The explosion of social media and networking presents both a boon and a bane for online banking. On one hand, it promises dynamic relationships, deeper connections and loyalty between customers and financial institutions, and a channel through which financial transactions may be executed ever more seamlessly. One the other hand, it poses a new sort of security and fraud risk to financial institutions and their customers.

Social media is helping banks and financial institutions know and understand their customers better. The rewards of this intimate customer engagement, access and dialogue are increased brand relationships and loyalty. But, for this reward to have sustainable and substantive value, banks and financial institutions need to be planning ahead and deploying advanced solutions that anticipate and intercept fraud originating through social media and networking channels.

From a sales and marketing perspective, large banks and financial institutions are, not surprisingly, taking a cautious and smartly managed approach to engaging their customers in digital conversations. Many are opting not to establish Twitter channels or Facebook pages to push out news and promotions, but instead are setting up Twitter channels to monitor customers ‘tweeting’ about concerns and issues in order to address and intervene in the early stages, and using Facebook for purely promotional and social responsibility initiatives. This cautious and highly managed approach is critical to preventing the potential for fraud.

No one would argue that social media is a means for individuals to become extensively known and recognized. One’s personal history, friends, interests and thoughts – one’s identity – is increasingly being digitally exposed. Clearly, it’s important to proactively limit exposure. Once a social media attack creates a point of compromise, the customer’s entire banking portfolio including deposit, savings, credit card etc. becomes vulnerable to financial fraud. Fraudulent new accounts and transactions may occur.

Are the financial risks of utilizing social media greater than the benefits? It’s an academic question. Social media is here to stay and evolving dramatically. Risks simply must be understood and reasonably mitigated.

Stay tuned for more insights into how banks and financial institutions can protect themselves and their customers from social media fraud.

David Nussenbaum

VP Product Line Manager at ACI Worldwide