Social Media and Banking Essay Example for Free

Social Media and Banking EssayIntroductionSocial media and stranding do not seem to have a strong relation at the first tincture on the topic, just atomic number 18 indeed complexly related in todays world with the continuous evolution of the banking sphere of tempt and the huge impact of societal media on the masses. While today some international banks are using fri abately media as a connectivity and marketing barb with its customers, Indian banks are also not far behind. ICICI, one of Indias biggest banks, already boasts a Facebook app al downcasting clients to look out their paper details, check statements and upgrade their debit card, among other activities, barely still maintains a cautious attitude to friendly media dodge. While in that location is no doubt that tender media is all the r get on amongst retail and advertisings sectors, it is provided to bewilder major inroads in the fiscal run and banking sectors. A sensitive report from Ovum, the te chnology arm of market analyst firm Datamonitor reveals that a majority of banks world(a) arent yet ready to embrace kindly media.Privacy and Data Security are two of the biggest hindrances to mass-scale cordial media adoption in the banking sector. Moreover, many banks do not think genial media gives them an edge to act on customers. In fact, they believe that its a dangerous proposition which whitethorn compromise sensitive financial data .Startling as it may seem, the recent Ovum research indicates that 60 per cent of the worlds retail banks have no plans to make use of affable media in the future. There are noticeable exceptions though UKs First Direct, Australias NAB, Wells Fargo in the US and Rabobank in the Netherlands have adopted fond media as a communication channel. While Ameri mountain banks mostly rely on twitter, Australias NAB used YouTube and Twitter to pacify disgruntled customers later on its online banking transcription fell over.And going by the enco uraging response received so far, the move appears to be fetching the desired go forths. 14 per cent banks soon use cordial media as a marketing tool, with a further 12 per cent planning to use it to promote their business by the end of 2012. Some challenges which the sectors might face are as follows The banking sector relies on sensitive financial data all the time. Though Facebook has made several changes to its seclusion norms over the last couple of years, a lot to a greater extent(prenominal) needs to be done in order to simplify who gets to see what information. Perhaps, a antithetic set of privacy controls for banks and financial institutions would subprogram.Given the afoot(predicate) situation, its unsurprising that most banks prefer Twitter over Facebook as the former has virtual(prenominal)ly no privacy vulnerabilities. The Ovum report indicates that friendly media offers a massive untapped opportunity for financial institutions. Consumer confidence in the bank ing sector has hit an all-time low and a personal touch of societal media would serve as a perfect shot in the arm to lift the struggling global financial industry. Before we plunge into this fast deepening relation mingled with sociable media and banking, let us first understand some basic concepts somewhat banking and mixer media separately.BankingUnder the Central Government Act,Section 5(b) in The Banking Regulation Act, 1949(b) Banking means the accepting, for the purpose of lend or investiture, of deposits of money from the public, re compensateable on demand or otherwise, and withdrawable by cheque, draft, order or otherwiseIn general, a bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either holdly by loaning or indirectly through capital markets. A bank connects customers who have capital deficits to customers with capital surpluses.Due to their influence inside a financial system and an economy, banks are primarily highly regulated in most countries. Most banks operate under a system k forthwithn as fractional reserve banking where they hold only a smallreserve of the capital deposited and lend out the rest for profit. They are generally checkmate to minimum capital requirements which are found on an international set of capital standards, known as the Basel Accords.Standard activitiesBanks act as payment agents by conducting checking or current accounts for customers, paying checks drawn by customers on the bank, and collecting checks deposited to customers current accounts. Banks also enable customer payments via other payment methods much(prenominal) as Automated Clearing House (ACH), Wire transfers or telegraphic transfer, EFTPOS, and automated teller machine (ATM).Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making a dvances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.Banks provide dissentent payment services, and a bank account is considered indispensable by most businesses and individuals. Non-banks that provide payment services such as remittance companies are normally not considered as an adequate reticence for a bank account.ProductsRetail banking* Checking account* Savings account* Money market account* Certificate of deposit (CD)* Individual retirement account (IRA)* assign card* Debit card* Mortgage* Home equity loan* Mutual fund* Personal loan* Time deposits* ATM card* original AccountsBusiness (or commercial/investment) banking* Business loan* Capital raising (Equity / Debt / Hybrids)* Mezzanine finance* Project finance* Revolving credit* Risk management (FX, interest rates, commodities, derivatives) * destination loan* Cash Management Services (Lock box, Remote Deposit Capture, Merch ant Processing) Economic functionsThe economic functions of banks accept* Issue of money, in the form of banknotes and current accounts subject to check or payment at the customers order. These claims on banks piece of tail act as money because they are negotiable or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a check that the payee may bank or cash.* Netting and settlement of payments banks act as both collection and paying agents for customers, participating in interbank neting and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economize on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the follow of settlement between them. * Credit intermediation banks borrow and lend back-to-back on the ir own account as middle men. * Credit quality rise banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), only are high quality borrowers.The improvement comes from diversification of the banks assets and capitalwhich provides a lover to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured if the bank gets into difficulty and pledges assets as security, to raise the patronage it needs to continue to operate, this puts the note h cureds and depositors in an economically subordinated position. * Asset liability mismatch/Maturity transformation banks borrow to a greater extent on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long.With a stronger credit quality than most other borrowers, banks give the sack do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redem ption of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising re attitudement funding as needed from various sources (e.g. wholesale cash markets and securities markets). * Money creation whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of virtual money is created.Laws Related To Banking In India1.1.Reserve Bank of India Act, 19341.2.Banking Regulation Act, 19491.3.Negotiable Instrument Act, 18811.4.Consumer Protection Act, 19861.5.Limitation Act, 1963Social MediaSocial media employ web- and meandering(a)-based technologies to support synergistic dialogue and introduce substantial and pervasive changes to communication between organizations, communities, and individuals. Social media are social software which mediate human communication. When the technologies are in place, social media is ubiquitously accessible, and enabled by scalable communication techniques. In the year 2012, social media became one of the most powerful sources for news updates through platforms such as Twitter, Facebook, and Google+.Classification of social mediaSocial media technologies take on many different forms including magazines, Internet forums, weblogs, social blogs, microblogging, wikis, social networks, podcasts, photographs or pictures, video, rating and social bookmarking. By applying a set of theories in the field of media research (social presence, media richness) and social processes (self-presentation, self-disclosure) Kaplan and Haenlein created a classification scheme in their Business Horizons (2010) article, with six different types of social media collaborative projects (for example, Wikipedia), blogs and microblogs (for example, Twitter), nub communities (for example, YouTube), social networking sites (for example, Facebook), virtual game worlds (e.g., World of Warcraft), and virtual social worlds (e.g. Second Life). Technologies acknowledge bl ogs, picture-sharing, vlogs, wall-postings, email, instant messaging, music-sharing, crowdsourcing and voice over IP, to name a few. Many of these social media services can be integrated via social network aggregation platforms. Social media network websites include sites like Facebook, Twitter, Bebo and MySpace.Mobile social mediaSocial media applications used on mobile devices are called mobile social media. In comparison to tralatitious social media running on computers, mobile social media display a higher location- and time-sensitivity. ane can differentiate between four types of mobile social media applications, depending on whether the message takes account of the specialised location of the user (location-sensitivity) and whether it is received and processed by the user instantaneously or with a time delay (time-sensitivity).* Space-timers (location and time sensitive) Exchange of messages with relevance for one specific location at one specific point-in time (e.g., Faceb ook Places Foursquare) * Space-locators (only location sensitive) Exchange of messages, with relevance for one specific location, which are tagged to a certain place and read later by others (e.g., yelp Qype) * Quick-timers (only time sensitive) Transfer of traditionalistic social media applications to mobile devices to increase immediacy (e.g., posting Twitter messages or Facebook status updates) * Slow-timers (neither location, nor time sensitive) Transfer of traditional social media applications tomobile devices (for example, watching a YouTube video or reading a Wikipedia entry)Mobile social media can also be used on the go when one is not near a personal computer, lap-topetc. With all the new devices that are arriving at our finger tips, gadgets such as tablets, iPods, phones, and many other new products, there is no use for sitting at home using ones PC mobile social media has made other sources of internet browsing obsolete, and allows users to write, respond, and pasture i n real-time. New media of social networking such as Instagram allows the world to interconnect and makes space and time much smaller. Instagram allows individuals to snap a photo wherever they may be and share it with the rest of the world instantly, delivering a social media site full of foreign accomplishments and strange scenarios. This feature was introduced by Facebook and other quick social media sites, Instagram is a recent addition to the social media scene, and has made picture sharing much easier. Mobile social media is a relatively new platform since it is contingent on mobile devices ability to access the Internet.There are various statistics that account for social media usage and effectiveness for individuals worldwide. Some of the most recent statistics are as follows* Social networking now accounts for 22% of all time spent online in the US. * A total of 234 one thousand million people age 13 and older in the U.S. used mobile devices in December 2009. * Twitter pr ocessed more than one billion tweets in December 2009 and averages almost 40 million tweets per day. * Over 25% of U.S. Internet page views occurred at one of the top social networking sites in December 2009, up from 13.8% a year before. * Australia has some of the highest social media usage in the world. In usage of Facebook, Australia ranks highest, with over nine million users spending almost nine hours per month on the site. * The number of social media users age 65 and older grew 100 percent throughout 2010, so that one in four people in that age group are now part of a social networking site. * As of May 2012 Facebook has 901 million users.* Social media has overtaken pornography as the No. 1 activity on the web. * In June 2011, it was account that iPhone applications hit one billion in nine months, and Facebook added 100 million users in less than nine months. * If Facebook were a country it would be the worlds third largest in terms of population, larger even than the US. * In June 2011, it was also reported that U.S. Department of Education study revealed that online students out-performed those receiving face-to-face instruction. * YouTube is the second largest search engine in the world. * In four minutes and 26 seconds 100+ hours of video will be uploaded to YouTube. * One in six higher education students are enrolled in an online curriculum. * In November 2011, it was reported Indians spend more time on social media than on any other activity on the Internet. A brief overview of Indian banks-Pictorial statisticsFacebookTwitterThe Why and How of Social Media w.r.t BankingWhy Social media matters to Banks?Whether a banks ultimate goal is enhancing its brand, reducing costs, increasing customer satisfaction, boosting innovation ,or driving tax income ,social media can be a valuable pursuit. Enhancing the brandSocial media can play an important role in differentiating brands and making them more relevant to consumers. overmuch of its power in this regard derives from the fact that in a consumers mind, the most credible spokesperson a company can have is a person like me. In fact, research shows that the number of people who trust such a hypothetical person more than they trust brands or organizations increases virtually the world each year. How can banks take advantage of people like me? American Express, for one, created OPEN Forum, an online community dedicated to connecting businesses with each other and providing valuable content to customers with which the company wants to have relationships. Today, OPEN Forum has more than 10,000businesses involved, monthly traffic has reached as high as 1.5 million visits,5 and the majority of content is produced by the community. The result is a new touch point that drives brand affinity, provides American Express with an immense opportunity to create brand impressions, and gives the company a chance to be at the center of important conversations among its customers.Reducing CostsSoc ial media can be a major contributor to banks ongoing cost reduction efforts, especially as they pertain to service, gross sales, and marketing. For instance, banks can use social media as a low-cost channel to distribute messages, host conversations, provide customer service, identify dissatisfy customers, and increase the impact and reach of traditional media efforts. Consider Bank of America, which was the first and largest bank in the world to use Twitter for customer service. The bank uses a dedicated Twitter page on which a wide variety of real peoplewith their actual photos help customers solve their issues. User feedback reveals the sentiment among customers that receiving help through this page is easier and faster than traditional customer service.In addition to driving customer service costs down, the page creates brand impressions across consumers social graphs, thereby allowing other consumers to see the value of the channel for a variety of goals. The channel also ca n enhance the impact of marketing. Consider, for example, how Discover Bank of late created a Facebook identity for Peggy, a character from its popular series of TV ads. Today, that character is liked by nearly 9,000 consumers, and interacts with them several times a day. such campaigns create millions of additional brand impressions inside of Facebook, as well as new opportunities for brands to interact with their customers in a low-cost format.Creating and improving innovation Banks can use the channel to create better, more innovative products and services that reflect real-time consumer demand. Chase, for example, created an online community of mass-affluent consumers and tasked the group with deviseing a credit card purpose-built to their specific wants and needs. The result its highly successful Chase Priority Club Rewards card. Chase also created a Community Giving program that allows consumers to direct thebanks donations to specific charities. As of this writing, that co mmunity had directed more than $5 million to 100 local charities. Through this initiative, Chases philanthropic entity is initiation up its decision-making to crowds and involving millions of people in the process Increasing revenue While the use of social media to drive revenue within banks is still in its infancy, results from other industries further along the growth curve are encouraging. Avis, for example, has been able to use a variety of coordinated social media efforts to boost its sales by 9 percentin a competitive, commoditized industry with flat or declining revenues.As an example of a more specific and successful effort, USAA, a financial services provider for members of the US armed forces, allows site visitors to rate products like auto insurance or home equity lines of credit and add a compose review. In fact, USAA customers have added thousands of reviews to products, and consumers have responded strongly In the first year of adding product reviews to the site, USA A claims incremental sales of over 15,000 products. This tactic clearly shows a direct impact on growth and demonstrates the value of people like me. In both cases, using social media to unlock increased revenue requires firms to focus on fundamentals. Providing service that customers want to talk about and delivering products that are worth recommending. Once those conditions exist, the chance of successfully using social media to drive revenue goes up exponentially. A uniquely challenging industryFor many banks, all of the examples in the world are not enough to get off the commencement blocks. Typical challenges include External communications are strictly governed by a host of rules and regulations that limit what they can and cannot say. Banks essentialinessiness observe strict rules regarding consumers personal information and data security. Sanctioned employees, whether from customer service, marketing, or another functional group, must be knowledgeable about products, services, rules, and how to get things done within the bankand they must be mature enough to make decisions and craft responses to difficult questions. Plus, all this must be done within the strict legal and regulatory framework that banks lie in and occur within real time in order to be effective.For many banks, technology itself is a major concern when it comes to implementing a socialmedia schema. Banks must identify and implement the tools they will need to be active in social networks, from simple listening platforms to sophisticated tools that enable the integration of social media with bequest CRM systems, customer service tools and workflows, reporting and record keeping requirements, and overall marketing analytics. Finally, some banks will need to overcome a lack of organizational structures and in-house talents to derive full business value from social media. More specifically, many banks may find they have to close talent gaps and bridge internal divisions between pr oduct-oriented teams, all while gaining senior leadership support for a company-wide approach to social media. This is no small task, especially given the fact that most senior leaders are not well-versed in social media.A path toward social media masteryWhile the preceding paints a picture of industry-wide challenges, there is a path that banks can use to begin their social media journey. It starts with gathering critical knowledge that will guide the development of their outline and assure positive outcomes. To begin, banks must strive to understand what their customers, prospects, and competitors are discussing online, as well as the social technologies that seem most relevant. This includes developing profiles of how various customer segments actually use social technology and pinch the practical implications of those uses. For example, strategies for student loan customers may vary widely from those designed for private wealth management clients in areas of execution, conten t, and technology. Banks also must assess their current social media capabilities and activities All too often there are separate, potentially conflicting social media initiatives under way, as well as underutilized technology, insights, and sustain. Banks must begin to consider their collective presence versus that of individual lines of business.Consumers dont make those distinctions, and neither should banks. It is critical for banks to get a firm acquire on what competitors are doing in the social media space, and where white space exists. Bank of America, American Express, and Chase all have done this with their respective social media efforts, but that does not mean no space is left to establish a presence. To find this space, banks have to ask two questions of themselves What can we deliver to our customers that we dont offer today, and howwill it provide them with value? Social media sponsors must critically review risk. Specifically, they must identify specific social me dia concerns, assess their likeliness, and establish processes to carry on adverse events. Prior to involving senior management, it is necessary to have answers to these questions, examples of how others have navigated similar waters, and concrete ideas on the trade-offs between risk and reward.And as mentioned earlier, banks must establish clear business objectives and map them to specific areas in which social media can generate value. All of the above becomes a moot point if efforts are not impelled by real business goals. By addressing each of the preceding areas, social media teams can build senior leadership support for and sponsorship of overall social media efforts. In Accentures experience, successful initiatives typically involve one or more executives with deep passion for and experience with technology and social media. It is crucial to find and engage these people and use their influence to open the eyes of the broader C-suite.Crafting a Social Media StrategyAll of th is work will prepare banks for the successful development and implementation of a comprehensive social media strategy. To be effective , such a strategy must encompass the following areasCrafting the VisionWith an overarching framework in place, social media can be designed from the ground up , versus as a collection of disparate tactics .It also can focus on a specific segments and experiences, as well as on the necessary internal piping to implement social media connections across channels. Indeed, every good customer experience is carefully designed and good social media experiences must follow suit.Defining and Measuring Success A Banks Social media strategy must encompass well-defined metrics that reflect progress toward the banks business goals ( as defined in the vision). However, first and foremost , they must conform with the same type of metrics that drive business today . For Example, a social media strategy focused on sales as an outcome should look at driving traffic from social media, converting that traffic into leads, and successfully cross-sellingand up-selling customers that are interacting across social media channels. In effect, viewing the efforts through the same eyes that traditional channels evaluate success.GovernanceA social media strategy should include clear governance and effective organizational structures, whether that means establishing a dedicated social media center of excellence or appointing social media champions across the banks functional groups and/or product lines. Regardless of the specific measures or structures in place , the banks goal should be to support efficient , effective engagement in social media with the right skills, staff, and controls . this Structure must be nimble, include processes for iteration ,and have senior leadership included.TechnologyPerhaps counter-intuitively, it is only when the vision, metrics , and organizational structures have been defined that the bank should start thinking about tec hnologies and the tactics they dictate. Banks Should start with basic learning and listening platforms that allow them to test the waters and identify areas of potential engagement, and then progressively integrate that platform with existing CRM tools to achieve a single view of customers. Banks must also consider what technologies are appropriate for record keeping and adherence to the policy.Recognizing that not all starting points are the sameThe level of Social Media experience that a bank has plays an important role while crafting a social media strategy. The scope of the social media strategy depends on the relative social media maturity of the bank. The strategy used by a bank that has substantial experience in social media will differ in some aspects from the strategy used by a bank which is new to social media. Banks with less experience in Social Media The social media strategy used by the banks with no or relatively less experience in social media should address the foll owing questions * They should pay attention to the scope in terms of the functional areas covered by the strategy, important business goals, and the business processes used to achieve those goals. *They should also focus on building engagement among pick out stakeholders and assessing their willingness to participate in theinitiative This is as much about creating an initial coalition of the willing as it is about telling a compelling baloney on how social media can positively impact business results. * They should also learn from lean on agency partners and others that have been through the fire before. Banks with significant experience in Social Media The social media strategy used by the banks with significant experience in social media should address the following questions * The Social media champions within these banks must know when it is time to seek help from inside and outside the firm.This is needed because the expanding range of social media analysis and reporting will begin to bury marketing staff and merits the involvement of dedicated analytical and technical staff. * As these banks begin to expand the use of social media across product lines, they have to design governance models that can keep pace, as well as focus on integrating social media technologies with CRM systems to achieve a truly holistic view of cross-channel, multi-product customers.Successful Integration of Social Media into the OperationsBanks that have been successful in integrating social media into their operations often have grass-roots efforts to thank. These banks have passionate leaders who have led social media efforts for individual product or service lines. The key to moving beyond grass roots and getting the entire organization pulling in the same direction is actively engaging senior leadership. Only then will the full brand-building power of social media truly be realized.How banks use social mediaAccording to the survey conducted by MHP Communications amongst th e heads of communications and public relations specialists at more than 35 global banks to gain an understanding into social media habits across the banking industry. In broad terms, use of social media is high with the majority of respondents (53%), using social media both in a private and a business capacity. 30% use social media outside of a work context and 3% for business purposes only. 15% of all respondents do not use social media at all, which is a high percentage given that social media generally sits under the communications departments remit. Whilst social media has become a mainstream activity, it is notable that more respondents use social mediafor personal means than in a business context. When looking at the purpose of social media, it is widely seen as a good source of information on what is happening in the media (75% of respondents).Interestingly it is less seen as a direct route to the customer, but more to communicate broadly and advertise products and solutions More than two thirds say they use social media for communications and public relations purposes, whereas 42% use it for marketing and sales activities. Customer service is a key purpose for 25% only. In the retail banking sector social media has a more established footprint than in the investment banking world. This follows the logical conclusion that for customer service and customer engagement purposes the mass consumer market is appreciative of being able to communicate with banks through these new, yet very much established platforms. And banks are increasingly keen to appear more customer-friendly whilst tackling the image the sector has as consisting of traditional and staid organizations. In the investment banking world social media takes on a different purpose, and has even become a platform to be feared and avoided.It is also not seen as a traditional direct route to clients. This is changing however, and one senior PR manager commented that the banks trading desk recently received a client involve for traders to be given access to Twitter to monitor and engage with client comments throughout the trading day. The use of social media within the internal communications function is relevant for around one third of respondents (36%) which represents a vast untapped potential given the range of opportunities to share knowledge and information internally that social media creates. Free tools such as Yammer, Twitter with protected tweets or Google+ with individual circles make information available only to a selection of people, so they can be used to streamline internal communication processes. However, and this is a key problem for a heavily regulated industry such as the banking sector, social media platforms are provided by external third parties.Any shared data which is of a sensitive or confidential nature will in many cases be stored on the providers servers which may not provide sufficient protection or peace of mind for the banking sector. Most pr oviders are based in the US where legislation may, under certain circumstances, require them to reveal their clients identities or other data. Also, social media platform providers are commercial operations and there is the risk that data is misused, misplacedor falsely allocated. Many banks feel that sensitive data should only be stored and transmitted on their own radix to ensure full compliance. At the same time, regulatory bodies such as the Financial Services Authority (FSA) in the UK aim to make social media more widely user-friendly for banks by publishing guidelines and recommendations.As a consequence there is a high level of insecurity as to what can and cannot be done. Despite these issues, social media is now seen as forming a strategic part of a communications program rather than representing solely a tactical activity, with 84% of banks now having a specific social media strategy. Nearly one third has started to execute a strategy, and 15% have a fully developed strat egy in place. More than 40% are currently in the process of creating a strategy, and only 16% have not started thinking about or have decided not to have a social media strategy in place. A number of banks do have a social media strategy, but no defined goals for the strategy 27% responded that they have not established specific goals for their social media strategy. Measuring the success of a social media program is perceived to be more complicated than for traditional PR which may explain why metrics and, in effect, goals remain vague.