For marketers in the financial sector the ethical management of data has become more challenging as the Big Tech business model has come under increasing fire. Now more than ever getting data privacy right should be viewed as a competitive advantage. In fact, this is an ideal time for financial marketers to engage with customers and educate them around the benefits of responsible data sharing.
While the General Data Protection Regulation (GDPR) may have started life in Europe, its enforcement is beginning to have a global impact. It has shone a bright light on the personal data collection practices and the “personalized” advertising that fuels Google and Facebook. Big Tech companies like these have turned consumers into products whose profiles are sold to advertisers.
Europe is beginning to see how GDPR — which includes “the right to know” what personal data is held by any company operating in the EU and “the right to be forgotten” — will curtail the “productising” of consumers by Big Tech, without consent. But will the same principles apply to open banking? Or will consumers’ financial data become available for authorized and unauthorized parties to exploit — and cyber criminals to hack into?
Open Banking Without Trust Is No Solution
Europe’s Payment Services Directive (PSD2) introduces competitive opportunities and threats for banks. On the face of it, this open banking regulation brings consumers advantages in promoting competition between financial services providers. It allows personal financial data to be aggregated to create a 360-degree customer view, which regulated financial brands can use to profile and score individual consumers.
There is no comparable regulation in the U.S., so far, but it is under discussion. In an August 2018 report, the Treasury Department commented on open banking and recommended that U.S. regulators provide guidance based on market experience — i.e. regulate indirectly rather than directly. For open banking, this means focusing on “read-only” customer financial data (accessing account information) and not “write” operations (payment initiation).
“What percentage of consumers really want to allow fintechs access to their bank and credit card accounts, so an app can tell them how much they are spending on coffee?”
— Peter Matthews, Nucleus
But in practice, whether it’s “read-only” or “write,” what percentage of consumers really want to allow fintechs access to their bank and credit card accounts, so an app can tell them how much they are spending on coffee? That’s not much of a value exchange for sharing very personal data.
With open banking, if consumers’ personal finance profiles were to fall into the hands of Big Tech, their financial data could be combined with their social media profile, plus everything else Big Tech knows about them.
There is no doubt that the very idea of sharing personal financial data with multiple financial brands seems invasive to many, especially to older demographic groups. At the same time, there is no denying the fact that Millennials appear more comfortable sharing their data than their Baby Boomer parents.
Behavioral data has become the oil of the Data Economy and it is being exploited at every opportunity. Yet, while retail banks already accumulate masses of information about customers, especially their spending habits and financial health, the institutions barely scratch the surface of using this to improve user experiences and their own decision making. They still rely largely on credit rating agencies’ (often unflattering) profiles that can penalize individuals for a single misdemeanor for up to six years. Does anyone recall giving a credit rating agency consent to access their personal financial data?
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Is Apple Signaling The Way Forward?
If banking institutions truly want to meet consumers’ expectations and respond to their fintech challengers, they are going to have to shift the way they approach personalization and build new engagement models, based on transparency and trust and, perhaps, a return to more discretion, particularly in their credit decisions.
In February Apple Inc. sent out a strong message when it blocked Facebook from running internal iOS apps. The restrictions came after Facebook was found tracking teenagers’ iPhone usage data. Apple CEO Tim Cook called for new digital privacy laws in the United States (not unlike GDPR). At the launch of Apple TV+ he spoke of “security being baked-in to Apple’s eco-system.”
Could Apple be building a new business model based on privacy and consent to contrast with Facebook and Google? Could banks and credit unions follow suit and rebuild their value propositions based on core values of trust and consent and a more nuanced understanding of the customer?
Where Next for Digital Financial Marketing?
When it comes to effective data management and valued customer benefits, there is a gulf emerging between fintech “neobanks” (also called challenger banks) and their more traditional counterparts. The neobanks, including Starling, Monzo, and Tandem in the U.K., have spotted the opportunity to use streamlined digital platforms to leverage data to segment the market in quite meaningful ways and are hungry to exploit open banking. In fact, many have business models predicated on this.
Legacy banks, on the other hand, are still struggling to use their data in ways that offer users clear advantages. Unsurprisingly they are more reticent to embrace open banking, especially sharing their customers’ current accounts with third parties, whose aim is to siphon-off profitable services, leaving the regulated banks with most of the compliance and cost.
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The Competitive Advantage of Privacy
Ultimately harnessing personal data should improve the customer experience but it must reward them with a share in its value.
Showing that there are secure data governance strategies in place can go a long way towards fostering consumer trust and helping to build strong brand relationships. As a consequence, financial marketers must strive to allay any fears individuals may have around how their data is gathered and used — and build this into their brand DNA.
We are all more likely to trust a service provider who values our privacy (beyond mere legal compliance) and is transparent about how our data is used. And trust still equals loyalty.
With so much personal data already held by big financial brands, and regulators beginning to flex their muscles when consent is taken for granted, bank and credit union marketers need to balance the golden allure of big data with its risks, and recognize that consumers still value privacy.
Only when they do will we see personalization valued by brands and by customers.