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

2

Table of Contents

1 Executive Summary ................................................................................................................. 4

2 Introduction .............................................................................................................................. 5

3 Consumer Use of Social Media is Still Growing ................................................................... 5

4 The Customer Experience Journey in Banking is the Foundation for Social Media

Initiatives .................................................................................................................................. 6

4.1 Stage 1: Discover ...................................................................................................................... 6

4.2 Stage 2: Evaluate ....................................................................................................................... 7

4.3 Stage 3: Buy .............................................................................................................................. 7

4.4 Stage 4: Use .............................................................................................................................. 7

4.5 Stage 5: Re-engage ................................................................................................................... 7

5 Applying Social Technologies in the Finance Industry Means Understanding the

Customer .................................................................................................................................. 8

6 Social Marketing ...................................................................................................................... 8

7 Social Marketing Use Cases and Examples .......................................................................... 9

7.1 Social campaigns ....................................................................................................................... 9

7.2 Brand presence ........................................................................................................................ 10

7.3 Consumer recommendations / reviews ................................................................................... 10

7.4 Nurturing of advocates ............................................................................................................. 11

7.5 Voice of customer .................................................................................................................... 11

8 Social CRM ............................................................................................................................. 12

9 Social CRM Use Cases and Examples................................................................................. 12

9.1 Listen & Respond ..................................................................................................................... 12

9.2 Customer self-services ............................................................................................................ 12

9.3 P2P Support ............................................................................................................................. 13

9.4 Voice of customer .................................................................................................................... 14

10 Compared to Social Marketing, Social CRM is one of the Strategic Options for

Financial Service Providers .................................................................................................. 14

3

11 Measuring Social Initiatives Means Transparent Metrics .................................................. 15

12 Social Increases the Size of the Pie: New Business Opportunities for FSPs ................. 17

13 New business models Use Cases ........................................................................................ 17

13.1 P2P lending / financing ............................................................................................................ 17

13.2 P2P micropayments ................................................................................................................. 18

13.3 Community banking ................................................................................................................. 18

13.4 New Business Models are the Long Tail ................................................................................. 19

14 Applying social in finance means overcoming external regulations, internal

resistance, and updating systems ....................................................................................... 19

14.1 External Regulations ................................................................................................................ 19

14.2 Internal Resistance .................................................................................................................. 20

14.3 Traditional transactional Systems ............................................................................................ 21

15 Future Trends Involve Mobile Convergence and Big Data Management ......................... 21

15.1 Integration of social and mobile ............................................................................................... 21

15.2 The “big data” opportunity ........................................................................................................ 22

16 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.

4

This paper analyzes how financial

service providers (FSPs) can use

social technologies to improve their

client engagement and business

processes

Customers interact with their FSP

along five main stages: discovery,

evaluation, buying, use, and re-

engagement

Currently, the majority of social initia-

tives are focused on social marketing,

but it would be strategically more

beneficial for FSPs to integrate social

with CRM programs

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 to

internal social communication platforms, but also to external social

marketing solutions and integrated social customer relationship

management initiatives.

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 correctly

positioned strategy as each stage has its own specificities that

alter the objectives and shape the limits of social initiatives. The

discover stage is driven by customer needs that are out of the

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,

how this implementation can be measured and how the barriers to

adoption can be mitigated. Existing examples of the current

situation and usage of social technologies from financial entities

highlight success cases and the maturity of social initiatives in this

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

5

Social media growth is explosive and

is having a big impact on every

vertical industry, including financial

services

Based on a number of interviews with

industry experts, this paper will

analyze how the financial services

sector can use social technologies to

improve client engagement and

business processes

Social networks are now used for

referencing content, an increasingly

important method for influencing

purchasing behaviors

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 social

technologies to improve client engagement and business

processes. In this case, social technologies refer to external social

marketing solutions and integrated social customer relationship

management initiatives on both public and proprietary customer

facing interfaces. Please see Appendix 1 for a Classification of

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 media

use. As Edison Research shows, “From 2010 to 2012, the

percentage of Americans following any brand on a social network

increased from 16% to 33%.”

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 influencing

purchasing behaviors. Edison Research states that, “Only 36% of

those surveyed said that social media networks had no influence

on their buying decisions, and 47% claimed that Facebook held

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.”

6

It is fundamental to understand the

specific customer experience journey

in banking in order to understand how

social media can be applied

Stage 1 – Discover: The needs of a

customer who is engaging with a FSP

are difficult to shape

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 customer

experience in order to understand at which point in the

engagement process and to what extent social media can be used

as a tool. The Customer Experience Journey is a widely accepted

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 a

payroll account, and without significant income, they will not

engage in a mortgage. The appeal of the financial services

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.

7

Percentage decrease of

customer confidence in the

banking industry

World: 40 %

Italy: 72 %

Source: Ernst & Young, Global

Consumer Banking Survey, 2012

Spain: 76 %

Stage 2 – Evaluate: Peer advice is be-

coming more and more relevant, espe-

cially important when confidence in

banking is decreasing

Stage 3 – Buy: The main barrier when

engaging with customers in open

channels is the involvement of sensitive

personal data

Stage 4 – Use: The Use stage of a given

financial product is hyperextended, as its

use is usually long term

Stage 5 – Re-engage: Product purcha-

ses keep building up on each other in

the life cycle and create important exit

barriers, but customers are starting to

have relationships with multiple FSPs

4.2 Stage 2: Evaluate

The nature of the financial industry makes evaluating products or

services a complex process.

Customers will require expert

and peer advice before

making a choice. Peer advice

is becoming more and more

relevant, especially as we

have seen a recent decrease

of customer confidence in the banking industry.

4.3 Stage 3: Buy

The main barrier in terms of engaging with customers through

open channels is that in the purchasing stage, as well as in the

use stage, sensitive personal

data are often involved. This

results in a decrease in the

willingness of customers to share their information and

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 financial

services is usually long term. Also, the need for engagement

between service provider and customer may be small or even

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 her

relationship with a given FSP, the less likely he or she is to leave

that FSP. Each subsequent purchasing decision is not

independent from the previous ones. For example, while changing

a payroll account is fairly simple, once a customer engages with

8

Social Marketing, Social CRM and

new business models are the three

areas where financial institutions are

applying Social Media

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 in

the financial sector. There are currently three areas where

financial institutions are applying social media. Two of these areas

focus on enhancing existing business processes, while the third

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.

9

In social campaigns, companies are

not only tracking customer adoption

rates but also user retention rates

Some of the best practices in social

marketing in finance are based on

content marketing: offering relevant

and useful content in return for the

users’ engagement and loyalty

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 an

unending stream of fresh new content. Keeping up the speed by

providing ‘fresh’ content daily is key to fostering engagement and

avoiding an inactive user base. Some of the best practices in

social marketing in finance are based on content marketing:

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 several

social campaigns to increase the number of their community

members and their engagement. During this campaign, which

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.

10

The impact of consumer reviews and

recommendations on business is

starting to be adopted in financial

services

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 great

source of

feedback and

customer sentiment. The impact of consumer reviews and

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.

11

More and more, customers wish to be

participants in the creation of new

services. They want more

personalized and tailored solutions

The key to creating brand advocates

lies in engaging with the customers in

the channel where they interact

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 to

enhance non-game contexts). Barclays did just that by launching

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 more

personalized and tailored solutions. Voice of Customer (VoC)

initiatives can be aimed at fostering engagement and loyalty (i.e.,

marketing) or at leveraging customer feedback for new product

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.

12

Social CRM is focused on customer

engagement versus traditional

customer management

More and more financial institutions

are seriously considering the listen &

respond challenge in social media

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

information on how to improve this usage.[2]

Social CRM is focused on customer engagement versus

traditional customer management. Defined as a new path to interact

with the customer, Social CRM is characterized by its immediacy

and ubiquity. Response times of one hour are the new standard.

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 Sabadell

has dedicated a team to search through different platforms for

customer complaints and discussions regarding their service and

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.

13

Being able to harness the knowledge

of customers directly involves enga-

ging, supporting and managing an on-

line community, as its member’s iden-

tify problems and create solutions

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 1

phone support in over 40% of the top 1,000 companies with a

contact center.” A current example of P2P support does not yet

exist in the finance industry due to the high level of access to

sensitive data that financial services support often requires. In

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

14

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

Social CRM focuses primarily in the

hyperextended use stage, as well as

in influencing purchasing behavior

through the evaluate and buy stages

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 to

customer complaints, personalized surveys for each community

member, topic-based surveys/polls, and general satisfaction

surveys and comments. A good example of a company currently

employing VoC for CRM use is Standard Bank, which constantly

embeds polls and surveys among its blogging services to increase

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 in

the area of social marketing. Social marketing focuses on the

stages in which there might be a lesser impact in terms of

influencing behavior or providing benefits for the customer or the

FSP, such as the discover, evaluate, and re-engage phases.

Social CRM, on the other hand, focuses primarily in the

15

Developing social CRM allows for

faster decision making throughout

various internal departments

Social CRM KPIs are by nature more

customer-oriented and often more

tangible to measure than those of

social marketing initiatives

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 the

backend, although social marketing is a good tool for marketing

and communications teams, developing social CRM allows for

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) though

the benefits of social marketing are more difficult to monetize.

Given that social marketing actions can hardly be measured by

direct ROI, the main metric to measure the success of a given

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

16

The key to correct performance

metrics is not to measure fans, but to

measure active fans

Alongside traditional CRM metrics, it

is also important to establish new

social sentiment measures

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 or

commenting on text, videos or pictures which the banks post to

their corporate pages. These users are more likely to drive

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 for

support, the number of actions triggered by analysis of data,

percentage increase in community interaction, and active

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.

17

Creating a P2P lending platform that

both lenders and creditors can access

will reduce the need and cost of

intermediation when investing in or

acquiring unsecured personal loans

By enabling rich direct interactions

among individuals, social media has

also given light to a whole new way of

conducting business in financial

services

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, by

enabling rich direct interactions among individuals, social media

has also given light to a whole new way of conducting business in

financial services. These new business models are still a tiny slice

of the industry but their rapid growth over the last few years and

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 size

and importance, and therefore must be tracked closely. With

greater than 100% year over year growth, P2P lending is one of

the fastest growing industries in the US. The P2P lending industry

volume is over $50 million in new loans a month and in May 2012,

total loan volume passed the $1 billion mark since the industry

began back in 2006.[3]

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

18

The business impact of a P2P micro-

payments model extends well beyond

payment operations

Community banking 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

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. VISA

Payclick is a micropayment program launched by Visa in

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 their

users to reduce marketing costs. One of the most innovative

banks in the industry at the moment is Fidor Bank which has

been listed in the German stock exchanges since 2007, and

started operations in 2006. All operations are online and the

company describes itself as, “banking with friends.” The sign-on to

Fidor Bank is through Facebook Connect which, at this time, is

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

19

First barrier – External regulations:

Companies must be aware of these

regulatory conditions when establishing

social media initiatives

Fueled by the viral nature of the social

media environment, new P2P models

may disrupt the status quo in the

industry by rendering some of the

existing business models obsolete

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 of

traditional FSPs due to its unattractive below-average returns and

perceived “lack of quality” in the services provided. Yet, as history

has proven many times over, the incumbent FSPs will do well to

keep a close eye on the growth and evolution of these new

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 not

call” lists from telemarketing. Also, with many existing laws around

managing customer information, regulators now guide companies’

social data collection and management policies. For example, the

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

20

Second barrier – Internal resistance:

When establishing new social marketing

or CRM initiatives, companies across all

industries face internal resistance from

employees who may not see the benefits

of the projects

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 the

projects, do not want to go through extra training, or do not want to

change their established work flow processes. Some employees

believe that a social initiative should only affect certain employees,

such as the marketing team, and feel resentful when their daily

routine is affected. These employees may try to stop the initiatives

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,

21

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

Third barrier – Traditional transaction

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

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 financial

enterprises are not enough. These core systems are slow. They

allow only for low experimentation and are risk averse. Despite

these drawbacks, the development of entirely new core systems is

not necessary. What is necessary is the development of a new set

of systems which Forrester calls, “the digital experience,” to work

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 and

tablets evolve, they bring us closer to a future where data, friends

and information are readily available anytime, anywhere. Juniper

Research predicts that 1.3 billion consumers will rely on their

22

The convergence of Social Media and

the “big data” challenge represents

huge opportunities for financial

institutions

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 people

in social. According to late 2011 statistics published by IBM, the

massive adoption of Google, Facebook, Twitter and other services

has resulted in the generation of over 2.5 quintillion bytes each

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.

23

Big Data is not just about big volume,

it also about velocity, value and

variety

When it comes to finance, this new

way to improve decision making

simply should not be ignored

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 unstructured

variety. Early awareness of the need to support unstructured data

has been most acute in customer-facing organizations. Oracles

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 -- wasn't 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 if

this customer needs to activate his credit card in the US, if this is

in the realm of financial regulations. In an innovative use of Big

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.

24

16 Appendix 1: Classification of Social Technologies

Capability Description Examples of Technologies

Identify / Connect Allow users to add, modify or access content

through the use and linking of rich profiles.

The decision of one user to access one or

another network will depend on his or her

potential match with the ‘community profile’

Facebook, Twitter, LinkedIn,

Tuenti

Communicate / Discuss Enable direct unilateral or multilateral

communication in real or differed time.

Skype, WebEx, Facebook

messaging, Twitter, Blogs

Create & Share content Allow the creation of public files such as

document, image or video files, as well as

their dynamic modification and the collection

and mining of collective knowledge through

forums, discussion boards and Wikis.

Social bookmarks, search

engines, tags, hashtags

Review / Rate Allow users to share their opinions on

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.

Tripadvisor, Booking.com

Play games Allow users to engage in games whilst

remaining within the social portal has

emerged. The gamification component is

increasingly being exploited too in the most

advanced cases of social CRM.

Zynga Games (Farmville), Angry

Birds

25

Contact Person:

Miguel Reiser | Director Business Marketing | GFT Group

T +34 93 565 9100 | info@gft.com

Copyright © 2012 GFT Technologies AG. All rights reserved.