That being said, peering into our crystal ball, we think there is ample evidence to support a few likely scenarios that will radically alter the business model for banks.
The value of one
For one, social media will spell the death of mass marketing. Indeed, a small (but growing) number of banks are already mining their customer’s social networking activities to deliver highly-targeted offers and promotions. But offering a mortgage to a client whose status update says they are buying a new home is the easy part.
In the future, banks will be able to package together suites of products tailored specifically to individual clients allowing, for example, banks to vary their interest rates based on each customer’s potential profitability and value.
Hanging up the phone
Customer complaint lines will also fall silent as banks become increasingly proactive in their management of issues. Already, banks are tracking customer tweets and making adjustments to their models based on what they learn. An increase in the number of customers who report ‘waiting in line at my branch’ may lead the bank to consider adding more tellers or extending the branch hours. An out of service ATM may result in a tweet to customers within proximity based on geo-tracking or usage patterns.
Those customer complaints that do materialize will be responded to in real time as customers communicate their issues over social media channels and – immediately – get the attention of a customer service representative who is not only empowered to solve the issue, but is also networked to the branch or account manager responsible for that particular client.
And while the branch network is probably not about to disappear, there is every indication that the rise of social media will dramatically alter their value proposition. Everyday transactions will be conducted through social media ‘apps’ that will enable the bank to verify credentials and serve up balance information and payment functionality using the social network’s authentication system.
Instead, branches will be used to conduct more complex customer transactions like mortgage and loan applications or the provision of investment advice. But even these types of interactions will likely migrate onto social networks as bank representatives engage with clients over video or chat applications rather than the traditional face-to-face experience.
Tellers to tablets
As a result, banks will start to dramatically reduce their cost to serve as transactions become increasingly automated. Many of the in-branch staff will be replaced by tablet computers offering ‘off the street’ clients a direct portal to the bank’s social media offerings. But, more often, branches will sit in the pocket of the consumer, virtually eliminating the overhead and hard costs of the branch infrastructure.
Opportunity brings risk
On the other side of the ledger, banks will also find that some of their existing revenue streams may dry up or disappear altogether. Basic investment advice, for example, will quickly lose its value as peers start to share their insights and experiences with each other for free, thereby undercutting the bank’s ability to charge for these services. The introduction of low (or no) cost social media banks will also put downward pressure on user fees.
Banks may also find themselves locked out of the market for small loans as micro-finance moves onto social networks as a way for borrowers to access loans at low rates from friends and family and individuals with positive accounts look for new ways to make returns by extending credit to their peers.
Linking in compliance
Of course, one thing that won’t change in the future is the need for banks – social or not – to comply with national and regional regulation. Over the next few years, we expect to see a massive migration of compliance officers and regulators into the social arena. But rather than tweeting the latest guidance or regulatory updates, these social accounts will largely be used to monitor how bank employees (investment advisors in particular) use social media sites when interacting with clients.
And while the regulators have tended to be somewhat slow to provide guidance to banks on how to properly adapt existing regulation to social media arenas, the next year will see a flurry of activity from the SEC, FINRA and other regulators who will – at first – come out with rather restrictive policies, only to relax their positions as they become more comfortable with the new medium.
Taking the next step
None of these scenarios are science fiction. Indeed, each is based on activity already present in the marketplace and many were put forward by contributors to our series. What now remains to be seen is how banks will take advantage of these new opportunities to innovate and build competitive advantage.
So, as the Social Banker series wraps up, we would like to take this opportunity to thank all of those that participated, either by contributing articles or engaging in the debate that has surrounded many of our posts.
Within the next month, subscribers to the series will also receive a complimentary copy of these articles – complete with comments, commentary and additional insights – in a hardcopy report. If you are interested in receiving a copy, please take a moment to subscribe, or contact your local KPMG member firm.
We hope that we have provided some interesting insights and food for thought for banks entering into the social media environment. We look forward – with much anticipation – to seeing how the market progresses and how these ideas are evolved by banks around the world.
By Vincent Piron, Partner, KPMG in Belgium
||Irene Pitter The truth is that, when it comes to new and disruptive technologies like social media, the sky is the limit. Innovation is the name of the game, and all around the world, banks and entrepreneurs are pushing the boundaries of technology to gain competitive advantage. The challenge for banks is clear: how to back the right horse without putting your customers, brand or enterprise at risk.|
||Daniel Knoll Vincent highlights a number of interesting developments already being developed or tested in the market. And, as we’ve already seen, some banks will forge ahead in order to brandish their credentials as innovators, while other (more risk averse) banks will wait on the sidelines until the benefits and risks have been proven. The balance is tight and banks will need to be on their toes to make sure they don’t either get too far ahead, or too far behind…and most importantly, remain focused on their customers.|
|| When looking to the future, banks may want to carefully watch the actions of organizations in other industries. Retail and consumer goods organizations are often the trail-blazers in social media and – as a result – are usually the first to find a maturity model that works.|
||Marty Carroll In the not too distant future, banks should expect to see a number of niche service providers and innovators developing systems and approaches that can be leveraged to both reduce the risk of social media innovation and the need to apply additional resourcing from their own staff compliment. Some will undoubtedly flare out and fail, but those that are able to deliver a strong value proposition and deliver a secure and robust solution will become a valuable part of the customer service ecosystem for banks.|
|| I think we are going to see some interesting changes in the traditional value chain with innovative banks deploying social media strategies and platforms to disaggregate traditional players who have a less customer centric offering.|