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social_economy

Social Economy—A revolution in the financial sector

By Ahmed Buhazza

During the financial crisis, which is still with us today, financial organizations’ trust of customers, namely insurance companies and banks, has deteriorated immensely. Likewise, the reputation of financial organizations has dramatically declined to historical lows, impacting not only the financial organizations, but the political landscape as well. The emergence of social media, which is an engine that has evolved rapidly and expanded around the globe to capture the minds and lives of people, contributed significantly to that situation. The social media community is huge and growing. For example, today almost 11% of the planet uses Facebook. These mediums: Facebook, Twitter, LinkedIn, YouTube, and others are considered nowadays the de facto for engagement with current generation of customers.  Many organizations failed to utilize the great potential of social media due to the absence of expertise to drive this and achieve their objectives. There are opportunities available, but hidden for some of us, where even experts are not able to see.

Going deeper in our view for the financial sector, we will find that its main purpose is generating and managing money. Money in return is defined in Wikipedia as “any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.” It started as goods, then notes, but the recent years developed new innovative types and methods such as e-payment,  e-wallet, and many other electronic forms of objects that are  considered as forms of money and method for exchanging it. Despite these forms and methods, money is the base for any financial service, where the main purpose is to help facilitate and control the supply and demand of money exchanges between communities (buyers and sellers, creditors and debtors, project managers and investors). Together with creating value for the stakeholders, these services aim to serve the public communities—satisfy their needs, develop the market, and build the economy.

The financial industry started exploring the Internet when it was born in the 1990s by investing in online companies or by launching online services. Now many financial companies, payment services, and even some banks are only operating online. Organizations who follow these trends, understand the importance of change to maintain the lead. This happens through technology adaption in a smart and efficient way to create a competitive advantage. However, the emergence of Web 2.0 technologies and Social Media introduced a new phase for financial revolution. Nevertheless, social media is not a nascent phenomenon; it has been there since the radio sociograms in 1930s and started digitally with the 1st email in 1971. Today, 800 million users on Facebook spend 700 minutes a month of their time, 225 million on Twitter sending 200 million tweets per day with 1.6 billion queries per day, where 2 users join the 135m community on LinkedIn per second. This traffic was utilized by some banks such as Itaú, GarantiBankası and Bradesco, who exceeded in their Facebook fan page the one and two millions fans. This huge volume of members requires equivalent efforts on all fronts: proper strategy, good tools, continuous monitoring, and professional follow up. The idea here is not whether we do social media—but how well we do it! While there are benefits, there is high risk in losing business. A study made by McAfee showed that 60% of companies suffered damage on their reputation due to inappropriate social media use, which requires proper planning and operation by an expert in the field.

Social Media opened up a new epoch—bigger than what telecommunication and Internet made. This is because it is integrated with the social life. Social life is what banks and many service providers claim they are going to make better. The financial sector can utilize this window to regain trust for saving accounts, investment deals, and insurance transactions. Nowadays, many businesses consider this presence in social media as a must have and maybe more important than a website, which is also integrated with social media. This is how they find everything they are looking for: people, customers, creditors, debtors, business partners, job candidates, investors, beside fraud makers, money laundering experts, and hackers. Finding and identifying these parties used to be very expensive, but social media became an exceptionally simple source of such information. However, this requires reviewing the Know Your Client (KYC) process and CRM system integration makes it practical. Internal process and technology integration make it fun besides it being easier, simpler, practical, and cost-effective with this media.

Going forward requires organizations to study local and international practices and perform competitive analysis for moving forward with this media. They should assess their current and future strategies that should be revised at least bi-annually due to the fast development in this channel. It involves developing clear goals, objectives, and methodology in how to build their presence, attracting and interacting with customers, transforming them into active communities, retaining them, and developing strong loyalty that makes them act like agents who defend the brand and not just normal consumers. Everything should be integrated, use technology, traditional campaigns with online sales and marketing teams as well the third party agents. This looks like a complex effort that of course will be simpler and effective by hiring an expert and utilizing active agents.

Advanced financial organizations went much deeper to utilize this opportunity and built their entire services on social media. Community Lend and Prosper are the most popular social media financial services in US, practicing what is also called social lending. The concept is to connect people who want to lend to the people who want to borrow, with a thin intermediary. Traditional banks will have heavy costs of operating with their offices and marketing where social lending organizations have much less operation helping them reduce their merging, which in return reduces the borrowing rate and increases return to the lenders. By time, they managed to build market confidence, generate profits while maintaining the appropriate controls, and generating better benefits for both the lenders and borrowers.

Other activities like legal and compliance in financial sector require special attention and careful study. However, beyond the core financial services, organizations started applying the social media in all their value chain functions. Some media, such as LinkedIn, is used for inbound and outbound logistics and operational matters such as engaging with suppliers and distributors and headhunting for quality employees.  Procurement sites like Groupon help to buy in bulk with others and save on costs, beside Amazon and eBay. Skype and Yammer for internal communication while Basecamp for project management collaboration. Ultimately, social media managed to effectively penetrate all business functions and generate new value.

Social Media brings a great opportunity for financial organizations and businesses in general to transform into Social Business. While some are cautious, others are watching, and there are many who are positioning themselves on top. Jack Welch said “The rate of internal change must be greater than the rate of external change, or the company will fall behind”. It is eventually the speed of change compared to competitors, otherwise you will fall behind.

 

Mr. Ahmed Buhazza has an extensive experience in management & operations of IT & Telecom Networked Infrastructure and Systems, Business Process Re-engineering, System Developments, ERP/CRM Implementation, Banking Solutions, e-commerce technology, Information Security, Consultancy etc. across various industry segments.

Besides being an IT Advisor and Innovations Leader with experience in various industries, he is a sought after trainer for various topics in IT Management, Leadership, Governance, etc. Being Founder of Recycle IT of Bahrain under Good Word Society, he is leading the Corporate Social Responsibility in Good Word Society. He has organized and served as a jurist in a number of regional awards.
 

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