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Transparency in the Digital Marketplace: What Every Banker Needs to Know

Ananya Bhattacharyya

“Transparency.” It’s a goal, a claim, and a buzzword. It’s also an often-heard pledge by businesses offering everything from sportswear to auto parts to health insurance. For financial institutions, including banks, working toward transparency poses a special challenge in the digital marketplace—and an imperative they must deal with.

A recent Forbes and Statista survey asked consumers about issues of trust, terms, branch and digital services and advice from their financial institutions. Only 2.6% of banks made its list of companies with the most satisfied customers. That means banks have a long way to go to in earning the trust and respect of their members.

For financial institutions, this is a time of evolving consumer expectations, heightened privacy regulation, and a widening trust gap between individuals and the businesses that serve them. (Remember, the Wells Fargo fiasco of 2016, in which 2 million fake accounts were created?)  And a recent Accenture study found 54% of surveyed companies that experienced a drop in trust also saw a commensurate drop in revenues.

While people want to manage their finances with nifty digital tools that work efficiently, they also want to protect their privacy. They worry about reports of data breaches and cyberattacks that expose people’s personal information to the public or become a treasure trove of data for hackers. Many consumers want to know how personal data such as addresses, phone numbers and Social Security numbers may be collected and shared—and who might have access to their data in the future. All these factors figure into “transparency.”

A 2019 Pew Research Center survey found that 79% of Americans are concerned about how companies are using their personal data, 81% believe this data collection poses risks for them, and 81% feel they have little or no control over data that is being collected.

To prosper in the digital environment and attract consumers who increasingly live on their smartphones, banks must prioritize the quest for their customers’ trust. They must be open to innovation to achieve this, and they might well find that enhancing transparency will be good for business, too.

Challenging times

All banking and payment institutions are networks of trust and repositories of important personal and financial data. By safeguarding customers’ funds and investments, banks build trust relationships that lead to more retention and higher profits. Failure to keep data secure can damage business: In a MarketMatch survey, more than half of customers said they would leave their bank or credit union if an incident involving fraud was not handled properly.

A Forbes article noted that as banks demonstrated surprising resilience during the pandemic, they not only had to make the most of federal emergency and stimulus measures, but become more nimble in the digital environment. User-friendly technology, like enabling people to handle their finances on mobile apps during quarantine, helped customers while keeping banks profitable.

That said, LinkHumans.com could not resist remarking that “Innovation and banking are two words not typically mentioned in the same sentence.” But the site praised banks it judged to be leaders in using technology, such as JP Morgan Chase, cited for its work with new technology, promotion of digital banking and cryptocurrencies, and innovative thinking.

While the digital revolution is an industry game-changer, being mindful of four pillars of trust will help banks serve their increasingly digitally savvy customers:

  1. Ethics/responsibility—working toward customers’ welfare.
  2. Privacy/controls—respecting customers’ preferences.
  3. Transparency/accessibility—providing understandable disclosures.
  4. Security/reliability—using the latest cybersecurity tactics.

Marketplace demands

Two major forces represent the push for trust and transparency in the marketplace: consumer concerns and current or pending government regulations.

Reports of data breaches prompt worries about the safety of people’s online data. The resulting public outcry over cyber snooping has often focused on big tech companies such as Apple, Google, Facebook, Amazon, and Microsoft, but it hasn’t stopped data mining and similar practices. That’s because access to consumers’ data yields big returns on efforts to target them with personalized marketing.

An eye-opening report by the Mobile Ecosystem Forum spotlights consumers’ concerns about their online privacy, even as their smart devices are often tracking their locations and other data. It’s clear that most people are not about to give up their devices; rather, they expect manufacturers, retailers, government agencies, and others to take more action to protect their privacy.

Massive government privacy regulations in Europe and the U.S., including the California Consumer Privacy Act (CCPA), have been enacted to give consumers greater control of their personal data. The Brookings Institution, to mention just one organization supporting these efforts, notes that the Federal Trade Commission proposed years ago that the following measures be required of companies doing business online:

  • Clear notices of data practices including how they collect, use, and share people’s data.
  • The right of consumers to choose how their data is used.
  • An ability for consumers to review, correct, and delete their data.
  • Security measures that guard against unauthorized access to data.

The Brookings writer, a former FTC attorney, suggests that drafting a federal privacy law should be the next-most-urgent issue for legislation after handling the COVID-19 pandemic.

Costs and concerns

Complying with regulations like California’s—including the necessary enhancements to technology—carries financial burdens. The California attorney general estimated in 2019 that initial costs of compliance with the California Consumer Privacy Act regulations will be about $55 billion—with total compliance costs over a decade ranging up to $16 billion.

Since then, the CCPA has been reframed as the California Privacy Rights Act (CPRA), with even more requirements for businesses. In 2021, increased demand for privacy regulations is expected to be a global issue.

Bloomberg listed six key best practices for banks to comply with the California privacy law:

  • Data mapping and inventory, taking stock of every piece of personal information they gather, use, and sell.
  • Complying with consumer rights requests, including specific access to information granted under the law.
  • Privacy disclosures and notices, including online tools enabling consumers to opt out of having their personal information sold.
  • “Reasonable” security measures to control and safeguard data.
  • Cyber insurance coverage to cover all the possible liabilities.

Compliance as a positive

There are definite upsides that make working toward transparency worthwhile. Staying in business might be one of them. Transparency tools are a perfect fit with all the other innovations consumers expect from financial institutions now. A Business Insider study found that 97% of millennials already use mobile apps for their banking transactions, and no one is eager to switch back to frequent visits to bricks-and-mortar banks.

What’s more, businesses are finding that it’s possible to turn transparency compliance into a positive. As other sectors have done, financial institutions may find it equally effective to detail their transparency efforts via dedicated web pages, FAQs, and social media posts.

Reported perks of transparency efforts have included public acclaim (such as praise for the social media software company Buffer) and customer satisfaction (such as with Southwest Airlines). “In 2020, the best businesses are transparent ones,” says The Org, using information gathered via interviews, their database, company websites, and public documents to rank the world’s most transparent companies.

In another example, financial services giant American Express was added to the list recently, taking 58th place following improvements to its disclosure practices. Paypal, Bitcoin Association, and Lendable are other financial service firms on the list.

Transparency initiatives also give financial institutions a unique opportunity to serve unbanked consumers. Trust is especially critical for these people, who struggle as they move away from cash-based services, but still need to conduct financial transactions. The presence of FinTech firms on the most-transparent list illustrates their role in building consumer confidence, especially with this unbanked population.

Strategies for success

Banking executives can learn from other industry segments. It is especially important for financial institutions to follow the example of companies like American Express that have been proactive in their approach to the transparency challenge.

New businesses have sprung up with offers to do the heavy lifting for companies endeavoring to comply with the California privacy law. Regardless of whether they outsource the job or use an in-house team, financial institutions need to understand the basic strategies and tools for transparency innovation. These include:

  • Think in terms of “transparency by design.” Transparency shouldn’t just be a perk tacked on to existing institutional practices but embedded into all of them.
  • Embrace KYC, know your customer.” Crucial to preventing cybercrime, KYC strategies fulfill the “security/reliability” pillar and may involve collaboration between platforms. Global banking markets expert Dai Bedford advises, “KYC will be integral to building digital trust into the system by design, helping banks manage their mushrooming data responsibilities by collaboration.”
  • Explore the available transparency software and platforms. These include virtual assistants, fraud alerts, customized offers, loyalty rewards, and options that inform customers’ decisions. (Think: Netflix.)
  • Consider tools such as distributed ledger technology. Best known is Blockchain, which financial institutions can adopt. The advantage comes from inputting and verifying data from multiple sources, rather than having a single authority in charge of all data.
  • Recognize the power of platform, network effect, and agility. Banks need to stay nimble, and one way to achieve this is by leveraging open banking FinTech and the platformization of financial services.
  • Understand how innovation can reassure customers who are not highly tech-savvy. Honest information about how their personal data is used makes them feel more secure about their financial transactions and the options available to them.

In the crucial area of digitalization, banks have numerous tools to consider as they work on upgrades. These include channels to digitalize core services, both online and mobile, connections to the local payments’ ecosystems, and robust cybersecurity measures.

Reliability, security, advice, and relevance must be woven into every touchpoint to reinforce trust as well as the bank’s brand. Built In cites some examples of institutions and platforms that make particularly good use of AI virtual assistants, which can bolster privacy and security as well as transparency:

  • Ally Bank, whose virtual assistant is Ally Assist. It is both text and voice-enabled to help users direct their transactions, including payments, deposits and transfers. The tool learns from customer’s actions to anticipate solutions that work for them.
  • Bank of America, with an assistant app called Erica. Besides paying bills and ordering transfers, customers use Erica to get updates on their FICO scores and look at the big picture of their finances.
  • Feedzai, a California-based software company, uses machine learning and risk management tools to provide protection against fraud and money laundering. One bank boosted its new account approvals to more than 70% by using Feedzai’s system for streamlined risk assessment.

Inaction not an option

The digital revolution has made trust and transparency more urgent issues for all businesses, including financial institutions. With the consumer in the driver’s seat, executives also must decide which types of data decisions they can prudently share. Add in the pressures of the pandemic and a trend toward government regulation, and it’s clear that inaction is not an option. People want their privacy protected, their personal data secured, and their financial transactions clearly defined.

It can be challenging to build in the transparency measures the marketplace demands. Banks need to embrace the changes that are possible when digital innovation responds to consumer demands. And creative, purposeful use of digital tools will ensure convenient access to this information. Ultimately, being proactive in these efforts will help attract loyal customers who will look at all the banking options out there—and choose a bank they feel they can trust to safeguard their finances for the long term.

About the Author:

Ananya Bhattacharyya is an enterprising, process-driven, and globally experienced product leader at MasterCard. She has a strong technical and financial services background and continually strives to guide creative vision, organizational change, customer-driven innovation, product transformation and strategic thinking in her professional career. For more information, please email bhattacharyya.ananya@gmail.com or visit www.linkedin.com/in/ananya-bhattacharyya/.

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