Inflation hit a 40-year high in June, according to published reports, and Americans are struggling to keep up with rising prices. With a potential recession on the horizon and no sign of rates falling anytime soon, it’s more important than ever for financial institutions to build consumer confidence. In fact, research from a technology platform MX has shown that trust and security are key Priorities #1 what customers consider when choosing a financial services provider.
Historically, this trust has been based on how financial providers store and manage money. Consumers turn to banks and credit unions to keep their money safe, make sure transactions are accurately reflected on their accounts, and make sure their funds are available when they need them. But in today’s data-driven world, being the trusted steward of a consumer’s money is only one part of the equation.
Every customer, every account and every transaction also comes with a set of personal and financial data that needs to be protected. Think about it: The typical consumer has an average of five to seven different financial accounts. If there is only one transaction each day on each account, that’s at least 1,825 transactions each year with tons of data behind each one, including transaction amount, merchant name, location, account type, account number, consumer name and contact information, etc. . .. — and this list can be continued. And, according to Cornerstone of researchit is not uncommon for a young couple to do business with 30-40 financial service providers.
That’s hundreds of thousands, maybe millions financial data points per person every year. Data is now as important as money. So how do financial institutions move from being just trusted stewards of money to being trusted stewards of data?
Become a trusted supplier
The good news is that we are on the right track. A new survey by MX shows that 69% of respondents who say they have a primary financial provider say they trust them with their personal data. However, this still means that at least three in 10 may not trust financial institutions with their personal data. This can end up costing businesses customers. Research from McKinsey shows that 87% would not do business with a company if they had concerns about its security practices. And 71% said they would stop doing business with a company if it released sensitive data without their permission.
To become a trusted steward of data AND money, banks and credit unions have three things in mind:
1. Younger generations see data sharing as a necessity. While trust and security are top priorities for all generations when choosing a financial services provider, attitudes and expectations around data sharing are changing, especially among digital Gen Z and millennial consumers.
In fact, the sharing of personal information today is essential for better user experience. In fact, 62% of US adults to say it’s impossible to go about our daily lives without companies collecting their data. And while Gen Z may worry about the data being collected, they accept it as the price of admission to get the products, services and experiences they want.
For financial institutions, this is an opportunity. Trust is inherently granted until Gen Z and millennial consumers have a reason to abandon it. Younger consumers are willing to share their data to get more out of their financial programs and services.
Financial institutions must focus on making it easier for them to consolidate disparate financial accounts into a single representation backed by strong security controls to maintain that trust for the long term. This may include:
- Using credential-less tokenized access to share data instead of asking for usernames and passwords; and
- Giving consumers control over who has access to their data—and what data—through a consent dashboard where they can manage and revoke access at any time.
2. Experience is the first step in building a trusting relationship. Trust is neither won nor lost by security and privacy practices alone. Consumers also have much higher expectations for the best customer experience.
One MX survey found consumers have a significant interest in—and expect—a more personalized and proactive role from their financial services and software providers. Seventy percent of consumers expect financial services providers to provide them with personalized notifications and information. At the same time, 63% want their providers to actively help them manage their finances better.
While many now see data sharing as a necessity to get access to the right products and experiences, customers will go elsewhere if that experience doesn’t match. For example, MX data shows that 72% of consumers said they would switch to another bank or credit union if their preferred provider didn’t support connectivity to their favorite FinTech programs. For millennials and Gen Xers, it was even higher at 75% of respondents.
This is just one example of how experience is now a driving factor in establishing trust. If banks and credit unions don’t provide a good experience, security isn’t enough to keep customers loyal.
3. Data sharing rules will define the future of the financial ecosystem. While other parts of the world such as Australia, Japan and the UK have been regulating open banking for some time, we are just beginning to see some movement in regulation here in the US that can apply to the wider open finance ecosystem.
The Consumer Financial Protection Bureau (CFPB) will soon codify a consumer’s right to access and share their financial data through Section 1033 of the regulations. This right is the foundation for the future of financial services, starting with open banking. Simply put, open banking is:
- Clear positioning of individuals as legal owners of their data;
- The ability of individuals to consent to the transfer of their financial data to third parties; and
- Data sharing technology, such as APIs, that make open banking possible.
And most recently, the CFPB took steps to strengthen federal oversight of the fintech industry by announcing a new use of an old authority known as 1024 to oversee non-bank companies it believes pose risks to consumers.
Invoking the authority of 1024, the CFPB seeks to “equalize [regulatory] playing field” between banks and some fintech companies that are not currently subject to federal oversight. Importantly, the CFPB views “uncontrolled consumer data flows” as risky and may recommend, through review, that covered entities establish secure methods of data exchange (such as APIs) with third parties, including depositories.
Until the consumer’s right to access and share data is codified, access to consumer data, along with the technical standards, disclosures and security processes associated with the data, will primarily remain with the organizations involved. Both financial institutions and fintech companies need to start building the framework for trusted data stewards now before they become mandatory.
To become a trusted steward of data, financial institutions must think like a data company—using the data itself as a core function of their business. In addition to increasing customer loyalty, trust and satisfaction, this approach can create new revenue opportunities, better lending decisions, more effective risk management, more efficient business processes and more personalized, proactive insights and recommendations for consumers.
David Whitcomb is Vice President of MX Products. David has over 15 years of experience in the financial services industry, with a particular focus on how technology delivers better outcomes for end users, financial institutions and suppliers.