Brett King

Archive for November, 2011|Monthly archive page

Can Social Media Bring Down a Bank?

In Economics, Future of Banking, Social Networking, Strategy on November 23, 2011 at 00:26

Bankers often talk about the ‘trust’ consumers have in banking as a defining characteristic of why customers give banks their money instead of simply keeping it under a mattress. Some bankers might have difficulty understanding why customers of today seem perfectly happy to give money to the likes of PayPal, M-PESA, Lending Club or Zopa. The fact that I trust PayPal to send money on my behalf, in lieu of banks, might have been unthinkable just a few years ago. The concept of lending money through a social network would have seemed laughable too. Part of this is that we just don’t trust banks like we used to, and alternatives seem far less risky comparatively.

Reputational risk is surfacing in the sector as a whole today through social movements like “Occupy Wall Street”, “Bank Transfer Day” and other actions led by frustrated consumer groups and collectives. As an industry, we’re not organizing a structured approach to this challenged perception of ‘banking’. Instead we’re often trying to defend the indefenisble, a system saddled by inertia that assumes we have far greater responsibility to our shareholders, than we do to the customers we are supposed to serve.

Not the Regulator’s problem

At the European Retail Banking Summit held in London on November 8th, 2011, I pitched to European regulators the issue of Social Media, the Occupy Movement and what their position was towards the increased transparency that retail banks were facing. Martin Merlin (Head of Financial Services Policy and Relations with the Council, European Commission) and Philip Reading (Director, Financial Markets Stability and Bank Inspections, Oesterreichische Nationalbank) were at a loss to understand the role of regulators in defining a coordinated industry response. Martin’s response was telling:

“It’s simply not on our radar yet as regulators”
Martin Merlin, Head of Financial Services Policy, European Commission

Customers finding their voice

The new voice of the populace is demonstrated with no greater effect than through the so-called “Arab Spring” across the MENA region. If Twitter, YouTube and Facebook can overturn regimes in Egypt, Tunisia and Libya, I’m pretty sure they can totally undermine the brand of a bank that we’ve previously thought was “Too Big To Fail”.

To add credibility to that notion, in just months we have seen the Occupy Movement develop into a global protest against the economic and social inequality promoted by the current “system”. Consumers today have found their voice. Increasingly that voice is about choice, about rewarding organizations that listen and punishing those that think their decisions are immune from public debate or dialogue.

Prior to social media, the thought of rapid political change in a country like Egypt would have been considered extremely unlikely, a real outlier. Is there a measurable effect of this voice of the consumer on retail financial institutions today? Absolutely.

In January 2011, Bank of America’s (BofA) post financial crisis share price had recovered to $15.31 at its peak. As of this blog post, BofA’s stock is ranging at $5-5.50. This is instructive. Stocks with a historical Beta (β) of 1 are generally tracking flat for the year. So why has BofA lost more than 50% of its value in the last 12 months, compared with a market and contemporaries that have remained flat over the same period?

Bank of America's share price is at a 2-year low

Overlaying stock trading volumes and pricing, against average and cumulative sentiment (via social media analysis) shows that public displeasure with the company direction and engagement has been a core driver in BofA’s troubles. What is clear is that BofA would not have considered consumer sentiment a significant driver in their share price in the past. They simply could not have run their retail bank badly enough to result in this type of dip in the past unless there was some sort of significant and very public scandal resulting in massive losses. The market is obviously now pricing in concern about the long-term viability of a brand that doesn’t have affinity with the consumers it serves.

A great infographic from EvoApp showing the correlation between sentiment and share price for BofA

What to do next?

Understanding consumer sentiment, and actively managing the brand in this open dialog is going to be a key skill in the near term. This is not about ‘spin’ or control, because as Egypt and the Occupy Movement has shown, you can’t control these forces.

Instead what will be critical is the capability to respond visibly to the markets concern, to improve sentiment. In BofA’s case, the leveraging new Debit Card fees, claiming BofA had a “right to make a profit” and then dropping the planned fees – is no way to demonstrate strategic understanding of consumer sentiment in the social age.

We need a lens on sentiment that drives strategy. This requires a very different board room and executive feedback loop that simply does not exist today.

What’s your banking instinct?

In Customer Experience, Future of Banking, Strategy on November 18, 2011 at 12:43

Without thinking consciously about it, over time core behaviors change producing different instinctive reactions. When a phone rings today, we go to our pocket or purse, not running to a device on a desk or on the wall. When we are interacting with a mobile phone that is not our own or an ATM machine, we’ll instinctively touch the screen to navigate, even if it is not a touch screen device. When you go from reading on a Kindle or iPad to a real book, the pages are frustratingly manual to turn. When we need to take a photo with friends, increasingly we reach for our phone, even if we have a camera stuck somewhere in our bag.

What was our instinct in banking?

The earliest instincts around banking was a safe place to store your assets, and in many ways that is still the case. However, banking in its infancy didn’t necessarily involve a bank or money at all. The earliest forms of banking involved the deposit of commodities or valuables that were traded, and often they were deposited in temples or palaces, the safest physical locations. It wasn’t until the 16th and 17th centuries that organized banking started to emerge globally, particularly as the wealthy tried to keep their assets safe during the dark ages. Even then, banking was still exclusive. It really wasn’t until the 20th century that banking became more mainstream and people started considering storing their savings in a bank.

Since then banking has been an instinctive part of the lives of most people in the developed world.

It wasn’t long before it became instinctive to pull out our cheque book to pay for a large ticket item. Some would also use lay-away or lay-buy plans, but these largely disappeared over the last decade or so. Over time those instincts changed to use credit cards, and more recently debit cards at the point of sale.

In the past our instinct when we needed cash was to think about where the nearest branch was and figure out when we would need to go to withdraw cash. Over time that instinct changed to using an ATM machine, and we went from planning when we’d withdraw cash, to just picking the nearest ATM machine when the cash in our wallet was getting low.

In the past our instinct when paying a bill was to write a cheque and send it in the mail, or to go down to a post office or office of the utility company and pay the bill in person. Today, that instinct has changed to where we pay online in an instant.

It’s ironic that we think of banking as a slow and steady institution that doesn’t really change, but in reality the utility of our money means that our behavior in respect to banking has always been changing.

The future instincts of banking

So what will your instincts for banking be in the next decade?

Not a place you go, something you do…

Firstly, we won’t instinctively think of banking as a place you go. The concept that a branch is at the centre of our banking relationship has been central to retail banking for over 800 years. This is the primary instinctual shift that will occur in the next few years.

Instead of looking for a place to store your money, we’ll look for a trusted brand that is safe to store our money, but equally important will be a brand that offers strong utility and a seamless connection to the things we do with our money. A safe and trusted banking partner will be a bank that offers me access to my money and access to financial services when and where I need them. A bank that demands or prefers a physical interaction, will increasingly be avoided instinctively as too hard to work with, as irrelevant to my daily life, and as slow and unwieldy.

On rare occasions for the minority of us that have complex asset allocations, trust structures and so forth, we’ll look for a physical place to go where we aspire to get the high-touch service of a personal banker who recognizes our status as a special class of banking customer – but this will not be an overriding instinct day-to-day, it will be incidental to our general banking experience. The majority of the time, even for the high-net worth client, instinct will simply dictate a much more efficient engagement of the ‘bank’.

Move and Pay, Safely and Efficiently

When it comes to day-to-day interactions, the emphasis on the movement of our money will be speed and security. Inevitably in the short-term our instinct will be to pull out our phone at the point-of-sale to pay for goods and services. We’ll do this not only because it is much faster than using cash or a card, but because our money management will be articulated through this personal device – we’ll see our balance, what our monthly expenditure is, what upcoming expenses we have and be able to understand the context of this payment on our financial life in an instant. The same would have taken much more effort with cash, our cheque book or our card.

Your instinct for payments is changing again

Security of our cash will be also a primary reason for the shift to digital money. Increasingly we’ll look to the technology of encryption, geo-location tagging, biometrics and active identity management to secure the flow of our funds. We won’t trust a piece of plastic or a piece of paper that can be easily corrupted or stolen, and the technology of ‘hacking’ our cash from a secure device will require a level of expertise and high-performance computing that make it far less frequent than the compromise of traditional physical ‘payment’ artifacts.

At the point that it is simply no longer safe to do things with cash and plastic, our instincts will quickly change to keep our finances safe once again. Being able to see what has been happening with our money over time, will also drive us to increasing digital management of our money.

Core instincts are at the heart of the change in bank modality

First and foremost our instinct for banking is keeping our money safe, secondly is the need for the utility of our money. Neither of these core instincts will lend us to continue to support the physical elements of banking and payments that we’ve been used to in the last 100 years. We will measure ‘safety’ in the trust of a brand, not in the bricks and mortar of branches. We will measure ‘utility’ in the seamless access to our cash, and the availability of the bank in our life when and where we need it.

Our instincts are rapidly changing. We don’t store grain and gold in Temples or Palaces anymore. Already most of the world doesn’t use cheques anymore. If you’re heavily invested in branches and the physical, you don’t understand the core instinct that banking is.

Your online marketing and website are broken

In Customer Experience, Internet Banking, Media, Offer Management, Social Networking, Strategy on November 9, 2011 at 12:42

There’s generally a very poor understanding of the dynamics of the role of the website in retail financial services interactions today. There is an acceptance that ‘some’ customers use the web, when deciding on a new financial services relationship, but not of the critical nature of the web in that choice. Let me explain how things are different from a behavioral perspective.

The inertia assumptions

Historically the majority of acquisition in the financial services space was either from brand marketing and/or campaign activity that drove a potential customer to purchase or apply for a Retail FS product/service.  There is an assumption that the web, social media, mobile and other e-channels support that goal as marketing channels where we can extend the brand and campaign paradigm. That is, we can broadcast more messages, perhaps with a tighter demographic or psychographic focus, to an audience that is more diverse in their message consumption.

The problem is that the Internet has been responsible for a significant process shift in buying behavior, namely that the dynamics of buyer response has significantly flattened. In the past marketing stimuli was used to create first awareness, then interest that led to the buyer mentally listing your ‘brand’ on a sort of short-list of providers, and then finally based on further marketing stimuli (promotion, pricing, location, features) the consumer engages with your brand for your product or service. This approach to marketing is all based on the premise that consumer behavior is latent or responds to a marketing message over a defined period of time.

Now with digital interactions being what they are, a consumer can go straight from research to purchase or need to application instantly. So the ‘stimuli’ works differently today, it needs to be a ‘live’ interaction strategy, not a message strategy that waits for a latent response. The loser in this context is the traditional marketing campaign mechanism, because a campaign is a latent stimuli tool, not an interaction tool.

The new engagement model

So in this new world, buying behavior is very different. Assume a customer needs a retail financial services product like a mortgage, a new bank account, a credit card or a personal loan – what does he or she do?

The overwhelming behavior today is to think about how they will apply for that product or service, with the least fuss. They will probably be largely ambivalent to their choice of financial services provider, in that, the fact that they have a bank account with you does not automatically mean they’ll come to you for another product necessarily. What the majority of customers will do is start by looking at their options – and for that they use Google (or perhaps YouTube) as their starting point.

This research phase is critical, because it is the empowerment of the customer. Them matching your product to their needs set. What’s critical in this stage is not the features of the product generally, but the utility of the product. Take a mortgage – how quickly can they buy their house, how much do they need to pay each month and how quickly will they own their  home? They don’t start by asking what are the early pay out fees, what’s the rate, and can they change their payment terms or habits midstream.

The concept that this research needs to happen at ‘your bank’ is a holdover from our traditional branch approach to FI product sales. In fact, we build our Internet banking sites just like a branch – assuming that you’ll come, ask some questions and then apply for a product. Most of the time, we won’t let you apply for a product seamlessly through our Internet branch, and we’re aiming to push you to a ‘real’ branch. This is inertia talking and it is counter-intuitive based on behavior today.

The easiest thing to do is simply shift me straight from research to a buying action once I have you online, but the more complex that is, the more chance that I’ll simply leave your Internet branch and go looking online for a faster path to the solution. What won’t happen is that I’ll suddenly be inspired to walk into your branch and start talking to a person after reading your website.

What the new web looks like

The new web we need to build right now is a set of tools to empower customers and help them complete the buying task they are looking for as seamlessly and as frictionlessly as possible. In that environment, the rolling promotions and offers we see dominating many retail FI websites today will be largely gone, relegated to simple landing pages connected to those dying campaigns.

The new website will be rich in imagery and process workflow for the engagement process, heavily personalized around what I already know about you, either through cookies, login or something like your facebook connected profile.

Additionally, the new website will be built from the ground up to be browser agnostic. It will work on a tablet, on a mobile phone, on a laptop with a whole range of resolutions and screen sizes – seamlessly. You won’t build buttons that require a mouse click, you can use your finger. You won’t populate with lots of text or links, when big images or stories will accomplish the same stimuli to an engagement.

Apple's website works as well on Tablet and Mobile, as it does online

Coming out of all of this will be a fundamental shift in marketing budgets and team structures. In just 3 years, 30% of your website visitors will be using a non-PC screen. Social media will represent 25% of your marketing budget driving brand advocacy and participation, and 50% will be on engagement and journeys, and the rest on a supporting framework of traditional media to build broader brand awareness.