fis strategic insights vol 4 november 2011

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FIS ENTERPRISE STRATEGY VOLUME 4 NOVEMBER 2011 FIS STRATEGIC INSIGHTS V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved. 1 By Fred Brothers EXECUTIVE VICE PRESIDENT, ENTERPRISE STRATEGY Large banks have had a significant advantage over small financial institutions in terms of efficiency. Average efficiency ratios improve with bank size (Figure 1). 1 The gap between the efficiency of the largest banks (more than $10 billion in assets) and the smallest ones (less than $100 million in assets) was 15 percentage points when the economy was heading into recession at the end of 2007 (Figure 2). By year-end 2009, the gap nearly doubled to 28 percentage points. Between 2007 and 2009, small banks lost substantial ground. Driving Efficiency at Financial Institutions by Leveraging Customer Data IN THIS ISSUE Driving Efficiency at Financial Institutions by Leveraging Customer Data Exclusivity Provision of Durbin Amendment: Impact and Revenue Opportunities The $5 Debit Fee is D.O.A., but the Need to Revive Checking Fees Remains Developing and Deploying Social Media for Financial Institutions Figure 1: Efficiency Ratios Improve with Asset Size Efficiency Rao = Non-interest expense less amorzaon of intangible assets as a percent of net interest income plus noninterest income. This rao measures the proporon of net operang revenues that are absorbed by overhead expenses, so that a lower value indicates greater efficiency. Source: FDIC Summary of Depository Instuons Report 77% 74% 70% 68% 61% 60% Less than $100M $100M - $300M $300M - $500M $500M - $1B $1B - $10B $10B+ Ratios determined as of June, 2011

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Strategic Insights is a newsletter published by FIS that provides research, throught leadership and strategic insights on banking and payments.

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Page 1: Fis strategic insights   vol 4 november 2011

FIS ENTERPRISE STRATEGY VOLUME 4 • NOVEMBER 2011

FIS STRATEGIC INSIGHTS • V4 NOVEMBER 2011 ©2011 FIS and/or its subsidiaries. All Rights Reserved.

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By Fred Brothers EXECUTIVE VICE PRESIDENT, ENTERPRISE STRATEGY

Large banks have had a significant advantage over small financial institutions in terms of efficiency. Average efficiency ratios improve with bank size (Figure 1).1 The gap between the efficiency of the largest banks (more than $10 billion in assets) and the smallest ones (less than $100 million in assets) was 15 percentage points when the economy was heading into recession at the end of 2007 (Figure 2).

By year-end 2009, the gap nearly doubled to 28 percentage points. Between 2007 and 2009, small banks lost substantial ground.

Driving Efficiency at Financial Institutions by Leveraging Customer Data

I N T H I S I S S U E

•Driving Efficiency at Financial Institutions by Leveraging Customer Data

• Exclusivity Provision of Durbin Amendment: Impact and Revenue Opportunities

• The $5 Debit Fee is D.O.A., but the Need to Revive Checking Fees Remains

•Developing and Deploying Social Media for Financial Institutions

Figure 1: Efficiency Ratios Improve with Asset Size

Efficiency Ratio = Non-interest expense less amortization of intangible assets as a percent of net interest income plus noninterest income. This ratio measures the proportion of net operating revenues that are absorbed by overhead expenses, so that a lower value indicates greater efficiency.

Source: FDIC Summary of Depository Institutions Report

77% 74% 70% 68%61% 60%

Less than$100M

$100M -$300M

$300M -$500M

$500M -$1B

$1B - $10B $10B+

Ratios determined as of June, 2011

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50%

55%

60%

65%

70%

75%

80%

85%

2004 2005 2006 2007 2008 2009 2010 June2011

Less than $100M

$100M - $300M

$300M - $500M

$500M - $1B

$1B - $10B$10B+

Figure 2: Except for Large Banks, Efficiency Ratios Deteriorated during the Recession

Source: FDIC Summary of Depository Institutions Report

Although large banks have generally sustained efficiency ratios around 55 percent for the last seven years, their ratios ticked upward in the first half of 2011 — interestingly, at the same time all other banks’ ratios were going down. Sustaining efficiency over time, let alone making continuous improvement, is tough to achieve in this climate.

Efficiency ratios will certainly decline (improve) somewhat as the economy improves. But the multi-year earnings outlook in banking is negatively impacted by increased regulatory and capital requirements, tighter risk controls, and consumer spending trends. I believe many of these changes are permanent and business-as-usual operating approaches will not bring efficiency back to pre-recession levels. Many institutions must shift to a longer-term, strategic approach to achieve permanent cost efficiencies.

I’ll talk about the future of efficiency ratios in coming month’s articles. This month, I discuss how to use data to make efficiency improvements.

From recent research FIS Enterprise Strategy conducted with 3,000 banking customers nationwide, we know that: 1) on average, only about 40 percent of banks’ primary DDA customers are profitable (that includes marginally profitable customers), 2) banks aren’t getting as much share of their profitable customers’ financial wallets as they could get, and 3) banks also aren’t getting enough share of the financial wallet of another 40 percent of their customers who could be profitable if banks could capture a greater portion of their assets and/or loans.

A few months ago, we talked with a dozen banking executives who are in various stages of applying data-based strategies to align the right product with the right customer at the right time to help their financial institutions grow revenues and manage risk in this tough economic climate. Those furthest into the process had realized the most benefits.

Gains resulting from integrating data analytics into their marketing, IT, risk and financial management processes include:

• Customer acquisition initiatives are more effective leading to increased revenue generation from marketing campaigns directed toward attracting new customers.

• Analytics is fueling product innovation and helping end free checking.

• Information is pushed out via the channels specific customers are using, which improves campaign efficiency.

• Bankers can focus their resources on retaining and deepening relationships with customers who have been identified as being profitable or potentially profitable. Institutions are increasingly mining retail checking account data for indicators and patterns of customers who are mass affluent or own small businesses.

• Customized product packages and corresponding value propositions are created based on applying predictive models that suggest a high propensity for purchase by specific segments of customers. As a result, the potential package “sale” is more relevant and beneficial to both the customer and the bank. Even simple packages (e.g., DDA, savings and debit or prepaid card) can be developed to manage customers who — for better or worse — are married to their banks, but will not likely be profitable for their primary DDA provider in my lifetime.

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Our discussions also led to a list of guidelines that we compiled based on the collective wisdom of banking executives who have endured through the painstaking process of integrating data analytics into their organizations and are now reaping the rewards.

Top management commitment and strategic focus are vital to success. Data analytics champions need to spend time with senior management to help them envision how analytics can drive revenue and boost efficiencies over time. Bankers stressed the importance of initially focusing on achieving a limited number of goals that have the best potential to generate successful results relatively quickly.

Successful implementation of data analytics programs takes time. One bank took 18 months just to hire the right person to head the data analytics function. Most have outlined 5 – 7 year plans to fully realize their goals.

Standards are critical. Implementation policies need to be in place to ensure data aren’t misused. Data usage certification is considered to be a best practice especially if access is decentralized. Certification of users mitigates bottlenecks common to centralized management of data.

Manage data analytics centrally; apply data analytics locally. Most bankers agreed that centralized data management is ideal, but success hinges on end users — e.g., marketing and risk management — having timely access to information. Business units work with IT to shape priorities and define standards. IT builds and maintains the data warehouse. Information can be provided to employees and/or employees can be trained and authorized to access relevant databases.

Monitor customer activity daily. Near-term opportunities can be identified through timely monitoring and delivery of key data to bank sales personnel. One bank delivers “top-three” selling opportunities for each customer daily to their telephone customer service representatives and pushes “next-best” product opportunities to customers when they log on to their account online.

Determine rules for measuring customer profitability. One banker cautioned that refined approaches to profitability are required to account for a bank’s overhead so that customers aren’t penalized for factors that are not within their control. Another banker pointed out that some customers deemed unprofitable today would be profitable under “normal” economic conditions.

Prioritize channels to use for communications and focus on getting information to those channels first. One bank conducted a funnel analysis on customer acquisition to identify the best marketing channels to focus on out of 16 different points of contact. The analysis enabled them to designate the most effective marketing channels and number of contacts for specific product and customer segment campaigns.

While certainly requiring initial and ongoing investment, data analytics can ultimately help banks do more with less thereby improving efficiency. But, it’s not an easy task to lasso vast amounts of data coming from multiple sources and make it actionable. It’s a long-term commitment, but one that’s ultimately required as the industry drives toward future efficiency ratios that will required to remain competitive. We’d love to hear about your experiences — good, bad or ugly — with data analytics. Just reply to this newsletter and let us know your thoughts.

1 FDIC Summary of Depository Institutions Report

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Interview with Neil Marcous SENIOR VICE PRESIDENT, PAYMENT NETWORK SOLUTIONS

The exclusivity provision of the Durbin Amendment impacts all issuers of debit cards effective April 1, 2012. All issuers, regardless of size, must maintain at least two debit network relationships. There is no distinction between signature and PIN authentication with respect to the two-network-path requirement for debit cards. The two networks must not be affiliated in terms of ownership. For example, an issuer cannot meet Durbin’s exclusivity requirement by using only VisaCheck® signature and Visa’s Interlink® PIN debit service.

So what does the exclusivity provision mean for financial institutions? In an in-depth interview, Neil Marcous, senior vice president, FIS Payment Network Solutions, explains the impact and opportunities associated with the exclusivity provision and how financial institutions can comply with the law and maximize their revenue opportunities.

Impacts of Exclusivity Provision

Q: What are the major impacts of the exclusivity provision of the Durbin Amendment for financial institutions?

Neil Marcous:

Financial institutions may feel they have to be in multiple PIN payment networks, but they actually have to be only in two debit networks. You need a signature network and a PIN network that are unaffiliated. Then, you will be in compliance on the non-exclusivity clause.

Financial institutions that need to choose another network include: 1) financial institutions only using affiliated debit networks for both PIN and signature — such as MasterCard/Maestro and Visa/InterLink, and 2) financial institutions that are only in a signature network and do not have a PIN network. For financial institutions choosing another network, the biggest challenges are: 1) timing — time is short to choose a network, sign contracts, and go live by April 2012, and 2) strategic fit with the new network.

There is an important second impact for financial institutions that have multiple PIN networks on their card. Many smaller financial institutions are in three-to-five PIN debit networks, which is not a good idea in a post-Durbin environment. Since Oct. 1, 2011, the merchant has had the ability to determine where the transaction is routed. That means merchants can choose least-cost routing — directing the transaction to the network where it will cost them the least. Suppose a financial institution participates with network “A,” which has decided upon a below- market interchange strategy to make it more attractive to merchants. Let’s say that this merchant-centric network charges the merchant and pays issuers 25 cents per purchase transaction. But the financial institution also has network “B” that has an issuer-centric strategy, which would result in the issuer receiving 35 cents per purchase transaction. Until October 1 of this year, the institution was usually able to specify their preferred network such that it could receive the highest interchange possible. Now, merchants can send everything to the merchant-centric network in this example, if they choose to route transactions this way. As a result of having multiple PIN networks, financial institutions can experience diminishing revenue streams.

Exclusivity Provision of Durbin Amendment: Impact and Revenue Opportunities

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Opportunities for Revenue Enhancement

Q: What opportunities for financial institutions are arising from the need to comply with the exclusivity provision of the Durbin Amendment?

Neil Marcous:

The final regulations of the Durbin Amendment are creating more urgency for financial institutions to review PIN debit network options and consolidate PIN debit networks. Only one PIN debit network is needed to fulfill the regulations, if the card also participates in a signature network. If the issuer prefers to have the card participate only in PIN-based networks, then two PIN networks are required.

Financial institutions no longer need four or five PIN networks for reach and penetration across the entire country. If, in fact, you do have multiple PIN networks, the merchant is making the decision about where the transaction is routed and is going to least-cost route it. However, if you only have a preferred PIN network and a signature program, you have complied with the regulations and have more predictability and control over your transaction earnings. More networks aren’t better; it means greater expense and reduced interchange income.

Lead Time for Adding a Network

Q: What kind of lead time do you need to prepare to add an additional network?

Neil Marcous:

Technically, most financial institutions only require a few weeks to add a network, but they need to factor in sufficient time to decide which network to select and to enter into contracts with that network. For larger customers that want to connect directly to the network, more time is required to allow for ordering telecommunications, installing equipment and certifying the transaction messages over the new interface.

There are varying degrees of timing that we outline for customers in our RFPs. Time is definitely of the essence now for financial institutions that need to be compliant by April 1.

Questions to Ask in Evaluating PIN Payment Network Alternatives

Q: From the issuer’s perspective, what criteria would you use in evaluating PIN debit network alternatives for your financial institution?

Neil Marcous:

If you’re going to pare down to a single PIN and a single signature network, you need to consider both the strategic alignment of the PIN debit network with the financial institution’s interests and the relationship down the road. An organization needs to know the network is not only able to represent its best interests now but also is looking at payment innovations on the horizon. The network should have a strategy going beyond PIN debit that addresses alternative paths that are developing such as mobile at the point-of-sale, debit purchases on the Internet, couponing and prepaid reloadable. You need to ask the question: what is the organization behind the network you’re picking and what are they investing in research and development on advanced capabilities that will be important to the institution in the future?

For additional information about the FIS Network Solutions and how FIS can help institutions best meet the new Durbin regulations, please contact your sales account manager. If you do not have a sales account manager, please contact us at: http://www.nyce.net/contact/index.htm.

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The $5 Debit Fee is D.O.A., but the Need to Revive Checking Fees Remains

By Paul McAdamSENIOR VICE PRESIDENT, RESEARCH & THOUGHT LEADERSHIP

The recent miscalculation on debit card usage fees by several large banks serves as a microcosm of the ongoing challenges the retail banking industry will face over the next few years. The populist movement that reversed banks’ decisions to impose or pilot debit card fees magnifies three problems banks will face as they seek to restore pre-recession levels of profitability:

1) There is massive consumer skepticism regarding the motivations of banks and other large “institutions.” The 2008 financial meltdown and bank bailouts are not-too-distant memories for many consumers and the home foreclosure crisis is still affecting millions. Most consumers don’t know or care about the fact that the banking industry has lost billions of dollars of revenue due to recent regulations. They simply view any efforts by the banking industry to raise fees in the midst of a recession as unjust. Arguments by banks to leverage fees to restore profitability to pre-recession levels will receive harsh reactions until consumers’ personal income statements and balance sheets return to pre-recession levels.

2) This skepticism awoke the silent majority and is driving increased consumer activism across many industries and institutions including banks. Depending on one’s ideology, institutions such as large corporations, labor unions, the military-industrial complex, the government, and others could be viewed as guilty of preserving their own self-interests at the expense of the greater societal good. The Tea Party movement and Occupy Wall Street serve as examples of consumer activism not seen in forty years. Large bank fee increases are an easy target for activists. While the extent to which activists may target fee increases by smaller banks is unknown, it is not outside the realm of possibility — particularly within large metro markets.

3) The effectiveness of the consumer activism is accelerated by the power of social media technologies. With social media, any consumer who has motivation and Internet access has the potential to spread a message to millions. Consider the role that social media played in the recent debit card fee conversation. In the span of just 30 days:

• Molly Catchpole, the 23 year-old, recent college graduate from Washington, D.C. collected more than 300,000 petitions against the Bank of America debit card fee on Change.org.

• Kristen Christian, the 27 year-old San Francisco art gallery owner, started the November 5th “Bank Transfer Day” movement on Facebook and more than 75,000 consumers pledged to participate by moving their money from a large bank to a credit union.

• Consumers Union sent messages regarding the Bank of America debit card fee to 780,000 opt-in email subscribers.

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Once opposition to the debit card fee went viral on social media, it drew national media coverage and the cycle of media exposure fed upon itself. At the time I wrote this article, a Google search on “Bank of America $5 debit card fee” generated 16.5 million results.

And now, anti-bank consumer activism is further emboldened with the news that Bank of America, Chase, Wells Fargo and others reversed course on their debit card usage fees. Although the debit card issue will fade with time, subsequent rounds of social media activism will surely emerge as large banks tweak their fee policies in the coming months.

Evolution to Relationship-based Pricing

For the past 15 years, financial institutions have freely provided debit cards to consumers and encouraged their usage — and it worked. Recent FIS consumer research found that 71 percent of consumers purchase goods using a debit card and 39 percent use their debit card to get cash back at a store checkout line. Clearly it was misconceived to start charging fees on such a widely adopted service that has always been free. The move was viewed by consumers, media and eventually politicians as an unjust way to fill the revenue gap left in the wake of the Durbin interchange ruling.

A friendlier approach would have been to announce fee increases for packages of checking account services and give consumers various options to receive free checking by consolidating their financial relationships with their primary checking account provider or by altering their behaviors to reduce the cost of servicing them. Banks must revise their economic models to remain profitable and continue to have the ability to invest in the payment and channel access conveniences that consumers increasingly demand. However, fairness and transparency count these days.

In order to satisfy their own need to build healthy relationships with customers and also prove the tremendous value they provide, banks must transition to relationship-based pricing models with a new proposition: “Make us your primary checking account provider, consolidate your financial relationships with us, and many of you can avoid fees.” Shifting to relationship-based pricing must be communicated through significant marketing campaigns and frontline employee training to reinforce the numerous benefits of checking account services.

Wide Variations in Customer Profitability

I realize that some readers have no plans to increase fees and will completely disagree with my viewpoint. But before you call me crazy, I’d ask you to read on. We’ve completed recent consumer research which provides a compelling defense for transitioning some consumer checking account relationships from “free” to “fee.”

An August 2011 FIS Enterprise Strategy survey of 3,000 bank customers and credit union members with checking accounts on the topics of loyalty and profitability revealed that many institutions are overserving and undercharging a significant number of their customers (see Figure 1).

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• Thirty-nine percent of consumers maintain a relationship that is profitable to their primary checking account provider (17 percent loyal, 22 percent not loyal).

• Another 42 percent of consumers are potentially profitable to their primary provider (18 percent loyal, 24 percent not loyal). While these particular customers are currently unprofitable to their primary checking account provider, they have the potential to become profitable customers.

• Meanwhile, 19 percent of consumers are unprofitable to their primary provider and will remain unprofitable for the foreseeable future (9 percent loyal, 10 percent not loyal).

Take a look at Figure 2. It displays the average deposit and loan balances each segment maintains with the primary checking account provider.

Figure 1: Only 39% of Primary DDA Relationships are Profitable

* Read as: 10% of consumers are in the “Unprofitable Non-Loyals” segment.

Source: FIS™Enterprise Strategy, August 2011; n = 3,000

10%* 24% 22%

9% 18% 17%Loyalty to Primary

DDA Provider

Low

High

Profitability to Primary DDA ProviderLow High

UnprofitableLoyals

Potentially Profitable Loyals

ProfitableLoyals

UnprofitableNon-Loyals

Potentially Profitable Non-Loyals

ProfitableNon-Loyals

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The profitable segments maintain the majority of their deposit and loan balances with the primary checking account provider and generate 70 percent of the total checking fee revenues collected by financial institutions. Their checking and debit card fees should not be increased. In fact, these customers should have product packages that provide free checking services based on total balances.

The potentially profitable segments hold modest deposit balances with the primary checking account provider. These consumers generate 26 percent of the total checking fee revenues collected by financial institutions. Although they are currently unprofitable, they have sizeable loan balances residing at other financial institutions. Qualified members of this segment should receive incentives to move loans to the primary checking account provider in order to avoid checking account fees.

The unprofitable segments maintain very small deposit and loan balances with the primary checking account provider and all other financial institutions. They have virtually no resources of significance to shift to their primary checking account provider, but they are the heaviest users of channels and pay the lowest fees. They generate only 4 percent of the total checking fee revenues collected by financial institutions.

The unprofitable segments will be the most vocal in expressing displeasure with fee increases and state that: 1) financial institutions are assessing fees on the customers who can least afford them, and 2) increasing fees in the midst of recession and high unemployment is unjust. These are fair points, but it’s equally true that financial institutions are currently overserving and undercharging these customers.

Financial institutions can offer lost-cost packages to these consumers and give them the option of aligning their behaviors with the costs associated with servicing them. A checkless checking account or a general purpose reloadable prepaid card may be the best option for these customers.

Figure 2: Most Consumers Maintain Modest Balances with their Primary Checking Account Provider

* Read as: “Profitable Loyals” hold combined deposit and loan balances of $135,000 with their primary checking account provider.Note: Deposits include checking, savings, MMDA and CDs. Loans include first and second mortgages, credit card balances and auto and educational loans.Source: FIS™ Enterprise Strategy, August 2011; n = 3,000

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

ProfitableLoyals

ProfitableNon-loyals

PotentiallyProfitable

Loyals

PotentiallyProfitableNon-loyals

UnprofitableLoyals

UnprofitableNon-loyals

Deposit and Loan Balances Held with the Primary Checking Account Provider

Loans

Deposits

$135,000*

$117,000

$6,500 $5,900 $2,600 $3,000

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Preparing for Attrition

We’ve already seen, and will continue to see, increased customer churn due to the pricing actions taken by the large banks. But I’d strongly caution smaller banks and credit unions against offering aggressive free checking campaigns in an effort to capture a flood of defecting large bank customers. Learning from the debit card experience, the large banks will mine customer data and establish their future pricing policies in a manner that will lead to substantial churn within unprofitable segments, significantly lower churn within the potentially profitable segments, and very limited churn within the profitable segments.

Although large banks will suffer some collateral damage and lose a few profitable customers as they shift into relationship-based pricing models, the vast majority of their defectors will be unprofitable customers. As a smaller financial institution, do you really want to add a bunch of new free checking customers who only have the financial resources to generate a few thousand dollars of deposit and loan business balances — mostly composed of credit card debt — for the primary checking account provider? Even though free checking customers tend to be loyal ones, they are not necessarily profitable.

The new economic realities in retail banking will require financial institutions to choose a path: 1) transition some consumer checking account relationships from “free” to “fee,” or 2) maintain an entirely “free” positioning.

I’ve recently had conversations with several banks that eliminated free checking earlier this year. All of them have experienced higher overall customer balances and profits as a result of re-pricing. They certainly experienced some customer attrition, but it hasn’t been higher than anticipated due to their proactive outreach campaigns to move customers into the right products.

Increasing checking account fees may not be the right approach for every institution. But much like the invasion of “Totally Free Checking” programs several years ago, it’s a trend that cannot be ignored.

As always, I’m interested in receiving your feedback. I’d also welcome the opportunity to learn more about results your institution has experienced through either “fee” or “free” checking account programs. E-mail me at [email protected] to let me know.

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Developing and Deploying Social Media for Financial Institutions

By Mandy PutnamDIRECTOR, RESEARCH & THOUGHT LEADERSHIP

The Social Media Imperative

Social media has made it to the big leagues. Most days and most newscasts can’t go without at least one story about Facebook, a YouTube viral video, or some new announcement a celebrity or politician made via Twitter. Two-thirds of online adults use social networking sites — more than double the percentage using sites in 2008. And the biggest growth in both participation and daily usage has been among the over-30 age segment.1

Despite the rapid adoption of social media across consumer segments, financial institutions do not value social media channels highly compared with other points of contact with customers. Less than one in five executives recently interviewed by FIS™ Enterprise Strategy rated social media as important (Figure 1).

Figure 1: Only a Fifth of Bankers Consider Social Media to be an Important Communication and Delivery Channel

* Read as: 93% of bankers view online banking as an important channelSource: FIS™ Enterprise Strategy, August 2011

93%*

71%

70%

55%

48%

43%

18%

6%

Online banking

Branches

ATM machines

Call Center (live rep)

IVR / Automated telephone banking

Mobile banking

Social media

Self-service kiosks and/or video banking

(top 2-box score on 5-point scale)

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Although some financial institutions are reluctant to participate actively in social media, it has become imperative to converse with consumers on their terms, which increasingly include social media conversations, in order to capture value especially from younger generations.

“Deciding whether to get involved means deciding if you want to be part of the conversation … There will be a conversation with or without you … If you don’t use social media, then your

business will go elsewhere.” – Hadley Stern, vice president at Fidelity Labs, a division of Fidelity Investments

Building a strategic plan for developing and deploying a financial institution’s social media presence can be divided into four steps (Figure 2).

Planning a Social Media Strategy

Determine business objectives The objectives of your social media program must be tied directly to your overall corporate goals, or else they have no meaning. To maximize success, look at the ways that your consumers want to interact with you online. Forrester surveyed more than 2,500 consumers and found the top ways that they would like to interact with their banks on social networking sites:2

1) Alert me about upcoming products or special offers

2) Offer financial advice

3) Offer customer service (e.g., help with questions, complaints, etc.)

4) Present relevant financial service promotional offers to me

Address compliance and security After getting a clearer picture of the social media goals and channels to be targeted, turn next to regulatory compliance and security. Before beginning any social media initiatives, double-check the latest regulatory guidelines as well as obtain advice from you own legal department to make sure that your social media plans conform to authorized parameters in the space. Also, communicate proactively with consumers to assure them that their personal financial information will be kept separate from social media communications.

Monitoring the Social Media Landscape

Listen to the conversation Conversations about your bank are already happening. Tools such as Google Alerts (www.google.com/alerts) and Twitter Search (search.twitter.com/advanced) can help you find these conversations. Be sure to set up searches for product names, searches within a local radius, and other keywords that go to the heart of your bank’s offerings and goals. If your bank is a larger institution, you may want to look into social media monitoring tools such as Radian6 that will not only find the conversations, but help you analyze the sentiments they express and summarize the opinions being discussed.

Figure 2: Social Media Plan Includes Four Steps

Source: FIS™ Enterprise Strategy, October 2011

1. Planning

2. Monitoring

3. Contributing

4. Measuring

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Contributing to the Social Media Conversation

Focus on engagement rather than selling Participants in social media expect to interact informally and “authentically” with each other, whether they are consumers or corporate representatives. Most financial institutions start with social media monitoring and then graduate to supporting PR and customer education. It’s essential to first establish credibility with customers through social media before trying to sell them anything. Some of the more effective ways to communicate in social media channels concentrate on:

• Two-way conversation• Information that is relevant to the audience• Simple, conventional language• Photos and videos that give a “face” to an institution or a personal touch• Storytelling

Use social media to facilitate responsiveness Social media can be used to respond more quickly and cost-effectively to customer questions, concerns, and complaints. Many large banks have established problem resolution teams that focus on social media conversations. As one financial eBusiness coordinator told us, monitoring social media can help mitigate the impact of potentially damaging publicity.

“Social media has more opportunity than risk; better to be out there than not. We can listen: the good, bad or otherwise, we can address it. If we weren’t out there, then there’s no telling how big

or how far something negative may be able to spread if we couldn’t participate.” – eBusiness coordinator from financial institution

At the same time, it’s also important to not over-communicate when responding to customer issues/problems conveyed through social media. An appropriate amount of discretion must be exercised not to blow a problem out of proportion or stir up a large group of customers over non-issues or minor complaints that can be resolved through private conversations with customers.

Execute targeted social media programs based on core competencies and customer expectations

“Social media” encompasses a stunning array of websites and communication channels, but it’s not possible to have a “social media presence” everywhere. Choose where and how to get involved based on your core competencies and your customers’ social media preferences.

Speak to corporate social responsibility (CSR) initiatives

Social media is especially well-suited to working hand-in-hand with your corporate social responsibility initiatives. For example, financial institutions can use social media involvement to help decide how charitable donations are allocated or to promote involvement in a charitable organization.

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Measuring Social Media Results

As with any corporate initiative, measurement and assessment are important parts of the social media program. Metrics you might use to measure your social media programs include:

• Traffic: The number of Twitter followers, Facebook fans, or views on YouTube will show the raw amount of attention your programs are receiving. Increased Web site traffic or traffic to a company blog will show secondary results that your social media presence can bring.

• Interaction: Customer participation demonstrates that the company has engaged its audience. Interaction can be measured by comments the blog or Facebook page receives, Twitter replies, or participation in forums.

• Brand Mentions: Word of mouth and the viral nature of social media have the ability to drastically increase brand mentions. Tracking the number and types (positive vs. negative or neutral) of mentions online via tools such as Google Alerts, Radian6, or Trackur will help demonstrate whether your social media efforts are raising brand or product awareness.

• Sales: Where possible, referrals from social media to the sales channel should be tracked.

This article is derived from a report entitled “Developing and Deploying Social Media for Financial Institutions,” which can be downloaded from: http://www.fisglobal.com/Insightspapers/index.htm.

1Mary Madden and Kathryn Zickuhr, “Pew Internet & American Life Project,” Pew Research Center, August 26, 2011.2“How US Financial Firms Should Approach Interacting with Consumers on Social Web Sites,” Forrester Research, Inc., October 2010.

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Strategic Insights is a monthly newsletter that provides research, thought leadership and strategic commentary on recent events in banking and payments. The newsletter is produced by the Enterprise Strategy team at FIS. FIS is one of the world’s top-ranked technology providers to the banking industry. With more than 30,000 experts in 100 countries, FIS delivers the most comprehensive range of solutions for the broadest range of financial markets, all with a singular focus: helping you succeed.

If you have questions or comments regarding Strategic Insights, please contact Paul McAdam, SVP, Research & Thought Leadership at 708.449.7743 or [email protected].