Social Financial Media: Challenge and Opportunity

Bank Technology News recently highlighted how banks are reluctant to fully embrace social media as it remains unclear how this phenomenon fits into the industry's traditional approach to customer engagement. Financial management is an inherently antisocial activity, and as one might expect financial applications do not possess the broad appeal of other app verticals such as social games. Nevertheless, as we move into the postmodern era of financial services the winners will clearly be those companies who display an innovative approach to customer engagement, and we believe this starts with deploying a rich and engaging presence on the social web.

Many financials have already begun this process. Numerous regional banks (Arvest Bank, Shore Bank ) and credit unions (Amplify, Fairwinds, Travis), exchanges (NYSE-Euronext, CME Group), and even H&R Block (with over 1800 fans) have developed a social presence by skillfully leveraging the viral potential of the Twittersphere and Facebook Pages. But this presence has been limited to communication - i.e., few have explored the potential for richer engagement through the deployment of branded applications or by leveraging Facebook Connect to provide for a more integrated social web presence. Until now Twitter has been more appealing to financial institutions in that it provides a unique communications tool and readily augments existing marketing and customer service programs. But two recent developments may drive more companies to develop an outpost on Facebook: the ability to stream posted stories directly to fan news feeds, and Twitter integration via the Selective Twitter Status application.

We believe that as social media matures and becomes increasingly mainstream, financial institutions will be compelled to develop a more engaging presence on the social web. Building a Facebook or Twitter application is not particularly difficult, but the requisite programming knowledge does present a slight barrier to entry, and custom development can be cost prohibitive, even for larger institutions with in-house engineers. Buying an existing application is an attractive option as it provides for an accelerated ramp-up, but, like off the shelf software, can be rigid in design and functionality, and may still require tweaking.

In the end, it's all about ROI, and the benefits of investing in IT are notoriously difficult to quantify. This is perhaps even more the case when attempting to justify a large capital expenditure on emerging (read: as-yet unproven) technology. But we believe that companies would do well to consider some of the many innovative applications currently populating the Facebook and Twitter ecosystems. We believe that several of these applications present attractive acquisition opportunities and would provide for both rapid deployment and genuine ROI. In future posts as well as upcoming research products we will be discussing some of these targets as well as suggested valuations.