Facebook plans to work with Commonwealth Bank of Australia (CBA) in an online banking service offers food for thought for wealth managers as they develop their social media strategies.
Via its new app, CBA wants to enable its customers to send money directly to friends and contacts using the social networking site.
This may seem a far cry from wealth management, but it’s a notable initiative as it presents an interesting solution to a tricky problem: how to build an online client community in the first place.
So far, the Achilles heel for social media banking has been the difficulty of building such communities; most people would accept this is not a core competence of the financial sector.
While international banks have pushed into the social media arena with impressive early results, the number of Facebook “likes” they have received is just a fraction of a percent of their retail and high-net-worth client base.
By trying to build their own communities, financial firms are effectively competing for clients’ social media time and attention.
In a recent survey, Scorpio Partnership asked almost 400 high-net-worth individuals how they spend their time online. We found that typically they spend 3.7 hours per week on social networking activities and a further 5.3 hours on investments and banking.
Rather than competing for that time, if financial services firms team up with social media platforms to provide services in client sub-groups on those platforms, it would reduce overlap and may help their clients to streamline the time they spend on finance online.
That is what the alliance between Facebook and CBA represents. CBA will provide an app on Facebook’s platform enabling users to carry out financial transactions without leaving Facebook.
Perhaps it should come as no surprise that Facebook sought its first financial partnership in the Australian market. According to Socialbakers, an online Facebook statistics tracker, half of the Australian population use Facebook.
So there is a good chance of an overlap. A bank like CBA can be fairly confident going into the alliance that a sizeable chunk of its clients are already active Facebook users and so investment in the transactional functionality is more viable.
In a separate move in South Africa – notably a market where Facebook is far less widely used – the social media platform has teamed up with First National Bank (FNB).
Possibly due to a lack of Facebook penetration, here the transactional functionality embedded in the Facebook platform will be more limited. FNB customers can link their Facebook profile to the mobile banking app, which will allow them to view balances and purchase pre-paid items.
Firstly, and most importantly, these alliances signal there are deals to be done in the social media market. Secondly, the factor that determines economic viability of on-platform functionality will be the penetration rate of the social media platform.
Thirdly, and more broadly, these deals could signal the start of a changing ethos when it comes to financial technology. To date, the first instinct for banks is to build their own solutions in-house rather than working with third parties.
But in an increasingly connected world, financial firms will need to focus as much effort on managing the channels to reach their clients as they do now on technology to deliver their services.
Those channels may well be the domain of other industries and well outside the historical core competence of the financial sector. As a result, banks will need to consider how to structure these partnerships and manage the delivery of their services in completely new formats.
We would not expect wealth managers to be in the vanguard of this change, but we believe these alliances are worth monitoring now, because it also seems clear that the world will only continue to speed up.