The Failed Promise of Social Media Marketing

Everywhere you read and hear about the promise of social media, the next great marketing tool designed to lead companies to the Promised Land. Banks and credit unions create a Facebook account, a Twitter account, a LinkedIn account and a Pinterest account, hoping to deliver the next social media phenomenon that streaks across the social media stratosphere. What a bunch of garbage that has been sold to corporations around the world.

Bank and credit union executives are telling their marketing people, “We need to be in social media, engage in social media marketing, we need a social media strategy”. Why, because that is what traditional media and the social media pundits say needs to happen.  I am not saying social media does not have a place in a bank or credit union, however, I am saying that 99% of banks and credit unions are wasting their time with social media as it is currently being utilized.

We have to go back to what started the social media revolution. We have all heard the famous story about Mark Zuckerberg and his days at Harvard University. The evolution of social media is essentially an online and mobile tool that allows individuals to communicate and share information with other people or groups.  It is a “social” tool. 

Along came corporations that saw millions of online users and said, “We have to find a way to take advantage of that collection of people to communicate our corporate message”.  In essence, what has happened is corporations are attempting to hijack social media to deliver their marketing message. Oh, they may dress it up, but ultimately it is designed to sell. That is simply not what social media was designed to do, and is why social media marketing by almost any measure has failed to produce tangible long-term positive financial results. 

So if you are a credit union or bank executive and you believe or your marketing team believes that the effort put into social media to deliver your marketing message has a positive ROI, then you are mistaken. Social media works when delivering a person-to-person message, but not a business-to-person message. 

What is your bank’s or credit union’s goal with social media? Is it to increase new business?

Has it worked? I doubt you will find a true metric that shows it works. Is it to get “Likes” or “Followers”? Those are two of the most useless social media success metrics available. “Likes” and “Followers” are “one-time” engagement events. That is like sending a letter to all your members once and expecting positive benefits from that letter six months later. The only way to gauge social media success is based on “daily” interaction. Do you know the click through rate for social media messages that come from “Liked or Followed” companies? Less than a half of a percent, which is worse than direct mail. Do that math based on the number of “Likes” or “Followers” your bank or credit union has accumulated.  Does it produce a positive ROI? 

I hear feedback, “but it doesn’t cost us anything to engage in social media”. Wrong! Just like everyone used to say, it doesn’t cost us to SPAM email messages to customers and prospects. There are reputation or brand costs from slow response rates or unwanted messages. The time invested in social media could produce better returns elsewhere.

The problem is banks, credit unions, and companies are lazy or worse, unimaginative when it comes to social media. Let’s simply take our old marketing strategy and apply it to this new channel called “social media”. Trying to deliver a traditional marketing message through social media is like trying to drive your car down a sidewalk. There is a path, but the results will not be very successful and you will not make your neighbors happy. 

So where does social media fit into a credit union or bank strategy? Unless your bank or credit union is willing to innovate and develop a “game-changing” business model, it may not fit. Remember, social media is all about person-to-person social networking and communication. If your bank or credit union is willing to use social media and commits the resources to make it successful as a tool that allows your customers to interact with each other providing advice, counsel and recommendations around financial services then social media may make sense. But it has to extend beyond that, by allowing social media to influence the operations of your bank or credit union, such as for analyzing credit risk, influencing lending or deposit rates and product introductions. Social media will only work if your bank or credit union is capable of engaging your customers, which requires providing substantial and meaningful benefits to those that participate. Business social media must move away from one-way communication to two-way dialog. That can only occur with engaged customers. 

Creating a Cool and Profitable Bank or Credit Union

In an American Banker article, Creating a Bank that's Both Cool and Fair, Chris Skinner poses a question, "What does 'cool' mean in banking?" The question I would ask is, “How do you create a ‘cool’ and ‘profitable’ bank?” Transaction fees, interchange fees and other non-interest income are often the difference between bank or credit union profitability and losing money. Regulators, neo-banks, new competitors and educated consumers are quickly forcing the end of traditional banking non-interest income.

Becoming "cool and profitable" in banking will involve a complete rethinking of how a bank or credit union operates and the business they are in.

Let’s Start with Profitability

Banking is no longer about money, it is about data and how that data is used. We hear the term “big data” and study after study has shown North American banks and credit unions have failed to realize or capture anything close to the potential that big data poses to offer. Why? Data is meaningless in its raw form. Instead of trying to capture all your data and then try to do something with it, try focusing on a specific goal that requires limited data. Start small and as you gain experience, understanding and positive results, expand the use of data.

For example, you could start by using data to help you identify profitable customers and more importantly, non-profitable customers, and what it will take to get them profitable. According to Bank Director 40% of retail bank customers and credit union members are not profitable. Optirate says, as many as 80 percent of customers at community banks or credit unions generate operating losses, with nearly all profits attributable to only 10 to 20 percent of customers.

Can your bank or credit union sustain subsidization of 40% to 80% of your customers or members? Regardless of what number is correct, there is no doubt subsidization is occurring, which will ultimately lead to your profitable customers and members being at risk. 

Simple data can be used to start a profitability analysis. Even if your bank or credit union chooses not to act on the information, CEOs, CFOs and board members should know the results of a profitability analysis so a conscious decision can be made.

What is Cool in Banking?

Banking generally operates according to systems and legacy technology that were developed in the 1970s to meet the needs of the market at that time. Is there any denying the market today is not the same as in the 1970s? Yet banking remains siloed, operates around products, account numbers and is internally focused for plenty of outdated reasons. That environment is slowly changing, but can it change fast enough to preserve the thousands of banks and credit unions that exist in the United States. Virtually every country in the world is dominated by a small number of large “too big to fail” national banks. The US financial services market is quickly moving in that direction.

North America’s national banks are investing tremendous resources into technology, Fintech startups, and technology incubator programs. Resources North American community banks and credit unions cannot compete with. So what is the alternative?

Create a “cool” bank or credit union. That means re-inventing how your bank or credit union does business. That means trying new ideas and recognizes they all will not work, but the organization learned something. It means positioning your bank or credit union to be able to adjust and move quickly. It means developing a niche that can be supported by your technology solutions. It means having agile technology.

Silos have to be eliminated, organizational structure must change and the focus must be “what is right for the profitable customer”. It means finding creative ways to deal with Know Your Customer and lending regulations. The banks and credit unions that can deliver frictionless, instant account opening, instant loan approvals and disbursement, and predictive analytics  will emerge as market leaders. It means leaving no rock unturned and allowing no sacred cows. It means “re-inventing” your bank or credit union to meet the changing expectations consumers demand in all other areas of their life in this digital age.

For example, why offer separate checking accounts, CDs, savings accounts, and credit cards? Why not let your customer or member build the products they want in real-time through a one-step instant approval process? As they add features and new services, pricing is adjusted based on real-time profitability analytics.

When I buy a car, I never buy the basic stripped down model. The low price may get me to the car dealership, but I do not end-up buying that model. Instead, I convince myself I need this "must have option" and "that must have option" to the point that pricing becomes less important to me and the dealer's profitability goes up. The same thing applies to new home buyers when they are purchasing a house from a new home builder.

If banks and credit unions take a similar approach by allowing customers to build products unique and customized to their situation, instead of offering a pre-defined menu of pre-built products my belief is customers and members would focus more on the customizable solutions that meet their exact needs, and less on the pricing that goes with it. Through relationship pricing and relationship analytics, banks and credit unions can improve product margins and provide pricing transparency.

Agile Technology for an Agile Bank and Credit Union

The problem bank and credit union executives face is that in most cases their legacy core banking systems are not capable of supporting this type of innovative thinking. Core banking systems are built around silos, products and account numbers. They are not built around customer relationships, and data analytics.  

Fortunately, there are options. The best part is that these options:

1. Come with far less enterprise risk than a core banking system conversion; and
2. Will add long-term functionality and architecture that will allow your credit union or bank to move into the world of real-time processing, transactions and data management, and personalization.

Components, APIs, standards, and the cloud offer banks and credit unions the opportunity to explore true alternatives to the zero-sum game of a core banking system conversion. Componentization, APIs – along with emerging standards such as BIAN (banks) and CUFX (credit unions) – and internal or external cloud environments allow banking systems to more effectively communicate with each other and allow banks and credit unions an opportunity to create their own service-orientated architecture (SOA). An SOA approach modernizes the technology environment by allowing credit unions and banks to “mix and match” technology solutions they need to adjust and drive their business model, as well as the ability to quickly adjust and implement new solutions.  

The most advanced banking technology environment is only as good as the vision, mission, and strategy it is designed to support.  This contrasts with the old days of banking IT when IT departments often unwittingly held the bank or credit union hostage by their antiquated systems, and were obstacles to innovation and change.

Banks and credit unions now have an opportunity to improve agility by becoming more invested in their technology strategy and its execution. The CIOs of today’s banks and credit unions needs to be savvy business leaders that are actively involved in shaping the direction of the bank or credit union, then putting in place the solutions necessary to achieve the corporate goals. They need to have a seat at the executive table and be like the orchestra conductor, pulling all the pieces together to create symphonic harmony.

Well-chronicled are the changes that have occurred in retail banking – and will continue to occur at an exponential pace – coupled with the increasing expectations of today’s retail financial service consumers. Some banks and credit unions have taken steps to adjust their business models and technology solutions to meet these opportunities. Other banks and credit unions want to change, but do not know how or even where to start. Others are sitting idly by and hoping that digital banking, omnichanel and bi-direction channel banking is a fad that will soon pass.  

Before your bank or credit union considers a core banking system change, formulate a technology strategy that supports the vision and mission of your bank or credit union. Evaluate alternatives and opportunities, which will likely be less expensive, have a lower enterprise risk profile, higher ROI, and can be operational much faster than a core banking system conversion. With these guiding principles in mind, you can position your bank or credit union as an agile player in the quickly evolving retail financial services market.  

Getting to the Core – Why a Core Banking System Conversion May Be the Wrong Approach

Ah, remember the old days……, the days when you had to get to your bank or credit union branch before 2:00 PM in order to get a deposit recorded as a transaction for that day. Fast forward to today. As Tom Groenfeldt, contributor to Forbes so eloquently writes, “When 40-year old legacy banking systems meet the two-month old iPhone 6, the results aren’t pretty.”  The same thing that happened 20 years ago when a customer visited a branch still happens to you and your iPhone 6 or tablet today. It encounters batch processing. We are in the era of real-time transactions, real-time processing, and instant access to data, yet banks and credit unions cannot consistently deliver that experience to their customers or members.  So much time has passed yet so little modernization progress has been made with North American core banking systems. The very systems that drive your credit union or bank. How can you compete against the up-starts, neo-banks, and fintech companies that seek to take piece by piece your most profitable business and leave you with the burden of regulation and no profit transactions when your core banking system is so far behind?

Core banking systems, also known as core data processing systems were architected and built 30 to 40 years ago. They were designed more than 20 years before anyone heard of the Internet and their basic architecture has not changed since then. They were built to handle internally generated transactions from tellers, loan officers, CSRs and back-office support staff. They most definitely were not designed and still are not designed to meet the needs of external users such as customers and members. As a former executive of a core banking system company, I have seen the inside of the belly of the beast and it is not pretty. They say that if you see how sausage is made most people wouldn’t eat it. At least the finished product generally tastes good. If you saw how core banking systems are architected, enhanced and maintained, the spaghetti code cobbled together, and the lack of documentation you would not want to rely on it to run your bank or credit union. The worst part is many banks and credit unions have a hate/hate relationship with their core banking system and their provider. Why, because the core banking systems in use today, simply were not designed to meet the needs of today’s credit union and banks. As much as your core banking system provider may want to give you what you want, they can’t. Their core banking system solution simply was not designed to meet the needs of modern banking and their customer’s expectations, real time processing, transactions and data management. They are built on outdated technology, they were built around batch processing, and they have enhanced using Band-Aids and patchwork. 

So what are banks and credit unions that do not have the resources of the major national and super-regional banks to do in this situation? Converting from one core data processing system to another core data processing system is like adding internet radio to your 300,000 mile 15 year old car. It may provide you with a feature you are missing, but what happens when the engine blows up?

Fortunately, there are options, and the best part is the options come with far less enterprise risk than a core banking system conversion and will add long-term functionality and architecture that will allow your credit union or bank to move into the world of real-time processing, transactions and data management, and personalization.

Components, APIs, standards and the cloud allow banks and credit unions the opportunity to explore true alternatives to the zero sum game of a core banking system conversion. Componentization, APIs along with emerging standards such as BAIN (banks) and CUFX (credit unions) and internal or external cloud  environments allow banking systems to more effectively communicate with each other and allow banks and credit unions an opportunity to create their own Services Orientated Architecture. An SOA will modernize the technology environment by allowing credit unions and banks to mix and match technology solutions they need to adjust and drive their business model and the ability to quickly adjust and implement new solutions. 

Combining a presentation platform on top of a security layer, an integration layer with business and workflow engines, data analytics tied to back-end and stripped down core banking legacy systems will provide credit unions and banks with the flexibility, agility and lower risk profile necessary to offer members and customers the solutions they demand in order to compete in the rapidly changing retail financial services market.

Before your bank or credit union considers a core banking system change evaluate the alternatives which will be less expensive, have a lower risk profile and can be operational much faster and positions your bank or credit you to be agile in the quickly evolving retail financial services market.