28 Oct 10 Did your bank Tweet today?

Globally social media and its diverse uses have become a raging phenomenon…many companies from almost all industries have already started making good use of this channel for selling goods / services, customer service and support…but financial service companies, prominently the banks have been slow to adapt.

Social media users across the world – U.S., U.K., Australia, Brazil, Japan, Switzerland, Germany, France, Spain and Italy spent on average more than 5.5 hours per month on social networking sites during 2009-2010, which was over 80% more than in 2008-2009. It is estimated that two-thirds of Americans now use Facebook, Twitter, MySpace, and other social media sites.

Adding fuel to fire are tech-enablers such as iphone / ipad and all other mobile applications that support social media channels as phone features / applications. This enables the young and the restless i.e. Gen X (aged 26 to 50) and Gen Y (aged 18 to 25) to access social media and applications while on the move.

I want my bank on Twitter…

Customers of financial service companies / banks are willing to use social media networks. Research from financial research house Investment Trends indicated in its 2009 investor/member communications report, that 90% of Gen Y and 34% of Gen X have used social media such as Twitter to support their finance-related needs. According to Pew Internet Research, Gen Y, by 2017, will surpass even the Gen X to become the biggest spending group!

…But banks world-over have gone only as far as to render customer service and support to such customers on social media channels such as Twitter. There is six degrees of separation between banks, sale of their products / services and provision of transactionability on social media.

Clear and present danger…

The (latent) demand – supply gap has spawned an entire new set of online / virtual competitors for banks.

Online peer-to-peer lending platforms such as Kiva, Prosper, Lending Club and Virgin Money USA are gaining popularity as alternatives to banks. The loan solutions are more flexible when it comes to interest rates as social media channels cut out the bank middlemen and many of the associated overheads. There is also convenience / ease in terms of loan application requirements and lending periods. Not surprisingly, peer-to-peer online banking services are usually more cost efficient than traditional banking services. According to some estimates, peer-to-peer lending is expected to reach US$5.5 billion to US$6 billion this year itself.

Banks cite multitude of reasons for not providing financial services on social media such as concerns / issues about data security, identity fraud, no estimates on ROI (return on investment), and lack of support from older customers…But according to many research reports, “Convenience is the driver for the younger age groups. These are the people that are prepared to accept that there may be security issues but, at the end of the day, the convenience that social media brings from an interaction perspective makes it worth the risk.”

Wake up Sid(s)…

So, if banks do not adapt fast to this new phenomenon, they may find an entire customer segment being licked off by the new set of online / virtual competitors before they can say Tweet!