FreshNetworks Blog

Nobody gets me Bitcoins! (Photo credit: zcopley)

In the current economic climate, many people have been looking into alternative investment opportunities, or safe places to put their money outside of the banking system. Options such as precious gems, or fine wine, are regularly discussed. One of the rising stars in this space is the Bitcoin market.

Bitcoins are a decentralised digital currency which uses open source technology to trade coins between users all over the world. Bitcoins are obtained by completing increasingly difficult mathematical calculations, this system ensuring only that a limited number of Bitcoins are available and that no one organisation controls the flow of coins.

Using social data to predict consumer behaviour, or even the value of goods, is nothing new, and many traders have been looking to include social metrics into their trading algorithms. Various academic studies have also highlighted predictive qualities of social data in the equity markets. However, because there are so many factors involved in pricing most financial instruments, it can be extremely difficult to accurately predict how markets will change.

Bitcoin however has several characteristics which make it an ideal market for social data prediction:

• The value of Bitcoins is determined almost solely on market demand, because the number of coins on the market is predictable and are not tied to any physical goods

• Bitcoin traders tend to be in the same demographic as social media users, and so their attitudes, opinions and sentiment towards Bitcoin are well documented

• Bitcoin is predominately traded by individuals rather than large institutions

• Events that affect Bitcoin value are disseminated first and foremost on social media

We intend to test the hypothesis that Bitcoins could prove an exciting testbed for social prediction, and give us a greater understanding of how publicly expressed sentiment and behaviour actually impacts the value of a commodity.

What do you think? Can social data be used to predict Bitcoin values?

English: Photograph shows stock brokers working at the (Photo credit: Wikipedia)

New research shows that 70% of affluent US investors have made an investment decision based on information they have learned from social media; 34% use social media specifically to help inform their personal finance and investment decisions. Even for High Net Worth individuals with more than $1m in investable assets, 25% seek investment advice from social media.

The report, from Cogent Research, is based on a survey of 4,000 US investors with more than $100,000 in investable assets and shows the growing importance of social media in the investment management industry.

There is much that investors and financial companies can learn from this and from the growing use of social media as an information source for significant decisions including financial purchases. As in other sectors, we are seeing these affluent investors using social media to verify information they get from other sources as well as to augment it with new and more real-time commentary.

As Remy Domler Morrison, co-author of the report, comments:

Today’s investors’ are scrutinizing ‘traditional’ sources with content and commentary they are finding through social networks, and are becoming much more critical and conversant when it comes to their investment choices

So, just  as we’ve seen with other purchases, investors are integrating social media as part of the sources they turn to when making purchase decisions. Many financial companies are exploring how best they can make the most of this growing trend among investors to use social media advice. For some there are concerns about negative mentions of their brand (and how these should be handled) or indeed about whether the trend to use social media as a research source will reduce the use of professional advisers.

The Cogent report provides two insights that should help inform such firms:

1. Investors recall more positive comments more than negative ones – for the brands investigated by the research, investors could recall more positive mentions than they could negative one. Possibly suggesting a level of filtering out of the negative comments that are not providing useful information for their decisions.
2. Social media is motivating investors to seek professional advice – for those firms that use social media effectively in this space there is the real possibility to generate more interest in advice services from those investors looking for information in social media.

So as we’ve seen in other parts of the financial services sector, social media is providing investors with new sources of information but also provides many opportunities for firms.

There’s a lot of buzz about big data in the retail banking sector right now as all the major banks work out how best to bring new unstructured data sets (such as social data and mobile data) together with transactional data in order to improve customer experience, become more competitive and drive growth.

I recently discovered this great debate from September 2012 that provides a clear understanding of where banks are today in their use of big data. The video includes panelists from HSBC, Barclays and RBS; the full debate lasts for more than an hour.

For those of you without the time to spare to watch it all, here is my summary of the main points:

1. What are the pain points that banks are grappling with?

• Customer retention, cross-selling, up-selling, developing new products that customers actually want, and minimising fraud

2. Where are the biggest opportunities with Big Data?

• Improving insight and understanding of the customer in order to deliver a better customer experience through highly personalised communications (‘the segment of one’)
• Using social media analytics to find out what your customers think of your competitors and their products
• Identifying and reducing fraud. Part of this is showing fraudsters that you are looking for them. Most banks are doing real-time detection already and this is where Big Data, combined with social data, can come into its own

3. What are the challenges with Big Data?

• Gaining permission to use and process some of the new data sets such as mobile and social media data. The panel all admit that financial services is behind the curve in this because of compliance issues, and that a lot could be learned from some of the new technologies and techniques that companies like Google, Facebook and Amazon have developed
• The ultimate goal of Big Data should be about delivering a better customer experience for customers. Not easy when the user journey is now dynamic when it used to be confined to in-branch interactions
• Finding the right balance between giving the right access to data across the company, and making sure adequate controls are in place. This is because the further away from source it gets, the harder it is to ensure compliance is maintained

4. Where should retail banks start in Big Data?

• Think about who owns the customer and therefore the data relating to the customer. This will require a rethink in organisational and governance structures, and a real need to get the C-Suite bought in
• Focus on your strategy in order to frame the right questions and therefore data that you need. There are infinite possibilities with Big Data. That said, the business and the data analysts need to work collaboratively. Once you start to visualise data, it can raise new questions or reveal that the original question wasn’t right in the first place
• The Holy Grail is to get the single view of the customer first, and then enrich this later with  newer data sets such as social data. Take things step-by-step – unlike Facebook, banks cannot afford to get their communications to customers wrong! They are already governed by a set of regulations to use data responsibly
• The emphasis should be on quality and not necessarily speed of communications. The next best action for the customer may not be a cross-sell – that won’t drive loyalty or build trust

texting (Photo credit: meanmachine_ie)

The ability to interrogate and make decisions based on consumer data from social media is a key 2013 priority for European bankers according to a survey from the European Financial Management Association (Efma) and the Fair Isaac Corporation (Fico). The survey of credit risk professionals from 27 European countries found that analysing these data to better understand consumer needs was a priority for 54% of respondents.

The results show the growing importance of social data sets in the already data-rich world of financial services. The  industry is currently in a very risk-averse period, meaning that companies are looking for credit growth primarily among those people that they have the most data on – their customers. However focusing just on your existing customers will not help you to win in the current market as customers are risk-averse too in the current economic climate – they will look for the best product for them and move banks to get what they see as a better offer.

This is where the respondents see the role of social media. Analysing data from these sources can help them to better:

• understand consumer needs
• predict the products and services that will see most demand
• identify where they might find valuable new customers

In the current market, the financial services brand that most effectively integrates these social data sources alongside their existing rich data sets has the potential for a real competitive advantage. The ability to predict and tailor products and services that will attract profitable consumers.

Of course getting there will involve work, as with any activities looking to interrogate and learn from social data you first need to understand what data you have (from your own proprietary data-sets and from social and public sources) and then to explore what you can learn from these. Only then can you consider how your business might benefit and the kinds of decisions you can inform.

That financial services firms rank understanding data as such a priority for 2013 shows the value that these firms are seeing from social media – not just as a means of communication but also to inform business and marketing strategies.

Nick Hungerford, CEO of Nutmeg

Last week we caught up with Nick Hungerford, CEO of the new client investment management company Nutmeg.  We think this is a business with the potential to really disrupt the investment market for a number of reasons. Firstly it is positioned perfectly to take advantage of the Retail Distribution Review (RDR), coming into force in 2013, which will make investors much wiser about the fees they are actually paying their advisors. Nutmeg offers a combination of total transparency and low fees thanks to its strategy of investing in the burgeoning Exchange Traded Funds (ETF) market.  Nutmeg has also tapped into the online banking and social media trends – offering a slick user interface and backed by investors that include Tim Draper and Spotify board member Klaus Hommels.

It was only a matter of time for social media technologies to start disrupting the financial services market and we’ve written about some of our predictions before.  We’ve seen interesting companies like Friendsurance using a peer-to-peer model  - combining social networks with insurance services – to lower premiums and Polish bank Alior Sync enabling customers to make financial payments through Facebook.

Q: What was the inspiration for starting Nutmeg?

A:  I’d been working in Financial Services for 7-8 years and I always found it remarkable that even though finance and investment is applicable to everyone regardless of wealth, private banks only deal with the extremely wealthy. Friends/family would ask me for help with investments but I would have to turn them down.  At that point I started talking to investors/smart people working in tech industries. They all said the same thing, “I want to invest online, I want a smart solution and I don’t want to pay someone too much.” At that point it became obvious there was an opportunity to disrupt the financial services industry.

Q:  Do you see a threat from other trusted consumer brands diversifying into this kind of financial service?

A:   It takes you into an entirely new regulatory arena. People often ask me, “Why wouldn’t Google or Facebook do this” but it requires a massive change to their business culture. If they start managing money they have to take on financial professionals. Becoming an investment manager is a totally different ball game. Having said that, we do want there to be more people like us, driving change in the industry.

H:  How do you encourage people to take that first step to invest and put something away for a rainy day?

There is an education curve. Nutmeg is a site you come to learn about investing, money and how to save. Then, when you are ready, you can choose to invest. We are starting with those people who are used to internet banking/investing, are familiar to other online services out there and like the user experience. Perhaps they’ve had an account with a broker but don’t want to spend so much on fees anymore.  I like the analogy of internet banking – at first it was daunting to use that service but now I never go in branch at all and I’m not alone – Britain has one of the highest adoption rates in the world for internet banking and I’m sure we’ll get there for saving and investing. We only need a fraction of the market to be a giant company.

Q:  Your educational content is key to your growth, what’s on the roadmap?

A:  We know that people care most about important financial decisions, like buying a house or car. We want to inform people of what and why we are investing in things, give them a clear monthly update in a non-obnoxious, easy to understand way so they know where their money is and how it’s doing.

Q:  You are currently investing in ETFs, could you explain that a little more to the uninitiated?

A: It’s a collection of investments that track an exchange, index or sector – so you buy a little bit of lots of different things in order to get diversification.  They are also low cost and 30 years of research proves 75% of active funds (or thereabouts) underperform and not just because of the fees. It’s very obvious that trackers and low cost funds are an increasingly attractive way to go.

Q:  Nutmeg is using social media in innovative ways to drive recommendations (offering fee discounts in return for social recommendations). How else will Nutmeg use social media to become a social business?

A:  We are looking at the sharing of ambitions and goals with friends and family and allowing for social investment.  So what if a group of friends wanted to pool their money into a fund that pays for them all to all go on holiday every year? From our perspective social media is about how we get people engaged around their money.  Nutmeg is the first to do what we do and we have a great chance to change things in the industry for the better.