives often believe that all users of social media are digital natives, individuals who were born during or after the general introduction of digital technology and have a greater understanding of its concepts. While the truth is that there is an increasing number of social media users aged 50 and above. Edison Research shows that, “The biggest growth of any age cohort from 2011 to 2012 was 45-54 year-olds, in fact 55% of Americans 45-54 now have a profile on a social networking site.” Another significant change is that social networks are now used for referencing content, which is becoming an increasingly important method for influencingSocial networks are now used for purchasing behaviors. Edison Research states that, “Only 36% ofreferencing content, an increasingly those surveyed said that social media networks had no influenceimportant method for influencing on their buying decisions, and 47% claimed that Facebook heldpurchasing behaviors the greatest impact on purchasing behavior.” This has led to emerging patterns in which particularly interesting content has the potential to spread virally, reaching well beyond the number of active fan users of a Facebook page or a Twitter profile. As Carles Segu, the Internet/Social Media Manager at Catalana Occidente, describes, “[Virality] is the reason why, while we have only 4,000 fans in our profile, an average of 130,000 individuals read our posts, with high engagement rates.” 5
  • 4 The Customer Experience Journey in Banking is the Foundation for Social Media Initiatives The banking customer is unique in his/her interaction and engagement with the financial institution. All customers have distinct objectives and needs from their financial service providers. Given these differences, it is important to visualize a roadmap of the customerIt is fundamental to understand the experience in order to understand at which point in thespecific customer experience journey engagement process and to what extent social media can be usedin banking in order to understand how as a tool. The Customer Experience Journey is a widely acceptedsocial media can be applied model that explains the relationship of engagement between a customer and a product or service. It narrates how customers advance through the stages of discovery, evaluation, purchase, use and re-engagement. The way in which this model applies to the banking and financial industry is distinctly different to the way in which it applies to other industries such as retail, consulting, or production. This difference becomes especially apparent when analyzing the specificities of the banking customer perspective in each of the five phases of the customer experience journey. 4.1 Stage 1: Discover The needs of a customer who is engaging with a financial service provider are difficult to shape. If a customer does not have a job, hardly will he or she require aStage 1 – Discover: The needs of a payroll account, and without significant income, they will notcustomer who is engaging with a FSP engage in a mortgage. The appeal of the financial servicesare difficult to shape portfolio is then dependent to a large extent on the evolution of the personal life cycle of each customer. This means that traditional push-oriented marketing initiatives aiming at helping customers discover new needs may not be efficient in this situation. 6
  • 4.2 Stage 2: Evaluate The nature of the financial industry makes evaluating products or Percentage decrease of services a complex process. customer confidence in theStage 2 – Evaluate: Peer advice is be- Customers will require expert banking industrycoming more and more relevant, espe- and peer advice before making a choice. Peer advicecially important when confidence inbanking is decreasing is becoming more and more World: 40 % relevant, especially as we have seen a recent decrease of customer confidence in the banking industry. Italy: 72 % 4.3 Stage 3: Buy The main barrier in terms of engaging with customers through Spain: 76 % open channels is that in the purchasing stage, as well as in the use stage, sensitive personal Source: Ernst & Young, GlobalStage 3 – Buy: The main barrier when data are often involved. This Consumer Banking Survey, 2012engaging with customers in open results in a decrease in thechannels is the involvement of sensitive willingness of customers to share their information andpersonal data experiences. Also, high regulation in the financial industry may limit the amount of information sharing and interaction levels throughout public platforms such as social media. 4.4 Stage 4: Use In the case of the relationship between a customer and his/her FSP, the Use stage of a given financial product is hyperextended, as the use of financialStage 4 – Use: The Use stage of a given services is usually long term. Also, the need for engagementfinancial product is hyperextended, as its between service provider and customer may be small or evenuse is usually long term non-existent throughout this stage. Following our previous example of payroll accounts, once the account has been opened, as long as there is not a deficient service, the customer may not need to engage with his/her provider directly as the provision of the service is entirely automated. 4.5 Stage 5: Re-engage Product purchases keep building up on each other in the life cycle of a customer with an FSP, and as a consequence, the more a given customer advances in his or herStage 5 – Re-engage: Product purcha- relationship with a given FSP, the less likely he or she is to leaveses keep building up on each other in that FSP. Each subsequent purchasing decision is notthe life cycle and create important exit independent from the previous ones. For example, while changingbarriers, but customers are starting to a payroll account is fairly simple, once a customer engages withhave relationships with multiple FSPs 7
  • loans, insurances and mortgages with a given FSP, the hassle of changing his/her service provider creates an important exit barrier, boosting the chances of re-engagement with his current FSP and making this exit barrier grow further. Regardless, a new trend has recently emerged to challenge this paradigm: multi-banking. Customers are starting to engage in several relationships with different financial institutions meaning that mastering the re-engagement phase of the customer experience journey will prove evermore important in the future for FSPs. 5 Applying Social Technologies in the Finance Industry Means Understanding the Customer Taking into account the specificities of the customer experience journey in the banking industry, it is important to analyze how social media is currently being applied inSocial Marketing, Social CRM and the financial sector. There are currently three areas wherenew business models are the three financial institutions are applying social media. Two of these areasareas where financial institutions are focus on enhancing existing business processes, while the thirdapplying Social Media category attempts to reinvent a certain space within the financial services industry all together.  Social marketing: Using social tactics, media, tools, and technologies across all components of the marketing mix: product, price, promotion, placement.[1]  Social CRM: Expanding CRM systems from optimized customer-facing transactional processes to include simultaneous interactions and conversations that customers have among them; in order to improve business processes and supporting technologies in: targeting, acquiring, retaining, understanding, listening to, and collaborating with customers.  New business models: Social networks have created a space for new services that is slowly being filled by small sized entrepreneurial companies. 6 Social Marketing Social marketing has its most relevant impact in the evaluate/compare stage of the customer experience journey, as it increases the impact of influencing marketing initiatives through the ability to use references in social media and intensify brand awareness. Social marketing becomes valuable when the purchase of one product is ongoing and the acquisition of the next might be delayed by years as this is often the case in the finance industry. The purpose of social marketing is to keep the [1] Direct sales through social media in finance have seen limited success. This is due to the nature of financial products and the customer life cycle. Purchases are not impulsive, are usually researched, and are based on the customer’s specific needs. A direct sales strategy through social media would involve a push strategy which would not fit well in this highly regulated environment. 8
  • engagement of the users at its maximum possible level to ensure that they will have no doubt about which FSP to choose when the time comes to purchase their next banking product. The main differentiating factor related to social marketing is the quality and adequacy of the content provided. Social media channels are constantly flooded with anSome of the best practices in social unending stream of fresh new content. Keeping up the speed bymarketing in finance are based on providing ‘fresh’ content daily is key to fostering engagement andcontent marketing: offering relevant avoiding an inactive user base. Some of the best practices inand useful content in return for the social marketing in finance are based on content marketing:users’ engagement and loyalty offering relevant and useful content in return for the users’ engagement and loyalty. This means that maintaining a high speed of decision making for which content to promote and how to do it becomes vital. 7 Social Marketing Use Cases and Examples 7.1 Social campaigns Social campaigns are initiatives carried at one point in time, as opposed to brand presence building which is an on-going strategy. Social campaigns can consist of different actions such as new product proposition, new product launch or contests to increase engagement. Catalana Occidente decided to launch severalIn social campaigns, companies are social campaigns to increase the number of their communitynot only tracking customer adoption members and their engagement. During this campaign, whichrates but also user retention rates aimed to promote insurance services, the company decided to offer three iPhone 4 terminals for the winners. As a consequence, the amount of users that befriended the company on its Facebook portal increased dramatically, but decreased just by the same manner as soon as the campaign was over. Those users were interested in an iPhone, not in the products and services Catalana Occidente offered. In their following campaign, the company made some changes in order to align the campaign with the objective by making the reward an insurance policy. In this way, the company managed to attract those customers that were indeed interested in insurance services and products. As a result, the retention rate of those customers attracted by the campaign was much higher. 9
  • 7.2 Brand presence Brand presence includes an ongoing effort to leverage social-media to promote, develop, strengthen, or defend a product or company brand. A good example of using social marketing to enhance brand presence can be found at CitiBank. With more than half a million likes on its Citibank US Facebook portal, the company completely ignores any kind of banking message in the many daily communications, attempting instead to merely create conversation and engagement amongst users with polls on their favorite foods or sports teams. 7.3 Consumer recommendations / reviews Consumers value the ratings and reviews from other consumers very highly. These reviews are also a greatThe impact of consumer reviews and source ofrecommendations on business is feedback andstarting to be adopted in financial customer sentiment. The impact of consumer reviews andservices recommendations on business is clearly visible in the hospitality industry, where sites like TripAdvisor have become the major discovery and lead generation tools. Now, the trend is starting to take roots in financial services. My Bank Tracker is an online community portal dedicated to the reviews of the different banks and currently holds above 5,000 postings and features bank profiles for each of the banks reviewed on its site. 10
  • 7.4 Nurturing of advocates Fostering the creation of hyper-engaged users that reference the branded content to their own contacts – brand advocates – increases the viral transmission of published content on social campaigns. The key to creating brand advocates lies in engaging the customers in the channel where they interact, making sharing easy, and adding incentives for participation and gamification (the use of game design elements, game thinking and game mechanics toThe key to creating brand advocateslies in engaging with the customers in enhance non-game contexts). Barclays did just that by launchingthe channel where they interact the Barclaycard community ring, a social community for users of their Credit Card, giving a rich profile to each of the users, rewarding the use of cards with badges and listening to improve service according to feedback. 7.5 Voice of customer Today, customers have access to limitless selections of anything they want, creating unprecedented choice. This choice, combined with the voice created by being able to talk to one another through social media, means that customers have lots of power. More and more, customers wish to be participants in the creation of new services. They want moreMore and more, customers wish to be personalized and tailored solutions. Voice of Customer (VoC)participants in the creation of new initiatives can be aimed at fostering engagement and loyalty (i.e.,services. They want more marketing) or at leveraging customer feedback for new productpersonalized and tailored solutions development (i.e., CRM). CRM use cases will be discussed below. An example of a VoC initiative used for marketing comes from Deutscher Sparkassen und Giroverband (DSGV), an umbrella organization of the German regional saving banks associations, which set up a Facebook portal for its customers to complain about everything they felt was wrong with current banking practices and to propose improvements. DSGV managed to retain more than 150.000 customers that took part in this initiative as Facebook fans. The initiative also helped the company improve its image from a traditional conglomerate to a modern, up-to-date banking group. 11
  • 8 Social CRM The impact of Social CRM in the customer experience journey relates mostly to the Use stage, as all the CRM initiatives are dedicated to improving the usage of products by customers or to retrieving [2] information on how to improve this usage. Social CRM is focused on customer engagement versus traditional customer management. Defined as a new path to interactSocial CRM is focused on customer with the customer, Social CRM is characterized by its immediacyengagement versus traditional and ubiquity. Response times of one hour are the new standard.customer management Tablets and smartphones have broken all previously existing hardware barriers to accessing social media. Companies are left to decide how to view social CRM: As the CRM component of their social strategy or as the social component of their CRM strategy. Gartner Research estimates that, “By 2014, refusing to communicate with customers via social channels will be as harmful as ignoring emails or phone calls is today.” Please see the Big Data Opportunities in the Future Trends section below to understand how data collected through social CRM can improve decision making in the company. A new CRM channel carries a "maintenance obligation.” Once a presence has been established, it must be supported. This means providing ongoing updates, responding to complaints, and keeping a team fully or partially dedicated to this task. Gartner states, “While communicating with Twitter or Facebook might be optional today, over the next three years not allowing people to contact your organization via these means will be viewed as old-fashioned.” Social CRM is all about finding the customer where the customer is and when the customer wants. 9 Social CRM Use Cases and Examples 9.1 Listen & Respond Listening and responding involves focusing on the detection of potential support situations voiced in a social environment such as Twitter or Facebook. Banco SabadellMore and more financial institutions has dedicated a team to search through different platforms forare seriously considering the listen & customer complaints and discussions regarding their service andrespond challenge in social media offerings. Once an issue is detected, those agents will take the decision of answering in the same channel, or try to lead the user to communicate with support services, social or traditional. 9.2 Customer self-services Delivering product or service-related knowledge from a knowledge repository to a customer via a self-service interface involves maintaining a constantly updated knowledge repository to enable fast [2] Much broader definitions of Social CRM incorporate earlier stages of the Customer Experience Journey. For the purpose of this paper, we take a narrow view, as defined above. 12
  • and timely retrieval of relevant information. The repository needs to be well structured to allow at least 85% relevance of responses to searches and questions asked. Lloyds TSB has deployed a very advanced self-service portal, which integrates all of the tools at its disposition, including as a virtual assistant who browses the knowledge database to provide accurate answers and suggestions to the questions users send. Today, customer self-service can be enhanced through Peer-to-Peer (P2P) support, as described below. 9.3 P2P Support Being able to harness the knowledge of customers directly involves engaging, supporting and managing an online community, as its members identify problems and create solutions. This may also foster engagement between employees of the company and customer. As stated in Gartner’s 2010 report, Top Use Cases and benefits for Successful Social CRM, “During the next five years, it is expected that community peer-to-peer support will replace Tier 1Being able to harness the knowledge phone support in over 40% of the top 1,000 companies with aof customers directly involves enga- contact center.” A current example of P2P support does not yetging, supporting and managing an on- exist in the finance industry due to the high level of access toline community, as its member’s iden- sensitive data that financial services support often requires. Intify problems and create solutions order to better understand what P2P Support entails, we can look at Hewlet Packard (HP), which, like banking, is a company with a wide range of products that often have operational complexities. In order to face all the queries from its users who were dispersed between different product ranges and problem types (software/ hardware), HP launched its consumer support forum in seven languages for over 20 countries. Behind the interface, is a P2P support database forum, with a search engine to search within existing posts as well as a descriptive topic menu for assistance. More than 4.6 million HP customers have had their issues resolved through the forum to date, with large savings in cost and time for Tier 1 phone support. On a more general level, some financial entities have begun moving in this direction. Bank of America, for example, has set up the Bank of America Small Business Community online where owners of small businesses can exchange ideas and information. Users benefit from the experience of others by starting or joining a conversation in the forums or posting in a review. Another example is Unience, a Spanish company which has created a financial social network where users such as individual investors, investment advisors, asset managers, and financial companies, can share investment advice and connect with one another. P2P support can also be boosted through collaborative customer interfaces, which enable a customer service agent and a customer to simultaneously share a live version of the same business 13
  • application in order to solve users’ issues. In industries such as financial services, businesses will be able to offer highly personalized customer experiences, as well as a feeling of participation by the customers in the resolution of issues. For example, a Fortune 200 US insurance company implemented eGain Co-browse, eGain Chat and eGain ClickToCall in a bundled package to improve the purchase ratio, customer enrollment and service experiences to its members. Online form filling is a major hurdle in the customer acquisition and onboarding processes, especially in regulated sectors like financial services, insurance, health care, and government. Increasingly complicated forms confuse and frustrate customers. The company realized that as a result, 75% of all web forms are abandoned. With the co-browsing service platform, their agents help customers complete web forms in a convenient and secure manner - while simultaneously engaging them in a phone call or text chat. These agents not only provide real-time form-filling assistance but also show members how to use the company website through co-browse-enabled phone conversations. The deployment has enabled the company to increase online form completion by 200%. 9.4 Voice of customer VoC use in CRM extends social media monitoring by identifying salient discussion topics and soliciting further feedback on these from individual customers and/or customer communities. Companies may solicit four forms of feedback: answers toVoC use in CRM extends social media customer complaints, personalized surveys for each communitymonitoring by identifying salient member, topic-based surveys/polls, and general satisfactiondiscussion topics and soliciting surveys and comments. A good example of a company currentlyfurther feedback on these from employing VoC for CRM use is Standard Bank, which constantlyindividual customers and/or customer embeds polls and surveys among its blogging services to increasecommunities the engagement of readers and obtain feedback. One example of Standard Bank’s poll is: “Which Standard Bank self-service channel do you use most often?” Possible answers were: Cell phone banking, Internet Banking, ATM Banking, or Mobile banking app. 42% of 151 participants chose Internet Banking. Other polls include: “What do you look for in a bank?” “How much value do you place on having 24/7 access to banking?” and “How would you describe Standard Bank’s Service?” 10 Compared to Social Marketing, Social CRM is one of the Strategic Options for Financial Service Providers Considering the specificities of the customer journey in the finance industry, it is surprising to see that the main emphasis of FSPs when it comes to social media lies inSocial CRM focuses primarily in the the area of social marketing. Social marketing focuses on thehyperextended use stage, as well as stages in which there might be a lesser impact in terms ofin influencing purchasing behavior influencing behavior or providing benefits for the customer or thethrough the evaluate and buy stages FSP, such as the discover, evaluate, and re-engage phases. Social CRM, on the other hand, focuses primarily in the 14
  • hyperextended use stage, as well as in influencing purchasing behavior through the evaluate and buy stages. Providing customer service and listening to clients would increase the trust that has of late been eluding banks, it would help the entity understand the customers’ needs, and it would allow the customer to voice their opinion more openly. This would in turn make the customer feel that this particular bank appreciates him/her as an individual. The bank would earn praise from that individual on social networks, which would attract more customers. On theDeveloping social CRM allows for backend, although social marketing is a good tool for marketingfaster decision making throughout and communications teams, developing social CRM allows forvarious internal departments faster decision making throughout various internal departments. Sales, product development, account managers, all the way up to senior executives would be able to use data mined from social CRM to increase market understanding and incrementally speed up decision making. Therefore, FSPs will have to start shifting to the use of Social CRM to have a deeper, measurable impact on bottom-lines. 11 Measuring Social Initiatives Means Transparent Metrics Establishing a clear social strategy requires transparency and the creation of well-established metrics for success. These metrics are often illusive and hard to valuate. Social Marketing and Social CRM both share similar Key Performance Indicators (KPIs) thoughSocial CRM KPIs are by nature more the benefits of social marketing are more difficult to monetize.customer-oriented and often more Given that social marketing actions can hardly be measured bytangible to measure than those of direct ROI, the main metric to measure the success of a givensocial marketing initiatives initiative is referentiality, or the viral spread of given content. This measure gives an unbiased estimate of the level of engagement of a user base. The ultimate goal of social marketing is to turn the community members 15
  • into de facto marketers, who will spread content virally through their networks, driving up the views and increasing the chances of engagement from non-users. Besides referentiality, there are more concrete metrics that are already being successfully employed by financial institutions running social initiatives. When it comes to determining if social initiatives are increasing brand presence, the main KPIs are the number of active community members (followers, fans...) and the traffic directed to the corporate website. The key to correct performance metrics is not to measure fans, but to measure active fans. Active fans in banking are those users who interact with the company by posting on the banks’ Facebook wall orThe key to correct performance commenting on text, videos or pictures which the banks post tometrics is not to measure fans, but to their corporate pages. These users are more likely to drivemeasure active fans business. Social campaign success in general can be gauged as the percentage increase in community interaction, the percentage decrease and cost savings of printed collateral, percentage decrease in spending on low-performing campaigns, number of campaign views / participants, post-campaign retention rate, and the number of actions triggered by the feedback of users. Other social marketing KPIs depend on the objectives of the initiative. When it comes to nurturing advocates, the most important visible and measureable metrics are customer referrals and friend invites. Regarding consumer recommendations/reviews, again it is important to monitor the number of active community members, number of times the reviews are visited or seen, and the number of actions triggered by analysis of data. Social CRM KPIs are by nature more customer-oriented and often more tangible to measure than those of social marketing initiatives. The key KPIs are the decrease in response speed, time to respond to “unresolved” queries, the reduction of cost and time forAlongside traditional CRM metrics, it support, the number of actions triggered by analysis of data,is also important to establish new percentage increase in community interaction, and activesocial sentiment measures community participants. Alongside traditional CRM metrics, such as the number of cases closed per day, the number of calls handled per agent, or first-time call resolution; to receive full benefits from Social CRM, it is equally important to establish new social sentiment measures. Highlighting the link between Social CRM and social marketing, if a company offers quality service, customers will turn into advocates and start promoting the brand. Social sentiment can be measured through metrics such as social conversation buzz, reach, and value. 16
  • 12 Social Increases the Size of the Pie: New Business Opportunities for FSPs Up to this point we have observed the ways social media and collaboration technologies allow companies to enhance their existing processes. But in fact, byBy enabling rich direct interactions enabling rich direct interactions among individuals, social mediaamong individuals, social media has has also given light to a whole new way of conducting business inalso given light to a whole new way of financial services. These new business models are still a tiny sliceconducting business in financial of the industry but their rapid growth over the last few years andservices disruptive value proposition certainly make them worthy of attention. 13 New business models Use Cases 13.1 P2P lending / financing Creating a platform that both lenders and creditors can access to post and select their needs and find suitable matches will reduce the need and cost of intermediation when investing in or acquiring unsecured personal loans. Mainly run as non-bank Financial Social Networks (FSN) platforms, they are replacing banks in certain niche areas that will grow in sizeCreating a P2P lending platform that and importance, and therefore must be tracked closely. Withboth lenders and creditors can access greater than 100% year over year growth, P2P lending is one ofwill reduce the need and cost of the fastest growing industries in the US. The P2P lending industryintermediation when investing in or volume is over $50 million in new loans a month and in May 2012,acquiring unsecured personal loans total loan volume passed the $1 billion mark since the industry [3] began back in 2006. Lending Club is a peer lending social network portal in which two types of users converge, registered investors and registered borrowers. The borrowers fill a form explaining their funding needs and the nature of their project or loan, while the investors can build a portfolio of different portions of different borrowers. Similarly, Kickstarter, a start-up founded in 2009, has created an online platform for P2P funding for all types of creative projects. Kickstarter facilitates gathering monetary resources from the general public for projects where creators choose a deadline and a goal of minimum funds to raise. If the chosen goal is not gathered by the deadline, no funds are collected. Kickstarter takes 5% of the funds raised. As of October 10, 2012, there were 73,620 launched projects (3,426 in progress), with a success rate of 43.85%. The total number of dollars pledged was $381 million. [3] Renton, Peter. Peer To Peer Lending Crosses $1 Billion In Loans Issued. May 29 2012 17
  • 13.2 P2P micropayments P2P micro-payments enable members of social networks to initiate a payment for digital content or to make small person-to-person (P2P) payments for other purposes. The business impact of this model extends well beyond payment operations. It creates awareness of bank payment services among an often younger audience. VISAThe business impact of a P2P micro-payments model extends well beyond Payclick is a micropayment program launched by Visa inpayment operations Australia. Payclick allows users to fund an account that is then drawn from when purchases at participating online retailers are made. Anyone with a Visa, MasterCard or bank account, can open a payclick account to buy from a range of sellers without sharing personal details or financial information. Greg Storey, General Manager, Payclick, says, “Payclick is designed to facilitate the growing consumer demand to make it easy and secure to buy downloadable content including music, games and movies.” Payclick offers an innovative ‘Sponsored Account’ feature, allowing teenagers to buy digital content safely and securely. Parents/guardians set up an account on behalf of their teenager and facilitate money deposits. Teenagers can then buy from payclick sellers using their own account and password, while parents have access to real-time transaction history to monitor purchases. 13.3 Community banking Community banking extends the use of Voice of Customer to the point at which the customers are the ones tailoring the solutions to be offered later by the bank. It exploits the lack of necessity for branch intermediation to reduce costs and centralize efforts in the online platform, providing an augmented level of personalization and interaction with other customers for advice and socializing. It also exploits social media and the engagement it creates with theirCommunity banking exploits the lack users to reduce marketing costs. One of the most innovativeof necessity for branch intermediation banks in the industry at the moment is Fidor Bank which hasto reduce costs and centralize efforts been listed in the German stock exchanges since 2007, andin the online platform, providing an started operations in 2006. All operations are online and theaugmented level of personalization company describes itself as, “banking with friends.” The sign-on toand interaction with other customers Fidor Bank is through Facebook Connect which, at this time, isfor advice and socializing one of the only banks that allows that. The bank doesn’t just aggregate accounts but, on a single page, a customer can view all their account holdings from savings and investments through to precious metals and even virtual currencies, such as World of Warcraft Gold. Aside from the customers being able to crowdfund, bet online, and design and poll on new products and offerings, perhaps the most astonishing offering of Fidor Bank is their interest rates, which vary according to Facebook Likes. The rule is simple: The 18
  • more Facebook Likes, the higher the interest rate. The more Facebook Likes Fidor Bank acquires from its customers and their friends, the higher interest rates the company pays on the deposits it hold. 13.4 New Business Models are the Long Tail The new business models outlined above represent a significant departure from the traditional thinking prevalent in the financial services industry. By fostering direct connections among customers and by shifting core processes onto an online platform where they can be operated in a self-service mode, these models are changing the cost structure to a point where it becomes viable to serve a large number of very small customers and transactions. Often referred to as the long tail environment, this approach is not currently on the radar ofFueled by the viral nature of the social traditional FSPs due to its unattractive below-average returns andmedia environment, new P2P models perceived “lack of quality” in the services provided. Yet, as historymay disrupt the status quo in the has proven many times over, the incumbent FSPs will do well toindustry by rendering some of the keep a close eye on the growth and evolution of these newexisting business models obsolete socially-enabled business models. The quality will likely improve over time and larger more traditional customers may become enticed by the new value proposition. If these dynamics gain traction, fueled by the viral nature of the social media environment, the new P2P models may disrupt the status quo in the industry by rendering some of the existing business models obsolete and/or by opening up new business niches. 14 Applying social in finance means overcoming external regulations, internal resistance, and updating systems 14.1 External Regulations A hurdle that is unique to the financial services sector is the high level of regulation especially surrounding data privacy and security. Companies must be aware of these regulatory conditions when establishing social media initiatives. In order to protect consumer privacy, regulators keep a close eye on how companies collect and use customer data. For example, the US Federal Trade Commission (FTC) regularly addresses social media and consumer privacy, calling for a social perspective on its “do not track” proposal, similar to the “do notFirst barrier – External regulations: call” lists from telemarketing. Also, with many existing laws aroundCompanies must be aware of these managing customer information, regulators now guide companies’regulatory conditions when establishing social data collection and management policies. For example, thesocial media initiatives US Financial Industry Regulatory Authority (FINRA) enforces regulations related to how financial advisors must keep records of all social media activity around their brands. And due to the public nature of social media, regulators are working to guide companies on how to manage the information that exists on the social web. For 19
  • example, the UK Financial Services Authority (FSA) sets out guidelines around how financial institutions should control branded content online — such as on Facebook pages or Twitter. The FSA’s stance is that, because consumers may interpret any social content they see as a promotion, financial institutions must treat any publicly available content as they would treat a form of owned media. Compliance Guides and companies helping financial institutions with these issues already exist. Some companies internalize this process and provide employees a set of restrictions on what can be publicized through their central governance bodies, involving the legal team and adding social media details to data policies. Other companies look to partners in the industry: outside experts for their experience with social media regulations. The best-suited partners will have internal employees or teams dedicated to following and understanding the regulations in the finance industry. 14.2 Internal Resistance The idea to run new social initiatives often comes from the bottom up, such as at Banco Sabadell, where the decision to enter social media was proposed by the Direct Channels and Innovation Department. Despite this bottom up approach, not everyone is comfortable adapting to the new work processes that become standard when social media is introduced as a companywide strategy. When establishing new social marketing or CRM initiatives, companies across all industries face internal resistance from employees who may not see the benefits of theSecond barrier – Internal resistance: projects, do not want to go through extra training, or do not want toWhen establishing new social marketing change their established work flow processes. Some employeesor CRM initiatives, companies across all believe that a social initiative should only affect certain employees,industries face internal resistance from such as the marketing team, and feel resentful when their dailyemployees who may not see the benefits routine is affected. These employees may try to stop the initiativesof the projects from going forward or may hinder their success by not adopting the systems and new work processes. Social media in particular can be seen by employees as something of a fad, or more youth oriented, and not appropriate for well-established and regulated industries such as banking, which has a historically hermetic culture. Furthermore, some banks will needs outside consulting on establishing a social strategy and potential new hires or training for existing resources to managing the social media. The key to facilitating adoption and breeding cultural change is to educate the employees on the benefits of social initiatives. Training and nurturing internal advocates ensures that people do not feel left out and understand exactly how, for example, Social CRM can benefit their department. As Berta Sole, Marketing Director at Deutsche Bank Spain, describes, “We are just starting in social networks but we have already carried a training plan for the marketing team, and before we launch our first initiatives we will have to provide training to all the centralized services that will be involved, the customer support department and other departments that will be content creators such as the ones in charge of developing technical, investment and product reports. Up to now there have been conferences and presentations in all levels of the organization about social media.” Another solution would be to first try using an internal social network. In the case of Banco Sabadell, Pol Navarro, 20
  • Head of Direct Channels and Innovation, explains that he believes the company went through a cultural change after adopting social initiatives. “The perception that social media is entertainment has changed to a feeling that it’s a mainstream solution here to stay, not only in our department but also in other areas such as the board of directors, the marketing and communication units, et al. When there’s a message the corporation wants to send, one of the first discussions is how to do so through social media.” 14.3 Traditional transactional Systems The third and final barrier involves the ability of the company to integrate their traditional transactional systems (ERP and CRM) with social media initiatives. Core business process automation systems are seeing a transition from being transactional systems to systems of engagement. This means that the core business systems that currently exist in most financialThird barrier – Traditional transaction enterprises are not enough. These core systems are slow. TheySystems: The third and final barrier allow only for low experimentation and are risk averse. Despiteinvolves the ability of the company to these drawbacks, the development of entirely new core systems isintegrate their traditional transactional not necessary. What is necessary is the development of a new setsystems (ERP and CRM) with social of systems which Forrester calls, “the digital experience,” to workmedia initiatives hand in hand with the older core business systems. The two systems’ life cycles become linked when digital experiences feed transactions to the core business systems. These new systems are fast. They allow for frequent changes and high experimentation. They emphasize content and are risk-tolerant. An example to better illustrate this is that traditional core business systems do not take into account what customers experience as a result of its processes. Running digital systems that can access data gathered through the customer engagement process allows a more holistic approach to understanding the customer. 15 Future Trends Involve Mobile Convergence and Big Data Management The two major trends in the future for the financial social media market will be: the integration of social and mobile, and the opportunity to use the “big data” gathered through social media. 15.1 Integration of social and mobile It is naive to examine the evolution in business processes that social technologies have brought by disassociating it completely from the other big trend in banking and business: mobility. As social technologies and technological devices such as smartphones andSocial and mobile are the two sides of tablets evolve, they bring us closer to a future where data, friendsengagement: social provides an and information are readily available anytime, anywhere. Juniperopportunity for dialog while mobile Research predicts that 1.3 billion consumers will rely on theiroffers consistent access for such adialog to take place 21
  • mobile devices to access social media sites by 2016. As described in Business Insider’s 2012 report, The Mobile Industry: In-Depth, 600 million users are already accessing Facebook through mobile and, in October 2012, the social network was adding 26,000 mobile users an hour. Mobile social media offers a unique opportunity, not only to develop brand awareness, but to reward consumers for desired behavior, such as bringing friends to a bank branch or becoming a loyal customer. It also helps with contextualizing consumers buying behavior, as preferences, past buying habits and tastes are exactly what consumers share through social networks and apps. Companies such as MasterCard and American Express have already started running social mobile campaigns by partnering with Facebook Places and Foursquare respectively. American Express lets card members get loyalty card-like credit when they check in on Foursquare. Similarly, MasterCard rewards Facebook Places check- ins. As more people begin to access social sites from the mobile devices, it will become a new business creation channel. When it comes to finance, the main direction in which social commerce is going is towards mobile payments. Banks have been increasingly broadening their offerings for mobile banking products which are moving from basic transfers and bill payment capabilities to P2P payments and mobile wallets. Banks such as Barclays have already released apps that allow their clients to make mobile payments. Social and mobile are the two sides of engagement: social provides an opportunity for dialog while mobile offers consistent access for such a dialog to take place. As one investment bank describes, “It’s too hard to engage our CEO and CFO customers on their PCs. We need to be present on mobile and tablets so our busy customers can engage with us on demand without having to be tied to their desks.” Building relationships with customers requires not only access, but also conversation. Social media tools like LinkedIn and private communities give interactive marketers the ability to act like sales and account management teams by creating conversations with and between customers. 15.2 The “big data” opportunity Aside from their use to conduct interactions and share information between users and companies, social networks are becoming extensive libraries of information about content, profiles and relationships. There is a vast amount of data generated by peopleThe convergence of Social Media and in social. According to late 2011 statistics published by IBM, thethe “big data” challenge represents massive adoption of Google, Facebook, Twitter and other serviceshuge opportunities for financial has resulted in the generation of over 2.5 quintillion bytes eachinstitutions day. For some perspective on how large this number is, experts estimate that there are 7 quintillion grains of sand on earth. Thus, social feeds Big Data allowing Big Data to enable companies to measure and manage their businesses in ways never before possible. 22
  • Big Data is not just about big volume, it also about velocity (how fast the data is coming and how quickly one can crunch them – think 200 million+ tweets a day), value (understanding what really matters), and variety (text, image, video, audio). Social data, for instance, consists of much more than the posts. It includes timestamps, geotags, device types, and more, and the data is of both the structured and unstructuredBig Data is not just about big volume, variety. Early awareness of the need to support unstructured datait also about velocity, value and has been most acute in customer-facing organizations. Oraclesvariety CEO Ellison recently demonstrated how his company’s new products analyzed nearly 5 billion Twitter posts to determine what celebrity would be the best spokesperson to promote a new Lexus sedan. In the end, Oracle ended up analyzing 27 billion relationships, nearly a billion retweets and hashtags, 2.8 billion mentions and another 1.3 billion replies. And as Ellison pointed out, the conclusion itself -- that gold-medal Olympic gymnast Gabby Douglas was the best fit to promote the new Lexus -- wasnt nearly as significant as the process by which that conclusion was reached, which included drilling down into the data to find out whose posts most frequently mentioned cars, for instance. When it comes to finance, this new way to improve decision making simply should not be ignored. Through understanding traveling and spending patterns and behaviors of customers by what they share on public social media platforms, banks can develop better suited marketing and targeting strategies. For example, a customer who publically posts a Facebook status saying he will spend two weeks in New-York could be automatically sent a post asking ifWhen it comes to finance, this new this customer needs to activate his credit card in the US, if this isway to improve decision making in the realm of financial regulations. In an innovative use of Bigsimply should not be ignored Data in the banking industry, a US-based retail bank used EMC Greenplum tool for market basket analysis and customer lifetime value computations enabling user based recommendations. The bank enriches the data with unstructured activity logs and uses the result to identify at-risk customers. Furthermore, examples such as Social Network Analysis for fraud detection illustrate how the information existing in social media can be extracted and utilized by companies. This technology analyzes the relationships of the rich profiles embedded in Facebook to detect potential fraudulent relationships in, for example, insurance claims. What if the claimer is related on a second degree to the doctor that did confirm his medical need? The opportunity to extract meaningful information about trends and relationships is there, but little exploited so far. 23
  • 16 Appendix 1: Classification of Social TechnologiesCapability Description Examples of TechnologiesIdentify / Connect Allow users to add, modify or access content Facebook, Twitter, LinkedIn, through the use and linking of rich profiles. Tuenti The decision of one user to access one or another network will depend on his or her potential match with the ‘community profile’Communicate / Discuss Enable direct unilateral or multilateral Skype, WebEx, Facebook communication in real or differed time. messaging, Twitter, BlogsCreate & Share content Allow the creation of public files such as Social bookmarks, search document, image or video files, as well as engines, tags, hashtags their dynamic modification and the collection and mining of collective knowledge through forums, discussion boards and Wikis.Review / Rate Allow users to share their opinions on Tripadvisor, Booking.com products or services they have engaged with. It is an increasing trend for this type of interaction to be a key influencer in purchasing behavior.Play games Allow users to engage in games whilst Zynga Games (Farmville), Angry remaining within the social portal has Birds emerged. The gamification component is increasingly being exploited too in the most advanced cases of social CRM. 24
  • Contact Person:Miguel Reiser | Director Business Marketing | GFT GroupT +34 93 565 9100 | info@gft.comCopyright © 2012 GFT Technologies AG. All rights reserved. 25