Social Media Banking as ‘keystone’ of the Digital Transformation Arch

Social Media Banking as ‘keystone’ of the Digital Transformation Arch

As we overcome the ‘hype cycle ‘ with mushrooming technology innovations , banks in their quest for a ‘Next generation Banking ‘ model  with ‘social media’ will have a forward integration with the digital bank &  the backward liaison with the ‘intelligent (based on analytics) multichannel’. The upstream taking care of the integrated multichannel architecture, powered by analytics (real-time event management, etc.)  & need based offerings optimized by channels. At the other end remains the Bank as trust center leveraging the power of the power of mobile and payment services with the ‘Social Media doing its critical role of ‘ Customer engagement ‘based on personal interests, leveraging influencers and increasing customer intimacy’ as its listens, monitors, markets with optimized offerings and iterates the feedbacks back into the product.

In the ‘as is’ business scenario banks mostly cluster customers through traditional drivers (such as average revenue, cross-selling rate) and engage them on a “push” basis to a ‘To-Be’ in a rather tectonic shift to what a “Socially Engaging” Banks do. In the later interactions being much more personalized with banks clustering customers based on their interests and intentions communicated via their actions on social media (for instance, by “liking” or sharing something). The resultant being such clustered customers &   having dialogues with them daily on relevant subjects and offer products when customers need them. The bank subsequently becomes a daily partner, able to address client needs and play an active role along the entire purchasing path, instead of only engaging the client in the final phase.

In the game plan banks needs to be a listener as it sets to collect relevant feedback to feed other key components and tune initiatives vis-a-viv Customers ,Brands, product and initiatives. The feedback being in shape of customer complaint & sentiments with respect to existing products thereby enriching the customer profile as it sets to iterate its offerings. For the same the banks need to set up the following-

·         Build Communities

o   Based on products, financial needs, non-financial needs and customer segment

·         Engage users

o   Based on Q&A sessions, “Offline” caring after online interception ,Customer care , Contests (to get influencers) ,  apps/videogames & Virtual branch

 With iterations to the existing products being always a continual exercise the banks set up on path for the ultimate step –product offering (leveraging the social information) and the same as members pass on the same to member

On the upstream where banks need to plug in the backward linkage banks could design an integrated customer experience based on a streamlined multichannel, approach and architecture whereby the multichannel customer experience is based on the right combination of online and offline processes and can be enhanced by focusing on dedicated advisory services (remote or digital). This enables banks to create micro-segments based on uniform demographics and social behaviors, and form the basis for defining strategic profit pools. The increased capture and application of customer data, properly managed and updated through an advanced CRM platform, can help enhance the value and return on product catalogues, commercial campaigns based on realtime propositions, as well as lower distribution costs by optimizing capacity by micro-segment preferences. Pervasive analytics based on effective customer data collection, micro-segmentation and predictive modeling to determine the most effective basket of products 3. Real-time interactions management that can increase conversion rates from inbound and outbound contacts

The branch is downstream should be the platform for opportunity to become a “one-stop shop” and satisfy all relevant customer needs starting from a unique point of contact built on partnership and customer trust. Analytics and marketing capabilities linked with mobile services are required. This means the bank must be able to leverage customer information gathered through the mobile device, such as mobile transactions (m-payments) and geo-localization .Once the payments solution is in place, the customer base can be better protected and the risk of customers changing providers is reduced, given the increased natural trust for payment services provided by banking institutions versus companies from non-financial sectors. In this way, the bank can assume the role of trusted advisor, supporting customers with financial and non-financial offerings and opportunities,. For all needs linked to economic choices such as buying a house, a car, or even supporting the customer preparing for marriage, the bank is able to support the customer from the very beginning and continue to do so throughout by leveraging its partnerships with non-financial institutions.

Facebook and Linkedin will be the operator for the “Share experience” ecosystem, Google for the “Search” ecosystem, big telecommunications companies for the “Connect me” ecosystem and big banks for the “Economic choices” ecosystem. Google also is an important player in the NFC ecosystem given its relationship with MasterCard and Citi has been allowing retailers more data about their customers thereby helping merchants target ads and discount offers to mobile device users near their stores.

In continuation of the privilege provided to retailers ,Google Wallet is passing payment information over existing payment protocols (including MasterCard PayPass and Visa PayWave), and the Nexus S smartphone—which Google developed with Samsung—is already enabled for NFC transactions.

Internal Models of Banks – Making them more ‘Comparable and Credible’

It can be said with reasonable authority about the contemporary global banking system that investors in bank securities and counterparties to banks’ derivatives conduct their transactions on TRUST and not on trustworthy ratios that can help them assess banks’ true credit quality.

As we draw parlance to Greece , since the Global Financial Crisis of 2007-09, increasing evidence came out that Greece “cooked their books” – essentially lying about the country’s financial health in order to comply with the European Union’s prerequisites to joining the common currency. Some say it still went on up to 2012.Hence as a take away from Greece crisis we can transpose the same modus operandi among banks when it comes to their internal models.

The Basel committee’s goal continues to be to curtail bank regulatory arbitrage, that is, banks moving their activities to countries with weaker capital rules. Internal Models of Banks – Making them more ‘Comparable and credible’ is in lines with this goal

So why counterparties & investors rely on trust?

Those internal models to determine credit, market and operational risks so as to measure their assets’ risks. This determines the amount of capital the banks need to sustain unexpected losses. The banks are not required to disclose the details of how they calculate risk-weighted asset ratios. Hence there is no way for investors, bank analysts or the media to accurately compare banks’ risks.

Banks’ also adopt politically influenced practice of determining the ‘probability of default’(PD) of their home country’s sovereign bonds at zero, no matter what the rating agencies or market signals like credit spreads say. That would have a negative impact on banks in Russia and some European countries, including Greece, where the credit quality of sovereign bonds has been deteriorating. However Banks in the United States that invested in United States Treasuries would not be hurt, though, because yields and ratings imply practically a zero chance of default for United States debt.

How does the Basel committee see the way forward?

a.      The Basel committee is seeking to make the risk-weighted asset ratios comparable. That would help the market to discipline banks by selling bank bonds or shares if it does not like the level of risk the banks are taking.

That may not be altogether possible as it is impossible to perfect uniform standardization of how banks calculate their risk-weighted assets given the fact that banks business models and risks are different. However the critics of such standardization should never forget that   standards as to how the banks calculate their inputs be made stricter and certainly more transparent. This will make banks' risk ratios more meaningful to market participants, investors or the media.

b.      If the Basel committee recommends changing that practice, banks investing in home sovereign bonds that are not investment grade will have to raise equity, increase their retained earnings or jettison risky assets to comply with Basel’s minimum capital requirements. There cannot be a stretched criticism to this action given that we all have seen Greece, Ireland and Iceland among many.

c.       The Basel committee envisages more responsibility to technology employees, compliance officers and auditors. These classes of employees are all too often derided with the shortsighted moniker of “cost center” and not given the necessary resources as they are not generating revenues like traders or lending officers. Most they pay such professionals receive don’t incentives them to better perform their essential functions.

Probably this is the  point where you hit the ground is your internal environment where you ask yourself the question- Am I lying to myself? .It’s the ‘single point of truth’. As Indian IT czar Narayana Murthy says ‘In God we trust others bring facts’.

Many large banks continue to struggle with collecting high-quality data, pulling together risk exposures and identifying counter party concentrations accurately and rapidly. Banks’ technology systems, data and reporting processes require significant investment both financially and in personnel.

The infrastructure has to be built for the future superstructure to thrive for every time we need not wait for Herstatt to remind us that the ‘horses have run away from the stable’. The alternative to data is trust which apart from deceit on boarded Greece into the Euro Zone.

It’s an easy choice between data and it related infrastructure and governance inclusive of personel versus TRUST which relied on Greece historical significance and contributions to Europe in terms of developments in civilization, mathematics, philosophy and literature to bring it to the fold of euro zone.