Vesta Digital Blog

Why Banks Need To Invest in Social Media

Posted on: April 5, 2010

BankingThe banking industry is a major category of business that has been lagging in the booming social media field. There are a number of reasons why they refuse to partcipate. Datamonitor – the repected British internet research firm – explains why banks and financial institutions shy away from social media and why they should meet the challenge head-on:

The rise of social media has facilitated a fundamental shift in the way consumers receive information. Datamonitor research shows that almost 50% of consumers are using online tools to make financial decisions. Traditional banks must therefore recognize the value of social media if they are to retain customers in the thawing economic climate.

Slow to See the Value

The financial services industry has been slow to recognize the necessity of communicating with customers through online channels and the part that social media could play in both obtaining and retaining customers. At the heart of this is the idea that social media is just a fad and that consumers are essentially non-committal. However, the fact that almost 50% of consumers are using online tools to make their financial decisions indicates that banks need to start appreciating the power of sites such as Twitter and Facebook.

Another problem is that the banking industry has held onto the belief that social media is the domain of teenagers and university students. Although Facebook may have started out in elite colleges and universities, the scope of the networks has developed and changed in just the last 12 months. Social networks are no longer used just for friendship purposes, with consumers now viewing these sites in a far more serious manner. Sites like Twitter have developed to become a powerful marketing tool, utilized by many multi-national companies, while sites such as LinkedIn have also become an important place to network for business purposes.

Brand Awareness and Loyalty

Another factor in banks’ failure to recognize the importance of social media is the idea that the medium is unable to directly boost profitability. In reality, social media does have the scope to drive sales, but providers have not seen a direct or measurable link. While social media can be used to build brand awareness, its real value comes through other, softer factors which build consumer trust and brand loyalty.

Simply using social media in itself will sweeten consumers by showing them that banks are coming to them and communicating through their preferred channel. Ultimately, creating a sense of community, promoting transparency, and providing real time and high quality customer service will lead to customer recommendations, and the potential of viral marketing in generating sales from others is limitless.

Datamonitor believes that, even if a provider does have a visible presence on a site, the value of the information put out there is of the utmost importance in terms of product research, sizing up the competition and understanding what consumers want. Although it is essential that the banking industry sees the potential of social media, it must take a considered approach. Social media should be integrated into a holistic approach in which the effectiveness of existing marketing channels is not undermined.

“Word of Finger”

Banks have been under the assumption that, as there is so much information being exchanged via social networks, its value is diluted. This has led many providers to believe that any negative comments made on social media sites pose little risk to their brand. However, banks would be naive to believe that consumers do not listen to recommendations made online. ‘Word of finger’ has replaced ‘word of mouth’, so product recommendations and brand advocates are far more accessible. Consumers no longer just rely on the advice of friends and family; instead they want to know about other consumers’ experiences and are using digital networks to satisfy that need.

Click here for more excellent information from Datamonitor.

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