Social Banking – A Future Business Model?
Social banking used to refer to sustainable banking. The expression has evolved and nowadays also covers banking activities conducted through social networking channels or social lending such as peer-to-peer (P2P) lending.
The rapid adoption of interactive technologies has transformed the entire banking industry. Nowadays, clients expect their bank to provide real-time financial information and services around the clock, pushing financial institutions to respond with adequate digital solutions. "It is ultimately the client who decides how he or she wants to interact with us. We have to adapt to ensure that we cover their preferred channels," says Andreas Tölke, Head of Content Management, Social Media & Communities at Digital Private Banking Credit Suisse. Here is a look at how "social banking" has evolved over time.
The Continuous Growth of Social or Sustainable Banking
Sustainable banking, as in value-driven investments focusing on the social and/or environmental impact of investments, is nothing new. It has been around since the 1950s. Today, the emphasis is on sustainable investing – an established investment approach that considers environmental, social and governance (ESG) factors – when selecting and managing portfolios. Last year, sustainable investment assets accounted for a third of all professionally managed assets globally. This market continues to grow in both absolute and relative terms, with Europe being the best in class, far ahead of any other region. Global investments in sustainable assets amounted to 21.4 trillion US dollars in 2014. Switzerland has emerged as one of the market leaders, recording average annual growth of almost 30 percent in terms of managed sustainable investment products over the past decade. Credit Suisse was the second-largest Swiss asset manager of sustainable investment products, behind the private bank J. Safra Sarasin, out of a total of 24 financial players offering such investments in 2014, according to a ranking by Forum Nachhaltige Geldanlagen.
Social Banking as in Bringing Communities Together
Relationship managers used to be the single point of contact for private banking clients when they interacted with their bank. "But times have changed. Our clients want to interact differently. In the era of social media, the term social banking can also be associated with clients interacting with other clients, their relationship managers or with the bank's experts through secure online platforms," Tölke explains. "Our private banking clients want to have the ability to discuss ongoing market developments or investment ideas with the bank's experts. They increasingly expect to be able to access information about events impacting their investments and portfolios directly from the corresponding specialists and experts," he adds. Today, Credit Suisse strives to cover these expectations by enabling access to expert blogs focusing on specific issues. A number of Credit Suisse research experts, including Nannette Hechler-Fayd'herbe, the Head of Investment Strategy, and Rolf Bertschi, the Head of Timing and Sentiment Analysis, regularly blog about topics ranging from macroeconomic themes to technical chart outlooks.
eamXchange – A Flourishing Community Platform for External Asset Managers
Credit Suisse launched its first online business community, known as eamXchange, back in 2013. This platform is only accessible to external asset managers and a select group of Credit Suisse experts. "Our clients trust Credit Suisse to offer good financial products and services, but they also want to hear the opinions and experiences of third parties. They want independent feedback provided by other external asset managers who use our offering who are not part of the bank's value chain," Tölke notes. EamXchange is a platform where they can express their opinions while reading what others think as well. "A majority of the discussions focus on market developments and new regulations. The external asset managers ask for the opinions of others who face similar issues; how they manage the increasingly challenging regulatory environment," he adds. The main reasons why financial institutions use social media channels to such a limited extent compared to other sectors are the stringent regulations and banking confidentiality rules that are in place. "Credit Suisse is not allowed to advise, recommend or discuss its financial products and services on social media platforms such as Facebook, Twitter or LinkedIn. A trading order cannot be submitted through these channels, even if some (younger) clients would like to have this option, for regulatory reasons," he points out. The bank does, however, plan to launch a closed community platform similar to eamXchange aimed at its private banking clients based in Asia Pacific and Switzerland during the course of next year with the other regions set to follow in the medium term.
Social Banking as in Social Lending
Yet another aspect of social banking is social lending, also known as peer-to-peer (P2P) lending. This sector took off in the aftermath of the financial crisis when traditional lenders stopped providing certain financial products and it became more difficult for consumers and (smaller) businesses to obtain loans on an unsecured basis. Technological developments now also allow people to connect online in order to do business with each other, resulting in a booming P2P sector. The global P2P lending market was valued at 24 billion US dollars last year and could grow to 290 billion US dollars by 2020, according to a Morgan Stanley report. This rapid growth is likely to trigger increased regulatory scrutiny, especially because of the risks related to money laundering and terrorism financing, which may reduce its exponential growth rate. Other factors that could dampen its growth are higher interest rates, an economic downturn and frayed relationships with banks. "The three types of social banking described above are definitely here to stay, even if the way we invest or interact is likely to continue to evolve in the coming years," says Tölke. "Connecting people across the world for communication purposes or to carry out financial transactions such as P2P has a huge untapped potential," he concludes.