Social media – an opportunity for transaction banks

The current interest rate environment in many parts of Asia has been forcing the transaction banks to explore way to accelerate growth of their fee based income.

Many transaction banks have developed industry specific programs to enhance their service delivery capabilities in specific industries including the usual suspects such as healthcare, education and some of the fast growing next generation industries such as renewable energy. However very few transaction banks have set their sight on the social networking sector as a potential client base.

Today, millions of consumers and businesses across Asia (such as Qzone 380+M, RenRen 120+M, Kaixin001 80+M, Zing Me 6+M etc.) are actively using social media platforms (social networks, social games, and online marketplaces to name a few) to transact billions of dollars worth of real and virtual goods and services.

Social media industry in Asia is -
1. Increasingly going international providing potential opportunity for transaction banks to develop cross border trade support offerings for social media businesses

2. Increasingly becoming ‘trading hub’; it is supporting transactions of both virtual and real goods and services , yet another opportunity for transaction banks to develop an offering for social media businesses

3. Providing opportunity for transaction banks to accelerate presence in social media driven SME sub-segments

4. Gaining attention of regulators around cross border “real/virtual” funds flow , taxation issues driving social media businesses to explore platforms offered by transaction banks

Today, social media businesses (social networks and marketplaces) are emerging as hubs in the virtual worlds that will shape the trade of tomorrow. Along with the growth ambitions of major social media businesses in the region – to aggressively expand internationally in the emerging markets, social media is not just a very obvious ‘nice to have’ client, but also becoming a ‘must have’ client for transaction banks operating in Asia.

Across Asia, increasingly large numbers of consumers and SME businesses adopting the social media as part of their daily lives (e.g. online marketplace operated by Alibaba has more than 56M registered users from 200 different countries and it hosts more than 8M storefronts), it could be an interesting channel for transaction banks to accelerate presence in certain social media driven SME sub-segments.

With regulators in Asian economies closely watching their cross-border currency flows, there are also issues related to control & reporting of cross-border fund flows, taxation, etc. arising from trading of virtual goods and services using virtual currencies on the social media platforms.

The opportunity for transaction banks is huge – ranging from a role in the social media ecosystem as conventional lending service provider, to payroll, payments, and clearing & settlement service provider, to core business enabler (or operating partner) facilitating scalable platforms for these companies to operate their individual virtual currency empires and integrate them with ‘real’ world.

However it’s important to understand the dynamics of social media businesses which exist in a complex eco-system that comprise of diverse (and often transient) many to many up-stream and down-stream commercial relationships that blur the differentiation between B2B, B2C, and C2C (or peer-to-peer) commerce. Some of the common issues faced by these businesses revolve around efficiency, transparency, and reporting in conversion of ‘virtual’ currency into ‘real’ currency in complex scenarios where the buyers and sellers are subjected to different regulatory regimes.

To be successful in exploiting the opportunity in the social media sector, transaction banks must rethink their current approach, assess the potential based on existing capabilities to recognize ‘social media’ as a new segment and customize specific capabilities to develop an offering for social media businesses.