The Impact of Social Media on Consumer Finance

Social media allows us to share thoughts, ideas, photos and a whole host of data with friends across the world far more easily than ever imagined just a decade or so ago. With sites such as Twitter we can even provide up-to-th- minute updates on what we are doing, who we are seeing and even how we are feeling. Facebook and LinkedIn allow us to search out and connect with school friends, colleagues, family members and have millions of members actively doing so on a daily basis.

The growth in social media has been meteoric and just about every business on earth now finds itself wanting to get involved for fear of being left behind or becoming irrelevant. Many of these same organisations were faced with a similar fate just a few years ago with the mass adoption of the internet and the arrival of e-commerce. Today the issue is far larger, however, and with the constant development of more and more technically capable devices, greater and greater communications bandwidth and a potential customer base that spans the entire globe, operating 24 hours a day, seven days a week, many traditional business are tempted to rush headlong into developing a social media presence.

Tweet in Haste, Regret at Leisure

There is no doubting the fact that social media is here to stay, and we are already beginning to see a change in the way that people transact through the increased adoption of this medium. But, the more details a consumer shares, the more likely this information will be compromised, or will fall into the wrong hands. Many fail to recognise the obvious security issues.

There have already been a number of large-scale criminal acts conducted as a result of people innocently (and inadvertently) sharing their personal data with cybercriminals; either by chatting on social media or through more complex and planned social engineering, with the intent of gaining access to login credentials, passwords, card numbers or anything that they can use to get access to value.

On the internet, where there is very little proof that we are who we say we are, it is very difficult for a bank to know with absolute certainty that they are actually communicating with a bona fide customer. The same goes for merchants, hence all the additional security measures that have been introduced to try and sift out the good from the bad. To their credit, banks have been some of the most forward-thinking businesses when it comes to protecting their business.

To counter these measures, the fraudsters have become adept at gaining the information they need. When we began to ignore their attempts to get us to click on their nefarious links (or our PCs started to tell us that sites were unsafe) they simply moved their attacks to less secure entry points – the consumer. With their skilful banter and ability to befriend us from the information we have innocently posted via social media, they have been able to talk, cajole and slowly trick us into providing them with more and more personal data.

Despite all this, consumers continue to demand more and more online services and the banks do a great job of providing us with what we want, on devices that are getting increasingly smarter and more capable. Take what has happened in e-commerce, a market that barely existed just a few years ago.

Effect on Card Revenues

Online payments were forecast to account for £58bn of business to the UK alone in 2010; debit payments accounting for £28bn of that figure, credit £15bn, and the remainder coming from alternative payments. It is widely forecast that the figure for alternative payments will increase massively, accounting for around a third of all payments by the end of 2015 – and clearly, these are transactions which will largely happen outside the banking arena, with little or none of the revenue going to banks.

I see banks’ existing card revenues being affected in four ways in the years to come. Firstly, this will happen where the alternative payment provider moves into the physical world. Second, as non-bank alternative payment providers will look to reduce the amount they pay in interchange, moving to less costly mechanisms for loading and unloading of accounts (e.g. direct debits). Third, we shouldn’t ignore the European Central Bank’s (ECB) pledge to reduce the current debit card interchange fees and the concerted efforts by the retail community to reduce the fees that are levied upon them by the international card schemes.

Lastly, and most importantly, we are beginning to see the emergence of online credits or virtual currencies, such as Facebook Credits. Whilst they may start out as propositions best suited to low-value/micro payments, the sheer number of users – and therefore transactions – will result in a significant amount of money being moved around, bypassing the banking networks altogether.

The Role of the Bank

To what extent should banks adopt social media? Banks are good at looking after people’s money and moving it. Where many have failed is in maintaining a bond with the consumer – few would say they are attached to their bank brand. And, to that extent would large numbers of consumers therefore show interest in signing up as a ‘fan’ to our bank online? I doubt this would be the case.

Some of the traditional banks may also argue that they do not need to adopt social media, given that many of their customers are unlikeltuse this platform. It’s about the value that banks deliver through financial services. As custodians of their customers’ details, they have day-to-day insight into current account information, giving them a deep insight into their customer’s financial situation.

I would argue that banks do need to have a presence on the relevant platforms, particularly given the bad press they have received in recent years. However, they should be guarded in the approach they take. Clearly, the more personal data shared, the more likely this information will be compromised.

Social media provides a new opportunity to convey key messages and to get the brand in front of the right audiences. It offers a possible opportunity to fight for and retain all important customer relationships. We only need to look at examples such as Metro Bank, with the motto ‘Love Your Bank at Last’, which has embraced social media as a marketing/relationship-building platform.

Today, it is about connected devices and banks being able to offer all services 24/7 – and to the consumers expecting this service, social media will be of relevance. I believe that banks should view social media as one of those things they need to deal with, but they should be conscious of the security issues and the possibility of information being compromised. This will define the extent of their involvement; if they get too deep into social media, the more likely customer information may become compromised – this really is only a matter of time.

Banks should focus on what they do best – managing people’s money. They don’t need to be at the forefront when it comes to social media.

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