Financial Institutions Hope to Learn from Social Media

Financial Institutions are taking a page from other retailers when it comes to social media, as banks and lenders mine social networks to find behavior patterns in potential customers and the Fed analyzes similar data to get an idea of the public reaction to current policy.

With 91% of adults in this country accessing social media each month, according to a recent study by Simmons, it seems that sites like Facebook and Twitter are a natural place for institutions and businesses to get the most accurate picture of consumers.

Retail banks are trying to learn how behaviors online might translate to behaviors in the real world. 

According to a recent Mashable article written by Kevin Lin, CEO of Credit Karma, retail banks and lenders are creating databases of our social media actions that will allow them to  create tailored marketing campaigns, and maybe even determine consumers' credit risk.

“A bank may choose not to show John Smith an advertisement for their latest credit card if he recently tweeted about declaring bankruptcy,” writes Lin. “Instead, he may see an ad for that bank’s pre-paid credit card.”

Lin estimates that the earliest banks and lenders will be able to use this is about five years from now, since it will take time to accumulate the data and then analyze it, but even then it is more likely that the information will be used for marketing purposes as opposed to the bank’s decisions on credit.

So what will these retail banks be looking for? Anything that communicates a change in finances or a major life decision will be archived, according to Lin. They will also be looking to see how your friends are doing financially as there is some evidence that people in social groups develop similar financial habits.

The Fed will be looking less at your financial decisions and more about what you think of theirs.

According to a Fast Company article, the New York Federal Reserve Bank will begin a social media monitoring project this December to gauge public response to economic policy.

In a vendor proposal request submitted by the Fed, which can be viewed on Scribd, the idea of the project is to find a way to track the reach and spread of the Fed’s press releases and other outreach. In addition, they hope to identify key figures of influence that they can monitor more closely and target specifically with their communication.

"The reason for contemplating such an effort is to get a better sense of the relevant concerns and discussions that are taking place in the public domain in order to improve our communications and engagement with the public," said Jack Gutt, Federal Reserve Bank of New York spokesperson, in the Fast Company article.

Finding an effective way to communicate with consumers is really what all of this comes down to, not only for the Fed, but also for retail banks and other companies mining social data.

Yes, the idea of creating databases of your posts and status messages does scream of Big Brother, but when we open ourselves up the way that we have on social media it seems naive to think that someone won't seize the opportunity to learn about the public what they would never offer up in a survey.

The long and the short of it is that social media is an incredible source of information, which I believe has barely even been tapped. So for anyone who does not want companies learning how your day was, what bands you "like," or who your friends are, you might want to reevaluate your privacy settings.