When National Australia Bank’s online banking portal failed earlier this year, the Bank placated irate customers over Twitter.  Despite its intimacy, immediacy and credibility, few banks are considering using social media to deliver customer service. And they’re not too impressed with Facebook’s cult status either; in a survey of 150 global retail banks, it was found that less than 15% used social media channels for marketing. 

Are banks, which have traditionally been less enthusiastic about adopting new technology than other industries (and not without valid reason) missing out on a big opportunity by staying away from the social networking phenomenon? Worse, are they exposing themselves to the threat of retailing giants of the likes of Tesco, Sainsbury’s and Wal-Mart, which are bringing their social media savvy to their financial services business?  And what about niche players such as P2P lenders – should banks simply turn a blind eye since they pose no challenge for the moment, or watch over them by playing the role of facilitator in their transactions?

These are some of the key questions facing financial institutions today. And if they’re still not sure about why they should participate in social media, perhaps the following arguments will convince them:

• A quarter of the search results for the 20 largest brands globally link back to user-generated content

• In three years, more than half of all retail sales will be impacted by the Internet, because that’s where consumers will research products before purchasing them.

• Over 60% of shoppers turn to user reviews for information on a product they are planning to buy; a somewhat higher number spend more money online if their communities issue a positive recommendation.

The list goes on…

This is not to say that no bank has woken up to the potential of social media. Some like Bank of America, Wells Fargo, Citibank and First Direct routinely use social media as an engagement platform. A standout example is Swedish Bank SEB, which in 2008 created ‘The Benche’, an online community of finance and treasury professionals in which members share ideas and ask for advice. About a year ago, The Benche had 3,300 members from 130 countries, and was already a talking point in the market.

Other institutions must take encouragement from these successes and act quickly to gain early advantage.  If they wait much longer, they may be forced into a situation where a social media presence is no longer optional, but rather an imperative to stay competitive.