What can financial firms learn from social networks?

Fear of losing market share sparks constant vigilance among financial services firms, but lately attention has been shifting from traditional competitors to threats from an entirely new sector: social media.

Not content with reshaping much of our personal communication, companies like Facebook and Google now have their eyes firmly fixed on doing the same for our financial transactions. The ramifications could be significant.

This new competition from social networks is coming from two directions: the transactions they want to help users undertake, and their deep understanding of those users.

On the transaction front, the social media firms want to bypass traditional banking channels altogether.

Recently, media reports speculated that Facebook was working on a mobile payments service that would enable users to link their debit cards and Facebook accounts to transfer money.

Meanwhile one of France's largest banks, Groupe BPCE, is teaming up with Twitter to allow its customers to transfer money via tweets. This move coincides with Twitter's own push into the world of online payments as the social network seeks new sources of revenue beyond advertising.

Such moves make complete sense for the social networks as they help to strengthen relationships with users and also open up a range of new ways to link users with advertisers online.

In Asia Pacific, it's not hard to see why established banks and payment systems across the region are paying close attention to these developments. The region accounts for 52.2 percent of global social media users – even a modest slice of that market would deliver the networks fat profits.

Expanding their payments capabilities would also allow Facebook and others to gain a slice of the lucrative remittance market, bypassing wire transfers and other means of shifting funds between countries.

Given these developments, it's not so surprising that over the past year, Asia Pacific has seen a number of innovations on the payments front.

In Singapore, OCBC Bank now gives customers the option to leverage their social networks and transfer money via Facebook. In China, social messaging giant Alibaba is shoring up its relationship with payment affiliate Alipay. This will strengthen Alibaba's position in the payment space.

Tapping into social platforms not only makes it easier for banks to reach out to their customers, but it helps to improve brand recognition as well.

Meanwhile, the other side of the equation is the deep understanding social networks have of their users. The bottom line? An individual's social network is likely to know far more about them than their bank.

By mining the vast amounts of personal detail users share, social network operators can gain a unique (and potentially lucrative) insight into the users' lives. Focusing big data analytics on the treasure-troves of information stored in their data centres, they can spot lifestyle changes, career aspirations, and personal milestones, which can be used as marketing opportunities.

Financial institutions have, of course, used some such indicators in the past to promote products and services. But social networks can take this targeting to a whole new level. With the trusted relationship inherent in a payments process already in place, adding more services should be simple.

So where does this leave the financial service institution (FSI) sector? No one's saying the sky is falling, but there's little question that the rules of the game are evolving. Financial companies will need to quickly gain a deeper understanding of their customers and thus be able to provide more tailored offerings.

Often a good first step is to get rid of the 'silos' of information within large FSI firms. These might be found within certain departments or across different physical locations.

Emptying these data silos into a central repository ensures secure and reliable access. The data can be mined – using sophisticated analytics tools – to unearth customer insights that would traditionally have been missed.

As the means and expertise to create such a resource in-house may not be available, a number of firms choose to take advantage of purpose-built outsourced data centre facilities. Using these facilities is often more cost-effective and reduces the need for large capital investments.

Rather than fearing the march of the social networks, FSI firms can learn from them. Finding new ways of catering to customer needs is the best strategy any business can take.