Financial services on the cusp of social-media revolution

Over the last five years, social media has exploded on a global scale and reshaped the way many companies communicate and engage with audiences. Today, for example, more than 1 million companies worldwide have a profile on LinkedIn, which recently set up offices in Singapore, Japan and Hong Kong on the back of strong demand in Asia. Meanwhile, more than half (56 per cent) of Fortune 500 companies have a presence on Facebook. These figures, however, are in some ways misleading. Yes, many industries have embraced social media with enthusiasm and vigour. But some have been much more cautious—notably the financial services sector. Why?

Like most, the financial services industry has long seen the potential benefits of social media. Unlike most, however, it has had deep-rooted concerns around its clients’ interest in and comfort with online engagement, as well as the lack of clearly defined industry regulations and guidelines for use. This is understandable, bearing in mind trust and security are imperative to financial services firms, the former of which has been significantly eroded since the global economic crisis. But over the past two years these concerns have slowly started to fade away; and today I believe the industry is on the cusp of a social media revolution. Here’s why:

Evolving regulations and guidelines

Maybe the biggest historic barrier to entry to social media for the financial-services industry has been a lack of defined regulations and guidelines. However, this is slowly changing. In recent years, new regulations and guidelines have been prepared for social media as a response to the evolution of information-sharing technology.

In September 2009, FINRA, an independent, non-governmental organisation overseeing member brokerage firms and exchange markets in the United States, convened a Social Networking Task Force to determine how firms and their registered representatives can use social media for business purposes while ensuring investor protection. Four months later, it issued Notice 10-06, which outlined how marketing on social media platforms translated into current disclosure rules.

In addition, in 2010 the Insurance Marketplace Standards Association (IMSA), an industry organisation in the United States created to promote high standards of ethical conduct, released its social media policy template, which encouraged carefully considered social media participation. The template was designed to guide the insurance industry through social media policy development to ensure companies address social media use for both business and personal use. While these regulations and guidelines were developed in the United States, they are relevant globally and can and should be embraced in Asia. 

Trust and comfort online

In recent times it has become increasingly evident that trust and comfort in interacting with financial services firms online has significantly improved, in part driven by the rapid pick up of online banking services. According to comScore’s State of Online Banking Report, for example, 58 million people used such services in 2010. Yes, this is not social media per se, but it has helped create a warmer and more trusted online environment for financial services firms to dip their toes in. 

In tandem, forums, blogs and websites have become increasingly revered sources for information and recommendations on financial products, especially in Asia. In early 2011, for example, Aviva’s annual Consumer Attitudes to Savings survey revealed almost one third of consumers (27 percent) in China and one in five (20 percent) in Singapore are now using social networking websites to get recommendations on financial products or advice on personal finance. This compared to one in ten (11 percent) in Europe and one in 20 (4 percent) in the United States.

To conclude…

In today’s digital world, trust and comfort in online engagement with financial services firms have improved, and previously opaque regulations and guidelines are slowly becoming clearer. In light of this, previously hazardous barriers to entry for social media within the industry are crumbling. Some firms have already reacted. But in my view, we have only seen the tip of the iceberg.