In 2007, Discover Financial Services began monitoring social-networking Web sites. By early 2008, the brand had built an in-house listening platform to follow blogs and postings about financial services in general and Discover in particular by “crawling” such sites as Facebook, Twitter, LinkedIn and YouTube using key words and phrases.

“By observing for a while at first, we were able to figure out what we didn’t want to do,” says Mike Boush, Discover vice president of e-business. The company became convinced it should not “create a community in a place where it didn’t naturally want to form,” he says.

By the middle of last year, Discover had heard enough to create a blog called “Inside Discover,” where the brand’s employees post articles about the company. On a recent random day, the site featured advice on mobile applications for account management; tips on building the right card by choosing the design, rewards and terms; insights for researching student loans; an explanation of the new Discover e-mail format; and congratulations for the latest $15,000 winner in a Discover sweepstakes to reward customers for going paperless.

Discover is not alone among payments players using social networks to gather market intelligence, promote products and interact with customers. After months or even years of “listening” to interactions on social networks, all of the major card brands and many issuers have been building online communities (see chart).

“You have to get onboard this social media stuff–it’s not a fad,” says Elizabeth Rowe, director of the Retail Banking Advisory Service at Maynard, Mass.-based Mercator Advisory Group Inc. “Social networking is a key piece of a very transformational process for society. Bankers will be swept along.”

Social networking, however, comes with caveats. Brash marketing can drive away the Internet’s less-than-captive audience. Serving customers in a too-specific way can expose personal information to theft in mostly public online forums. And drawing too many conclusions from the ranting of the loudest voices on the Web can lead strategists astray.

As such, the payments industry has had its share of wins and losses.

The vehicles for the industry’s social-networking ambitions include the biggest social utility, Palo Alto, Calif.-based Facebook Inc., which was founded in 2004 as a network for Harvard students and now claims 400 million users. San Francisco-based Twitter Inc., launched in 2006 to convey 140-character messages, now has 75 million users. LinkedIn Corp., a Mountain View, Calif.-based company with a business-oriented site, began operating in 2003 and serves 45 million members. And San Bruno, Calif.-based YouTube LLC, founded in 2005, has 100 million viewers who watch 6.3 billion videos per month.

Those utilities and their competitors–all filled with new twists on “friends,” “tweets” and “fans”–can puzzle the uninitiated. With traditional mass-market television and print ads, the payments industry beseeches the public with one-way communication, Boush says. But with dialogue-based social networking, it has to engage participants, or the public simply ignores it, he says.

That two-way communication provides payments companies unprecedented insight into what customers are thinking about their brands and about financial services in general. Already, the industry is using that intelligence to shape new approaches to social networking, says Alex Craddock, head of small-business marketing at Visa Inc. Soon, that information on what consumers want will dictate changes in the payments industry itself, he says.

Consumer Engagement
But gleaning that intelligence requires effective social networking that attracts users. The industry can engage consumers through methods that educate, entertain or create a community where users can communicate with their peers, says Cheryl Guerin, senior vice president, U.S. and digital marketing, at MasterCard Worldwide.

Consumers return frequently to sites that provide good reasons to come back–anything from financial-management advice for small businesses to the favorite songs of popular athletes, says Jennifer Bazante, Visa vice president of global brand marketing.

Users also appreciate e-mail messages with relevant information, ranging from a card’s limited-time special offers to ticket availability to rock shows, according to Michelle Bottomley, chief marketing officer of Wilmington, Del.-based Barclaycard U.S.

Social networking yields the best results for companies that already have good relationships with customers, says Discover’s Boush. Otherwise, the “double-edged sword” of two-way communication slices into a vein of negativity, he cautions.

“The brands that don’t have a good story to tell–they’re probably not going to be as enthusiastic about it,” Boush says.

Though social networking is intertwining the industry with customers’ lives in ways never before possible, it seldom contributes directly to the bottom line, says Megan Bramlette, managing associate for Westbury, N.Y.-based Auriemma Consulting Group Inc. “It’s a good channel for things like education and advice,” she says. “I don’t see it as a place where you’re going to drive a lot of direct revenue-enhancing behavior.”

At least social networking tends to cost less than traditional marketing, customer service and market research. Brands and issuers seldom commit many full-time employees to social networking, choosing instead to spread most of those duties across established marketing staffs and integrate the results, says Mary Hines, vice president of marketing, charge card, at American Express Co.

Growing Intelligence
Higher costs could ensue, however, as the industry’s social-networking endeavors gain in sophistication. Digital agencies already are helping to build the industry’s social-networking platforms. Visa, for example, is using AKQA Inc., a San Franscisco-based digital agency, to help with its social-networking endeavors.

With or without the help of agencies, card brands and issuers are taking the first, often tentative, steps into social networking. These are the “early days” of social networking for the payments industry, says Boush. Only in hindsight will today’s actions come into focus, he adds.  

Indeed, so many Discover customers contacted the Inside Discover blog to share tales of how they spent their cashback bonuses, the company soon created a second page called “I Love Cashback Bonus” just for those stories. Users tend to post about one story a day and an image every other day, says Boush.

The postings often provide details of vacation trips financed partly from cashback bonuses. Recent entries include a posting on how a college student juggles purchases to capitalize on points and how a congregation used them to support a missionary.

“This stuff is just gold for us,” Boush says.

On Twitter, Discover limits tweets to promotional offers to stay relevant. Wherever the public participates, the company filters out vulgarities but does screen negative comments.

Feedback also has helped shape the Visa Small-Business Network, Craddock says. Besides gathering opinions from users on the site, the brand conducts weekly “listening posts” that attract 50 to 60 small-business owners to Webinar-like events with a moderator and network representatives.

The small-business network site, launched on Facebook in mid-2008, now claims more than 110,000 users, most of whom visit monthly, though some “super users” come back weekly, Craddock says.

The site relies on Visa-produced articles and videos for about a third of its content. Approximately half comes from partners that include Herndon, Va.-based SCORE, the Service Core of Retired Executives, which advises entrepreneurs; Google, which provides maps, templates and a Web site builder; Mountain View, Calif.-based Intuit Inc., which provides small-business software; and Redwood City, Calif.-based RingCentral Inc., which provides centralized calling for small businesses.

An increasing share of the site’s content, now as much as 15%, comes from site visitors. “The user-generated content piece is the way forward,” says Craddock.

Despite the conventional wisdom that overly zealous marketing does not work well on social-networking sites, some of the cardholder-acquisition content on the site has proven popular, says Craddock.

Another Visa initiative with social-networking components centered on the recent 2010 Winter Olympics, using Facebook and YouTube to engage consumers with their favorite athletes, events and countries, says Bazante. The Go World promotion attracted nearly 90,000 Facebook fans, who could comment to each other on the games and cheer on the athletes, she says.

“This has been a fantastic experience for us,” Bazante says of the campaign, which used social networking to an unprecedented degree for Visa. “We’ve consciously made a shift from traditional media to online media, especially social media because of the change in consumer media-consumption habits and also because of business strategy. The online space is very appropriate for us as an electronic-payments brand, and it gives us an opportunity to really connect with consumers.”

Connecting With Public
Making similar connections with consumers became a theme at MasterCard as early as 2006 with efforts that included a contest to write a Priceless ad, says Guerin. Now, online social networking is providing the technology to enable MasterCard to realize that ambition of connecting with the public, she says.

During last year’s holiday shopping season, the MasterCard Priceless Gift Finder used Facebook Connect to provide suggestions, ratings and reviews for merchandise, Guerin says. Facebook loaded the names of friends, and users could choose which ones would receive gifts.

Consumers selected a price range and indicated personality traits to shape the gift suggestions. More than 1 million consumers used the utility, and MasterCard may dust it off for this year’s shopping season, she says.

Meanwhile, ongoing MasterCard social-networking platforms include Priceless Picks, where consumers can list their favorite restaurants, cite their favored tourist destinations and offer travel tips, while learning from MasterCard about discounts, Guerin says. The site can include anything from the best burger in town to the perfect spot to catch a sunset, promotions say.

Consumers may use Priceless Pointers to manage their personal or small-business finances with the help of interactive tools that teach budgeting and calculate how long it would take to pay off loans, Guerin says. As with other MasterCard efforts, consumers may share the searchable Pointers functions and distribute them across the Web, she notes. Issuers also may use the functions on their own Web sites.

When consumers click on widgets to publish MasterCard materials, the information can go viral, as happened with a project with Stand Up To Cancer during the third game of last year’s World Series. In what Guerin calls the first live Priceless effort, the partners combined a 20-second taped public-service announcement with a 10-second live shot of celebrities and fans waving towels in a symbolic stand against cancer.

In early March, MasterCard launched a consumer-oriented Twitter channel to broadcast information on discounts, contests and promotions, Guerin says. Consumers can respond with accounts of what they find priceless, she says, noting an older MasterCard Twitter channel continues to disseminate business-to-business information on the brand to issuers and analysts.

Besides consumer platforms, MasterCard created Easy Savings to offer MasterCard small-business cardholders automatic rebates on purchases from participating businesses without coupons or codes, Guerin says. Working with LinkedIn on the project enables users to share information about how it works, she says.

At American Express, intelligence garnered through social networking helped shape the features of the new Zync charge card for young adults and will continue to help the card evolve, says AmEx’s Hines (see story).

The AmEx small-business division, called Open, launched the Open Forum last year to help small-business owners. A tool on the Web site helps cardholders market their businesses, find vendors and build relationships through a virtual Rolodex of companies.

The Pulse, a feature of the site, can help bring together information from Twitter in one location, AmEx says. The Pulse section curates and filters small-business updates and enables users to sort by industry and thus follow conversations relevant to their businesses.

Issuer Benefits
Barclaycard U.S., which powers cobranded cards, helped relaunch the U.S. Airways Dividend Miles cards as MasterCards last year with a Miles Away Challenge that asked players to name landmarks around the world, says Bottomley. Contestants with high scores were entered in a sweepstakes to win 100,000 miles, she says, noting consumers learned of Miles Away through the partners’ postings on Facebook and Twitter.

Users played the game 700,000 times during the one-month promotion, and Barclaycard U.S. gained a “good chunk” of new frequent-flier registrations, Bottomley says. “It’s an example of creating content in a destination where these frequent travelers are going to be,” she says. “In the process of playing the game and entering the sweepstakes, they became attracted to the frequent-flier proposition” and signed on as new members. 

Social-networking activity is yielding a wealth of other projects, too. In January, for example, JPMorgan Chase & Co. announced the results of Facebook voting that began in November on which small charities should share in $5 million awarded by Chase Community Giving, a Chase spokesperson says.

In another example, Capital One Financial Corp. invites consumers to vote on Facebook for a national college mascot of the year.

The industry’s nearly universal participation in social networking does not mean companies are finding the phenomenon easy to master. “The mistakes made in the social communities are very public,” Boush says. “We watched various brands and companies within our industry and elsewhere struggle, sometimes fail, to achieve their objective, which is always to get closer to the customer, to know more, to create a relationship.”

Companies failed because they built communities that were “duds” or attempted “overt marketing instead of relationship building,” he says.

Barclaycard’s Bottomley agrees. “You’re not talking about your prices, features and benefits” in social networking, she says. “You’re talking about how these consumers use the product in their everyday lives. In that way, the opportunity is enormous to build more of that emotional connection, which really can differentiate a brand.”

Finding what matters to consumers and presenting it in a way that benefits the company represents “a delicate balance,” Bottomley says.

‘A Delicate Balance’
Finding that balance requires an emphasis on enabling consumers to exchange information with each other instead of the traditional approach of the company explaining the features and benefits of its products, says MasterCard’s Guerin. “The power balance is really in support of the consumer now,” she says.

In what may symbolize the uncertainties that remain for the industry in social marketing, Visa elected to leave the word “beta” near the name of its small-business networking site, even after the company considered the testing phase complete.

“The ‘beta’ is there to signify that this is an ever-evolving community,” Visa’s Craddock says.

And as all of the brands’ and issuers’ communities grow and mature, the payments industry continues to build a more profound understanding of its place in the expanding world of online social networking.

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