Duality of Social Media in Banking

With banks working double time to squeeze value out from every last penny, many bankers are taking a closer look at social media and the value it can bring to an organization.

For about a year and a half references have been made increasingly regarding MySpace and Facebook and how businesses can appeal to the masses that visit these sites. Then a couple weeks ago it all broke loose when Ashton Kutcher battled CNN for the first to hold one million followers on Twitter. And then it happened, the tipping point, the day everything changed. The day Twitter became a household word.

Since that day I have been approached by banker acquaintances asking me how they can use Twitter to make them heroes. And in these discussions I found the duality of social media.

The banking industry is one of a handful of industries that is overly regulated and becoming more so every day (thanks TARP!). While bankers see the benefits of using Twitter and social media, they often find it very difficult to get past the associated risks. On the other hand, bankers make their living dealing in risk. As such, it would appear to me that banking is one of only a few industries that is well suited to incorporate the use of social media, warts and all.

So to my banker friends I say, get over it and do what you do best - assess your risks. The first step in any new bank product/service launch is the risk assessment. Risks can originate from the statutory liability and regulatory penalties that are specified by law, or from reputational damage that could result from publicity of noncompliance (see Social Media and Bank Compliance Requirements). Once you get your arms around the risks and feel warm and fuzzy about dipping your ties, get to it.

Of course, as with any implementation, you must have a plan that is well thought our and clearly defined. This involves doing your homework. Speak to experienced social media practitioners by researching them on the Web or meeting them at social media conferences, see what the competition is doing, see what other industries are doing, read The Community Banker's Guide to Social Network Marketing (disclosure: I wrote this free ebook), get the green light from the right people and put your team together.

Unfortunately, today, everyone is still largely feeling their way around. The use of social media in a commercial setting has only just begun. However, there is a large global community that actively supports this effort. So, while the model has not been entirely proven, the successes to date, the support network and the masses of consumers taking to social media should make dipping your toes at least something to consider.

Anyone up for a swim?!

Banking is Our Business, and We Think Our Business Needs to Be Wherever People are Talking About Banking

"Banking is our business, and we think our business needs to be wherever people are talking about banking."

The quote above was provided by Peter Aceto, CEO of ING Direct Canada in an interview with Bank Technology News Magazine. Mr. Aceto, an active tweeter, expresses an opinion held by many "enlightened" bankers. But banker beware: if you build it, they may not come.

Rebecca Sausner says "just because there are millions of people at a concert doesn't mean they want to see a banker take the stage." This is a great point. However, I would counter her by saying that banks should have some form of presence for the ocassion in which a client or potential clients needs to reach out. It is during those opportunities that banks will earn the points that put them over the top in the hearts and minds of consumers.

I am a tremendous fan of social media and the many benefits it brings to the banking environment. However, I recognize the many nuances that need to be considered in developing and implementing a social media plan. I agree that a bank's place within social media is not in-your-face. In fact, that is probably the last thing you want to do. Having said that, there are many ways in which banks may leverage social media while playing a role in the background and staying prepared to pounce on opportunities as they come up.

A good example is Bank of America's social network for small business operators. Bank of America has created a space on its dime that draws customers and non-customers together to share ideas and leverage from each other. As conversations take place, BofA is prepared to jump in to provide answers. Also, BofA is along the way collecting information that will assist in the development or improvement of new products and services. So, going back to Rebecca's analogy, while BofA may have built the stage, they are not on the stage but are instead backstage prepared to deal with any questions that may pop up as well as out in the stands listening to the crowds reactions.

Rebecca also made a point about the current financial viability of social media platforms such as Twitter, Facebook, et al, and whether their inability to create income is worthy of steering clear. My immediate response is "so what!" Applications like Facebook and Twitter are drawing in batches of people by the millions. Banks should do what they can to leverage their brand. However, banks should also be sure that their commitments take into consideration the fact that a specific platform or the social network/media industry as a whole may dramatically change over time. But the fact the Twitter may be here today and gone next year should not keep me away from taking advantage of the asset (e.g., people). I just need to make sure that my return in consistent with the investment made.

I think Rebeccas was spot on when she said, "the larger point is that understanding your customers is key. If your customers are addicted to Facebook, texting, tweeting, or LinkedIn groups, you should at least have first-hand knowledge of how and why. " That's pretty much it in a nutshell. Know your customers, know what makes them tick and you'll be able to appeal to them and develop products and services that they will be unable to live without.

For more information on the nuances of social media, download a free copy of The Community Banker's Guide to Social Network Marketing.

Social Media and Bank Compliance Requirements

The advantages of social media include the ability to better connect with customers, build the organization's reputation as being customer-focused and responsive, and set the organization apart from the competition. Many organizations have introduced social media components to their existing marketing strategy and more will follow in the near future as social media has surpassed everyone's expectations in terms of breadth of penetration and frequency.

Unfortunately, in their rush to implement such a strategy, some organizations may overlook the obvious...COMPLIANCE.

To assist bankers in ensuring ongoing regulatory compliance, the ABA Banking Journal released the following six social media compliance tips:

1. Conduct a social media risk assessment. Organizations should specifically identify the compliance requirements that apply to the proposed activity and evaluate the compliance risks associated with those requirements. Risks can originate from the statutory liability and regulatory penalties that are specified by law, or from reputational damage that could result from publicity of noncompliance (see the post on reputational risk as well as post on conducting social media risk assessments).
2. Establish policies and procedures. Organizations should establish written policies and procedures for the activity that clearly outline the details of offering and ongoing servicing. Every facet of the activity, from beginning to end, should be covered (see information on social media policies here.).
3. Establish controls to help address the risk identified in the compliance risk assessment. Controls may include a pre-publication review by compliance staff, assigning specific responsibility for specific functions associated with the activity, dual control, second review, and detailed checklists. One of the best controls is to include the compliance staff early in the planning process of the activity. The compliance staff can help build the process correctly from the beginning, rather than have to step in later to fix a compliance mess.
4. Set up a monitoring process. Establish an ongoing monitoring process to identify and correct errors before the examiners or the customers do.
5. Report to management. Management should be kept informed of compliance exceptions found through monitoring as well as regulatory developments affecting the activity.
6. Vendor management. Even if there are third party vendors involved in the activity, the bank should still follow its compliance management process. Risk assessment, policies and procedures, controls, ongoing monitoring, and management reporting are still applicable and just as important, because the bank is ultimately responsible.

Following these six tips should ensure that organizations remain compliant from beginning to end. Social media communications are no different from print, radio and television. As such, compliance officers need to ensure that they are in at the very beginning when talk of a social media strategy begins to emerge. Too often the Compliance Department is brought in after all the decisions are made and the money is spent. Getting a seat at the table where new initiatives are discussed will go a long way in preventing compliance related fiascos.

Should The Internet Be The New Resume?

Over the weekend I came across a very thought provoking article at Law.com titled Bank Nixes Use of Social Networking Sites in Hiring Process. This article, written by Jenny B. Davis, addressed a recent policy implemented by Amegy Bank of Texas, an $11 billion Houston-based bank.

The article speaks to the bank's decision to block all access to social media sites in an effort to prevent the bank's human resources personnel from accessing the personal profiles of job applicants. The article states that the bank's outside counsel recommended the policy in an effort to prevent unnecessary employment-based litigation. The article used the Pregnancy Discrimination Act as a key motivator, since it is plausible that an applicant's social media profile(s) may contain mention of a pending pregnancy or of other information that employers are not permitted to request. The danger is that upon discovery of such information, the bank's human resources personnel may be "perceived" as having acted on such information if an applicant is not hired. As such, if the bank's policy does not permit access to such sites, the bank has a strong defense against any such complaints.

While at first blush that bank's position may seem a bit severe and short sited, given that that almost 40% of employers have used Facebook and other social networking sites to gather information on job candidates and more than 80% of employers consider that negative information discovered when making hiring decisions, this was not an entirely bad decision. Further, during tough economic times people may be more apt to file frivolous compliants.

A related blog article at gNeil, titled Dangers of Using Social Networking Sites to Screen Applicants, stated that when a company uses the Internet to research job candidates and even current employees, there are some very important legal issues to keep in mind such as:

• Invasion of privacy. Some social networking sites state specifically in their terms of service that is is illegal to use users’ profile information for commercial purposes.
  
• State protected privacy. California and New York have laws preventing employers from interfering in employees’ private lives outside of the workplace.

• Discrimination. Even if you stumbled across an applicant’s personal information unintentionally, it is unlawful to deny employment based on protected categories such as age, race or gender.

• False information. It’s probably not surprising, but users on social networking sites don’t always post information that is entirely true. It’s best to rely on information that the applicant directly gives you.

• Fair Credit Reporting Act (FCRA). If you’re using an outside agency to conduct background checks on job candidates, you must comply with the FCRA and receive the applicant’s consent before starting the background screening process.

So, while it has been said that the Internet is the new resume, banks should carefully craft thier background check procedures - especially those that utilize social networks. For example, use of LinkedIn would likely be acceptable since it is primarily used for professional purposes. However, other platforms such as Facebook and MySpace may be undesirable. While the use of these sites may provide helpful information relative to the character of the candidate, certain information may expose the bank to litigation.

According the the gNeil blog, "to avoid potential discrimination lawsuits, develop a uniform procedure for using social networking sites in the hiring process. Train everyone involved in the hiring process to treat every applicant consistently to avoid trouble and document each step you take. With the rate at which new technology emerges, it’s almost impossible for the law to keep up the pace. When you use social networking sites to research applicants, you may be taking uncertain legal risks with every search you make."

Amegy's CEO was quoted as saying, "good hiring decisions are among the top two or three decisions here, because it is where a lot of risks are managed." This is definitely true. And social media applications may help to reduce risk by identifying potential hazards. Unfortunately, human resource law is not Web 2.0 compliant and as such, taking advantage of these tools as part of the human resource process will require careful consideration, strong policies and procedures and an increased appetite for potential litigation.

Day One - Welcome to the Blog

Welcome to the first post of the Social Media and Banking blog. My name is Jesse Torres and I will be your tour guide as we discuss matters related to social media and banking.

As this is the first post, I figure a brief background is in order. I am a career banker with a major technology addiction. All through my career in banking (roughly 17 years), I have always favored technology as a way of improving the banking industry.

In my early days I was a bank examiner with the Treasury Department's Office of the Comptroller of the Currency and a senior consultant with KPMG Peat Marwick. In those roles I was always the tech guy who was called in when things went wrong in the field. It explains why I also hold CISA and CISSP certifications.

As I moved out of the field and into management, I continued to favor technology. Eventually, I came to oversee the IT departments of a couple banks I worked in and played a major role in technology acquisition and deployment.

Most recently I have played significant roles in marketing and developing brand identity for banks. This is where I became convinced that there are many benefits to be had in banking through social media.

In December 2008, I released an ebook called The Community Banker's Guide to Social Network Marketing. The Guide was released as a primer on social media and social networks targeted at community bankers. The goal was to raise bankers' awareness of the uses of social media. This project became quite a success, resulting in significant exposure for the Guide.

I established this blog after receiving considerable requests for an ongoing source of information related to banking and social media. I hope to address developments and stories to make the banking community better informed and more successful.

Thanks for joining me on this trip.

Jesse