Harnessing Social Media for New Financial TechnologiesSabrina Tharani |
68 million people.
45 million social media accounts.
25 percent of U.S. households.
$78 billion annual spend on financial services.
These numbers represent the underbanked in the United States – those who are challenged financially, either due to a lack of access to financial services because of low or absent credit scores, or simply incomes that preclude a formal banking relationship.
An emerging category of technology startups providing financial services, or FinTechs, have recognized the potential to better serve these 68 million consumers by harnessing the power of social networks to develop financial products. Services that integrate with these platforms can address underbanked consumers’ needs in a highly targeted manner, by offering the potential for responsive, customizable service on sites underbanked consumers are already using and comfortable with.
So what do we know about these consumers, and how can new technologies be used to better serve them?
Underserved consumers are increasingly present online and on mobile devices, with 56 percent of underserved U.S. adults in ownership of a cell phone and 67 percent with a social media account. Social media in particular is disproportionally popular among underserved demographics, such as youth, low income and minority consumers. Recent MasterCard research shows that 86 percent of U.S. youth are on a social network at least once a day.
A recent report by Morgan Stanley and the Center for Financial Services Innovation took a look at several pioneering FinTech companies that have started emerge in this space, that help consumers better apply for credit, manage their finances and save responsibly.
In the credit space, the report highlighted new companies such as Sociogramics and Kabbage that recognized the need for alternative credit scoring models, as many underserved consumers tend to have thin credit files. In response, they created models that mine the data in social media profiles to evaluate credit worthiness in innovative ways during the verification and underwriting process. In doing so, they hope to make the 40 million additional people in the U.S. with little to no interaction with formal credit eligible for loans.
Other applications, like SmartyPig and Piggymojo, helped solve underserved consumers’ trouble managing their personal finances using social media as a tool. These personal budget/finance management sites provide a dashboard that allows users to share savings goals and get positive social reinforcement through their social networks—even accept contributions from the people they are connected with.
Successful financial products are not those that just fill the immediate banking needs of consumers, but also connect with their evolving behaviors and lives. The use of social media could prove to be a powerful tool for FinTech companies, and ones that underbanked consumers would seem likely to adopt.