Liz Morrell asks: what does it mean to the highly regulated banking world when millions of people are using Facebook etc to communicate, share, network and entertain? And who are the pioneers in this field?

The explosion of social media across UK culture has changed the ways in which individuals interact with eachother but also with the businesses whose products they consume. For the retail world, for example, the rise and rise of social media has provided obvious advantages - offering an easy way to interact, communicate with and market to customers through the likes of Facebook whilst for those more forward thinking retailers social media has also offered the opportunity to deal swiftly and promptly with customer concerns or complaints through sites such as Twitter.

In the banking world, however, the move into social media has been a more reluctant one. A report published by Ovum - the technology arm of Datamonitor - in February showed just how hesitant the financial world is being, The Impact of Social CRM on Retail Banking, showed that 60 per cent of the world’s retail banks had no plans in place to use social media in any way and that only six per cent of retail banks currently used it to deal with customer queries. Only a further one per cent planned to use it in such a way by the end of 2012. Similarly plans to implement it for marketing were also limited with only 14 per cent using it currently and a further 12 per cent planning to do so by the end of next year.

Banks’ failure to adopt social media was criticised by the report’s author as being shortsighted - especially given the opportunities social media could bring to a sector that has suffered derision and poor consumer confidence following the banking collapses. Yet despite the fact that a limited number of retail banks have adopted social media even their efforts are being questioned.

In August, Experian published a report which should have also got the UK banking industry moving. Its Facebook Generation study highlighted the financial habits of the UK’s young adults - the Facebook Generation of 18 to 25 year olds, for whom social media is second nature being 14 per cent more likely to use Facebook than the average UK internet user. The report showed that such users used their mobile phones and technology to find the best financial deal - whether credit cards or mortgages with much of that advice coming from friends and family for six out of ten users.

Tor Bengtsson, commercial director at Experian UK and Ireland, warned at the time that financial services leaders needed, as a matter of urgency, to understand how their customers are interacting with their brands online and to realise that the influence of social media does affect their buying habits. “The Facebook Generation is more open to influence from peers and financial providers than ever before. They want immediate information, instant decisions, faultless customer service and the ability to manage finances on the move. Providers that fail to tick all these boxes could fall behind,” she said.

The majority of financial companies, though, are not yet heeding the warnings. For this reason Will Mayne, senior analyst at Datamonitor, suggests a more cautious approach may be appropriate. “I understand the hesitancy because it’s a heavily regulated industry and there are serious compliance issues, however social media has established itself and is here to stay and the big corporate entities need to figure out how they use this channel and what they want to do - even if it’s just exploring, experimenting and then implementing,” says Mayne.

Jumping straight in on the customer service route is a risky step. Instead he advises a more cautious approach using social media as a brand tool and marketing communication channel. “There are ways you can use social media initially such as using it as a passive means to gauge consumer sentiment or as another channel to push a campaign message. There are ways to step into it slower,” he says.

Showing the way

Others, however, are getting on with it regardless with great examples of financial companies around the world leading the charge. These include Bank of America and Deutsche Bank. And it doesn’t have to be limited to the big boys. Mayne cites the example of Saffron Building Society - a local building society based in the South East whose CEO has led the company in its foray into social media. “They have done some very interesting work on community building through social media with a very open forum. If you look at the number of their Twitter followers relative to the number of customers it’s head and shoulders above others,” he says.

In the UK it is HSBC Group that is leading the charge - particularly via its first direct arm. “Social media is very important to first direct,” says Natalie Cowen, head of brand at first direct. “More and more people are becoming comfortable with joining online communities, ergo more of our customers and potential customers can regularly be found in this space. If we don’t get involved we’re missing out on an untapped market and the opportunity to deliver the amazing customer service we’re known for in a space where people are asking for help,” she says.

She says that social media allows new ways for the banking industry to listen and interact with both existing and potential customers. “It used to be that if someone had an idea on how to improve their bank they might tell their friend down the pub, but now they can share it with the world. Financial institutions can tap into this resource to help shape their products, deal with customer service issues before they develop into serious complaints and decide whether a message has worked,” says Cowen. She cites the example of the recent launch of first direct Lab, a site designed to invite the public to collaborate with them to create new products, marketing and ideas for the future. “We were blown away by the response.”

And the bank has ambitious plans for the future too. “We’ll soon be proactively going out into the social media space to find customers and prospective customers who need a bit of a hand with something, or just an answer to a question, and we’ll help them where we can,” says Cowen.

As Ovum advised earlier in the year, social media can help the banking industry regain the trust of their customers as well as harbor new devotees. “It’s no secret that trust in financial institutions is at an all time low,” says Cowen. “Social media is a perfect opportunity to engage with people in an open and honest way to win some of that trust back. At first direct back in 2010 we created the ‘Live’ campaign which aggregated all the online sentiment about first direct and displayed it for all to see - the good and the not so good. People were able to see that we were better than the rest, but they were also able to see that we are not quite perfect, so it was completely credible.”

But the challenge of dealing with critical customer information remains. Cowen admits compliance issues are still hampering the banking industry’s ability to change. “There are processes in place that haven’t been updated to take into consideration the social media revolution, so financial brands sometimes have their hands tied. It’s up to us to prove that we can get involved in social media whilst continuing to maintain the integrity of people’s banking details. We’re taking small steps, but it’s better than standing still,” she says.

The banking industry is catching up but it’s a race that can’t be rushed. “We’re one of the most highly regulated industries out there and with good reason - it’s imperative we keep private banking details safe,” says Cowen. “However, I’m sure we’ll catch up as long as institutions are willing and able to take calculated risks and prove that social media is safe. In terms of when this will be, it’s hard to say, but if we can work with regulators to get their input I envisage everyone catching up in the next few years,” she says.

Whether that proves to be time enough for those that have not yet even thought about their social media strategies has yet to be seen.

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