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There are now 2.6 million kiwis using Facebook and the number is growing. Concurrently, smartphone use in New Zealand has grown by a staggering 99 percent in the last year. It is easier than ever for consumers to share their experiences with others and banking customers are no exception. Understanding what customers are feeling, thinking and saying (in real time) is now more crucial to banks than ever.

Risky business

Social networks such as Facebook and Twitter amplify and accelerate reputational risk in the banking sector. A complaint from a customer can escalate into a full-blown crisis in less than 24 hours, with little predictability about whether a story will go viral. The ability of consumers to impact business in unpredictable ways has grown exponentially.

Close to home

The 2014 Banking Banana Skins report, prepared by global consultancy PwC together with the Centre for the Study of Financial Innovation, exposes the anxiety levels and risks identified by more than 650 bankers worldwide, including Australia and New Zealand.

Although social media ranked 19th place globally, in New Zealand, it was ranked the seventh biggest fear.

As described by PwC banking and capital markets leader, Sam Shuttleworth, "There's a nervousness here that social media can be your best friend one minute, and it could end in divorce the next. Some stories can go viral, good or bad. You can't control it."

Frenemy?

On the flipside, social media can also be viewed by banks as an opportunity for marketing and crisis management which is likely the reason it isn't ranked the top risk. Social media offers a way to disperse information quickly. Banks can get out in front of potential issues quickly before they explode, or if things have already moved past that point, they can really switch into damage control.

According to Philippa Kelly, manager at the Institute of Chartered Accountants of England and Wales, "When it comes to social media, you're better in than out. This is a new form of dialogue that is increasingly important to consumers and banks need to be a part of that. There is reputational risk, but also the opportunity for customers to champion you for doing a good job. The greater harm is to ignore social media."

Research shows that banking customers share just as many positive experiences about their bank as negative ones. According to a recent study by IBM Global Business Services, banking customers revealed that they use social media in the following ways:

• 18% - express frustrations with personal bank experiences
• 18% - like when others share positive experiences about their bank
• 17% - use social media to aid deciding whether to purchase bank products and services.

Keeping ahead

It is no longer possible to ignore social media in the banking sector. Instead, proactivity is considered the prudent business choice.

A combination of both institutional and system knowledge is necessary to stay ahead and maintain some level of control. Institutional knowledge is the collective knowledge about a company such as its brand, issues, talent, and competitors. When this knowledge is cross-referenced with key words, opportunities and risks are illuminated as they appear in the blogosphere, on message boards or other social media outlets.

In reality however, you can't track an issue if you have no awareness of it. Highly sophisticated techniques and precision filtering are required to mine large volumes of content and identify important messages and trends quickly and in real time. Banks are acknowledging this and investing in resources targeted to social media management.

In New Zealand, retail banks are embracing Facebook, Twitter, LinkedIn, Flickr and mobile applications, as well as social media tools on their own websites. The big banks all have three to four dedicated social media staff, though the country's biggest bank, ANZ, has seven. A Bank of New Zealand spokesman said the bank had gone from managing two social networks a few years ago to seven, and expected to have at least two more in the fold this year.

Sources

• http://www.pwc.com/gx/en/banking-capital-markets/banana-skins/2014-survey.jhtml
• http://www.globaltrends.com/knowledge-center/features/shapers-and-influencers/145-social-media-and-brand-reputation-in-the-financial-services-sector
• http://www.stuff.co.nz/business/industries/9986536/Banks-value-reputation-independence
• http://www.phosphor.co.nz/news/the-digital-universe-key-trends-in-new-zealand
• http://www.adcorp.co.nz/news-blog/Social-Media-Statistics-July-13-Aust-and-NZ