# Social media in the financial services sector

Social media in the financial services sector refers to the use of social media by the financial services sector to promote and distribute financial services. Social media is used in various aspects of the financial industry including customer service, marketing, and product development. It has enabled financial institutions to extend their reach through direct and real-time communication with customers, fostering more personal connections. It also allows individuals to talk to other individuals creating lending and trading via social groups as well as developing new financial services by fintech startup companies.
In terms of marketing, social media is utilized by both traditional financial companies as well as disruptive fintech companies such as peer-to-peer lending (P2P) companies. The financial industry has used information technology since its inception in the 1960s and social media fits in with this ongoing development. Larger, traditional financial firms have integrating social media into their marketing strategies.
Companies in the financial sector are subject to strict regulations that include how they use social media. In the United States, the Financial Industry Regulatory Authority (FINRA) is a key regulator that sets rules how financial firms can interact with consumers. This includes making sure social media posts follow financial advertising rules, such as being fair and balances not providing misleading information and that financial advice is not provided by unqualified personal, such as influencers.

## History

In 2003, at the beginning of social media development, MySpace was founded as a “social networking service.” It allowed people to create a profile, connect with other people, and post videos, pictures, and songs. As MySpace grew in popularity, it attracted interest from companies wishing to promote their brands on the social platform. They were joined by Facebook and in 2010 by Instagram. Financial service firms were initially slow to adapt to promotion via social media but soon joined other big firms after they saw the success other industries had in engaging with younger people.

## Uses
### Branding

While companies are able to connect with more people remotely through providing online financial services, their branding strategy has shifted from customized to standardized. Prior to the outbreak of technology, most banks used customized branding where they targeted only customers in their regions. However, businesses can now use technology to operate past their geographic location and maintain a consistent image across multiple countries with standardized branding. By being able to extend a consistent brand reputation across a wider geographic location, financial services companies can take advantage of economies of scale in advertising cost, lower administrative complexity, lower entry into new markets, and improved cross-border learning within the company.

### Customer engagement

Many argue that online banking has made customers feel more distant from their banks due to lack of human to human interaction. Instead of going to a local branch and interacting with a teller, customers can now do most of their banking online and even though mobile devices. Social media has provided a way for companies to once again connect with their customers on a personal level. The financial services sector uses social media platforms to create the value that was once found physically in local branches. For example, through their Facebook page, a bank may post a snapshot of one of their employees with a brief blurb about his/her job duties and values. This strategy replicates the human to human interaction a customer would receive at a local branch and humanizes larger financial institutes.

### Lending

Social media is a core marketing channel for online peer-to-peer lending as well as small business lenders. Since these companies operate exclusively online, it makes sense for them to market online through social media channels. They are able to grow and find new lenders and buyers by utilizing social networks.

### Trading

Social trading is an alternative way of analyzing financial data by looking at what other traders are doing and comparing, copying and discussing their techniques and strategies. Prior to the advent of social trading, investors and traders were relying on fundamental or technical analysis to form their investment decisions. Using social trading investors and traders could integrate into their investment decision-process social indicators from trading data-feeds of other traders.
Investors also use platform like Reddit, Signal messaging or WeChat to create social communities to discuss investments and finance. In some cases they use this to join together using meme stocks to move financial markets, such as the 2021 GameStop short squeeze incident. They can also use social groups to launch and promote new products such as Cryptocurrencys.
Investing application like WeBull incorporate a forum style messaging system on each stock that is available for trading. Financial brokers such as Fidelity Investments, Interactive Brokers, and E-Trade have moved to incorporated community features in their investment apps.

## Regulations

The use of social media by investors and financial services professionals for business purposes is subject to regulatory oversight, in the United States this is done primarily by the Financial Industry Regulatory Authority (FINRA). FINRA's rules, designed to protect investors from misleading information in all communications and this also applies to social media communications. This includes making sure social media posts follow financial advertising rules, such as being fair and balances not providing misleading information and that advice is not provided by unqualified personal, such as influencers and bank staff in their personal capacity. Financial firms have to maintain books and records of all interaction with customers and this includes social media.

## New products and services

Social media has created entirely new products for the financial services sector, revolutionizing products and developing new industries through the merging of social technology and financial services. Fintech startups use social media to promote products to get them established.
Many developing nations have used social media to leapfrog traditional financial technology for example the WeChat Pay which developed from the Chinese WeChat social media platform became a major payment system in China in just a few years. In 2015, according to consulting firm Accenture, 390 million people in China had registered to use mobile banking. This figure is more than the population of the United States. Albeit not as popular in the U.S., the most prominent American fintech company, Venmo, blends technology and financial services together on a social platform.
Other financial technology companies that have used social media to develop or promote financial products include:
* Lending Club - One of the first peer-to-peer lending businesses
* OnDeck Capital - A US online only lending business
* Funding Circle - A UK based online lending company
* Wise - A global online money transfers company
* Kabbage - US Online unsecure loan company later acquired by American Express
* Avant - A US online unsecured loan company
* Zopa - A UK online neobank providing peer-to-peer lending

## Risks
### Reputational damage

Due to the real-time nature of social media, financial services companies can be impacted by potential reputational issues. Any negative experience by customers can easily be shared online and could become a viral phenomenon, those comments could likely have a detrimental effect on the company’s stock price and reputation. On the other hand, any positive experience a customer has can also be shared online. However, positive experiences are much less likely to become viral.

### Scams

The nature of social media makes it easy to target individuals without being seen by the wider community, this allows scammers to target individuals. Example include romance scams such as the pig butchering scam where an individual is tricked to transfer funds or assets to the scammer over social media making it hard for law enforcement to track them or recover funds.

### Customer privacy

Customer privacy is important for the financial services industry. It is critical that customer information such as a bank account numbers and other personal information is kept private. However, this information can be leaked if for example, a customer is unhappy with a bank’s service, they may tweet at the bank expressing their frustrations and include their name and account number.