While developing and maintaining a social media presence is increasingly seen as a necessary part of the banking business and its attendant advertising needs, largely due to the opportunity to partake in an ongoing dialogue in which the ability to respond to customer feedback is guaranteed, communicating in the social media space is fraught with legal and regulatory uncertainty.
Financial Sector Spotlight Omen N Muza
Naturally, this makes some financial institutions hesitant to engage meaningfully with social media platforms. The United States’ Federal Financial Institutions Examinations Council (FFIEC) defines social media as “interactive online communication in which users generate and share content via text, images, audio, or video”.
In an era in which the current financial crisis (the 2003/2004 banking crisis and subsequent bank closures in the case of Zimbabwe) has led many customers to distrust banks, social media is seen as one of the ways for banks to become more transparent to customers and gradually rebuild the shattered trust.
This instalment of the Financial Sector Spotlight (FSS) covers three broad areas of risk attendant to the use of social media which make financial institutions hesitant to fully engage with social media.
Compliance and legal risks Customer interaction through social media tends to be both informal and dynamic and is often less secure, so financial institutions need to be aware of how current rules affect their social media endeavours. Financial institutions need to be aware of the statutes and regulations that govern activities that are performed through social media avenues, such as advertising and account origination, for instance.
Reputational risk A number of issues arise from financial institutions’ active engagement with social media, such as the threat of fraud, the threat to the financial institution’s brand equity, the imperative to partner with third parties, ongoing privacy concerns, as well as customer complaints and comments.
Social media increases the avenues through which consumers can access, talk to, and talk about financial institutions, so financial institutions have no choice, but to diligently monitor social media platforms for customer complaints and unconfirmed stories that may go “viral” if mishandled or ignored altogether. For instance, financial institutions have to consider the reputation management implications of launching a Facebook page where anyone can post anything about the bank in the public sphere.
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For many financial institutions, the natural response is risk avoidance instead of embracing the risk and seeking to actively manage it.
However, in order to derive more benefit from it, the emergence of social media should be seen as ushering in more opportunities to enhance communication with customers in an era in which customers are increasingly being ushered towards self-service channels which does not foster relationship building. Banks have to appreciate and embrace the benefits of participating in the conversations that are already happening online, rather than avoiding or attempting to control them.
“Banks could potentially miss opportunities to mitigate risk . . . by choosing not to participate in social media,” said a spokesperson for FNBO, an American bank that recognises the value of a controlled and closely managed approach to social media as one of the many ways in which banks can become more transparent with their customers and prospects.
Operational risk: When a financial institution’s processes, people or systems are either inadequate or fail for one reason or another, operational risk is amplified. It is, therefore, important to ensure that the risks associated with social media are encompassed in the broader sphere of IT-related risks faced by financial institutions.
Conclusion As the responsible authorities pursue the regulatory reform agenda in the financial sector, they must begin to think about how the targeted reforms ensure that existing consumer protection and compliance regulations apply within the sphere of social media as well. Regulations must also seek to remind financial institutions of the risks inherent in social media as well as the need and means to address these risks.
Feedback: [email protected]. Omen N Muza writes in his personal capacity. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8
