Consumers Have Evolved – Now More Than Ever, Financial Institutions Must Too

Few banks and credit unions today will disagree that consumers, and consumer behavior, have changed with the advent of social media.

Where the divide begins to widen is between institutions that respond to that awareness with prescriptive action vs. those that idle aimlessly — hoping the answer will somehow fall into their laps.

Having received guidance from the FFIEC in December 2013, market participants can no longer hide behind the veil of ignorance regarding establishing their own social media practices.

Notwithstanding the establishment of their internal policies, the single most important move decision-makers in these organizations must make today is identifying a technology partner that can enable their stakeholders to compliantly engage in social media.

The New Paradigm: Consumers in Control

Social media has made the world a much smaller place, creating endless opportunities for consumers and brands to engage in 1:1 dialogue. Unfortunately, being 1:1 isn’t always possible when you’re dealing with thousands of daily conversations.

In order to support bidirectional conversation at scale, institutions need to be equipped with a social infrastructure.

Having the appropriate infrastructure in place — one that is built from a single, native architecture; one that can connect to your legacy systems; and one that can meet for the needs of your entire organization — is paramount to surviving social disruption.

While control may have shifted to consumers, organizations that respond thoughtfully now can — and will — level the playing field.

Are You Compliant?

Many institutions fear that by taking the first step into social media, they will be increasing their risk — quite the contrary.

Regardless of the day of the week, another crisis bubbles up to the top of the headlines.

Whether its rogue posting, account hacks or even just human error, preventative governance and enterprise controls are a must in any environment. This is especially true in regulated industry.

Nowhere to Run

The good news is many leading banks and credit unions aren’t looking to run away from the problem.

Early leaders in leveraging social media like Navy Federal Credit Union and Citi, have proven that the rewards outweigh the risks in leveraging social.

Brands can survive and thrive in this brave new world, but to do so, they’ll require the awareness, vision and desire to execute in this challenging new environment.

The first step in graduating to that level is by ensuring the needs of their entire enterprise are accounted for by their social technology partner.

If not, they will stampeded by the herd of consumers seeking to engage with their brand 1:1 in social media.

 

Tim O'Connor, Global Account Manager, Sprinklr

Tim O’Connor is a Global Account Manager at Sprinklr.  In his role, he builds partnerships with many of the leading global financial services organizations helping to enable their success in social media.  Prior to joining Sprinklr in 2012, Tim spent the previous 11 years as a sales executive in the financial services industry with his tenure including Merrill Lynch and two boutique investment banks in Manhattan.

What We’re Reading: Google Glass, Payments and Branches

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

 

  • Google’s Glass Guidelines Provide Clues to Future Bank Apps

American Banker

Banks will be prohibited from advertising on Google Glass, the wearable computing product the tech giant has just started releasing to privileged developers and early adopters. In guidelines and best practices Google released this week, the search engine company told developers it will reject apps for the device — so-called “Glassware” — that it considers an irritation to users. “Google is very clear about apps limiting distraction, not [bothering] people all the time, so this isn’t something that banks can use as a platform to coax their customers 100 times a day,” says Sarah Rotman Epps, an analyst with Forrester Research. “But it is potentially a platform for them to deliver utility when it could be most useful.”

Read more

  • Phablet, Superphone Shipments Expected to Reach 825 Million Units in 2018

American Banker

They may look ridiculous, but phablets and superphones — mini tablets and extra-large phones — have a bright future, according to research released today by Transparency Market Research. According to a new market report, “Phablets and Superphones Market — Global Industry Analysis, Size, Share, Growth and Forecast, 2012 — 2018,” the global phablets and superphones market is expected to reach $116.4 billion by 2018, growing at a compound annual growth rate of 44.1% from 2012 to 2018. The number of units of the devices is expected to grow at a CAGR of 25.8% from 2012 to 2018, and reach 825 million by 2018.

Read more

  • Critical Bank Management Skills for the 21st Century

Bank Systems & Technology

In the past, your teams needed to be able to demonstrate a detailed grasp of policy, rigor in analyzing reports, and dedication to data quality — but to tackle today’s challenges, a different form of expertise is required. The rapidly shifting economic and regulatory conditions of the 21st century, mean that market changes often outpace management skills. In the past, your teams needed to be able to demonstrate a detailed grasp of policy, rigor in analyzing reports, and dedication to data quality – but to tackle today’s challenges, a different form of expertise is required.

Read more

  • How Apple and Amazon Will Shape Mobile Payments

Bank Systems & Technology

Apple and Amazon will continue to drive customer expectations and create big shifts in the retail world even if they don’t release a mobile payments solution. Many traditional payments players like banks have been worried for a while about the possibility of Apple entering the mobile payments space at the point of sale. Many speculated that the last iPhone release would include an NFC chip, which did not happen to the relief of those who would have to compete with Apple. Although Apple already has a bridgehead into the payments business thanks to iTunes, experts seem to think Apple will refrain from entering the mobile payments business.

Read more

  • Small Banks Excel at Industry Specialization

Barlow Research Analyst’s Journal

Many business banking customers value financial institutions and banking relationships that cater to their specific industry’s needs. Unfortunately, not all business customers believe their bank is industry-focused. However, customers that believe their primary bank caters to their specific industry needs appear to be more confident about the financial condition of their company, as well as their industry and believe their banker is more knowledgeable about their business. Barlow Research’s Second Quarter 2013 Economic Pulse provides valuable information about business banking customers’ need for industry-focused financial institutions.

Read more

  • The five layers of Online banking security

CIOL

It is becoming increasingly critical that financial institutions ensure their consumer and corporate banking customers are able to access their accounts with the highest reasonable security, using a process that is very straightforward and approachable. There have been significant changes in the threat landscape for online banking. In order to protect customers using Internet-based products and services, such as applications, the Federal Financial Institutions Examination Council (FIEC) and other regulators have instituted significantly more stringent requirements for financial institutions. Ensuring a compliant security program requires the execution of a good, multi-faceted authentication solution.

Read more

  • Retailers likely to be winners in m-payments, with banks making it work, suggests leading banker

Internet Retailer

Mobile payments is currently a three way battle for consumers being fought out between retailers, banks and mobile network operators – each keen to ‘own the customer’ – but it will be retailers and banks that win, leading m-payment experts concluded at the International Payment Summit (IPS) in London last week. Mobile operators are likely to end up just as dumb pipes. Retailers, banks and operators are all looking towards mobile wallets as the key to mobile payments and this is likely how the technology will start to gain traction in mainstream retail and it is through this that mobile payments will start to be used. But who will brand the wallets and how do you make sure not every retailer, bank and brand that a consumer uses has its own wallet?

Read more

  • What Bank Branch Closures Mean for Consumers

U.S. News

The traditional notion of banking, in which customers visit their local branch to deposit money, check their balance or take out a loan, may no longer be the reality. In the past year, American banks shuttered more than 2,000 branch locations—and news of additional closings appears on a regular basis. Banks cite rising operation costs and shifts in consumer-banking behaviors as primary causes for reducing the number of branches. For banks, these decisions are a matter of improving their bottom line, but for customers, these closings may force them to develop new habits. In one way or another, most people are likely to notice a change in how they interact with their bank.

Read more

FI Spotlight: Pan American Bank

Pan American Bank

Banks and credit unions are making headway building their own social media presence and with the influence of the Federal Financial Institutions Examination Council (FFIEC) are beginning to determine how their activities fit into company policies. Financial institutions looking to go social have a bevy of resources to learn from, whether listening to webinars from experts, talking with lawyers familiar with the guidelines or hearing from other members of their community.

For our latest FI Spotlight, we touched base with Jesse Torres, President and CEO of Pan American Bank in Los Angeles, California. Jesse recently posted an instructional video for bankers and directors on social media. To learn more, Jesse provided further insight to Banking.com on his experience with social media at Pan American.

Jesse Torres - Pan American BankQ: You seem to have a great perspective and experience with social media? How did Pan American Bank build its social channels, and what was your general philosophy?

Pan American Bank began using social media in late 2009 in response to the backlash against banks. As a conservative community bank, Pan American Bank never participated in subprime lending and other questionable lending practices. However, due to the broad and sensational messaging delivered by the media, Pan American Bank and other community-focused banks were painted with the same brush as those that violated public trust through questionable lending practices. Social media provided Pan American Bank with the platform to tell its story – one person at a time.

Through social media, the bank has been able to demonstrate its commitment to the community and other stakeholders. Social media is a tremendous tool for “personalizing” the institution and creating a venue for honest and transparent two-way communication.

While Pan American Bank maintains a presence on Twitter, LinkedIn and YouTube, it has chosen to focus the majority of its social media resources on Facebook. Facebook was chosen due to its broad adoption (over 1 billion worldwide users) and its mix of tools (e.g., status updates, video, photos, the ability to create and host events). These factors allow Pan American Bank to maintain an ongoing relationship with stakeholders using information in a variety of formats.

Q: What’s your best piece of advice for a financial institution just beginning to establish their social media presence?

Institutions need to realize that social media is now a regulatory hot button. During the past five years social media has transformed from an emerging technology to a mature technology. Many institutions now believe that it is time to incorporate social media into their strategy – perhaps due to having greater familiarity with the technology or because of competitive pressure. As such, the social media space is becoming increasingly occupied by financial institutions.

Regulators have noticed the growing trend but, until recently, have been unable to focus on social.  As the industry recovers and as fewer banks risk failure, regulators are returning to business as usual. Any institution pursuing social media must become adequately familiar with the regulatory expectations – governance, policies and procedures, third party due diligence, training, content monitoring, audit, and board reporting. At a minimum, institutions should address social media through a risk assessment, policy and training.

Q: What’s one unexpected difficulty that banks can prepare for when developing their social media policies?

The main challenge in developing a social media policy is the governance structure. Contrary to what many may believe, social media risk is not a technology risk. It is a human resource risk. The dangers involved with social media do not involve malfunctions of technology or similar events. The dangers arise from employees being poorly trained and unintentionally creating risk for the institution. As such, the governing individual or body should have sufficient influence to require adequate employee training. This fact is many times lost as social media is often assigned to the IT department rather than to a department with broader human resource training capabilities. Ideally, due to social media’s broad impact of an organization (compliance, legal, sales, marketing, information technology, etc.), an appropriate governing structure should include a cross-departmental team.

Q: What do you see as the next trend for financial institutions on social media?

While adoption has increased over the past five years within the banking industry, the recent January 2013 FFIEC draft social media issuance and pending final regulations will slow adoption as the regulatory process works itself out. Once adoption resumes, financial institutions will increase their use of social media as a customer service channel. More progressive institutions, with greater risk appetites, will consider its use in completing financial transactions (think Chirpify). Others may utilize the platform for underwriting, using the social networks as an indicator of credit risk (good credit risks beget, or befriend, good credit risks). However, most institutions will limit its use to community building and brand differentiation due to their conservative nature and the rise of hacking incidents of both bank and social media platforms coupled with regulatory skepticism over the security afforded to bank customers through social media channels.

Want to hear more from Pan American Bank? Follow them on Facebook.

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Social Media Regulation – Part I: Adapting to New Policies

This is Part I of a two part post on American Banker’s “Banking Regulatory Update: New Social Media Rules” webinar. You can view Part II here.

Last week, the Banking.com team sat in on American Banker’s webinar, “Banking Regulatory Update: New Social Media Rules,” which detailed the current policies around social media use by financial institutions. Moderated by American Banker’s own Penny Crosman, the panel of presenters included:

With content ranging from how to establish a corporate social media policy, general best practices for social media, and analyzing the FFIEC guidance  and call for feedback on social media regulation, we wanted to take a deeper dive on the content and connect with some of the experts ourselves. We first spoke with webinar moderator, Penny Crosman, editor in chief of Bank Technology News and technology editor of American Banker.

 

Q: What social media policies have you seen banks and credit unions using that you think are effective?

Most of the social media policies I know of are dry, legalistic, and boilerplate. The policies drafted by large banks and Wall Street firms seem to be draconian – many don’t allow employees to even access social media sites (except for a few people who work in customer service and marketing). One reason for this is SEC rules that require banks to archive all emails – messages stored on social networks are difficult for a bank to monitor and store. The employees of these companies sometimes use their personal smartphones and tablets to access the sites. I know of Wall Street executives who have Twitter streams under aliases and protect their streams from being viewed by any but their close friends. Commonwealth Bank of Australia last year came out with a harsh policy that insisted that employees report “inappropriate or disparaging content and information stored or posted by others (including non-employees) in the social media environment” or risk being fired. These are examples of going overboard. Banks and credit unions need to find a way to comply with the necessary rules, yet encourage natural, positive engagement on social media. Citi, for one is finding success using software to identify and catch potential rule violations and route those to its legal group, while encouraging its customer services people to maintain friendly and helpful conversations with customers on Twitter and Facebook. I think more banks will turn to software to handle policy compliance, rather than expecting employees to keep all the rules in their heads.

Q: Do you think banks and credit unions are quickly learning how to adapt to these regulations?

Banks and their compliance departments are keeping a close eye on these regulations and are sure to have their own policies in place when the FFIEC publishes its final rules. They are already used to complying with the many existing consumer protection laws the FFIEC cites in its guidance. What some of them may end up doing is freezing all social media activity until they get their policies finalized and employee training conducted.

Q: What would you recommend as the first step for banks to develop social media policies and practices?

I think the logical first step would be to canvass all current social media activity – review all social media pages the bank maintains and ask employees what they’re doing on their own. The second step would be to hire or consult with a good lawyer who can parse out which aspects of the rules apply to the bank’s activities and help create a policy that would enable compliance.

Q: How do you think upcoming Facebook payments capabilities will affect banks’ interactions with social networks?

I think banks may eventually get involved with payments over social networks, but they may be the last to the party, largely because of the regulations they need to be careful of, such as the Electronic Funds Transfer Act. There are also security issues with social media payments, as social passwords are pretty easy to game. Authentication will be tricky and important. I expect banks will be very cautious about this.

 

Interested in hearing more? Check out Part II with our interview with Carl Pry, Senior Director, Treliant Risk Advisors who spoke to us about how he counsels financial institutions on their social media activities.

 

Social Media Regulation – Part II: Creating Your Social Media Policy

This is Part II of a two part post on American Banker’s “Banking Regulatory Update: New Social Media Rules” webinar. You can view Part I here.

Last week, the Banking.com team sat in on American Banker’s webinar, “Banking Regulatory Update: New Social Media Rules,” which detailed the current policies around social media use by financial institutions. Moderated by American Banker’s own Penny Crosman, the panel of presenters included:

Much of the content of the webinar dissected the implications of the FFIEC’s proposed guidance and how financial institutions can comply. As regulators are looking for feedback on the guidelines by March 23, we spoke to Carl Pry, Senior Director, Treliant Risk Advisors, to hear how FIs are currently reacting to the guidance.

 

Q: What have you seen as the number one risk management issue for financial institutions on social? Can you elaborate on a way to avoid this situation?

The most critical risk management issue for banks regarding social media is the lack of awareness and oversight. Many institutions are taking a wait-and-see approach when it comes to social media, to their detriment. Institutions that don’t address this issue in the present are missing an opportunity to connect with a demographic we all want to reach: the young and technologically capable. But the risk comes when taking a hands-off approach results in the illusion that the institution is simply not participating in social media. Chances are that you are – your employees are – using social media every day. Without a clear social media policy and procedures, without guidelines on what can and cannot be said, you may be violating certain laws and regulations without even knowing it.

Avoiding this situation means getting ahead of the curve by formulating and implementing clear company-wide policies and procedures addressing social media. They should be comprehensive and deal with both company and employee usage of social media. Also, set clear guidelines for consumers and your customers who utilized your bank’s social media sites, as well.

Q: Do you think banks and credit unions should use Twitter and Facebook as customer service channels at all? Why?

Absolutely, although within limits. These are channels your customers are already using in their everyday lives, so why ignore them? They have the advantage of providing more immediate responses than snail mail, that’s for sure. But be aware of the limitations of social media, such as the 140-character limit of Twitter. Can you say what you want to say within 140 characters? For customer service usage, also understand what different social media sites do. You might not want to broadcast specific responses to the masses. Know the way these channels operate and coordinate your responses accordingly.

Q: Do you have any tips for HR policies or training for employees using social media?

Most importantly, make clear to employees what the parameters of usage are. Not how much time they spend on social media, but content of postings. If an employee is posting anything on behalf of the bank, make sure it is subject to the same control and review mechanisms you’d employ for any other sort of communication (such as email). But also be clear as to the expectations of employees posting things on their own accounts regarding their employment or the institution’s products and services. They should know the limits of what not to say, and that if they discuss the bank’s business, all appropriate legal and compliance requirements likely apply.

 

To hear more, check out Part I and our interview with Penny Crosman, editor in chief of Bank Technology News and technology editor of American Banker who shared her thoughts on banks adapting to new guidelines and regulation.