Social media in the financial services sector

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Social media's role in the financial services sector s significant, influencing various aspects such as customer outreach, service, marketing, and product development. It has enabled financial institutions to extend their reach globally, overcoming geographic limitations. This is achieved through direct and real-time communication with customers, fostering more personal connections. [1]

Contents

In terms of marketing, social media is increasingly utilized by both online peer-to-peer (P2P) lending companies and small business lenders. Larger, traditional financial firms are also integrating social media into their marketing strategies. This adoption is notable even among firms that face stringent regulatory environments, such as compliance with Financial Industry Regulatory Authority (FINRA) rules. [1]

Companies in the financial sector are subject to regulations when using social media. In the United States, they are regulated by the Financial Industry Regulatory Authority (FINRA). [2] [3]

Oversight

The use of social media by investors and financial services professionals for business purposes is subject to regulatory oversight, primarily by the Financial Industry Regulatory Authority (FINRA). FINRA's rules, designed to protect investors from misleading information, apply to social media communications just as they do to traditional forms. Key regulatory areas include: [2]

  1. Books and Records: Financial firms and their representatives must retain records of communications related to their business. This requirement depends on the communication's content, regardless of the technology used. These records must be preserved for at least three years.
  2. Advertising Rules: FINRA's advertising rules do not apply to personal social media use by associated persons. However, if personal accounts are used for business, it could result in non-compliance with record-keeping requirements. Firms are responsible for educating their personnel about the distinction between personal and business use of social media.
  3. Supervision: Firms must supervise business-related content communicated on social media. This includes suitability determinations if recommendations are made. Any business use of a social media site must be approved by a registered principal, ensuring compliance with applicable rules. Supervision distinguishes between static content, which generally requires principal approval before use, and interactive communications, which do not require such approval but must be supervised similarly to other forms of correspondence.
  4. Third-Party Posts: Recordkeeping requirements extend to third-party content on a firm's interactive electronic forums. Firms must review third-party posts for compliance with FINRA rules and federal securities laws. However, third-party posts are generally not subject to FINRA's advertising rules unless the firm adopts or becomes entangled with the content.
  5. Linking to Third-Party Websites: Firms should avoid linking to any third-party site containing false or misleading content. A firm is responsible for content on a linked third-party site if it has adopted or become entangled with that content.
  6. Suitability: Recommendations made through social media must comply with suitability rules. Firms should develop procedures to supervise electronic communications recommending specific products and prohibit unsupervised recommendations.
  7. Fair and Balanced Communications: Communications through any medium, including social media, must be fair, balanced, and complete, avoiding misleading statements or claims. Firms must ensure that communications are clear, provide balanced risk and benefit information, and are appropriate for the intended audience. [2]

Global platform

Using technology, companies can interact with customers regardless of their geographic location. While companies are able to connect with more people, their branding strategy has shifted from customized to standardized. Prior to the outbreak of technology, most banks used customized branding where they targeted only customers in their regions. However, businesses can now use technology to operate past their geographic location and maintain a consistent image across multiple countries with standardized branding. By being able to extend a consistent brand reputation across a wider geographic location, financial services companies can take advantage of economies of scale in advertising cost, lower administrative complexity, lower entry into new markets, and improved cross-border learning within the company. [4]

Many argue that electronic banking has made customers feel more distant from their banks due to lack of human to human interaction. Instead of going to a local branch and interacting with a teller, customers can now do most of their banking online and even though mobile devices. Social media has provided a way for companies to once again connect with their customers on a personal level. The financial services sector uses social media platforms to create the value that was once found physically in local branches. For example, through their Facebook page, a bank may post a snapshot of one of their employees with a brief blurb about his/her job duties and values. This strategy replicates the human to human interaction a customer would receive at a local branch and humanizes larger financial institutes. [3]

Fintech applications for social media

P2P lending

Social media is a core marketing channel for online P2P lenders as well as small business lenders. Since these companies operate exclusively online, it makes sense for them to market online primarily through social media channels. They are able to grow and find new lenders and buyers by utilizing social networks. [5]

Notable companies

Examples of large financial corporations effectively leveraging social media include Chase, Charles Schwab, and American Express. These cases highlight the expanding role of social media in the sector, despite initial apprehensions related to traditional business models and regulatory constraints.

While social media may not be the central marketing focus for traditional financial institutions, it has become more relevant in recent years. Using social media, financial services companies are able to reach their most valuable customers. According to consulting company Gallup, customers that interact with their bank using social media are 12% more likely to be mass affluent and 18% more likely to be emerging affluent. [1] Besides just reaching their customers and providing service through social media, companies are also able to use data gathered from social media to improve their sales and marketing techniques.

Companies that have excelled at marketing through social media include:

New products and services

Social media has created entirely new products for the financial services sector, revolutionizing products and developing new industries such as fintech through the merging of social technology and financial services. Fintech is a way to streamline financial services and make them easier to use and access. Since this industry is more novel than the established financial services sector, fintech companies are generally startups. Although these companies are popping up all over the world, fintech companies are the most prominent in China, where digital banking, investing, and lending have become mainstream. According to consulting firm Accenture, 390 million people in China have registered to use mobile banking. This figure is more than the population of the United States. [8] Albeit not as popular in the U.S., the most prominent American fintech company, Venmo, blends technology and financial services together on a social platform.

Other financial technology companies that use social media:

P2P lending

Social media is a core marketing channel for online P2P lenders as well as small business lenders. Since these companies operate exclusively online, it makes sense for them to market online primarily through social media channels. They are able to grow and find new lenders and buyers by utilizing social networks. [10] [11]

Social networks for the financial sector

Investment applications

As of 2023, there were few social media platforms geared exclusively towards the financial industry. More financial applications are incorporating a social media element. For example, the investing application WeBull incorporates a forum style messaging system on each stock that is available for trading. [12] Investment applications are moving towards incorporating communities into their stock trading platforms. Public app, Fidelity Investments, Interactive Brokers, and E-Trade have moved incorporated a community feature in their investment apps. [13]

Financial community platforms

As of 2023, there were few vertical social media groups specifically for the financial professional community. Ensombl, is a social networking service that offers education and continuing professional development for financial professionals. In 2023, it hosted 8,000 members.

Other online communities for financial professionals have a forum format, such as Ocho Money, Proformative, Accountant Forums, CFO Leadership Council, and Wall Street Oasis. [14]

Risks

Due to the real-time nature of social media, financial services companies must be on constant alert for potential issues so they can be mitigated before any serious damage control is necessary. Any negative experience a customer has can easily be shared online and if it ends up going viral, those comments could likely have a detrimental effect on the company’s stock price and reputation. On the other hand, any positive experience a customer has can also be shared online. However, positive experiences are much less likely to become viral. [15]

Customer privacy

Customer privacy is important especially in financial services companies. It is critical that customer information such as a bank account number is kept private. However, this information can be leaked if for example, a customer is unhappy with a bank’s service, they may tweet at the bank expressing their frustrations and include their name and account number. [3]

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References

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  2. 1 2 3 "Social Media | FINRA.org". www.finra.org. Retrieved 2023-12-20.
  3. 1 2 3 Blake, B. (2016, July 18). Personal interview.
  4. ↑ Wright, April (2002-01-01). "Technology as an Enabler of the Global Branding of Retail Financial Services". Journal of International Marketing. 10 (2): 83–98. doi:10.1509/jimk.10.2.83.19535. JSTOR   25048891. S2CID   154968169.
  5. 1 2 Eldridge, Richard (2016-01-21). "How Social Media Is Shaping Financial Services". The Huffington Post. Retrieved 2016-07-28.
  6. ↑ "Barclays brings banking and social media closer with Twitter Payments | Social Media | The Drum". The Drum. Retrieved 2016-08-08.
  7. ↑ "Social Media Success Starts With Solid Content Marketing | #BankSocial". 2016-01-14. Retrieved 2016-08-08.
  8. ↑ Oster, Shai (19 August 2015). "WeChat, Baidu, and Alibaba Help Chinese Embrace Digital Banking". Bloomberg.com. Retrieved 2016-07-28.
  9. ↑ "The fintech revolution". The Economist. ISSN   0013-0613 . Retrieved 2016-07-28.
  10. ↑ Siering, Michael (2023-06-23). "Peer-to-Peer (P2P) Lending Risk Management: Assessing Credit Risk on Social Lending Platforms Using Textual Factors". ACM Transactions on Management Information Systems. 14 (3): 25:1–25:19. doi:10.1145/3589003. ISSN   2158-656X.
  11. ↑ Ge, Ruyi; Feng, Juan; Gu, Bin; Zhang, Pengzhu (2017-04-03). "Predicting and Deterring Default with Social Media Information in Peer-to-Peer Lending". Journal of Management Information Systems. 34 (2): 401–424. doi:10.1080/07421222.2017.1334472. ISSN   0742-1222.
  12. ↑ "Robinhood Is Losing Thousands of Traders to a China-Owned Rival". Bloomberg.com. 2020-12-08. Retrieved 2023-12-20.
  13. ↑ Gravier, Elizabeth. "Public review: An investing and social media app all in one". CNBC. Retrieved 2023-12-20.
  14. ↑ "28 Best Finance communities to join in 2023". Hive Index. Retrieved 2023-12-20.
  15. ↑ Yui, Jorge. "Social media and brand reputation in the financial services sector" (PDF).
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