Under founding publisher Tom Phillips during the '80s, Spy magazine's biting "Separated at Birth" feature discovered uncanny likenesses between celebrities (Leona Helmsley) and their surprising doppelgängers (Jack Nicholson's The Joker). Phillips has long been out of the magazine business, but he's not through connecting the dots between people in unusual ways.
Now CEO at marketing upstart Media6Degrees, Phillips is behind a new advertising strategy that draws on social-media connections. As opposed to the long-favored practice of linking ad targets to browsing activity, Media6Degrees identifies its clients' prospects by sorting through current customer lists and quantifying which of their Facebook friends and Twitter followers would make good candidates for offers.
Phillips, who after his Spy days dusted off an applied mathematics degree from Harvard to work as a Google ad executive and its search analytics chief, asserts that these clusters of customer acquaintances provide much higher levels of response and brand affinity than almost any other type of sales-target segmentation.
He summed up the idea in a presentation last year at New York University's Stern School of Business. "Demographics, we don't care. Psychographics, we don't care. A better way to target your prospective customers is to go to your existing customers and find their friends."
Media6Degrees is among the most visible companies collecting and analyzing social media data for banks and credit-card issuers. But it is only one of dozens—"if not hundreds"—sifting through social media in ways that banks hope eventually "will enrich them, give them a marketplace edge and help make better offers," says Rodney Nelsestuen, a senior research director for retail banking and cards at TowerGroup.
The number of vendors belies the nascent stage of social media intelligence, but underscores the dividends that many bankers believe to be awaiting them. Beyond using social media data as a customer service and product development tool, some even hope to detect default risks through borrowers' online behavior, such as the posting of complaints about mortgage companies or hints about coming bankruptcy plans.
Even at this early stage of adoption, the potential pitfalls of social media data collection are apparent. Consumer groups, regulators and legislators already are pushing back over privacy concerns, worried that companies will cross the line dividing aggregated data from sensitive, identifying personal information. Compliance questions also are being raised as to whether using social media data in credit decisions—a likely evolution, experts say—could trip violations of equal-credit or fair-lending laws. Another major concern for banks is how to use accumulated social media data without offending customers.
The sophistication of social media tracking and aggregation tools already available leaves Bradley Leimer awestruck. Leimer, vice president of the online services group at Mechanics Bank in Richmond, Calif., and a self-described "discerning technologist," says he recently witnessed a demonstration of a system that could customize information on a website to appeal to specific visitors, based on their preferences according to Facebook. The demo showed how an online electronics store, for example, might tap into a consumer's love of pets and sports and "put a dog or football game on the screen of a TV they are trying to sell," Leimer says.
Mechanics, which has $2.8 billion in assets, isn't that advanced yet in its social media analytics. The bank is in listen-and-learn mode as it ramps up its presence on Facebook, YouTube, Twitter and, soon, Foursquare.
But Leimer says the bank hopes to embark on a customer relationship management strategy he calls "social CRM," which entails collecting social media data about retail and business customers and measuring the influence of the company's fans and critics.
"That's kind of where we're headed in the industry, with all the public information that's available on consumers," Leimer says. "It's going to be a proactive approach, where we're starting to gather how big the followings of our biggest detractors and our biggest advocates of the brand are."
The opportunity for banks to find out out about life events that might trigger interest in a financial product—like having a child or buying a car—are enhanced immensely by social media data.
Aggregating such information also can help banks protect themselves against risk. One example is the rise of strategic defaulters, whose purposeful foreclosures came with no indication of financial duress on their credit reports. Though they might not tell the bank about their plans, a Facebook wall post about a failed modification or a collapse in neighborhood home values could be a red flag. Likewise, when customers blog about problems on the job or post resumes on sites like Plaxo, this can provide insight into their employment status.
According to Forrester Research, 59 percent of U.S. adults are actively maintaining profiles or visiting social sites. More than 80 percent of Gen Yers are similarly engaged and have an average of 220 friends on Facebook. And, in a slice of the demographics of particular interest to banks, 70 percent of all checking-account customers have at least one type of social media connection.
All of this translates into a large, ready-to-mine population for social media analytics. But before using the data to reach out to customers, banks have to bypass the "ick" factor—the sensation customers may get of being stalked.
Some consumers, whether contacted with a sales pitch or an innocuous "here to help" customer-service tweet, simply won't feel comfortable with banks using social media to reach out. There's also the risk of alarming customers, who've been warned for years to be wary of unexpected solicitations that may be fronts for identity theft scams.
Even though its social media experience is brief, Mechanics already has encountered such negative reactions. "The few times we've reached out to customers, the response has been mixed," Leimer says. "In general, unless people engage in and contact you because they have a service issue, they are not prepared for their financial institution to reach out and say, 'Hey, saw your post on Facebook. How can we help?'"
But the potential benefits of tapping into this online information remain alluring. A social media profile reveals much more about lifestyle, interests, jobs and education than most consumers would think possible. Someone excluding college or high school graduation dates on professional social sites (a common tactic against age discrimination) might be doling out that information willingly on class reunion sites like Classmates.com.
Karen Garrett, a partner at Kansas City law firm Stinson Morrison Hecker, has advised banks on reputation and compliance risks tied to participation in social media. She sees potential trouble ahead for banks that steer customers into inappropriate products based on demographic data compiled through social media.
There is a possibility, she says, of banks "unintentionally creating equal-credit opportunity violations by sorting the data in such a way that they end up profiling customers and sending them to particular products."
Mechanics' Leimer agrees that banks must proceed with caution, so as not to inadvertently violate fair-lending statutes. But he wonders: Is a bank being responsible if it willfully ignores a warning sign of credit risk just because the information came from social media? A bank wouldn't formally add such details to a lending application, Leimer says, but if there's "public, social-aggregated data out there showing [the applicant] saying, 'Hey, I really need this, I've been turned down at five other places,' what are you going to do with that information? How is that not going to impact you?"
Leimer says one of Mechanics' first goals with social media is to establish clear policies that help people "understand what it is we're tracking."
The aggregation issue has gotten the attention of privacy advocates and of the federal government, which now has first-hand experience with the power of social media thanks to recent Twitter and photo-sharing scandals involving members of Congress. In the past year, legislators approved two bills seeking to limit the accumulation of data: one to stop online tracking of children and another to empower the Federal Trade Commission to create a do-not-track system, similar to the federal do-not-call program reining in telemarketers. The launch of the Consumer Financial Protection Bureau could lead to further changes in privacy rules, if the bureau feels compelled to take a stand.
Wary consumers already are turning to products like Intelliprotect and SafetyWeb, which promise to help preserve online privacy through tactics like requesting marketers voluntarily remove an individual's data. The new version of Internet Explorer is the first browser to meet the Federal Trade Commission's demands for a do-not-track feature that customers can employ. But absent formal privacy regulations, it is only useful with firms that agree to stop following a user's Web-browsing history, according to TowerGroup's Nelsestuen.
Security breaches involving customer data gathered online also remain a top concern. Many institutions enhance their online banking authentication with security questions (such as place of birth or mother's maiden name) that are now easily obtained through social media. The Federal Financial Institutions Examination Council issued interagency guidance in June advising institutions to drop questions that can be answered with easily parsed personal information.
"If I have information across various social media sites and one of them is breached, not all the information is breached," Nelsestuen says. "But when you start aggregating that information, you're able to apply other information and analytics. If I were a fraudster, I would love this business."
