European banks 'lagging behind' in customer engagement via social media, says analysts

Ovum said, though, that whilst European banks are currently "lagging behind" it expects them to increase their use of social media over the next three years. It said that data security and privacy concerns have caused European banks' reticence but that consumer demands would drive increased exploitation of social media going forward.

"It is now almost impossible to ignore social media," Jaroslaw Knapik, senior analyst at Ovum, said. "It transcends geographic boundaries, encouraging interaction and collaboration among disparate users united by a common cause, belief, issue, or interest. It provides a powerful marketing platform for understanding and engaging with customers, allowing banks to improve sales and profitability."

"European banks in particular find themselves at the back of an underperforming class when it comes to social media engagement, voicing concerns over data security, ensuring data privacy, as well as the potential reputational damage that can come from a mismanaged communication," he added.

Ovum said that whilst banks have been used to managing their reputations through communicating with consumers through traditional media channels, social media enables those institutions to fully engage with customers.

"Though typically conservative, banks are looking to adopt [communication] strategies that will allow them to catch up with current trends and demographics," Ovum said. "In addition, as the economic environment is improving and the demand for financial services is increasing, they need to focus on enhancing customer experience, which will translate into increased sales and more effective servicing."

Earlier this month US regulator the Securities and Exchange Commission (SEC) announced that it was legitimate in certain circumstances for businesses to disclose information that is materially relevant to investors through social media channels providing they explain that they may do so first.

US rules prohibit public companies, or those acting on their behalf, from "selectively disclosing material, nonpublic information to certain securities professionals, or shareholders where it is reasonably foreseeable that they will trade on that information, before it is made available to the general public," according to SEC. The regulator previously issued guidelines that explain that such disclosures must be made through a "recognised channel of distribution", but it has now clarified that social media channels can be utilised providing a number of conditions are met.

However, in the sphere of advertising another US regulator has threatened enforcement action against businesses that flout US consumer protection laws when engaging in marketing activities via social media. The Federal Trade Commission last month said that firms that advertise through online mediums where physical space is limited, such as is inherently the case when posting on Twitter, are still required to detail qualifications to the claims they make in the form of disclosures.

Earlier this year the Federal Financial Institutions Examination Council (FFIEC) in the US issued guidance to banks on their use of social media. The FFIEC advised the institutions to have a "risk management program" that allows them to "identify, measure, monitor, and control the risks related to social media". It said that the 'risk management programme' banks should operate should include the adoption of an "oversight process for monitoring information posted to proprietary social media sites administered by the financial institution or a contracted third party" and that senior officials within the banks should have "clear roles and responsibilities" for establishing "controls" and for the "ongoing assessment of risk in social media activities".

Last year financial services expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, said that UK financial institutions had a range of laws and regulations to consider when using social media to communicate with customers, including data protection and communications laws, advertising rules and financial services industry guidelines on promotions.

Salmon encouraged banks to develop a social media policy to govern the way staff engage in social media.

In December, Virgin Media Business said that a study it had conducted revealed that 63% of banks respond to customer complaints and queries received through Twitter within an hour.