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It is widely recognized that consumers are influenced by the opinions and conduct of other people when they make a purchase decision (Zhang et al., 2016). In the past, consumers had to rely on word-of-mouth information (WOM) from family, friends and co-workers. If these others did not have experience with the product or company, consumers had to depend on consumer organizations or just use the advertisements or product information provided by vendors to make a decision (Hua et al., 2012).

With the rise of the internet and the development of online review sites everybody can post reviews, and consumers can draw conclusions based on them. eWOM as this information is called, is defined as any positive or negative statement made by people about a product or company, which is made available to a others via the Internet (Banerjee, et al., 2017). Online reviews have become a very important source for consumer decision making, especially for online purchases where ninety percent of online shoppers uses them (Zhang, et al., 2014).

As these reviews are used by almost all shoppers (online) for their purchase decisions, companies try to get as favorite reviews as possible. However, they not always try to achieve this by offering great service or products, but by manipulating reviews (posting reviews themselves) or try to entice consumers to post (more positive) reviews (Hua et al, 2012). Examples of the latter are companies offering discounts to clients that will write a positive review, while other businesses even offer small amounts of money when consumers post (positive) reviews.

Recent academic research provides some interesting insights into this phenomenon. Pavlou & Wang (2015) found a u-shaped relationship between the amount of rewards and the review quality of a Chinese online retailer. Offering monetary incentives can decrease the quality of reviews, while increasing the amount can increase the quality. Chen et al. (2017) conclude that consumers lose faith in the truthfulness of the reviews if vendors offer discounts.

Other researchers found that once a Chinese company offered a small amount of money (25 cent) for a review, the number of reviews decreased by thirty percent. Especially worrying for companies is that the consumers with the largest online social network were the people to write the least number of reviews after the monetary incentives were started, while they on the contrary were the ones who wrote a more than average number of reviews before. Reason for this behavior was that these people feared social disapproval or being questioned about their motives (Sun et al., 2017). Finally, Burtch et al. (2017) found (again in China) that monetary incentives could increase the number of reviews, but that those reviews are quite short in length. Social norms (e.g. showing the number of people that have written a review already) however led to longer reviews. They proved that combining monetary incentives and social norms resulted in more reviews of greater length.

We can conclude that companies should be very careful when they want to encourage consumers to write product reviews by offering monetary incentives, because it can inhibit consumers to post reviews while also the quality and length of reviews can be negatively influenced by it.

References:

Banerjee, S., Bhattacharyya, S. & Bose, I. (2017). Whose online reviews to trust? Understanding reviewer trustworthiness and its impact on business, Decision Support Systems, vol. 96, p. 17–26.

Burtch , G., Hong, Y., Bapna, R. & Griskevicius, V. (2017) Stimulating Online Reviews by Combining Financial Incentives and Social Norms, Management Science, article in advance.

Chen, L. Jiang, T. Li, W. Geng, S. & Hussain, S. (2017). Who should pay for online reviews? Design of an online user feedback mechanism, Electronic Commerce Research and Applications, vol. 23, p. 38–44.

Hua, N., Bose, I. & Koh, N.S. & Liua, L. (2012). Manipulation of online reviews: An analysis of ratings, readability, and sentiments, Decision Support Systems, vol. 52 (3), p. 674-684.

Pavlou, P. & Wang, S. (2015). How Do Monetary Incentives Affect Online Product Reviews and Sales? Twenty-first Americas Conference on Information Systems, Puerto Rico, 2015.

Sun, Y., Dong, X. & McIntyre, S. (2017). Motivation of User-Generated Content: Social Connectedness Moderates the Effects of Monetary Rewards, Marketing Science, vol. 36 (3), p. 329-337.

Zhang, K.Z.K., Zhao, S.J., Cheung, C.M.K. & Leed, M.K.O. (2014). Examining the influence of online reviews on consumers’ decision-making: A heuristic–systematic model, Decision Support Systems, vol. 67, p. 78-89.

Zhang, Z., Zhang, Z. & Yang, Y. (2016). The power of expert identity: How website-recognized expert reviews influence travelers’ online rating behavior, Tourism Management, vol. 55, p. 15-24.

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In October 2016, the Central Bank of Ireland provided Facebook (more precise Facebook Payments International Limited) with a license to offer e-money and payment services. This means Facebook can offer electronic money transfers to all inhabitants of the European Union from out of Ireland (Murgia & Arnold, 2017). Currently, Facebook already offers to send money via Facebook Messenger. For that service, you need to add a credit card or bank account to your Facebook account. With the license Facebook acquired, they do not need the traditional financial institutions anymore to offer this service (Hernæs, 2017).

The main question is whether Facebook is just looking for a role as a peer-to-peer payment provider, or wants to provide more complicated (and more profitable) banking services as well (Denecker et al., 2014; Reuters, 2017).

As the Payment Service Directive 2 (PSD2) requires banks to share their customer’s data (only with consent of the latter) with third parties (European Commission, 2015), this legislation offers companies like Facebook the opportunity to tap into the more lucrative segments of financial services.

Under PSD2, Facebook could opt to be a Payment Initiation Service Provider. This makes it possible for Facebook to directly access your bank account and provide payment services. The bank then only provides the back-end infrastructure (Murgia & Arnold, 2017).

Secondly, Facebook also has the opportunity to become an Account Information Service Provider, which enables them to provide an overview of all your bank accounts in one overview (Hernæs, 2017). This also allows them to offer extra services like reminders, statistics etc.

For traditional banks, especially this second opportunity means that they lose an opportunity to interact with their clients and to meanwhile provide them other (more profitable) services.

For most consumers the relationship with their bank consists above all of making and receiving payments. The payments services function as beachhead for a broader banking relationship and cross-selling products (Bollard et al., 2014; Denecker et al., 2014). Therefore, if Facebook enters this market segment, this eventually could lead to the end of banks as intermediaries. Their role is then diminished to serve the back-end infrastructure (Murgia & Arnold, 2017).

On the other hand, McKinsey discovered that the more customers use digital-banking channels, the more they actually use branches and call centers. This suggests that traditional banks can survive by strengthening the relationships with their clients (DeMasi, Patiath, & Nunez Maxwell, 2017).

Traditional banks have to integrate the digital and physical operations, to be able to keep selling their more profitable services. If they fail, they will end up with the low margin and high costs of basic banking services like cash handling (McRae, 2016).

Do you think traditional banks can survive? Some interesting areas to discuss maybe privacy, trust and the possibility that due to the amount of information Facebook already has, it could be better in assessing credit risk than traditional banks.

References:

Bollard, A., Doshi, N. & Nunez Maxwell, N. (2014). The future of US retail-banking distribution, New York: McKinsey.

DeMasi, D., Patiath, P. & Nunez Maxwell, M. (2017). Pathways to growth in North American retail banking, New York: McKinsey.

Denecker, O., Gulati, S. & Niederkorn, M. (2014). The digital battle that banks must win, McKinsey Quarterly, August 2014, p. 1-8.

European Commission (2015). Payment services (PSD 2) – Directive (EU) 2015/2366, Retrieved October 14, 2017 from: https://ec.europa.eu/info/law/payment-services-psd-2-directive-eu-2015-2366_en

Hernæs, C.O. (2017). What Facebook’s European payment license could mean for banks, Retrieved October 14, 2017 from: https://techcrunch.com/2017/01/12/what-facebooks-european-payment-license-could-mean-for-banks/

McRae, H. (2016). Facebook payment system will change banking forever, but it comes with its own price tag – your privacy, Retrieved October 14, 2017 from: http://www.independent.co.uk/voices/facebook-payment-system-will-change-banking-forever-but-it-comes-with-its-own-price-tag-your-privacy-a6997636.html

Murgia, M. & Arnold, M. (2017). Bank of Tech poses growing threat to traditional institutions -Facebook, Amazon, Alipay and others cut out banks in providing payment services, Retrieved October 14, 2017 from: https://www.ft.com/content/1a862cd2-efd3-11e6-ba01-119a44939bb6?mhq5j=e5

Reuters (2017). Turns Out Many Consumers Are Interested in Banking With Google, Amazon, and Facebook, Retrieved October 14, 2017 from: http://fortune.com/2017/01/11/google-facebook-amazon-banking/