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When TSB, a UK bank, suffered a serious systems failure this year, its chief executive took to Twitter to apologise to customers unable to withdraw cash or make payments.
Conscious of how damaging a highly publicised outage could be just months after TSB’s launch as a standalone bank, Paul Pester used the site to explain the causes of the crash and provide progress updates, often with tweets to individual customers.
His efforts, which were generally applauded, illustrate how banks are connecting with their customers in an era in which the once-a-week branch visit seems to have vanished.
Other banks’ attempts to use social media channels have not been greeted so warmly.
JPMorgan Chase, the US lender, was last year forced to cancel a live question-and-answer session on Twitter after it suffered criticism over the bank’s practices alongside tough questions from disgruntled customers such as: “When can I get my house back?”
Recent research shows that many lenders are struggling to connect with customers in a useful way through sites such as Twitter and Facebook. A survey from US consultancy Carlisle & Gallagher, for example, showed 87 per cent of bank customers found lenders’ use of social media “annoying, boring or unhelpful”.
Meanwhile, Capgemini’s World Retail Banking Report 2014 found that, while almost nine out of 10 bank customers had social media accounts, and 10 per cent used them weekly to interact with banks, few lenders had clear plans for social media.
Analysts say the risk is that these sites will become not much more than public platforms for customers to air complaints about banks. They say lenders are having more success in engaging customers via other channels, such as video conferences and text messages. In the UK, Lloyds Banking Group, the government-backed lender, is trialling a scheme that allows customers to talk to an adviser via video if one is not available in their branch. Meanwhile, Royal Bank of Scotland sends 200,000 texts a day warning customers who are about to exceed their overdraft limit or incur account charges. Spain’s Caixabank has devised a mobile application that lets private banking customers interact with wealth managers via video calls.
These moves are part of banks’ efforts to bolster their digital offering as they face an onslaught from new competitors such as peer-to-peer lenders, technology firms and supermarkets.
Some peer-to-peer lenders – which enable individuals and small businesses to lend directly to each other – are already using the information available on social media sites to underwrite loans, according to one of the banks.
Tesco, for example, offers its current account holders points for its Clubcard loyalty scheme when they use their debit card. The points are turned into vouchers to use in its stores or elsewhere.
However, big banks – whose digital progress has been hampered in recent years by dysfunctional IT systems – are starting to catch up.
While about half of financial services organisations’ IT budgets is spent on maintaining existing systems, according to Fujitsu, an IT services provider, 28 per cent is now invested in “innovation”.
“Innovation, which typically took a back seat during the recent economic difficulties, is now receiving much warranted attention,” says the group.
Analysts say one opportunity for the banks is to use the information they have on customers to connect with them in a more personal way. Syniverse – a technology firm that works with some of the world’s largest banks and retailers – says smartphones present an opportunity for lenders to extract valuable information about customers’ whereabouts, demographics and tastes. This could be used to provide tailored financial service, such as on-the-spot insurance to customers when they arrive at a holiday destination, as well as offers for their preferred shops and restaurants.
Syniverse has teamed up with MasterCard to trial technology that links a person’s credit or debit card with the location of their mobile, making sure both are in the same place. If the card and the mobile are not in the same location, transactions could be blocked.
Some banks are looking at customising text messages to customers’ behaviour. So, for example, if a customer tends to check their bank balance every Monday morning, the bank could automatically send a message with that information.
One risk for banks is falling foul of regulatory requirements when they use social media, particularly to promote financial products. The UK’s Financial Conduct Authority last month set out guidelines for social media use, stating that every individual communication – be it a single tweet, Facebook post or web page – must comply with their rules and be “fair, clear and not misleading”.
This presents difficulties regarding risk warnings on Twitter, for example, which limits banks and other users to 140 characters. With the regulator alive to social media use, analysts say lenders must take extra precautions to ensure their attempts to go digital do not lead to the next mis-selling scandal.