Power to the People
Has the introduction of GDPR and Open Banking caused a data dilemma? Could this be an opportunity for banks and their customers? The answer is all about trust.
"Data has become the single most valuable asset not only of banks, but of their customers,” says Daniel Meere, MD of global management consulting firm Axis Corporate. “It also defines how a regulator views a bank under its supervision.”
Data on customers has become as valuable as the customers themselves, adds Meere, and the rise of the data-specific banking roles, such as CDO and CISO, and the emphasis placed on data governance and security, is part of the focus on protecting, preserving and policing customer information and privacy.
New personnel appointments are just some of the responses to the data regulation changes this year. GDPR has revolutionised the way companies protect customer data, and Open Banking, in the form of the Second Payment Services Directive (PSD2), is financial services-specific, instructing banks to make customers’ financial data shareable with trusted third parties if, and only if, the consumer gives permission.
In 2018 the banking industry is resolutely focused on regaining the customer confidence lost after the 2008 financial crisis and the data breaches that have occurred as a result of targeted attacks, whistleblowers or human error.
Rav Hayer, Banking Data and Analytics partner at PwC, is optimistic that dataspecific regulation will be more than simply a restrictive measure. “GDPR should not be treated as a mandate – it should be treated as an opportunity,” he says. “It has certainly brought a realisation that data is an
incredibly valuable asset in financial, regulation and reputation terms. It’s a major opportunity for a bank to become more customer-centric and to better react to the way customers evolve based on data insights and technological advances.”
THE MOST IMPORTANT MARKETING CAMPAIGN EVER
“Re-Permissioning is possibly one of the most important marketing campaigns banks will ever run”
Stephen Lester, Propositions Director at Paragon Customer Communications, believes that if the administrative side is executed thoroughly, the relationship between bank and customer can be refreshed and realigned. “Under the new regulation, banks need to gain freely given, specific, informed and unambiguous clear
affirmative consent in order to email customers about their services. While the repermissioning procedure may have been something of a struggle for some, the process of re-contacting existing customers has afforded financial institutions a unique opportunity to cleanse existing data and remove contacts who are not interested in their services and solutions, and concentrate on those who are.
“In this sense,” asserts Lester, “repermissioning is possibly one of the most important marketing campaigns banks will ever run. Held securely and in full compliance with legislation, customer data can provide a wealth of information that can be used to improve customer experience.”
Rav Hayer agrees that customer data made available through Open Banking will help banks themselves to create opportunity through tailoring products and services to better suit customers – as long as GDPR is adhered to. While some bankers suffering from admin-heavy change fatigue may view Open Banking as a GDPR contradiction, Hayer disagrees: “There’s a fundamental prospect with Open Banking. It’s not a clash with GDPR; it’s an opportunity to better understand and work with the customers, harnessing the power of the data available,” he says.
“GDPR allows for data portability, so this removes the notion of it clashing with Open Banking – or with PSD2, for that matter. Questions still remain, however, regarding an organisation’s duty to redact sensitive data or obligations to delete data after a certain period of time when it comes to third-party providers.”
The uplift in Open Banking is expected to be significant – PwC, for instance, estimates the Open Banking market could be worth £7.2 billion by 2022. With calculations like this, Hayer says, banks “need to be bolder”, and to think about which other services the sector could add to the Open Banking ecosystem. “Lifestyle services and the Internet of Things,” he says, “are examples of opening up new revenue streams. Data monetisation is a significant opportunity, and organisations need to capitalise on this.”
NO TRUST, NO ENGAGEMENT
In order for customers to fully engage with the developing digital ecosystem and its inherent opportunities, they need to understand and trust it. Just one month before GDPR was launched, IBM published its cybersecurity report, which revealed that 82% of UK respondents surveyed agreed with the statement: “If I don’t trust a company to protect my data, I won’t buy from them no matter how great their products are.”
For consumers to regain confidence about how their data is managed there needs to be information and choice. The Catch-22 is that the consumer must give permission for banks to share their data with third parties. If not, choice remains undisclosed. The solution could lie in more personalised education and the launching of astute marketing campaigns, Lester suggests.
The public know about GDPR, but they are less familiar with Open Banking. The big incumbent banks have been ordered to put customer data in a standardised form so that people can see all their financial accounts in one place. This at-a-glance-intelligence is consumer-empowering, allowing customers to switch providers, for example. So far, HSBC has unveiled a connected smartphone app that lets consumers take advantage of that initiative. Santander has launched Open Banking integration with Moneybox, and ING has its FinTech app Yolt.
FinTech disruptors offering Open Banking initiatives are outnumbering the banks, and it is inevitable that the market share of established players will be eroded. “Major household names in the technology sector see Open Banking as a significant opportunity to make money from data and, similarly with PSD2, to be a payment provider,” claims Hayer. “There is a major challenge to banks to evolve like the FinTechs and tech giants. We know traditional banks are thinking about setting up digital banks, but they will also have to think about how they adapt and flourish in the different digital ecosystems.”
THE GENERATION GAME
While banks deliberate, more competition is coming online. David Llewellyn, Professor of Money and Banking at Loughborough University, says the speed with which the emerging ecosystem is adopted will be determined by the public, and the impact of Open Banking “will depend crucially upon how consumers react and on their willingness or otherwise to allow the sharing of data. These reactions may be different for different generations of consumers.”
“While Open Banking and other technological changes can be expected to substantially alter most aspects of financial services,” he adds, “this will be a process of evolution and adaption rather than a rapid disruption such as that of analogue film processing by digital photography.”
He puts the pace of change down to likely consumer resistance to unfamiliar products and the slow process of coordination of regulations and standards. The unfamiliar will only become familiar through education, with 2019 being predicted to be the year of the canny financial services and data-savvy marketeer