FIS ENTERPRISE STRATEGY                                                                                              VOLUM...
Although large banks have generally               Figure 2: Except for Large Banks, Efficiency Ratios Deteriorated during ...
Our discussions also led to a list of guidelines that we compiled based on the collective wisdom of banking executiveswho ...
Exclusivity Provision of Durbin Amendment:Impact and Revenue OpportunitiesFIS ENTERPRISE STRATEGY                         ...
Opportunities for Revenue EnhancementQ: What opportunities for financial institutions are arising from the need to comply ...
The $5 Debit Fee is D.O.A., but the Needto Revive Checking Fees RemainsFIS ENTERPRISE STRATEGY                            ...
Once opposition to the debit card fee went viral on social media, it drew national media coverage and the cycle ofmedia ex...
Figure 1: Only 39% of Primary DDA Relationships are Profitable                       High                 Unprofitable    ...
Figure 2: Most Consumers Maintain Modest Balances with their Primary Checking Account Provider                            ...
Preparing for AttritionWe’ve already seen, and will continue to see, increased customer churn due to the pricing actions t...
Developing and Deploying Social Mediafor Financial InstitutionsFIS ENTERPRISE STRATEGY                                    ...
Although some financial institutions are reluctant to participate actively in social media, it has become imperative tocon...
Contributing to the Social Media ConversationFocus on engagement rather than sellingParticipants in social media expect to...
Measuring Social Media ResultsAs with any corporate initiative, measurement and assessment are important parts of the soci...
FIS ENTERPRISE STRATEGY                                                                     VOLUME 1               •     J...
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Fis strategic insights vol 4 november 2011

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Strategic Insights is a newsletter published by FIS that provides research, throught leadership and strategic insights on banking and payments.

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Fis strategic insights vol 4 november 2011

  1. 1. FIS ENTERPRISE STRATEGY VOLUME 4 • NOVEMBER 2011Driving Efficiency at IN THIS ISSUEFinancial Institutions by • Driving Efficiency at Financial Institutions byLeveraging Customer Data Leveraging Customer Data • Exclusivity Provision of Durbin Amendment: By Fred Brothers Impact and Revenue EXECUTIVE VICE PRESIDENT, ENTERPRISE STRATEGY Opportunities Large banks have had a significant advantage over • The $5 Debit Fee is small financial institutions in terms of efficiency. D.O.A., but the Need to Average efficiency ratios improve with bank size Revive Checking Fees (Figure 1).1 The gap between the efficiency of the Remains largest banks (more than $10 billion in assets) and • Developing and the smallest ones (less than $100 million in assets) Deploying Social Media was 15 percentage points when the economy was for Financial Institutions heading into recession at the end of 2007 (Figure 2).By year-end 2009, the gap nearly doubled to 28 percentage points. Between2007 and 2009, small bankslost substantial ground. Figure 1: Efficiency Ratios Improve with Asset Size 77% 74% 70% 68% 61% 60% Less than $100M - $300M - $500M - $1B - $10B $10B+ $100M $300M $500M $1B Ratios determined as of June, 2011 Efficiency Ratio = Non-interest expense less amortization of intangible assets as a percent of net interest income plus noninterest income. This ratio measures the proportion of net operating revenues that are absorbed by overhead expenses, so that a lower value indicates greater efficiency. Source: FDIC Summary of Depository Institutions ReportFIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 1
  2. 2. Although large banks have generally Figure 2: Except for Large Banks, Efficiency Ratios Deteriorated during the Recessionsustained efficiency ratios around 55 85%percent for the last seven years, theirratios ticked upward in the first half of 2011 80%— interestingly, at the same time all otherbanks’ ratios were going down. Sustaining Less than $100M 75%FIS ENTERPRISE time, let alone makingefficiency over STRATEGY VOLUME 1 • JULY 2011 $100M - $300Mcontinuous improvement, is tough to 70% $300M - $500Machieve in this climate. $500M - $1BEfficiency ratios will certainly decline 65%(improve) somewhat as the economy $1B - $10Bimproves. But the multi-year earnings 60% $10B+outlook in banking is negatively impactedby increased regulatory and capital 55%requirements, tighter risk controls, andconsumer spending trends. I believe many 50%of these changes are permanent and 2004 2005 2006 2007 2008 2009 2010 Junebusiness-as-usual operating approaches 2011will not bring efficiency back to pre-recession Source: FDIC Summary of Depository Institutions Reportlevels. Many institutions must shift to alonger-term, strategic approach to achievepermanent cost efficiencies.I’ll talk about the future of efficiency ratios in coming month’s articles. This month, I discuss how to use data to makeefficiency improvements.From recent research FIS Enterprise Strategy conducted with 3,000 banking customers nationwide, we know that: 1)on average, only about 40 percent of banks’ primary DDA customers are profitable (that includes marginally profitablecustomers), 2) banks aren’t getting as much share of their profitable customers’ financial wallets as they could get, and3) banks also aren’t getting enough share of the financial wallet of another 40 percent of their customers who could beprofitable if banks could capture a greater portion of their assets and/or loans.A few months ago, we talked with a dozen banking executives who are in various stages of applying data-basedstrategies to align the right product with the right customer at the right time to help their financial institutions growrevenues and manage risk in this tough economic climate. Those furthest into the process had realized the most benefits.Gains resulting from integrating data analytics into their marketing, IT, risk and financial management processes include:• Customer acquisition initiatives are more effective leading to increased revenue generation from marketing campaigns directed toward attracting new customers.• Analytics is fueling product innovation and helping end free checking.• Information is pushed out via the channels specific customers are using, which improves campaign efficiency.• Bankers can focus their resources on retaining and deepening relationships with customers who have been identified as being profitable or potentially profitable. Institutions are increasingly mining retail checking account data for indicators and patterns of customers who are mass affluent or own small businesses.• Customized product packages and corresponding value propositions are created based on applying predictive models that suggest a high propensity for purchase by specific segments of customers. As a result, the potential package “sale” is more relevant and beneficial to both the customer and the bank. Even simple packages (e.g., DDA, savings and debit or prepaid card) can be developed to manage customers who — for better or worse — are married to their banks, but will not likely be profitable for their primary DDA provider in my lifetime.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 2
  3. 3. Our discussions also led to a list of guidelines that we compiled based on the collective wisdom of banking executiveswho have endured through the painstaking process of integrating data analytics into their organizations and are nowreaping the rewards. Top management commitment and strategic focus are vital to success. Data analytics champions need to spend time with senior management to help them envision how analytics can drive revenue and boost efficiencies over time. Bankers stressed the importance of initially focusing on achieving a limited number of goals that have the best potentialFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 to generate successful results relatively quickly.Successful implementation of data analytics programs takes time. One bank took 18 months just to hire the rightperson to head the data analytics function. Most have outlined 5 – 7 year plans to fully realize their goals.Standards are critical. Implementation policies need to be in place to ensure data aren’t misused. Data usagecertification is considered to be a best practice especially if access is decentralized. Certification of users mitigatesbottlenecks common to centralized management of data.Manage data analytics centrally; apply data analytics locally. Most bankers agreed that centralized data managementis ideal, but success hinges on end users — e.g., marketing and risk management — having timely access to information.Business units work with IT to shape priorities and define standards. IT builds and maintains the data warehouse.Information can be provided to employees and/or employees can be trained and authorized to access relevantdatabases.Monitor customer activity daily. Near-term opportunities can be identified through timely monitoring and delivery ofkey data to bank sales personnel. One bank delivers “top-three” selling opportunities for each customer daily to theirtelephone customer service representatives and pushes “next-best” product opportunities to customers when they logon to their account online.Determine rules for measuring customer profitability. One banker cautioned that refined approaches to profitabilityare required to account for a bank’s overhead so that customers aren’t penalized for factors that are not within theircontrol. Another banker pointed out that some customers deemed unprofitable today would be profitable under“normal” economic conditions.Prioritize channels to use for communications and focus on getting information to those channels first. One bankconducted a funnel analysis on customer acquisition to identify the best marketing channels to focus on out of 16different points of contact. The analysis enabled them to designate the most effective marketing channels and number ofcontacts for specific product and customer segment campaigns.While certainly requiring initial and ongoing investment, data analytics can ultimately help banks do more with lessthereby improving efficiency. But, it’s not an easy task to lasso vast amounts of data coming from multiple sources andmake it actionable. It’s a long-term commitment, but one that’s ultimately required as the industry drives toward futureefficiency ratios that will required to remain competitive. We’d love to hear about your experiences — good, bad or ugly— with data analytics. Just reply to this newsletter and let us know your thoughts.1 FDIC Summary of Depository Institutions ReportFIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 3
  4. 4. Exclusivity Provision of Durbin Amendment:Impact and Revenue OpportunitiesFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 Interview with Neil Marcous SENIOR VICE PRESIDENT, PAYMENT NETWORK SOLUTIONS The exclusivity provision of the Durbin Amendment impacts all issuers of debit cards effective April 1, 2012. All issuers, regardless of size, must maintain at least two debit network relationships. There is no distinction between signature and PIN authentication with respect to the two-network-path requirement for debit cards. The two networks must not be affiliated in terms of ownership. For example, an issuer cannot meet Durbin’s exclusivity requirement by using only VisaCheck® signature and Visa’s Interlink® PIN debit service. So what does the exclusivity provision mean for financial institutions? In an in-depth interview,Neil Marcous, senior vice president, FIS Payment Network Solutions, explains the impact and opportunities associatedwith the exclusivity provision and how financial institutions can comply with the law and maximize their revenueopportunities.Impacts of Exclusivity ProvisionQ: What are the major impacts of the exclusivity provision of the Durbin Amendment for financial institutions?Neil Marcous:Financial institutions may feel they have to be in multiple PIN payment networks, but they actually have to be only in twodebit networks. You need a signature network and a PIN network that are unaffiliated. Then, you will be in compliance on thenon-exclusivity clause.Financial institutions that need to choose another network include: 1) financial institutions only using affiliated debit networksfor both PIN and signature — such as MasterCard/Maestro and Visa/InterLink, and 2) financial institutions that are only in asignature network and do not have a PIN network. For financial institutions choosing another network, the biggest challengesare: 1) timing — time is short to choose a network, sign contracts, and go live by April 2012, and 2) strategic fit with the newnetwork.There is an important second impact for financial institutions that have multiple PIN networks on their card. Many smallerfinancial institutions are in three-to-five PIN debit networks, which is not a good idea in a post-Durbin environment. SinceOct. 1, 2011, the merchant has had the ability to determine where the transaction is routed. That means merchants canchoose least-cost routing — directing the transaction to the network where it will cost them the least. Suppose a financialinstitution participates with network “A,” which has decided upon a below- market interchange strategy to make it moreattractive to merchants. Let’s say that this merchant-centric network charges the merchant and pays issuers 25 cents perpurchase transaction. But the financial institution also has network “B” that has an issuer-centric strategy, which wouldresult in the issuer receiving 35 cents per purchase transaction. Until October 1 of this year, the institution was usually ableto specify their preferred network such that it could receive the highest interchange possible. Now, merchants can sendeverything to the merchant-centric network in this example, if they choose to route transactions this way. As a result of havingmultiple PIN networks, financial institutions can experience diminishing revenue streams.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 4
  5. 5. Opportunities for Revenue EnhancementQ: What opportunities for financial institutions are arising from the need to comply with the exclusivity provision of the DurbinAmendment?Neil Marcous:FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011The final regulations of the Durbin Amendment are creating more urgency for financial institutions to review PIN debitnetwork options and consolidate PIN debit networks. Only one PIN debit network is needed to fulfill the regulations, if thecard also participates in a signature network. If the issuer prefers to have the card participate only in PIN-based networks,then two PIN networks are required.Financial institutions no longer need four or five PIN networks for reach and penetration across the entire country. If, in fact,you do have multiple PIN networks, the merchant is making the decision about where the transaction is routed and is goingto least-cost route it. However, if you only have a preferred PIN network and a signature program, you have complied withthe regulations and have more predictability and control over your transaction earnings. More networks aren’t better; itmeans greater expense and reduced interchange income.Lead Time for Adding a NetworkQ: What kind of lead time do you need to prepare to add an additional network?Neil Marcous:Technically, most financial institutions only require a few weeks to add a network, but they need to factor in sufficient timeto decide which network to select and to enter into contracts with that network. For larger customers that want to connectdirectly to the network, more time is required to allow for ordering telecommunications, installing equipment and certifyingthe transaction messages over the new interface.There are varying degrees of timing that we outline for customers in our RFPs. Time is definitely of the essence now forfinancial institutions that need to be compliant by April 1.Questions to Ask in Evaluating PIN Payment Network AlternativesQ: From the issuer’s perspective, what criteria would you use in evaluating PIN debit network alternatives for your financialinstitution?Neil Marcous:If you’re going to pare down to a single PIN and a single signature network, you need to consider both the strategicalignment of the PIN debit network with the financial institution’s interests and the relationship down the road. Anorganization needs to know the network is not only able to represent its best interests now but also is looking at paymentinnovations on the horizon. The network should have a strategy going beyond PIN debit that addresses alternative paths thatare developing such as mobile at the point-of-sale, debit purchases on the Internet, couponing and prepaid reloadable. Youneed to ask the question: what is the organization behind the network you’re picking and what are they investing in researchand development on advanced capabilities that will be important to the institution in the future?For additional information about the FIS Network Solutions and how FIS can help institutions best meet the new Durbinregulations, please contact your sales account manager. If you do not have a sales account manager, please contact us at:http://www.nyce.net/contact/index.htm.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 5
  6. 6. The $5 Debit Fee is D.O.A., but the Needto Revive Checking Fees RemainsFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 By Paul McAdam SENIOR VICE PRESIDENT, RESEARCH & THOUGHT LEADERSHIP The recent miscalculation on debit card usage fees by several large banks serves as a microcosm of the ongoing challenges the retail banking industry will face over the next few years. The populist movement that reversed banks’ decisions to impose or pilot debit card fees magnifies three problems banks will face as they seek to restore pre-recession levels of profitability:1) There is massive consumer skepticism regarding the motivations of banks and other large “institutions.” The 2008 financial meltdown and bank bailouts are not-too-distant memories for many consumers and the home foreclosure crisis is still affecting millions. Most consumers don’t know or care about the fact that the banking industry has lost billions of dollars of revenue due to recent regulations. They simply view any efforts by the banking industry to raise fees in the midst of a recession as unjust. Arguments by banks to leverage fees to restore profitability to pre-recession levels will receive harsh reactions until consumers’ personal income statements and balance sheets return to pre-recession levels.2) This skepticism awoke the silent majority and is driving increased consumer activism across many industries and institutions including banks. Depending on one’s ideology, institutions such as large corporations, labor unions, the military-industrial complex, the government, and others could be viewed as guilty of preserving their own self-interests at the expense of the greater societal good. The Tea Party movement and Occupy Wall Street serve as examples of consumer activism not seen in forty years. Large bank fee increases are an easy target for activists. While the extent to which activists may target fee increases by smaller banks is unknown, it is not outside the realm of possibility — particularly within large metro markets.3) The effectiveness of the consumer activism is accelerated by the power of social media technologies. With social media, any consumer who has motivation and Internet access has the potential to spread a message to millions. Consider the role that social media played in the recent debit card fee conversation. In the span of just 30 days: • Molly Catchpole, the 23 year-old, recent college graduate from Washington, D.C. collected more than 300,000 petitions against the Bank of America debit card fee on Change.org. • Kristen Christian, the 27 year-old San Francisco art gallery owner, started the November 5th “Bank Transfer Day” movement on Facebook and more than 75,000 consumers pledged to participate by moving their money from a large bank to a credit union. • Consumers Union sent messages regarding the Bank of America debit card fee to 780,000 opt-in email subscribers.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 6
  7. 7. Once opposition to the debit card fee went viral on social media, it drew national media coverage and the cycle ofmedia exposure fed upon itself. At the time I wrote this article, a Google search on “Bank of America $5 debit card fee”generated 16.5 million results.And now, anti-bank consumer activism is further emboldened with the news that Bank of America, Chase, Wells Fargoand others reversed course on their debit card usage fees. Although the debit card issue will fade with time, subsequentrounds of social media activism will surely emerge as large banks tweak their fee policies inVOLUME 1 •months.FIS ENTERPRISE STRATEGY the coming JULY 2011Evolution to Relationship-based PricingFor the past 15 years, financial institutions have freely provided debit cards to consumers and encouraged their usage —and it worked. Recent FIS consumer research found that 71 percent of consumers purchase goods using a debit card and39 percent use their debit card to get cash back at a store checkout line. Clearly it was misconceived to start charging feeson such a widely adopted service that has always been free. The move was viewed by consumers, media and eventuallypoliticians as an unjust way to fill the revenue gap left in the wake of the Durbin interchange ruling.A friendlier approach would have been to announce fee increases for packages of checking account services and giveconsumers various options to receive free checking by consolidating their financial relationships with their primary checkingaccount provider or by altering their behaviors to reduce the cost of servicing them. Banks must revise their economicmodels to remain profitable and continue to have the ability to invest in the payment and channel access conveniences thatconsumers increasingly demand. However, fairness and transparency count these days.In order to satisfy their own need to build healthy relationships with customers and also prove the tremendous valuethey provide, banks must transition to relationship-based pricing models with a new proposition: “Make us your primarychecking account provider, consolidate your financial relationships with us, and many of you can avoid fees.” Shifting torelationship-based pricing must be communicated through significant marketing campaigns and frontline employee trainingto reinforce the numerous benefits of checking account services.Wide Variations in Customer ProfitabilityI realize that some readers have no plans to increase fees and will completely disagree with my viewpoint. But before youcall me crazy, I’d ask you to read on. We’ve completed recent consumer research which provides a compelling defense fortransitioning some consumer checking account relationships from “free” to “fee.”An August 2011 FIS Enterprise Strategy survey of 3,000 bank customers and credit union members with checking accountson the topics of loyalty and profitability revealed that many institutions are overserving and undercharging a significantnumber of their customers (see Figure 1).FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 7
  8. 8. Figure 1: Only 39% of Primary DDA Relationships are Profitable High Unprofitable Potentially Profitable Profitable Loyals Loyals LoyalsFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 9% 18% 17% Loyalty to Primary DDA Provider Unprofitable Potentially Profitable Profitable Non-Loyals Non-Loyals Non-Loyals 10%* 24% 22% Low Low High Profitability to Primary DDA Provider * Read as: 10% of consumers are in the “Unprofitable Non-Loyals” segment. Source: FIS™Enterprise Strategy, August 2011; n = 3,000 • Thirty-nine percent of consumers maintain a relationship that is profitable to their primary checking account provider (17 percent loyal, 22 percent not loyal). • Another 42 percent of consumers are potentially profitable to their primary provider (18 percent loyal, 24 percent not loyal). While these particular customers are currently unprofitable to their primary checking account provider, they have the potential to become profitable customers. • Meanwhile, 19 percent of consumers are unprofitable to their primary provider and will remain unprofitable for the foreseeable future (9 percent loyal, 10 percent not loyal).Take a look at Figure 2. It displays the average deposit and loan balances each segment maintains with the primarychecking account provider.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 8
  9. 9. Figure 2: Most Consumers Maintain Modest Balances with their Primary Checking Account Provider Deposit and Loan Balances Held with the Primary Checking Account Provider $140,000 $135,000*FIS ENTERPRISE STRATEGY $117,000 VOLUME 1 • JULY 2011 $120,000 $100,000 Loans Deposits $80,000 $60,000 $40,000 $20,000 $6,500 $5,900 $2,600 $3,000 $0 Profitable Profitable Potentially Potentially Unprofitable Unprofitable Loyals Non-loyals Profitable Profitable Loyals Non-loyals Loyals Non-loyals * Read as: “Profitable Loyals” hold combined deposit and loan balances of $135,000 with their primary checking account provider. Note: Deposits include checking, savings, MMDA and CDs. Loans include first and second mortgages, credit card balances and auto and educational loans. Source: FIS™ Enterprise Strategy, August 2011; n = 3,000The profitable segments maintain the majority of their deposit and loan balances with the primary checking accountprovider and generate 70 percent of the total checking fee revenues collected by financial institutions. Their checking anddebit card fees should not be increased. In fact, these customers should have product packages that provide free checkingservices based on total balances.The potentially profitable segments hold modest deposit balances with the primary checking account provider. Theseconsumers generate 26 percent of the total checking fee revenues collected by financial institutions. Although they arecurrently unprofitable, they have sizeable loan balances residing at other financial institutions. Qualified members of thissegment should receive incentives to move loans to the primary checking account provider in order to avoid checkingaccount fees.The unprofitable segments maintain very small deposit and loan balances with the primary checking account provider andall other financial institutions. They have virtually no resources of significance to shift to their primary checking accountprovider, but they are the heaviest users of channels and pay the lowest fees. They generate only 4 percent of the totalchecking fee revenues collected by financial institutions.The unprofitable segments will be the most vocal in expressing displeasure with fee increases and state that: 1) financialinstitutions are assessing fees on the customers who can least afford them, and 2) increasing fees in the midst of recessionand high unemployment is unjust. These are fair points, but it’s equally true that financial institutions are currentlyoverserving and undercharging these customers.Financial institutions can offer lost-cost packages to these consumers and give them the option of aligning their behaviorswith the costs associated with servicing them. A checkless checking account or a general purpose reloadable prepaid cardmay be the best option for these customers.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 9
  10. 10. Preparing for AttritionWe’ve already seen, and will continue to see, increased customer churn due to the pricing actions taken by the large banks.But I’d strongly caution smaller banks and credit unions against offering aggressive free checking campaigns in an effortto capture a flood of defecting large bank customers. Learning from the debit card experience, the large banks will minecustomer data and establish their future pricing policies in a manner that will lead to substantial churn within unprofitableFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011segments, significantly lower churn within the potentially profitable segments, and very limited churn within the profitablesegments.Although large banks will suffer some collateral damage and lose a few profitable customers as they shift into relationship-based pricing models, the vast majority of their defectors will be unprofitable customers. As a smaller financial institution,do you really want to add a bunch of new free checking customers who only have the financial resources to generate a fewthousand dollars of deposit and loan business balances — mostly composed of credit card debt — for the primary checkingaccount provider? Even though free checking customers tend to be loyal ones, they are not necessarily profitable.The new economic realities in retail banking will require financial institutions to choose a path: 1) transition some consumerchecking account relationships from “free” to “fee,” or 2) maintain an entirely “free” positioning.I’ve recently had conversations with several banks that eliminated free checking earlier this year. All of them haveexperienced higher overall customer balances and profits as a result of re-pricing. They certainly experienced somecustomer attrition, but it hasn’t been higher than anticipated due to their proactive outreach campaigns to move customersinto the right products.Increasing checking account fees may not be the right approach for every institution. But much like the invasion of “TotallyFree Checking” programs several years ago, it’s a trend that cannot be ignored.As always, I’m interested in receiving your feedback. I’d also welcome the opportunity to learn more about resultsyour institution has experienced through either “fee” or “free” checking account programs. E-mail me atpaul.mcadam@fisglobal.com to let me know.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 10
  11. 11. Developing and Deploying Social Mediafor Financial InstitutionsFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 By Mandy Putnam DIRECTOR, RESEARCH & THOUGHT LEADERSHIP The Social Media Imperative Social media has made it to the big leagues. Most days and most newscasts can’t go without at least one story about Facebook, a YouTube viral video, or some new announcement a celebrity or politician made via Twitter. Two-thirds of online adults use social networking sites — more than double the percentage using sites in 2008. And the biggest growth in both participation and daily usage has been among the over-30 age segment.1Despite the rapid adoption of social media across consumer segments, financial institutions do not value social mediachannels highly compared with other points of contact with customers. Less than one in five executives recentlyinterviewed by FIS™ Enterprise Strategy rated social media as important (Figure 1). Figure 1: Only a Fifth of Bankers Consider Social Media to be an Important Communication and Delivery Channel (top 2-box score on 5-point scale) Online banking 93%* Branches 71% ATM machines 70% Call Center (live rep) 55% IVR / Automated telephone banking 48% Mobile banking 43% Social media 18% Self-service kiosks and/or video banking 6% * Read as: 93% of bankers view online banking as an important channel Source: FIS™ Enterprise Strategy, August 2011FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 11
  12. 12. Although some financial institutions are reluctant to participate actively in social media, it has become imperative toconverse with consumers on their terms, which increasingly include social media conversations, in order to capture valueespecially from younger generations.“Deciding whether to get involved means deciding if you want to be part of the conversation … There will be a conversationFIS ENTERPRISE STRATEGY with or without you … If you don’t use social media, • JULY 2011 VOLUME 1 then your business will go elsewhere.” – Hadley Stern, vice president at Fidelity Labs, a division of Fidelity InvestmentsBuilding a strategic plan for developing and deploying afinancial institution’s social media presence can be divided Figure 2: Social Media Plan Includes Four Stepsinto four steps (Figure 2). 1.Planning a Social Media Strategy PlanningDetermine business objectivesThe objectives of your social media program must be tieddirectly to your overall corporate goals, or else they have nomeaning. To maximize success, look at the ways that yourconsumers want to interact with you online. Forrester 2. surveyed more than 2,500 consumers and found the top 4. Measuring Monitoringways that they would like to interact with their banks onsocial networking sites:21) Alert me about upcoming products or special offers2) Offer financial advice 3.3) Offer customer service (e.g., help with questions, Contributing complaints, etc.)4) Present relevant financial service promotional offers to me Source: FIS™ Enterprise Strategy, October 2011Address compliance and securityAfter getting a clearer picture of the social media goals and channels to be targeted, turn next to regulatory complianceand security. Before beginning any social media initiatives, double-check the latest regulatory guidelines as well as obtainadvice from you own legal department to make sure that your social media plans conform to authorized parameters in thespace. Also, communicate proactively with consumers to assure them that their personal financial information will be keptseparate from social media communications.Monitoring the Social Media LandscapeListen to the conversationConversations about your bank are already happening. Tools such as Google Alerts (www.google.com/alerts) and TwitterSearch (search.twitter.com/advanced) can help you find these conversations. Be sure to set up searches for product names,searches within a local radius, and other keywords that go to the heart of your bank’s offerings and goals. If your bank isa larger institution, you may want to look into social media monitoring tools such as Radian6 that will not only find theconversations, but help you analyze the sentiments they express and summarize the opinions being discussed.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 12
  13. 13. Contributing to the Social Media ConversationFocus on engagement rather than sellingParticipants in social media expect to interact informally and “authentically” with each other, whether they are consumers orcorporate representatives. Most financial institutions start with social media monitoring and then graduate to supporting PRand customer education. It’s essential to first establish credibility with customers through social media before trying to sellFIS ENTERPRISE Some of the more effective ways to communicate in social media channels concentrate on: JULY 2011them anything. STRATEGY VOLUME 1 •• Two-way conversation• Information that is relevant to the audience• Simple, conventional language• Photos and videos that give a “face” to an institution or a personal touch• StorytellingUse social media to facilitate responsivenessSocial media can be used to respond more quickly and cost-effectively to customer questions, concerns, and complaints.Many large banks have established problem resolution teams that focus on social media conversations. As one financialeBusiness coordinator told us, monitoring social media can help mitigate the impact of potentially damaging publicity.“Social media has more opportunity than risk; better to be out there than not. We can listen: thegood, bad or otherwise, we can address it. If we weren’t out there, then there’s no telling how big or how far something negative may be able to spread if we couldn’t participate.” – eBusiness coordinator from financial institutionAt the same time, it’s also important to not over-communicate when responding to customer issues/problems conveyedthrough social media. An appropriate amount of discretion must be exercised not to blow a problem out of proportionor stir up a large group of customers over non-issues or minor complaints that can be resolved through privateconversations with customers.Execute targeted social media programs based on core competencies and customer expectations“Social media” encompasses a stunning array of websites and communication channels, but it’s not possible to have a“social media presence” everywhere. Choose where and how to get involved based on your core competencies andyour customers’ social media preferences.Speak to corporate social responsibility (CSR) initiativesSocial media is especially well-suited to working hand-in-hand with your corporate social responsibility initiatives. Forexample, financial institutions can use social media involvement to help decide how charitable donations are allocated orto promote involvement in a charitable organization.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 13
  14. 14. Measuring Social Media ResultsAs with any corporate initiative, measurement and assessment are important parts of the social media program. Metrics youmight use to measure your social media programs include:• Traffic: The number of Twitter followers, Facebook fans, or views on YouTube will show the raw amount of attentionFIS your programs are receiving. Increased Web site traffic or traffic to a company blog will show secondary results that ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 your social media presence can bring.• Interaction: Customer participation demonstrates that the company has engaged its audience. Interaction can be measured by comments the blog or Facebook page receives, Twitter replies, or participation in forums.• Brand Mentions: Word of mouth and the viral nature of social media have the ability to drastically increase brand mentions. Tracking the number and types (positive vs. negative or neutral) of mentions online via tools such as Google Alerts, Radian6, or Trackur will help demonstrate whether your social media efforts are raising brand or product awareness.• Sales: Where possible, referrals from social media to the sales channel should be tracked.This article is derived from a report entitled “Developing and Deploying Social Media for Financial Institutions,” which canbe downloaded from: http://www.fisglobal.com/Insightspapers/index.htm.1Mary Madden and Kathryn Zickuhr, “Pew Internet & American Life Project,” Pew Research Center, August 26, 2011.2“How US Financial Firms Should Approach Interacting with Consumers on Social Web Sites,” Forrester Research, Inc., October 2010.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 14
  15. 15. FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011Strategic Insights is a monthly newsletter that provides research, thought leadership and strategic commentary on recentevents in banking and payments. The newsletter is produced by the Enterprise Strategy team at FIS. FIS is one of theworld’s top-ranked technology providers to the banking industry. With more than 30,000 experts in 100 countries, FISdelivers the most comprehensive range of solutions for the broadest range of financial markets, all with a singular focus:helping you succeed.If you have questions or comments regarding Strategic Insights, please contact Paul McAdam, SVP, Research & ThoughtLeadership at 708.449.7743 or paul.mcadam@fisglobal.com.FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 15

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