With half of Brits using online tools to help them make financial decisions, banks need to wake up to the value of social media, according to Datamonitor.
The market analyst argues that financial services providers as a whole have been slow to recognise the necessity of communicating with their customers through online channels.
The banking industry has held onto the belief that social media is the domain of teenagers and university students, says Datamonitor, failing to understand that sites like Twitter have developed to become powerful marketing tools.
Anna Large, analyst, Datamonitor, says: "Banks have adopted a "bury-their-heads -in-the-sand" approach to the part social media could play in both retaining and obtaining customers. At the heart of this is the idea that social media is just a fad, that consumers are essentially non-committal. However, the fact that 50% of UK consumers are using online tools to make their financial decisions indicates that banks need to start appreciating the power of sites such as Twitter and Facebook."
Another reason for the reticence of banks to adopt social media is the idea that the medium is unable to directly boost profitability because it is essentially a customer service, rather than sales, tool.
Datamonitor argues its real value comes through soft factors which build consumer trust and brand loyalty. Ultimately creating a sense of community, promoting transparency, and providing real time and high quality customer service will lead to customer recommendations, with the potential of viral marketing in generating sales from others is limitless.
Ultimately, banks that ignore social media could find their brand damaged, with the online debate left to critics.
"Banks would be naïve to believe that consumers don't listen to recommendations made online. 'Word of finger' has replaced 'word of mouth' so product recommendations and brand advocates are far more accessible," says Large.