February 21, 2014

Recent tectonic shifts in the banking marketplace have put the entire industry to the test as customer behavior has evolved rapidly towards digital channels. According to consultancy CameoWorks, 95 percent of all customer interactions in retail banking will be digital by 2020. If so, how will the banking industry will respond to these changes in consumer expectations? Fortunately, some forward-thinking financial services firms are already recognizing that they must find a way to own the customer relationship while still providing a personal, humanized connection on the Web. In this article, I’ll take a look at what some companies are doing, how it’s working and why the rest of the industry needs to get on board. Hint: branch transformation is important but won’t by itself adequately address the issue.

Customer Expectations Are SkyRocketing -- And Will Stay That Way

With rising expectations for always-on customer service across multiple channels, banks no longer have the luxury of taking a “wait and see” or incremental approach. Banking customers are using digital, mobile and social channels at increasing rates, and banks ignore this customer segment at their own peril. A recent study by Lithium and research firm Millward Brown revealed 72 percent of customers who complain about a brand over Twitter expect a response in less than an hour. It also revealed that when their expectations aren’t met, 38 percent feel more negative about the brand and a whopping 60 percent will take action to express their dissatisfaction.

As real-time responses become key to a great customer experience, the banking industry has a big hurdle to jump: regulatory challenges. While various regulations around communication may require more diligence and effort from banks when it comes to social, with careful planning, sound policies, training, oversight and record keeping, the rewards of leveraging a differentiated social strategy can be well worth it when it comes to creating market-leading customer experiences.

[For More on Social Media: 2014 Forecast: The Evolution of Social Media in Banking]

Traditionally, most banks have remained wary of investing in social software and strategies – the unclear or ambiguous FINRA, SEC, and NCUA regulatory guidance around social media is often cited as the chief reason. However, regulatory agencies are now beginning to create guidance specifically for social media use. The rules reflect previous guidance for electronic communication, and hold financial services firms to familiar offline communication guidelines across a variety of areas including authorized employee usage, personal devices, advertising, disclosures, real-time communication, suitability, third-parties, recordkeeping, policies, procedures, training and supervision. Now, banks have no excuse not to get a strategy in place that responds to customers’ needs and questions in real-time.

Twitter, Facebook, LinkedIn and Google+ Shouldn’t Be Your Sole Focus

Regulatory confusion notwithstanding, many banks have ventured out onto LinkedIn, Facebook, Twitter and Google+, under the assumption that these are the best and only places to be for customer engagement in social channels. Not so. In fact, according to a study by Napkin Labs, only 6 percent of fans engage with a brand’s Facebook page via “likes,” comments, polls and other means. So while these social media giants have large user bases and can therefore be effective as channels for reach, they fall short in customer engagement.

Furthermore, banks face a giant game of whack-a-mole when trying to predict the right social networks in which to invest time and resources as customer preferences evolve rapidly. Many forecasters once predicted that Facebook would not only dominate all social networks, but the entire Web, eventually becoming the new corporate website. Obviously, that has not come to pass and likely never will, as evidenced by waning teen interest in Facebook and the huge growth of new sites such as Pinterest and SnapChat. Recent studies showed a 17% decrease in teen Facebook usage, while Instagram saw an 85% increase in active users. The place to be on social media today almost certainly will not be the same tomorrow. It’s essential that banks not concede their entire digital strategy to Facebook—or any other single public social network. Banks are used to spreading their bets to minimize risk in the business, the same principle should be applied when investing in social channels.

Customer Communities As Trusted Social Hubs

Even banks that have managed to reach a sizable audience on social networks struggle with what to do with this audience. Networks like Facebook don’t allow for a rich discussion between the bank and its customers, or a discussion amongst customers with each other. As a complement to existing social media activities, many forward-thinking financial service firms have placed their own socially-enabled website at the center of their marketing and customer service strategy. This social base camp serves as a place to engage with customers, capture their social conversations, develop new insights and innovate on the social customer experience. Unlike social networks like Facebook and Twitter, social communities allow brands to have full control over the customer experience – providing more flexibility and personalization.

By definition, social communities put trusted user-generated content (UGC) at the core. The key to having a community in a highly-regulated environment, where there are restrictions on giving financial advice, is to create a place where customers own the decision to join the community, and are allowed the freedom and choice to determine their level of engagement and interaction within that community. Customers will have vibrant conversations with each other while the brand stays on the sideline to avoid regulatory scrutiny, and the brand can still derive a wealth of information about its customers from observing and mining these conversations.

Game-Changing Innovation: myFICO Community

One great industry example can be seen from Fair Isaac Corporation, the creator of the famous FICO score. FICO is prohibited from answering questions about the specifics of how its credit scoring algorithms work, but knew this left customers with unmet needs. As a solution, the company built the myFICO community in order to provide an outlet for users to ask questions, share their experience and offer tips to each other on how to manage credit scores. As the volume of trusted user-generated content has grown, FICO has seen significant increases in search traffic. Nearly eight million posts are read each month and 39 percent of the search traffic to FICO.com comes from the myFICO community. Typically in communities, the more vibrant the conversation the more common it is that customers educate each other on the brand’s products and services. So it’s no surprise that FICO saw customers engaged in the community consistently spending more with FICO than customers not engaged in the community – this was over 40% more by the third year after community registration.

Conclusion

We have entered the age of extreme customer expectations, where the demand for real-time support and feedback from brands is real and growing exponentially – and banks are no exception. To address this changing landscape, financial service firms need to be more strategic in their digital and social investments. This means finding platforms that enable social response capabilities at scale, as well as incorporating social interactions among customers to address the kind of shared experience that today’s customer expects. In the next few years, banking customers will be more mobile and up for grabs than ever before and the majority of their buyer’s journey will continue to take place before they ever set foot in a branch or talk to a bank’s financial advisor. Banks that find ways to connect with customers online in a transparent, authentic way will find themselves in a leading position, and the banks that don’t make this adjustment will find themselves acquired or out of business.

Michael Schanker is the VP of strategy at Lithium Technologies.