Beyond the data-by-stealth model

07 March 2019

But for financial marketers GDPR is not the only data challenge. Embracing the competitive opportunities and threats of Open Banking (PSD2) is also on this year’s agenda, as is understanding where the two complement or clash. On the face of it, Open Banking brings consumers advantages in promoting competition between financial services providers, working to the benefit of many Fintechs and, in theory, providing customers with more control over their financial data.

But in practice, 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.

The big picture

From cookies in browsers to mapping social media behavior, trawling personal contacts, tracking where you go and even what you say, Big Tech has turned consumers into products whose profiles they sell to advertisers. Now, with Open Banking, if your personal finance profile were to fall into the hands of Big Tech, your financial data profile could be combined with your social media profile, plus everything else Big Tech knows about you.

Fortunately, GDPR has marked out some boundaries that, until now, have been poorly defined and hardly ever policed. This allowed a barrier-free, fertile digital landscape for Big Tech’s personal data land-grab. Significant fines are resulting from GDPR’s new regulatory clampdown, and it appears that even Mark Zuckerberg is recognizing that privacy is valued, shifting Facebook’s mantra from ‘open’ to ‘private’ in recent days.

Open Banking is a regulated activity but facilitates 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.

YouGov 2018 research indicates that 72% of UK adults hadn’t even heard of Open Banking and 77% say they would be concerned with sharing financial data with anyone other than their main bank. In a post-GDPR environment, the very idea of sharing personal financial data with multiple financial brands would seem invasive to many, especially to older demographic groups.

However, there is no getting away from the fact that we live in a data economy, one where Millennials appear more comfortable with sharing their data. Behavioral data has become the oil of the Data Economy and it is being exploited at every opportunity.

Yet whilst retail banks already accumulate masses of data about us, especially our spending habits and financial health, they 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 penalise individuals for a single misdemeanour for up to six years. Do you remember ever giving them consent to access your personal financial data?

If banks truly want to meet their customers’ expectations and respond to their Fintech challengers, they are going to have to shift their approach to personalization and build a new engagement model, based on transparency and trust and, perhaps, a return to more discretion, particularly in their credit decisions.

The productising of consumers

We are 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 your financial data become available for authorized and unauthorized actors to exploit – and cyber criminals to hack into?

Interesting future developments might include Big Tech companies entering financial services to combine all this financial data with what they already hold, while others may take the side of the consumer.

In February Apple 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. Tim Cook, Apple’s CEO, has also called for new digital privacy laws in the United States (not unlike GDPR), warning that the vast scale of personal data processing is harming society.

Could Apple be building a new business model based on privacy and consent to contrast with Facebook and Google? Could banks follow suit and rebuild their value propositions based on core values of trust and consent and a more nuanced understanding of the customer?

Where to now for financial digital marketing?

When it comes to effective data management and valued customer benefits there is a gulf emerging between Fintech neobanks and their more traditional counterparts. Fintechs and challenger banks 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.

Big heritage 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.                       

The value of consumer trust

GDPR and Open Banking present the chance for financial marketers to re-engage with customers and educate them around the benefits of safe data sharing. 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, finance 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.

The competitive advantage of privacy

Getting privacy right should be viewed as a competitive advantage. 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, marketers need to balance the golden allure of big data with its risks, and recognise that consumers still value privacy.

Only when they do will we see personalization valued by brands and by customers. We await with interest to see if Big Tech resets its relationship with users and whether privacy will be Apple’s new value-adding strategy.

Peter Matthews
Nucleus Founder & CEO
March 2019

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