Fear of losing market share sparks constant vigilance among financial services firms, but lately attention has been shifting from traditional competitors to an entirely new sector: social media.
Just as they've reshaped much of our personal communication, companies like Facebook and Google now have their eyes firmly on doing the same thing for financial transactions. The ramifications for FSI firms could be significant.
The competition from social networks is coming from two different directions: the transactions they want to undertake, and their deep understanding of users.
On the transaction front, the massive networks want to bypass traditional banking channels altogether. According to a recent report in the Financial Times, Facebook is edging closer to getting regulatory approval for a mobile payments system in Ireland. Google already has approval in the UK to issue electronic money and is pushing hard to get its Wallet service more widely used around the world.
Meanwhile Chinese social messaging giant Alibaba is shoring up a relationship with its payment affiliate Alipay. This will strengthen the company’s position in the payment space and comes ahead of a planned IPO.
Such moves make complete sense for the social networks as they help to strengthen relationships with users and open a raft of new ways to link them online with advertisers. The mobile payments segment is still nascent but is also forecast to grow quickly.
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.
When you consider the size of the world's major social networks (with hundreds of millions of users), it's not hard to see why established banks and payment systems are sitting up and paying close attention. Even a modest slice of the market would deliver the networks fat profits.
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 shared, social network operators can gain a unique (and potentially lucrative) insight into users' lives. Focusing big data analytics on the information troves stored in their data centres, they can spot lifestyle changes, career aspirations and personal milestones and each can be used as a marketing opportunity.
Financial institutions have used some such indicators in the past to promote products and services, however 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 FSI sector? No one's saying the sky is falling, but there's little question 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 that exist within large FSI firms. These silos might exist within certain departments or across a number of different physical locations. All data silos should be brought together and stored in a central repository, designed to be secure and to provide reliable access. Rather than create such a resource in-house, many firms choose to take advantage of purpose-built data centre facilities. Using these facilities is often more cost effective and reduces the need for large capital investments. Once stored there, the data can be mined - using sophisticated analytics tools - to unearth customer insights that would traditionally have been missed.
Rather than fearing the march of the social networks, FSI firms can learn from them. At the end of the day, putting the customer at the forefront is the best strategy any business can take.