As we highlighted in last week’s innovation blog, a recent CFC member survey on top priorities for 2012 reveals that innovation is top of mind for over 60% of retail banking executives.  In a sustained economic environment of cost pressures and revenue challenges, our members recognize the imperative to innovate. An investment in product innovation is one of the keys to restarting growth.

With this mandate, the Council surveyed 100 new products from 2010 and 2011 and identified three big bets for growth from around the world:

1. Go Where the Customer Is – Engagement is about fitting into customers’ lives. As traditional face to face relationships decline, the real challenge is capturing time share within customers’ day-to-day activities online. Leading banks are positioning themselves in remote channels to gain the customer’s attention and then keep them engaged through interactive features and gamification.
2. Join Networks, Make Friends – Net promoter and referrals have a multiplier effect. Referrals are no longer one to one, as social media creates the opportunity to incent customers to broadcast their brand advocacy. Banks are beginning to trade rewards in the form of cash or miles for “likes” on Facebook to expand their reach into their customers’ networks.
3. Speak Consumer, Not Banker – Brands are at the product and service level more than the bank level. In introducing new products and services, banks are moving away from their traditional image in favor of new, specializing branding. New products like payments systems are getting their own independent names and brands; the bank is an external entity.

Join us on December 15^th as we share the innovations attached to these growth bets, and reveal three other areas in which the industry is placing its growth bets for the future.

US Members register here: https://cfc.executiveboard.com/members/events/Abstract.aspx?cid=100752142

APAC Members register here: https://cfc.executiveboard.com/members/events/Abstract.aspx?cid=100885494

With more and more members now “active” in social media, The Council reviews four tell-tale signs your bank may not be getting the most out of its investments.

1. “Promoting philanthropic endeavours or sponsorship campaigns” –  While there is value in broadcasting rugby or cricket sponsorships, such initiatives typically generate only issue-specific, transient interest, but no enduring engagement. While “likes” and “followers” suggest success, they actually conceal two deeper failings: one, not strategically embedding initiatives into the core functions of the enterprise; and two, violating that sacrosanct social principle – “be authentic, be yourself”.  Deriving brand value by association simply suggests your business is too intrinsically “boring” to be social.   
2. “Experimenting with all the latest social tools, Four Square, Facebook, Twitter etc” – There is value in appearing progressive and “present” in a wide range of new social tools, but the genuinely progressive firms look beyond specific tools, to understanding how they can embed the principles of social into their business. The real potential in social media, as relationships migrate to alternative channels, is wrapping up all the “social” from in-branch interactions and taking it on-line. Put another way, using social tools, through communities, 1-2-1 service support chat, or even gamification technologies, to deepen on-line engagement within your corporate website, with all the sales potential that implies.  
3. “Driving sales leads to your website through Facebook or Twitter campaigns” – Again, “soft” lead generation is progress, but progress against the wrong objective. The thing that stands to hurt traditional providers the most is the “shadow bank”.  Already 29% of consumers seek advice, product research and support from consumer networks, ahead of even the “managed bank”. To really push-back on this, we need to understand how to influence consumers before they even get to our Facebook page, off-brand and off-domain. More often than not, this is about learning how to help – and influence – the investigate work now so central to consumer purchase decisions. 
4. “Speaking to many different people on Facebook and Twitter” –  It’s not about how many people you speak to, but how many people you get to know. Aimless, random conversations fail to advance both our business objectives, and more often than not, the objectives of would-be consumers. The technology is now available to build up sophisticated user profiles to calibrate interactions, and consolidate databases so we can act on the more informal and candid feedback of “social” when interacting in-branch, on-line and in call centres.

To hear more on how leading firms are generating concrete business results through social media, please sign up for our second Social Media work-shop session, part of our inagural European Financial Services Conference.

This week, the Economist released an article suggesting that the United States and Europe are not yet even midway through the housing crisis. Properties are still dramatically overvalued in many regions, and in others customers are still too debt-adverse to consider borrowing. Meanwhile, on the non-interest revenue side, regulations are attacking key revenue streams in nearly all markets. The graphic to the left shows the steep decline in overdraft fees at U.S. since 2008–roughly $3billion per quarter in lost revenue. The recent flogging of big American banks that attempted to introduce fees for debit cards, only to be beaten back by the government and angry consumers, signaled how difficult the road will be to regain revenue through fees—especially as the great financial crisis lingers.

The financial world thinks in cycles. Bubbles burst, and new bubbles form; growth slows, but then returns. But with the signs pointing to this being the “new normal” for revenue, we believe it is time for banks to think seriously about non-traditional, sustainable revenue sources. Fees—however attractive as quick solutions for revenue struggles—will likely prove little more than temporary fixes to eke out revenue from increasingly savvy customers. The real challenge for banks lies not in recovering the record revenues of the last decade. It is to reduce the cost of delivery while improving customer relationships.

To that end, CFC has launched two new initiatives. First, later this month, we will host a webinar on product innovation from around the world (click here if you are in the Asia-Pacific region), to highlight how leading institutions are using a combination of traditional products and new technologies to build more powerful value propositions for their customers. Second, we believe social media will play a crucial role in the future of customer relationships, and remains an underutilized tool for both reducing cost to serve and meeting customers on their terms. Our new Social Media Center provides a roadmap for how revenue and social media can be linked.

Based on the 60 member interviews the Council has conducted over the last six months, five guiding principles appear to separate those firms realizing the promise of social media from those continuing to flounder.

1)  Understand that social media is changing your consumers - The rise of social technologies is changing the way consumers want to interact with their bank, the way they buy products, and how they rationalize post-purchase decisions, as our consumer survey data demonstrates. Leading firms take this alone as mandate to better engage this more aware and self-directed consumer through social touch points.

2)  Build intestinal fortitude – and experience – by experimenting internally – For many banking executives social media is an anathema.  It hacks away mercilessly at the principles of “command and control” communication, which have safe-guarded information privacy and reputation management, the cornerstones of the industry, for centuries. By experimenting first with internal social networks, leading firms have not only built understanding and raised awareness, but by demonstrating the benefits of these tools, garnered considered executive support for more customer-facing initiatives.

3)  Consider investments as part of a coherent multi-channel strategy – Rather than attempting to emulate the functionality of established channels, leading banks are using social media for what it does best – forging the initial human connection – then driving traffic to established sales and service channels (branch, call-centre, on-line) to exploit the expertise and experience that already resides therein – a “social hub and spoke model”. Likewise, these firms are leveraging the human element of these technologies to deepen on-line relationships and replicate the all-important social component of in-branch interactions.  

4)  Get closer to customers by getting out of the way – As social media drives increased reliance on peer-2-peer communities for self-help, guidance and advice, leading firms are consciously re-imagining their role – their entire value proposition – around supporting and facilitating consumer networks. In effect, using corporate websites to host consumer networks. This approach not only disempowers “shadow” communities, bringing much of their authenticity and credibility on-brand, but generates a wealth of consumer data to help drive better calibrated product recommendations.   

5)  Build the type of community you hoped for with the branch  - For all the hyperbole of “new” surrounding social tools, leading firms take social media merely to be the newest expression of the oldest component of their business: building community and relationships. In particular, the community they hoped to build through branches, a meeting place for consumers and bank representatives, is now being pursued more effectively through the power of social media.

For more background on the “best practice” cases informing these guiding principles, and the Council’s full range of social media support tools, please access our new Resource Center (RC).

With Europe’s future teetering on the brink amid the sovereign debt crisis, executives must navigate seismic shifts in regulation, technology, and consumer behavior, many of which challenge the most foundational assumptions of the traditional branch-based sales and advisory model. Yet while there is growing acknowledgement of the need to change, there is little consensus around the type of change required, and even less on how we might go about accomplishing it.

The only certainty, almost three years on from when crisis first hit – things will not get better by themselves. The consumer confidence problem, if anything, has become more pronounced and better mobilized; new ideas have become new competitors, with Movenbank and Bank Simple ready for battle; while deteriorating economic conditions continue to render even the most imaginative cost cutting measures woefully inadequate.  

To help members build “Resolve in Uncertainty” – the confidence to make those big strategic decisions now, before it is too late – The Council is excited to announce our inaugural Financial Services Conference at the Park Lane Hotel, London. Alongside a number of high profile keynote speakers, the event will offer a series of executive work-shop sessions to drill down on the following key competitive challenges:

• Achieving High-Impact Channel Migration – Branches can no longer be the hub of all things financial. Learn how to migrate customers while preserving valuable relationships.
• Implementing Mobile Solutions – Realize opportunities the mobile channel presents for retail customers including payments and social media.
• Leveraging Social Media to Humanize the Virtual Experience – Determine how to change your firm’s strategy to meet the needs of the emerging segment of social bankers.
• Managing Operational Risk – Understand how to effectively manage capital and solvency requirements in the retail bank while taking out cost.
• Capturing the Mass Affluent Mindset – Discover how to serve the needs of the six sub-segments within this attractive yet complex group.
• Exploring Innovations in Global Payments – Learn about global payment initiatives around the world and how to leverage innovations in your business.

Register for this free event here, or visit  www.CEBTowerGroup2012.com for more information. The decisions we make today will likely determine relative market positions for many years to come.

The branch has been envisioned as the heart of the retail banking community. However, with the rise of technology and social media, communities are increasingly being relocated to online spaces. Where once consumers would congregate in branch lobbies and waiting areas – they now turn to forums and blogs for advice and product research. Yet social media may prove a powerful tool for realizing the community goals of the branch. Here are three brief looks at social media supported branch innovations from our recent study:

North Shore Bank

North Shore Bank, a community bank based in Wisconsin, created a campaign on the social, location-based network, “Foursquare.” They signed up with Foursquare to create an account and claimed “ownership” of all of their bank branches – virtually tagging the locations so people can use the application to “check-in” on their mobile internet devices. North Shore reached out to the people that “checked-in” the most at its locations and rewarded the location “mayors” with gift cards to local businesses. The bank recognized the opportunity to engage the technologically savvy customer and was able to successfully leverage an up-and-coming social media tool to engage and excite customers, drive branch traffic, and promote the brand.

Umpqua’s Facebook Branches

Umpqua bank has branch-specific Facebook pages that are designed to attract customers to the store. Their Puget Sound branches voted to donate $10,000 to a local charity, and customers were invited to one of the branches to meet people from the charity and have refreshment.

Yorkshire Building Society’s Whitby Branch

Another FSI successfully using social media to drive branch interactions is Yorkshire Building Society in the UK. They created a dedicated Facebook page for their Whitby branch. As the last building society in the town, they wanted to call out their long standing local roots so they decided to call themselves Whitby’s Building Society and introduced their specific staff on a dedicated localized website. They successfully used the digital channel to become even more human and more present in their community.

As these firms demonstrate – web 2.0 technologies and social media have the potential to strengthen relationships, increase branch visibility, and give people a reason to visit the branch during a time of decreased branch foot traffic.

Read more about these best practices institutions as well as others in our research brief, Social Media: Humanizing the Virtual Experience.

The Council’s survey of banks from around the globe shows that an unclear ROI remains a leading cause of concern for retail bank executives when examining their social media strategies. Unclear ROI stems from several issues – there is still uncertainty on exactly what bottom-line results executives hope to see from social media investments, some banks admit they can’t think of a way to incorporate banking and social media in a creative way, many executives can’t justify that the rewards will outweigh the risks associated with social media participation, and mostly simply, banks don’t know where or how to start. Subsequently, many executives have trouble justifying the implementation of a coherent, firm-wide approach.

As part of our ongoing commitment to researching social media in consumer financial services, the Council presents findings from our consumer survey data as well as best practices case studies from over 50 interviews with executives and industry experts.  Our research brief will help you:

• Understand the voice of the informed social banking customer
• Realize the revenue and loyalty potential of those engaged with their bank through social media
• Learn about the ways in which best practices members employ social media through their firm to engage employees, establish locally specific e-strategies, drive foot traffic to the branch, promote financial education amongst customers, and leverage resources to create a holistic social customer experience.

With these tools, our members are not only justifying entering the social media playing field, they are redefining the ways in which they interact with their customer base and are already realizing the fruits of their labor in this important new channel.

Tackle Social Media Now:

Access our full research brief, Social Media: Humanizing the Virtual Experience.

Browse our recent blog posts on social media, including 5 Keys to Success in Social Media and the Key Demand Side Drivers of Social Media in FS.

It’s also not too late to register for our webinar this week, Leveraging Social Media in Consumer Financial Services.

“Why are they here?” This is an important question for retail bank executives to consider when thinking about why and when their customers seek out financial services providers through social media. Our research finds that there are two very specific factors that drive consumers to engage with social media for banking related purposes: Condition and Competence.

 As the chart on the left shows, 36% of customers who engage with social media for financial purposes do so based on a condition or life event – they have experienced a significant life event such as job loss, new job, major expense for child, marriage, or a sizeable inheritance. 30% engage based on competence – meaning they have a budget, plan, and/or a financial advisor. 22% of consumers using social media for financial purposes are motivated by both a life event and personal financial competency.

What does this mean for banks? The same characteristics that would make up an ideal branch customer also appear in customers using social media. It is also more evident that—despite an uncertainty over ROI—social media is direct line to high value customers. Both life events and financial competence are positive indicators of engagement and loyalty. Customers experiencing a major financial event are more likely to shift savings toward or away from their primary financial institution and banks should work to further engage with this segment to ensure retention. Customers demonstrating financial competence are also more likely to purchase products. The resulting challenge for banks, however, is to successfully become a part of the social media-driven purchase process.

Learn more about how banking customers engage with social media for financial services purposes by reading our research brief, Voice of the Consumer: The Role of Social Media in Consumer Financial Services, then tune in to our upcoming webinar to hear how best-in-class members are using social media tools to interact with customers and realize ROI.

Based on the 60 member interviews the Council has conducted over the last six months, five guiding principles appear to separate those firms realizing the promise of social media from those continuing to flounder.

1)  Understand that social media is changing your consumers - The rise of social technologies is changing the way consumers want to interact with their bank, the way they buy products, and how they rationalize post-purchase decisions, as our consumer survey data demonstrates. Leading firms take this alone as mandate to better engage this more aware, empowered and self-directed consumer through social touch points.

2)  Build intestinal fortitude – and experience – by experimenting internally – For many banking executives social media is an anathema.  It hacks away mercilessly at the principles of “command and control” communication, which have safe-guarded information privacy and reputation management, the cornerstones of the industry, for centuries. By experimenting first with internal social networks, leading firms have not only built understanding and raised awareness, but by demonstrating the benefits of these tools, garnered considered executive support for more customer-facing initiatives.

3)  Consider investments as part of a coherent multi-channel strategy – Rather than attempting to emulate the functionality of established channels, leading banks are using social media for what it does best – forging the initial human connection – then driving traffic to established sales and service channels (branch, call-centre, on-line) to exploit the expertise and experience that already resides therein – a “social hub and spoke model”. Likewise, these firms are leveraging the human element of these technologies to deepen on-line relationships and replicate the all-important social component of in-branch interactions.  

4)  Get closer to customers by getting out of the way – As social media drives increased reliance on peer-2-peer communities for self-help, guidance and advice, leading firms are consciously re-imagining their role – their entire value proposition – around supporting and facilitating consumer networks. In effect, using corporate websites to host consumer networks. This approach not only disempowers “shadow” communities, bringing much of their authenticity and credibility on-brand, but generates a wealth of consumer data to help drive better calibrated product recommendations.   

5)  Build the type of community you hoped for with the branch  - For all the hyperbole of “new” surrounding social tools, leading firms take social media merely to be the newest expression of the oldest component of their business: building community and relationships. In particular, the community they hoped to build through branches, a meeting place for consumers and bank representatives, is now being pursued more effectively through the power of social media.

In coming weeks, The Council will release a Social Media Resource Centre with a number of “best practice” case studies unpacking the guiding principles detailed above. In the meantime, register for our upcoming webinar Leveraging Social Media in Consumer Financial Services  to understand how leading providers  are integrating this new medium into consumer banking strategy.

Though a handful of technology-savvy change gurus insist social media is the most transformative technology of the last Century, everyone else, based on the extent to which they’re actually re-thinking engagement strategies, seems to think it’s just a soft and fluffy communication add-on – a glossy veneer with which to wrap up your existing business offering, perhaps, but not a grenade that threatens to blow the whole thing apart. Our survey data suggests otherwise.

More and more consumers are now using the Internet to purchase financial products and services, and not just the poorest and most disgruntled, but across your most valuable wealth segments, “$25,000-$100,000” and “$100,000 and above”, as the graphic above illustrates. Increased reliance on this “shadow bank” is systematically eroding the value-added – and influence – traditionally provided by the “managed bank” in the form of advice, guidance and sales. More and more of the buying process is now occurring outside of the branch, beyond your control, in a nebulous and seemingly impenetrable consumer network.    

At its worse, this threatens to render the entire branch-based sales and advisory machine obsolete. The industry under-invested and under-innovated in alternative channels to place a “big bet” on the branch – this is where we have the best chance of selling – but many of the customers coming through the branch today have already decided what they want to buy. They can’t be sold to, they don’t what advice; they’re looking for a commodity order execution service, with much of their loyalty now to the network. Considerable incentive plan tinkering and improved training might offer temporary “life-support”, but only really postpones confrontation with the most difficult, underlying problem: customer behavior has gotten ahead of our channel capabilities, and we need to re-build the entire sales engine from scratch – a desperate game of catch-up.

We’re obviously not there yet, but avoiding such an eventuality requires us to ask a number of difficult questions now, before changes in buying behavior accelerate:

1)      What are the new levers of influence in this new social research driven buying process?

2)      What can be done to disempower the “shadow bank” or arrogate its sales potential?

3)      How can we make our sales staff appear more credible in front of the “information millionaire”?

At the beginning of September The Council will be release a new Social Media Resource Center to help members think through these problems. For now, our Consumer Survey analysis is available with individual country profiles, alongside our Re-Thinking Channel Strategy work.