By Jennifer Singh, director, channel partnerships at Entersekt
In an effort to capitalize on increased levels of user trust and engagement, the last three to four years have seen social media giants, such as Facebook, and Snapchat, actively tap into the growing trend of social media payments. Aside from using these platforms to directly interact and share content with friends, millions of people now utilize their social platforms of choice to pay for goods and services or transfer money to one another.
Based on the key principles, structures, and technologies social media channels were built on, we’ve seen a steep increase in the success and popularity of their payment offerings. Wide-ranging user bases, inherent interactivity, and an appreciation for user engagement and experience have enabled social media organizations to readily integrate financial services into their platforms. Due to frequent interaction and familiarity with social media, many regular users have quickly accepted and adopted these transactional tools into everyday life. In fact, the latest annual World Retail Banking Report by Capgemini and banking association Efma revealed that nearly one-third of consumer participants are open to receiving financial products from tech firms like Facebook, Apple, and Google.
On the other end of the spectrum, traditional financial institutions typically lack many of the characteristics that have drawn consumers to tech firms’ offerings such as ease of use and the ability to interact with others in the same ecosystem. While some institutions are beginning to compete and embrace changes, they are also having to revisit their approach to retail banking and how they interact with their customers in order to catch up to the exponential rise of these social media competitors.
As a result of this increased adoption of technology and the drag often felt by traditional financial institutions, the retail banking sector now finds itself in the midst of serious and potentially revolutionary disruption. In response, many banks have increased overall focus on user experience within their digital ecosystems and have added new functionality like peer to peer payments into their mobile apps to avoid disintermediation. However, the slow evolution puts banks increasingly at risk of disruption by their social media competitors. Banks now must rapidly shift their focus to providing more seamless and secure services, whether they go it alone or forge valuable partnerships with other tech providers to maintain long-term growth. Those that choose to maintain the status quo, will lag even further behind, and ultimately face the possibility of collapse.
Down with Banks?
Consumers are finding today’s social media platforms increasingly useful, while at the same time growing less impressed with the services and experiences currently being provided by leading banks. Just over half of the consumers (51 percent) that were surveyed by Capgemini and Efma researchers said their in-branch experience was positive. Furthermore, only 51.7 percent agreed that they were satisfied with internet banking services, and a lowly 47 percent said they were pleased with available mobile channel services. These numbers indicate that consumers are demanding more than digital functionality. Having the option of mobile and internet banking is not enough – they want an experience that matches what they’ve grown accustomed to from tech companies’ digital platforms.
Ultimately, social media payment offerings can provide a level of service and experience that many traditional banks simply cannot. Social media financial facilities arose as a result of consumer demand for greater convenience and a more personalized, seamless banking experience. Traditional financial institutions are just now responding to this change in the market and playing catch-up as a result.
Part of this shift in customer demand and expectations can most certainly be attributed to the continually increasing adoption of social media among today’s consumers. The world has become so familiar and engaged with social media that we rely on it to facilitate increasingly broad and diverse functions in our everyday lives, both as users and consumers. Because of this, these apps now not only possess the requisite technologies, customer base, and understanding of user engagement and experience, but also inspire levels of trust once primarily associated with traditional financial institutions.
Global management consultancy Bain & Company believes this increased reliance on social media apps and fintech companies may mean banks are in danger of soon losing their “special status” of the trusted custodians of our financial data and activity. Their 2017 survey of more than 130,000 US banking customers found that companies like PayPal and Amazon ranked nearly as high as banks when it comes to trusting them with money.
If legacy banks and institutions lose grip of this “special status”, and fail to modernize their approach and offerings to keep up with customers’ demands, they are in danger of becoming commoditized infrastructure with no brand equity, or worse, being displaced altogether.
Today, however, many social platforms are facing increased scrutiny over their ability to protect user information and comply with data protection regulations. Facebook, for example – the giant of the social media world– has suffered a series of highly publicized data breaches and subsequent GDPR-imposed sanctions, which have resulted in a spike in distrust among users.
Leading security professionals started to raise concerns the moment social media companies expanded into the payment space. Because these platforms were initially designed simply to facilitate interactions, users didn’t regard them as an area where they would need to be diligent about security, in a way that they would with their online banking activities, for example. This can ultimately lead to negligent security practices, such as using short and memorable passwords, and conveniently storing financial and personal information in one place, which turns personal details, accounts, and funds into low-hanging (and highly valuable) fruit for fraudsters.
Furthermore, social apps continually collate and store massive amounts of valuable user information, which, if accessed by hackers, can be used to successfully carry out social engineering attacks on social payment apps. Facebook, for instance, generates and stores so much data that a knowledgeable fraudster can correlate and cross-correlate it in order to pose as a user and dupe others in that user’s network into transferring funds or revealing sensitive financial information.
Collaboration is key
It is clear that traditional banks and social payment apps have their respective challenges. Banks now have the unique opportunity to seek out partners that possess the necessary qualities, understanding, and technologies to overcome these weaknesses and provide a differentiated, branded service that meets the changing demand of the modern banking customer: a seamless and secure experience.
Cover photo: iStock