In the early hours of Friday, Sept. 30, Alasdair Macleod, Head of Research at Gold Money, tweeted:
In a “leaked” memo released around the same time, CEO Ulrich Körner asked employees not to confuse stock performance with liquidity.
While Macleod may not have been the first, many others were to follow, and a speculatory frenzy ensued throughout the weekend. Credit Suisse responded, attempting to assure all was well in the business.
Consequently, on Monday, the stock fell further. Mentions of a second “Lehman Moment” were in the air.
Yet a week later, reports backed up Korner’s claims, and stocks crept back up. Articles were written calling the whole drama “Reverse meme stock.”
Participators in the panic on social media were outraged at the assertion.
The debate carries on. As Credit Suisse announces drastic restructuring and significant job cuts, perhaps Twitterati’s panic mongering is justified.
The effect of social media
Putting aside the question of whether or not Credit Suisse will go bust, social media had a significant effect on the stock prices, albeit momentarily.
“This was a GameStop moment for Credit Suisse,” said Liam Murphy, Head of EMEA for Wachsman. “It’s an instance in which we witnessed the power of the media (social included) to dramatically alter the fortunes of an organization. Unfortunately for Credit Suisse, social media activity had a deleterious effect on the share price this time.”
The market has seen it time and again. A celebrity endorses a cryptocurrency, and valuations go through the roof. A business is involved in a scandal that trends on socials, and the share price tanks.
One look at the rollercoaster of stock prices and crypto valuations Elon Musk leaves in the wake of his Twitter activity will show you that.
Perhaps legacy corporations with deep pockets can weather these storms, but the fintech sector could be a lot more vulnerable. Lacking the years of trust enjoyed by much of TradFi, and often using cutting-edge technology, fintech is already walking an unknown path.
Trust and fintech
Global trust is at an all-time low. Edelman’s trust barometer 2022 found that, across the board, consumers’ willingness to believe authoritative figures is crashing down, and all areas of society are affected.
“Fintechs face many of the same reputational vulnerabilities and challenges as long-established financial institutions such as Credit Suisse – namely, the fact that while it can take years to build a reputation, it only takes a moment to ruin it,” said Murphy.
While trust in fintech is growing, it remains far below that of established banks. According to a Mastercard study, 20% of Americans still strongly distrust the sector.
Unfamiliar technologies bring doubts. While this is a known issue that the fintech community is working to address, areas such as Web3 are so cutting edge even creators themselves are unsure of the breadth of risks and how to avoid them.
“We know that trust can be lost very quickly, and it can be quite slow to regain, as we’ve seen in the 2008 financial crisis,” said Janine Hirt, CEO of Innovate Finance at the company’s fintech for Good Forum. “This is a big challenge for fintech because people will not use our services; they will not use new products unless they trust them. “
However, she explained that the sector could impact overall trust by putting customers central to the creation of fintechs.
Businesses also have an advantage. Edelman’s report found that business was the only area that did not lose consumers’ trust (although it hadn’t gained any trust points either), and CEOs are increasingly seen as the face of change. Fintech, without a legacy of scandals and financial crises (save the crypto sector, which many see as separate anyway), could be seen as a source of hope for the public.
The response from regulators, while comparatively slower than fintech’s ongoing innovation, also may set a precedent for trust as they structure the regulation of the sector.
“Early-stage fintech, crypto, and blockchain projects have a distinct advantage over TradFi companies: They’re entering uncharted territory, so they get to build their reputations from scratch,” commented Murphy.
Social media and trust
Fintech has been born, in part, out of international digitalization. Another child of this revolution is social media.
Twitter’s panic surrounding Credit Suisse was not unfounded. “Turbulence in the financial markets over the past month meant that investors were already anxious and particularly susceptible to being influenced by negative stories in the media,” explained Murphy.
“This year, we have seen global share prices tumble, significant uncertainty around rate hikes, and catastrophic economic policy being rolled out in the UK. It is possible that investors didn’t need much nudging to believe that there was more bad news in store. Media coverage was the spark that set off a wildfire.”
The Edelman survey states that in 2022, we are now in a cycle of distrust, with many institutions being seen as divisive, especially the media.
While trust in social media has dropped, its grip on the consumer mindset remains strong. Many respondents stated increased fears of false information being used as a weapon.
A double-edged sword for fintech
Therefore, the relationship between fintech and social media is tumultuous.
On the one hand, social media can bring the engagement and followers needed by any brand to make it a success. In creating a sector built on innovation, this engagement could be crucial.
However, it is a double-edged sword, and current macroeconomic conditions may have made the blade sharper. Fintechs could be just one tweet away from destruction.
“What happened to Credit Suisse can affect any business, but it’s possible to manage threats like this by preparing and having an early-stage crisis plan in place,” said Murphy.
“By preparing, businesses of all sizes can position themselves to regain control of their own narrative, address issues in a measured manner, and offer solutions to any problems that arise.”